4 November 2021 - The decision from the Forest Stewardship Council (FSC) to end its disassociation of HS Timber Group (HS), announced yesterday, comes after almost four years, during which the Group tried to fulfil the requirements of an FSC Conditions Framework. HS has not yet transparently demonstrated that it has robust due diligence and Chain of Custody Systems to guarantee that it has fully corrected the identified shortcomings and wrongdoings. Therefore, HS must take immediate action to strengthen their policy and due diligence systems to ensure compliance with the spirit and letter of the law, ethical standards, and international norms.

Throughout the reassociation process, WWF repeatedly shared serious concerns about HS Timber Group’s performance in the following areas, where potential risks could remain:

• Whether sufficient progress has been made to address the areas of high risk of illegal timber entering its wood supply (i.e., traders with log yards – selling logs originating from different harvesting places in Romania - 75% of the material; sawmills – selling mainly sawn wood originating from Ukraine) in connection with the national specified risks of illegal logging such as harvesting permits, timber harvesting regulation, environmental requirement, trade and transport of quantities and qualities - overloading transports, etc.  A lack of systematic addressing of the problems within HS wood supply chain management was one of the causes of disassociation in the first place. 
• Considering HS Timber Group’s Corporate Social Responsibility includes specific conditions for “avoiding any direct, vicarious or grossly negligent involvement in any form of corrupt, fraudulent, coercive, collusive, abusive and obstructive practices”, a multitude of problematic and ongoing issues need resolution:
  •  Controls performed by Romanian competent authorities where several thousands of cubic meters of logs were confiscated, and fines imposed on HS for breaking the law regarding the wood traceability. Even a few weeks ago, the highest court in Romania  rejected an appeal by HS to annul a contravention on illegal trade and transport, commenting "Environmental protection is an obligation that no one can evade, if humanity wants life on the planet to continue without the occurrence of large-scale ecological disasters."
  • A fine applied by the Romanian Competition Council for violation of the national/EU competition rules. The Competition Council found that the competition rules were infringed by concluding agreements and/or concerted practices for sharing forest plots, depending on their interest and/or for sharing supply sources. Only after 10 years of investigations, HS finally admitted these illegal practices, and then benefited from fine reduction and agreed on an amicable settlement. The Competition Council's investigation covers just some cases/methods and considers only a short period of HS’s activities. Therefore, we are concerned that HS continued the supply practices in non-compliance with EU competition legislation, also after 2016, and having different modus operandi over time.
  • Upon a request from WWF for information, it was revealed that a criminal investigation case is open in Romania by the Directorate for Investigating Organized Crime and Terrorism (DIICOT) for the following alleged crimes: diversion of public tenders, tax evasion, unfair competition, illegal logging.
  • In 2018, WWF-Austria filed a complaint under the European Timber Regulation (EUTR) against HS with the competent authority in Austria for non-compliance. The EUTR aims to prevent illegally logged timber from entering the EU market. The complaint procedure is still ongoing.

Our expectations of HS Timber Group 

HS must take immediate action to strengthen their policy and due diligence systems in line with the Condition Framework. 

Specific short-term actions by HS that are required: 

• Strengthening its due diligence and chain of custody systems to effectively address all specified risk on illegal logging and High Conservation Values (HCV) within its supply chain. 
• Ensure full transparency of the due diligence system established, especially concerning the specified risk identified and related mitigation measures adopted by the Group.
• Repeat the process for an independent legal land ownership review and compensation to the lawful landowners of illegal land restitution processes. HS should (i) consult with stakeholders to determine whether the proposed legal entity and the independent observer are appropriate and free of any conflict of interest; (ii) proactively engage in returning the land and compensating the lawful landowners for fulfilling #3.2 under Conditions Framework.
• Ensure full transparency over the Compliance Program following Competition Council decision no. 71/14.12.2020 which find that the competition rules were infringed. 

Our expectations of FSC

FSC must ensure that its processes through which stakeholders can raise risk concerns and seek consequent action and resolution function robustly and transparently. WWF raised flags earlier in 2021 that the stakeholder consultation process coordinated by FSC did not address all raised concerns. Adjustments were made to how conditions were to be met without conducting a transparent stakeholder’s consultation. On the validity of the independent legal land ownership review conducted to meet the requirement in the Conditions Framework, WWF raised concern about whether absence of conflict of interest was duly established, and furthermore no other independent observer was engaged for a second legal opinion, ignoring the Condition Framework as initially set out. Consultation with stakeholders through a public consultation to determine whether the proposed legal entity was appropriate and free of conflict of interest was not undertaken, as far as we are aware.

FSC must show it will constantly improve its procedures, including its own role, where related to the FSC Policy for Association. FSC’s value depends on robust practice, which frequently relies on the level of stakeholder’s engagement, and its credibility is guaranteed by these and the transparency of the process. 

Our expectations of potential and existing HS customers

WWF recommends that companies do not rate HS as a low-risk supplier and proceed with supply contracts unless they have absolute confidence that their own due diligence systems are robust enough to eliminate all risks. This should include explicit enquiry on HS’s delivery on points required in the Conditions Framework to end disassociation. Ending the FSC disassociation procedure does not mean that HS automatically complies with all FSC standards or that it can immediately sell products labeled with the FSC trademark. Additional audits remain advisable to confirm that corrective actions are closed. 

WWF will continue monitoring the HS Timber Group operations in Central and Eastern Europe to ensure it addresses the measures required to be fit for legal, responsible, and sustainable business in this time of grave risk for climate, biodiversity, and fair and equal society free from illegalities and corruption. HS policies could positively influence the regulations and practices in the wood sector, if they fully meet the demands of exemplary business practice. More detail and transparency is required now to show this promise can be confidently met.

Notes to Editors
Contact:
Irene Lucius
Regional Conservation Director
WWF Central and Eastern Europe
ilucius@wwfcee.org