FSC an asset for timberland investment in Canada
An investor brief published in January 2011 makes a strong case for investing in FSC-certified forests in Canada. It reveals that FSC is superior to competing systems in terms of mitigating risks and creating value for timberland investors.
The report was elaborated for the Ivey Foundation by SHARE, a Canadian leader in responsible investment services, research and education for institutional investors.
Mitigating risk with FSC
The report highlights the need of long-term investors, such as pension funds, to minimize risk associated with their investments. Unsustainable harvesting levels may provide quick cash, but are likely to influence productivity negatively in the longer term. Sustainable forest management is also seen as the best current response to climate change, because it helps build the forest’s resilience to storms and diseases.
The report deems FSC certification to be the best available assurance of low risk associated with forestry. Comparing FSC with its rival schemes in Canada, CSA and SFI, the report concludes that FSC provides the highest level of assurance for good performance on the ground.
One of the key reasons given for this assessment is that more stringent and specific requirements are found in the FSC standard compared to the other schemes. The report also finds that FSC has more robust evaluation procedures and the most balanced governance system.
Several sources supporting this conclusion are cited, including a 2010 study published in the peer-reviewed journal The Forestry Chronicle. The study reviewed 130 forest certification audits carried out in Canada to the national FSC, CSA or SFI standards. The researchers found that “The FSC audits required a much greater number of conditions and recommendations than the other two standards. The FSC standard required more changes in all themes (environmental, social, economic, and management systems)”.
The protection against risk offered by credible certification is considered especially important for investment in Canada’s private forest properties which are not ‘thoroughly regulated for sustainable management’.
Maximizing market value
Another factor of evident importance for investors is the market value of the harvested timber. According to the report, FSC certification “can also open the door to new markets and customers”.
The report notes the existing preference for FSC set by a number of large forest product retailers and buyers, such as IKEA, Kimberly-Clark, Lowe’s, RONA, Staples and Indigo Books, and highlights how they have increased the share of FSC-certified purchases and sales within the past few years.
Some of Canada’s largest forest companies, such as Domtar, Tembec, and Al-Pac, have engaged with the FSC system and achieved FSC certification. The continued preference for FSC under the LEED green building standard is another market factor.
According to the report, several large European pension funds have adopted policies for forestry investment that rely on or sets preference for FSC certification. Other institutional investors are recommended to follow the same path.
Source: Investor brief: "Protecting the value of Canada’s timberland investments: The role of FSC certification" prepared by SHARE for the Ivey Foundation.
