Sustainable Forest Finance Toolkit - PwC

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Legality issue briefing note 4 of 5New Application HOME4. Auditing of suppliersAudits by the purchasing company verify the informationdelivered by the supplier, including wood origin, forestmanagement practices and the supplier’s compliance withagreements. Respondents use different types of auditingsystems to assess the data on origin and legality:• The way supplier collects and files wood origin data;• The reliability of the stored data;• The buyer's own wood origin data filing system;• <strong>Forest</strong>ry practices in logging area (legislation andinstructions);• Biodiversity aspects in logging area;• Supplier’s legal status;• Authenticity of the cutting licence.5. Wood origin documents – SummaryThe wood transportation waybill, agreement with suppliersand cutting licence, combined with the audit functioncomprise supply chain management to verify the origin ofwood. Additional company requirements exceeding the laware:• Clauses in wood purchasing agreement requiringsuppliers to know the origin of wood and that the purchaseand harvesting operations are legal;• Proof of wood origin and legality in the wood cuttinglicence based on physical copy of the cutting licence andinclusion of cutting licence number on all woodtransportation waybill;• Inclusion of cutting licence number on all woodtransportation waybill.Verification of Legal Origin (VLO) / Verification of LegalCompliance (VLC)VLO and VLC are independent third-party verifications of thelegality of the sources of raw materials present in woodproducts.VLO provides assurance that the timber has been harvestedaccording to all legal requirements of the jurisdictiongoverning the concession, such as applicable permits,planning approvals and payment of royalties.For some companies, third-party assurance of legal originmay serve as the first step in obtaining formal certification orundertaking a stepwise approach to certification.VLC is an extension of VLO, as it assures that the timberharvesting complied with the full range of legal frameworksrelated to forestry, including environmental protection,wildlife, water and soil conservation and worker health andsafety.Page 26pwc
Legality issue briefing note5 of 5New Application HOMERegions most at risk of illegal loggingBetween eight and 10% of global wood production isestimated to be illegally produced, although the greatuncertainty of these estimates is also acknowledged. Most ofthis illegally produced wood is used domestically, although asignificant portion enters the international trade either asfinished products or raw materials (Seneca Creek and WoodResources International, 2004). Estimates of illegal loggingin specific countries and regions vary depending on thenature of the activity and the variability of laws andregulations (Figure 3).Figure 3. Corruption and illegal logging activity (2004)Transparency International’scorruption perception index0USABrazilAcceding EURussiaMalaysiaEu-15JapanOth AsiaIn a widely accepted, in-depth multi-country study, SenecaCreek Associates and Wood Resources Internationalcompared corruption and illegal logging activity. In the graphbelow, the y-axis displays Transparency International’sCorruption Perception Index (CPI), where corruption tends tobe higher (i.e. having lower CPI) in countries with lower percapita incomes. The x-axis displays the proportion of thetotal supply of suspicious logs, while the size of a bubbleshows the absolute volume of suspicious logs that reach themarket in a country or region, including imported logs.Over 20% Over 50%Other L AmW/C AfricaChinaIndonesiaCanada100 10 20 30 40 50 60 70 80Key due diligence questions onlegality• Have there been any legal claims associated with itsoperations?• Does management know of any legality issues in thesupply chain, the company’s own operations, localregion or customer operations?• Is there reliable publicly available information aboutillegal logging concerns related to the company?• What governance arrangements and procedures arein place to manage legality risks, and does this extendto the supply chain?• Has the company developed a policy on legality (e.g.requiring trading partners to have legal title, requiringwarrantees or indemnification for illegal activity)?• Is the company participating in internationalcollaborative measures to combat illegal logging?• Wood tracing systems (e.g. Chain of Custodyprogrammes) are a key weapon against illegal trade inforest products: is the company employing crediblewood tracing systems to tackle significant risks?• Certification is a key weapon against illegal logging: isthe company working systematically towardscertification for all its forestry operations?High % suspicious log supplySource: Seneca Creek Associates and Wood Resources International (2004).Page 27pwc
Page 1 and 2: Sustainable ForestFinance ToolkitTh
Page 3: Guidance for using the ToolkitThis
Page 6 and 7: How does economic development impac
Page 8 and 9: Challenges and problems associated
Page 10 and 11: Sustainability issues in the forest
Page 12 and 13: Costs and benefits of certification
Page 14 and 15: Costs and benefits of certification
Page 16 and 17: 1 New ApplicationThis section provi
Page 18 and 19: Illustrative - Management Interview
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Page 22 and 23: Illustrative - Higher risk client a
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Page 28 and 29: Small scale and community forestent
Page 30 and 31: Sustainable ForestManagement briefi
Page 32 and 33: Special places briefing note 1 of 4
Page 34 and 35: Special places briefing note 3 of 4
Page 36 and 37: Planted forests briefing note 1 of
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Page 60 and 61: Brazil - country briefing note 1 of
Page 62 and 63: Indonesia - country briefing note 1
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Page 68 and 69: 2 Portfolio ManagementOne of the ha
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Page 72 and 73: 3 Policy DevelopmentA carefully con
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Suggested Internal Bank ForestryPol
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4 ProcurementIn 2007, the WBCSD and
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Sample procurement policy2 of 2Proc
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Appendix 1: Special places 2 of 3De
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Appendix 2: Client performancerequi
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Appendix 2: Client performancerequi
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Appendix 4: Consolidated duediligen
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Appendix 5: Acronyms1 of 1ASEAN Ass
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Sustainable Forest Finance Toolkit - PwC

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