STORA: The Road to Certification

Prepared by: Richard A. Fletcher, James McAlexander, and Eric Hansen

Abstract

Over the past ten years, Swedish forest products giant STORA has transformed its forest management to implement and verify a commitment to sustainable forestry. The company has hired a staff ecologist, implemented ecological landscape planning, brought local environmentalists into its management planning, retrained its workforce, and adopted new forest conservation measures. Most recently, STORA became Europe's first major timber company to have a large block of its forests certified by a third party as sustainably managed.

Contents

I. Introduction

II. Sustainable Forestry for Competitive Advantage
Competitive Challenges
Changing Market Dynamics
The Swedish Milieu
A Green Market in Europe
Strategic Opportunities
Ecological Landscape Planning
Listening to Neighbors and Environmentalists
1993-A New Forest Management Strategy
Forest Management Practices
Maintaining Ecosystems
Certification of the Ludvika District
Non-company Lands-A Key to Sustainability Claims

III. Implications of Sustainable Forestry
Evolution in Philosophy
1960s-Ignore the Critics
1970s-We Are the Professionals, You Don't Understand This
1980s-Listening, Learning, Cooperation
1990s-Joint Development of Ecological Engineering
Convert Critics to Supporters
International and Competitive Considerations

IV. The Future Case Limitations Lessons Learned

V. Appendix A-STORA's Environmental Policy

VI. Appendix B-Five-Year Financial History, STORA

Introduction

"We changed our attitudes, we listened, we learned, we cooperated, and we took the initiative. " -Åke Granqvist, supervising forester, STORA

Over the past ten years, Swedish forest products giant STORA has transformed its forest management to implement and verify a commitment to sustainable forestry. The company has hired a staff ecologist, implemented ecological landscape planning, brought local environmentalists into its management planning, retrained its workforce, and adopted new forest conservation measures. Most recently, STORA became Europe's first major timber company to have a large block of its forests certified by a third party as sustainably managed.

Headquartered in Falun, Sweden, STORA is one of the largest forest products companies in the world with 1996 sales of $6.0 billion. The company ranks fifth worldwide in paper and board production, producing 1.9% of the world's production compared to 3.2% for industry leader. International Paper Co. STORA sells primarily paper products, but also runs four sawmills and is involved in power production, banking, and associated financial operations. The company owns a total of 2.3 million hectares of forest, primarily in Sweden, but it has holdings in Portugal and Canada, as well.

In 1996 STORA became one of the first large commercial forestry operations in the world to attain third-party certification. Scientific Certification Systems used principles of the Forest Stewardship Council (FSC), the oldest and most credible certification system with environmentalists, to certify STORA's Ludvika district. STORA's size and its importance in the global forest products industry makes its actions a milestone in the development of sustainable forestry. As STORA's evolution toward sustainable forestry indicates, certification has already become a strategic consideration for some forward-looking companies.

Sustainable Forestry for Competitive Advantage

STORA decided to gain FSC certification for its forests after senior management carefully considered the company's competitive position, market dynamics, and strategic opportunities that they believe will leverage its unique sources of competitive advantage.

COMPETITIVE CHALLENGES
As a Swedish company, STORA faces a number of challenges. Swedish forests produce relatively low wood yields, an average of 4-5 cubic meters of wood per hectare each year, with a high reaching 14 cubic meters per hectare annually. That is well below yields in the Pacific Northwest that can range between 20-30 cubic meters, or those of the best plantations in New Zealand, Chile, or Brazil where yields rise to 30-40 cubic meters per hectare annually. Although Swedish forests produce limited quantities of fiber, these slow growing trees yield fibers of unmatched quality that are used in such products as high quality magazine paper and lumber for windows. In these markets STORA competes primarily with Canada, Scandinavia, and other northern forest regions.

STORA also has some of the highest labor costs in the worldwide forest products industry, according to senior managers. Such things as social programs and workforce regulations push labor costs high enough to place STORA at a significant cost disadvantage. Sweden is also experiencing double digit unemployment and wage increases in excess of productivity gains, according to the 1997 Economic Survey of Sweden by the Organization of Economic Cooperation and Development. These and other factors increase production costs making it difficult for STORA and other Swedish companies to compete in the global market.

Consequently, STORA is vulnerable to price competition from lower cost regions of the world, especially Asian companies that are trying to expand their market share. In the past, Sweden has devalued the Krona to lower the costs of its products to export customers. Since Sweden has joined the European Union (EU), however, this tactic is no longer an option.

The market for forest products is highly cyclical. Recently, production of paper, which accounts for 63% of STORA's sales (see Exhibit 1), has outpaced demand. As a result, average prices for paper pulp dipped 12% in 1996 from those in 1995. Accordingly, STORA's sales revenue declined in 1996 to $6.0 billion (1US$=7.477 Swedish Krona) from $7.6 billion in 1995, while net income dropped to $2.1 million from $7.2 million during the same period. In response to the weak paper market STORA curtailed production at several facilities. The divestment of STORA Building Products also contributed to declining revenues.

Despite the lower productivity of its forests, higher labor costs, and a soft market for its most important products, STORA earned an average annual return of 16% between 1986 and 1995, according to the 1995 annual report. Its U.S. and European counterparts averaged 12% and 11% for the same period, respectively. STORA's performance suggests that management has responded well to its economic, political, and competitive challenges.

CHANGING MARKET DYNAMICS
The competitive dynamics of the global forest products market is also changing. Production capacity in Southeast Asia and South America is rising. A number of substitutes threaten important wood markets-in particular, steel for lumber and plastic for paper. Environmental pressures are rising as environmental groups, consumers, and regulators register rising interest in the management of natural resources. The preservation of tropical rain forests and biodiversity have become politically charged issues. For STORA, environmental concerns are priorities due to the economic and social considerations in Sweden and the reality that export markets in Europe, which account for most of its sales, have become sensitive to environmental issues.

The Swedish Milieu
The Swedes, with a population of nearly nine million living in an area slightly smaller than California, have a history of sensitivity to the protection of their forests. Although Sweden has several large urban areas that contain a significant portion of the nations population, Swedish citizens spend a good deal of time at outdoor pastimes and many still live a farm and forest lifestyle. This closeness to the natural environment is manifest in a feeling among the Swedes that the people own the forests-a feeling codified in Swedish law, which guarantees citizens the right of access to all lands. The Swedes frequently take advantage of their right to hike, bike, or ski across privately owned forest and farm property.

Citizen interest and involvement with the forests have limited the latitude that industrial owners have to extract economic benefits from their land. In the late 1800s and early 1900s logging operations across Sweden badly degraded significant portions of the forest. The Forest Act in 1903 was Sweden's first attempt to address growing concerns over the potential of these cutover forests to produce wood in the future. By 1923, Swedish forests were given additional protection by a law that prohibited clear-cutting young forests. In 1950 the General Director of the state-owned forest lands, Eric Höjer, issued Letter Circular #151, which concluded that Sweden needed to reconstruct its forests.

Clearing the land to establish plantations of softwood, particularly spruce and pine, was the most common rehabilitation method. This model of forestry, based in Germany, and the economics of Adam Smith, had as its goal growing as much fiber as quickly as possible. When growth slowed, the trees were cleared, so the time between cuttings, or rotations, was short. Soon companies and small landowners followed suit and plantations became the Swedish norm. These plantations are successful timber producers-Swedish wood growth has exceeded harvest for several decades, and currently is running about 20% above harvest. The visual effects of clear-cuts, combined with practices like burning and herbicide spraying, however, eventually sparked public concern and debate over the health effects of burning and using chemicals.

That debate led to the adoption of a new national forest management code in 1993. Then, the priority in forest management shifted from wood production to the shared priorities of producing wood, and preserving ecosystems. Public support in Sweden for forest conservation and the adoption of the 1993 forest management code were the primary reasons STORA decided to adopt environmentally-based management strategies for its forests.

A Green Market in Europe
The emergence of market forces creating demand for certified forest products, especially in Europe, was also instrumental in leading STORA to seek certification. European markets account for nearly 90% of STORA's total sales (see Exhibit 2). In recent years, German publishers, important customers for STORA's high quality paper products, have become particularly demanding in the environmental realm. At one point they called for suppliers to provide paper drawn from forests that did not use clear-cutting practices. For the time being, the German publishers have backed off such demands, and turned their attention to the broader concept of forest certification, without publicly endorsing a specific certification system.

"Buyers Groups" are also an important catalyst in Europe for creating demand for certified forest products. These groups, especially the 1995 and following Plus Group in the United Kingdom, made up of large wood products customers want to purchase products certified by third parties, such as the FSC system. The products affected cover everything from sawn wood, all manner of paper products, including napkins, newspapers, diapers, furniture and doors.

The actions of the 1995-Plus Group members, which include the largest and most influential retailers in the United Kingdom, have had a high profile with STORA and other Swedish companies. As membership in the 1995-Plus Group has continued to grow, so has the scope of affected products. For instance, Tetra Pak, a maker of liquid packaging, recently joined, which will put pressure on suppliers like STORA to produce packaging that is third-party certified.

The 1995-Plus Group members have pressed suppliers in a variety of ways. Their managers have made special visits to producers, including STORA, to stress their commitment to purchasing FSC-certified products. Group members have exerted pressure by participating in the FSC Working Group process, which is setting standards for forest management in Sweden, and through questionnaires that 1995-Plus Group companies send out to try and document their sources of supply. For example, TimberTracker, the supply tracking system used by the U.K.'s J Sainsbury pie, is well known to STORA personnel.

Strategic Opportunities
Given that comparatively high labor costs, less productive forests, and soft demand put STORA at a competitive disadvantage, STORA management needs to identify innovative ways to differentiate its products and/or seek preferential relationships with specific customer groups. Third-party certification provides the sort of opportunity that STORA might capitalize on to accomplish its competitive goals. Since few suppliers currently provide third-party certified products, STORA has a strategic opportunity to sell a differentiated product that, at least in the immediate future, may have an edge in price-sensitive markets.

By moving quickly to fill this market demand, STORA may forestall competitors and maintain strong relations with current customers, many of which belong to buyers groups. Sweden's geographic and political links with Europe, including EU membership, give STORA preferential access to European customers that is unavailable to U.S. And Asian producers. By promoting the value and importance of certification to a healthy environment, STORA might also attract new customers to these products.

STORA appears to be particularly well suited to accomplish third-party certification for its forests. Swedish culture fits well with the requirements of third-party certification. The Swedish government's social and environmental policies relating to company responsibility for social welfare and worker treatment are consistent with the underlying philosophies of FSC-accredited certification. Swedish forestry's record of cutting less than annual growth is also an advantage in earning certification.

After 1,500 years of logging, Sweden has little of the old growth forest left that has been so contentious with environmentalists in other regions of the world. Any expectations for growing new, ancient forest on these cutover lands seem lower than in other places in the world where large stands of ancient forest remain to compare with plantations. What ancient forest there is in Sweden grows largely on non-company lands. Logging those lands, however, is a controversial national issue.

The Swedish Society for Nature Conservation recently launched a campaign to preserve all remaining old growth forest in Sweden. Complete with the signatures of more than eighty prominent forest experts, the literature claims that logging has endangered more than 1,500 species in those forests. A telltale hint of what may be coming is contained in this highlighted statement from the group's publication Stop Logging Sweden's Last Old Growth Forests Now, "That [stopping harvests of old growth] will not be sufficient to ensure the long-term survival of all endangered species; but it is a vital first step that can be taken immediately, without additional inventories or studies." In the future STORA and other Swedish wood producers may well face demands to regrow old forests to restore lost habitat for species that depend on ancient trees.

As part of its strategy, Swedish managers have adopted comparatively innovative tactics to address public pressures on environmental issues. Rather than take a defensive, hard-line approach to environmentalists as have some U.S. companies, STORA has found a way to collaborate with the environmental nongovernmental organizations (ENGOs) that is mutually advantageous. As a member of the FSC Working Group, for instance, STORA is working with ENGOs such as the World Wide Fund for Nature (WWF) and Greenpeace to develop national standards for forest management. If these efforts prove fruitful, STORA will have helped to shape a constructive solution to land-use conflicts that meets the company's needs and addresses the concerns of the ENGOs, instead of engaging in a drawn out, destructive battle.

Throughout most of STORA's long history (see box), forests were used to the supply the timber for smelting ore, supports in the mine, and in the extraction process for its copper mining operations. This single-minded, extractionary view of forests prevailed throughout Sweden at the time. Two developments altered the course of STORA's forest management: During the 1970s and 1980s corporate restructuring and acquisitions took the company away from mining toward forests products production, and STORA decided to emphasize paper over other forest products.

As a major papermaker, STORA naturally focused on the most valuable species for paper production. Spruce is clearly the winner in yield of high value newsprint and other papers. It will almost double the yield of other native tree species on the best sites. As do other major papermakers worldwide, STORA adopted a forest management strategy that maximized pulp production from intensively-man-aged plantations of spruce, or pine where spruce was not suitable. Through the 1970s this meant clear-felling, burning, use of herbicides for weed control, and liquidation of other tree species. Public pressure mounted during the 1970s to discontinue burning and use of herbicides, so STORA and other Swedish companies abandoned both practices by adopting a higher removal standard, which reduced logging slash, and manually cutting, rather than spraying, weeds.

ECOLOGICAL LANDSCAPE PLANNING
In response to public concerns, in the late 1980s STORA forest and timber group decided to develop a new style of forest management on their Ludvika District lands. Under the direction of assistant district manager, Åke Granqvist, this pilot project, called ecological landscape planning (ELP), eventually led to forest certification for the district. In 1991, STORA Forest president Dr. Bjorn Hägglund hired Börje Pettersson as staff ecologist to define a corporate forest management strategy that would maintain the company's economic viability while improving its ecological performance. Dr. Pettersson came with solid credentials as a forest scientist and credibility with Swedish ENGOs.

STORA used an 8,500 hectare area five miles west of Grangärde in southern Dalarna as its test site for ELP. Maps, aerial photos, GIS technology, and field inventories were used to identify key ecological features and the presence of endangered species. Fire resistant areas along streams and bogs were set aside to develop naturally. Those areas with tree species that depend on fire to regenerate are being restored with a variety of management methods, including controlled burning, increasing the proportion of hardwoods in the stands, retaining green trees in harvested units, and leaving more rotting wood to maintain the overall health of the ecosystem.

Listening To Neighbors and Environmentalists

"The environmental nongovernmental organizations are trustworthy, but they won't tell that we are behaving well if we aren't in their eyes. They are the only ones, really, that can reach the end consumers. " -Åke Granqvist, supervising forester, STORA, for ELP development at Grangärde

Incorporating the views of local citizens and ENGOs in the planning process is perhaps the most innovative feature of the ELP process. STORA established local "reference groups" to learn how local people view and use its forests. STORA personnel found that by listening to people and groups who use their forests-hunters, fishermen, bird watchers, berry pickers, skiers, hikers, educators-they not only increased their own knowledge about the resources that exist on STORA lands, but also gained credibility in the Grangärde area. They are no longer treated as part of an impersonal corporation, and they have become more integrated with the local community.

Since getting locals involved in ELP, STORA's relationship with the local media has evolved from confrontation to a point where "no negative press has come from local environmentalists during the last two years," according to STORA forester Granqvist. STORA personnel find it easier to work with local environmental groups than national ENGO officials. Local members, they said, seem to be motivated more by ecological values, than political considerations, and tend to be more concerned with scientific and conservation issues.

STORA's Grangärde ELP test area has now been expanded to the entire Ludvika District of 300,000 hectares. The real test of ELP s viability, however, will come as STORA expands the program to its entire ownership. One Swedish forestry expert pointed out that the test unit near Grangärde was unique: It was less expensive to implement ELP there than it will be on other company lands. A key concern is whether STORA will be able to afford the internal costs of implementing ELP across 2.3 million hectares long term. The areas set aside for conservation reduce harvest levels 10% annually. The company has also assigned fifty employees to ELP management to date, which, combined with other ELP expenses, costs $10.5 million a year.

1993-A NEW FOREST MANAGEMENT STRATEGY

"The problem is a lack of old trees. Many of the most demanding species, they need old trees to survive. " -Per Skoog, silviculturalist, Ludvika Forest District

As the ELP experiment was under way at Grangärde, STORA forestry executives designed a new forest strategy for all company lands, that has as its overall goal to "contribute to the achievement of STORA's financial goals, as well as maintain a high, valuable, and sustainable forest production, while preserving the biological diversity." In keeping with Swedish protocol, the strategy was announced at the same time as a new national forest policy revision, which covered all types of lands in Sweden. The changes made in both sets of standards are comparable. One could conclude that STORA was just keeping pace with Swedish forestry, not leading the way.

The new strategy led to a number of changes. Harvest levels will be increased 0.5% to 1.0% per year over the next fifty years from spruce and pine plantations, which contain a high proportion of young trees. The company is also seeking to maintain the productive capacity of the land, and preserve biodiversity, so in addition to traditional methods for managing spruce and pine plantations, STORA has extensive sections on nature conservation in its new strategy. They include discussions on ELP, matching management techniques to the characteristics of individual sites, principles for day-to-day nature conservation, and how to address special forest management questions, such as the use of fertilizers and ditches.

The strategy does not address the backlog of ecosystem restoration activities built up by centuries of intensive harvesting-such as the many hectares of wetlands that have been ditched and drained to establish spruce plantations. STORA's strategy seems to assume that restoration will occur as part of the ELP process, or under day-to-day nature conservation measures. Whether it actually will, and how quickly, is unknown.

Forest Management Practices

"In the end, even the machine operator has to have quite a good knowledge of what it is all about." -Åke Granqvist, supervising forester, STORA, on the need for ecosystem training for personnel

STORA's approach to implementing its new forestry strategy is centered on educating forest workers. They are trained to understand ecological principles and forestry techniques, and are responsible, as well, for carrying out day-to-day nature conservation measures. Harvesting crews typically work in teams of four. Two workers operate harvesting equipment during the first half of the work shift, while the other two mark and plan the next field work to be done. Halfway through the day, the two crews change places. This cuts down on monotony, equipment-generated stress, and involves forest workers closely with the implementation of conservation measures.

The new practices are visible across the STORA forest. More green trees are left standing within clear-cut areas. A higher percentage of deciduous trees dot the landscape. Controlled burning is used to regenerate harvested areas. The reintroduction of fire has been a challenge for the company. Much of the experience and knowledge of how to use fire effectively resides with long-retired STORA foresters. Current staff have gone back for help from these retired professionals to reestablish the practice. Fire also poses risks, raises air pollution questions for STORA foresters, and after a generation convincing the public of the evils of fire, requires reeducating the public about the benefits of fire.

Maintaining Ecosystems

"If you think I am focused on biodiversity, it has its reason. The whole nature conservation strategy of the company is also focused on biodiversity. It is not that we have forgotten the other things, but they are not big problems in Sweden. " -Börje Pettersson, chief ecologist, STORA

Restoring and maintaining healthy ecosystems is an integral part of STORA's new forestry strategy. From an inventory standpoint this involves identifying unique ecological areas, threatened or endangered species, and areas that need restoration. As do other large Swedish forest companies, STORA conducts an inventory of its lands every ten years, as part of a national project. A range of methods, including computerized GIs technology, are used to document and track the various ecosystem components. The real dilemma here, as elsewhere in the world, is how much can the company afford to measure and monitor. Inventory methods are heavily oriented towards tree growth, but are being adapted to track other ecosystem components.

STORA currently targets three types of areas for restoration and set asides. Critical habitats for species such as the white-backed woodpecker are reserved and protected. Wetland sites are prominent among these areas. Difficult or risky landscape features, such as rock outcrops, bogs, steep slopes, and other low productivity sites make up the second category. Areas that can serve as corridors between populations of animals, enhancing the flow of genetic diversity between nonadjacent forest tracts are the third target. These tend to follow the courses of streams. Management expects to meet requirements for preserving old forest habitat this way, but outside pressure is mounting to retain additional older, commercial forest stands on STORA's land.

Overall, STORA expects to lose no more than 10% of its fiber productivity by setting these lands aside for general ecosystem maintenance. STORA forest managers estimate that meeting the requirements of Swedish law account for about a 5% set aside, while ELP requirements make up the additional 5%. Since most Swedish sites already produce less than 50% of the fiber that high-yield forest plantations elsewhere produce, these ecological setasides are financially riskier in the long term for STORA managers.

CERTIFICATION OF THE LUDVIKA DISTRICT

"We can't say 'the law says this.' We are such a major player, we need to make our own decisions in this matter, because it's important to have them for our own structure. " -Börje Pettersson, chief ecologist, STORA

During 1996, STORA contracted Scientific Certification Systems (SCS) of Oakland, California, to conduct a certification of its Ludvika Forest District, in south-central Sweden. STORA considered the certification a pilot effort, in part because forest certification standards for Sweden are currently being drawn up by the Swedish FSC Working Group. The company wanted to gain experience with the certification process, and to see how Swedish forest management would be assessed from an international perspective. STORA management stated that it did not intend to use the results of certification to market products. Information from the certification project was integrated into Sweden's FSC working group.

The team conducting the certification project for SCS consisted of Dr. Robert Hrubes, a U.S. forest economist, Dr. Per Angelstam, research leader at Sweden's Grimso Research Station, and Lars-Olof Österström, director of the Swedish Forestry Association. They customized the certification standards used by SCS to fit Swedish forestry, and in June 1996 conducted an eight-day evaluation of the 300,000 hectare Ludvika Forest District.

Under FSC guidelines, forest certifications examine three management elements-sustainable wood production, the maintenance of ecosystems, and the socioeconomic benefits to the human communities involved. A "passing score" is judged as 80 out of 100. STORA received a score of 92.7 for sustainable wood production, 80.4 for ecosystem maintenance, and 88.9 for socioeconomic benefits. The team listed a number of commendations, observations, and requirements that STORA needed to meet for continued certification. The company was commended for efficiency in harvesting, investments in timber stand improvement, and treatment of workers. The company also received high marks for self control in managing forest inventories and cutting less than it was growing.

However, the team had a number of observations. It pointed out that the Ludvika forest over-relied on conifer species, and had inadequate numbers of deciduous trees. The team also said the company needed a better inventory of nontree resources, more training for forest workers in ecosystem management techniques, and to pay more attention to the economic development of communities surrounding the Ludvika District.

The FSC team imposed six conditions on STORA for continued certification. STORA must inventory all its stands of trees older than the lowest age for cutting, and determine which ones might be held to achieve a goal of 5% old forests in the district. Within one year of certification, STORA must incorporate methods into its strategic plans to assess biological diversity over the long term. New policies and methods to reduce damage to deciduous trees by moose and deer, and the restoration of wetland spruce habitats were required within eighteen months of certification. The FSC team also directed the company to draw up plans to minimize and counteract the effects of air pollution, namely acid rain, on the forests, and to help a local community draw up strategies for more diversified economic development.

STORA personnel were neither surprised, nor disappointed with the results of the certification project. They were satisfied with a passing score, and felt that the company was already addressing the deficiencies pointed out in the project. The only condition that seemed to cause major concern was the one directing the company to address local economic development. STORA personnel do not consider economic development outside of forest products to be the company's responsibility. They think the communities themselves need to provide that leadership.

If STORA decides to certify its entire ownership, real challenges may lie ahead. One Swedish forestry expert, knowledgeable of the STORA ownership and forest certification, does not think that other STORA districts would pass the certification test. STORA officials, however, do not anticipate significant difficulties bringing these other areas into compliance with certification standards. Whether current initiatives will accomplish this goal is clearly the subject of some disagreement.

NON-COMPANY LANDS--A KEY TO SUSTAINABILITY
STORA appears to b e successfully implementing a range of new environmentally-sensitive policies and forest management practices on it own lands. STORA has just begun, however, the difficult task of responding to 1995-Plus Group members by documenting its sources of wood supplies. The raw materials for STORA's products come from five basic sources: company lands (25%), independently owned land that is harvested by company crews (15%), small woodland owners associations (25%), imports (15%), and chips from sawmills (20%). STORA's vertical integration gives it some advantage in keeping track of the chain of custody of its products, which is required by certification. In the production of solid wood, the chain is fairly intact. Nearly all the wood in the company's sawmills comes from its own lands.

The challenge lies in paper production since the majority of the wood used for pulp comes from non-company lands. Maintaining a clear chain of custody when mixing many difference sources of fiber to make paper, is much trickier. STORA is pushing the FSC to allow producers to claim a percentage of certified content, similar to recycled paper, which would help the company manage the chain of custody difficulties. If unsuccessful, STORA will find it impossible to market certified paper without expensive changes in production.

The greatest obstacle to STORA's ability to provide sustainably produced products is getting the landowners from whom it buys timber to come into environmental compliance. If other owners refuse to adopt and maintain these new forest practices, it greatly weakens STORA's claim as a sustainable operation. Where STORA personnel are supervising or conducting harvesting operations, they implement these techniques, but even then, they admit that the landowners involved may not maintain the practices. This may be one reason STORA is part of the Swedish Forest Stewardship Council Working Group that is trying to establish nationwide standards for forest certification. If adopted, these standards would apply to all ownerships. STORA has a clear vested interest in ensuring that all forest lands in Sweden are certified by a third party.

Whether Sweden will successfully develop national standards is uncertain. As of April 1997, the Swedish FSC Working Group had failed to reach a consensus on standards for certification. The small woodland owner cooperatives are no longer participating, but the group continues to work toward consensus. If the group does reach consensus, it will be much easier for STORA's paper making operation to certify its product.

Implications of Sustainable Forestry

"Commitment to sustainable forestry must he real. A media campaign to change attitudes will not work. They will find you out. " -Ragnar Friberg, chief forester, STORA

STORA recognizes that its relationship with the general public has often been difficult, and that the public had come to distrust claims made by business. By finding collaborative opportunities with diverse STORA stakeholders, the company has bolstered its public image and reduced conflict.

EVOLUTION IN PHILOSOPHY
Several Swedish foresters describe this collaborative approach as an outgrowth of an evolution in the Swedish philosophy of forest management that took place in four stages.

1. 1960s-Ignore the Critics
Similar to the U.S. Forest industry, the Swedish foresters tried to marginalize the growing criticism from environmental groups by asserting that their critics were just a bunch of "whackos," -who were not to be taken seriously.

2. 1970s-We Are the Professionals, You Don't Understand This
As environmentalism became widespread and forestry practices were questioned in the media, foresters stood on their credentials: They were the trained professionals, had the actual experience with the forest, and had everything under control, particularly in regard to the herbicide issue. Foresters presented a litany of scientific evidence that showed that the chemicals they used did not cause health problems. Still, environmentalists and a growing segment of the public were unconvinced that the science was complete, or on the side of herbicide use. Despite their efforts, Swedish foresters lost herbicides as a tool, because of public fear.

3. 1980s-Listening, Learning, Cooperation
After two decades of conflict, Swedish foresters took a new tack. Instead of trying to discredit and marginalize environmental groups, they began to sit down and listen to what the critics said. This process eventually led to cooperative ventures. When STORA and Assi Domän began ecological landscape planning in the late 1980s, local environmentalists were included in the discussions and planning.

4. 1990s--Joint Development of Ecological Engineering
The cooperation of the late 1980s led to collaboration in the 1990s. Local environmentalists are still involved in forest management planning in the field. At the national level, a coalition of industry, small private landowners, indigenous peoples, labor unions, and environmentalists have joined to form the Swedish FSC Working Group. This is the fifteen-member team currently trying to reach consensus on a set of forest certification standards for all of Swedish forestry. STORA is represented in this process by chief forester, Ragnar Friberg, who heads the economics subgroup of the Working Group.

CONVERT CRITICS TO SUPPORTERS
STORA officials recognize that the company needs both the message and the messenger to effectively garner public support for forestry practices. By hiring Börje Pettersson, and adopting ELP, STORA developed an Earth-friendly forest management method. By involving local environmentalists in planning, the company added voices to carry its message: STORA actually has the endorsement of local environmentalists. In STORA's estimation, local ENGOs are credible messengers for their corporate environmental performance message. Many of these same groups have been forest products industry critics in the past, and also participate in the FSC Working Group. From the company's perspective there is no stronger image enhancement than a former critic supporting company activities. Indeed, the endorsement from environmental groups is the planned end result of their current strategy-to convert critics into supporters. The strategy is played out, in part, by involving local ENGO representatives on "reference groups" to help implement ELP. Attaining third-party certification not only helps the company keep pace with Swedish forest industry standards, it also allows STORA to continue to improve its relationships with the public and environmentalists.

INTERNATIONAL AND COMPETITIVE CONSIDERATIONS
The international challenges confronting STORA are daunting: industry overcapacity, cost and productivity disadvantages, and new, low cost competitors in traditional markets. The commitment of their customers to purchase certified wood products is the one opportunity on the horizon that promises STORA the potential to hold on to its lead European markets. Fortuitously for STORA, a handful of its strongest European markets have chosen to publicly align themselves with FSC-accredited certification. Some members of the 1995-Plus Group are so eager to put FSC-certified products on their shelves that they are willing, at least in the short term, to pay a price premium for these goods.

STORA's management, however, is waiting for the establishment of an FSC national standard before using third-party certification as part of its marketing. Environmental performance is clearly an area of concentration for STORA Fors AB, a cartonboard mill, as well as other parts of the company. In 1995, STORA Fors became the first cartonboard mill in Europe to receive Ecomanagement and Audit Scheme (EMAS) Registration, an environmental management system similar to ISO 14000. The company has created promotional pieces for STORA Fors, including a video and several print pieces, that talk about "The Green Champion," "The Ecologically Balanced Mill," and their environmental statement. There is no question the company sees this positioning as a source of competitive value in its markets.

Management at the certified Ludvika forest district and the sawmill is frustrated at being unable to market certified products. Forest district managers would like to see a payoff from the significant investment in money and time they have made over the last several years. Sawmill managers recognize pent up demand in specific market segments and would like to capitalize on what they perceive as a competitive advantage if they could sell certified material. Some customers are apparently even irritated because they cannot claim that the products they buy from STORA are certified. Company personnel worry that if they do not capitalize on certification soon, STORA will lose any potential competitive advantage.

Third-party certification could be used to create market barriers to protect STORA's European markets. STORA managers have investigated the practices of a number of Southeast Asian competitors and concluded that these producers would have great difficulty obtaining third-party certification. If STORA can win FSC certification and supply sufficient product to maintain momentum among the assorted buyers groups and similar customers, management thinks it could effectively close the market to these competitors.

Certification may also help slow down the adoption of substitutes for wood products. Third-party certification may help provide ammunition to demonstrate that wood products are environmentally sound through life cycle analysis, which assesses the environmental impact of products from design to disposal. The documentation required for certification will help generate the detailed information needed to make these life cycle computations. The upshot should be a demonstrably stronger environmental position for forest products compared to many substitutes.

Third-party certification may, however, provide a strictly short-term competitive advantage. Certainly, the environmental groups that have pressed for sustainable forestry hope that such practices as third-party certification become the industry norm. However, STORA may reap greater longevity to any first mover advantage by establishing good relationships with customers such as the 1995-Plus Group members. Strong relationships between buyers and sellers can cultivate a form of brand equity that is difficult for competitors to replicate. The trust that grows from experience with supportive suppliers has value to commercial customers and creates bonds that are difficult to break.

Relying on third-party certification as a competitive tool does have risks. The success of certification as a competitive strategy for STORA depends on the validity of management's assumption that competitors will not be able to quickly mimic STORA's practices. A potentially even greater risk is that European customers will not have a lasting commitment to FSC accredited certification. Although these buyers have expressed a willingness to pay a small premium for these products in the short-term, they will be unwilling to do so indefinitely. These buyers have taken the position that third-party certification comes at little cost to the suppliers and merely reflects practices that any credible supplier should follow anyway. STORA may also fail in its efforts to provide FSC-certified products to its customers, unless other Swedish landowners that also supply raw material to STORA adopt similar practices. If STORA fails to supply certified products, it risks unfavorable publicity, which might place the company at an even greater competitive disadvantage.

The Future

It appears that STORA is headed toward enhanced sustainability of its forest lands. The eventual costs to fully implement these changes are still unknown, although store's management thinks they know the level of total implementation costs. While certification was not a driving factor behind store's forest management decisions, the changes in management practices are positioning the company to efficiently certify and reap whatever rewards may result from marketing certified products. Management considers certification an efficient way to communicate to a range of stakeholders its commitment to sustainable forestry and business practices. The impact and success of the Swedish FSC Working Group's attempts to complete its work, and the initial marketing efforts of Swedish companies, including STORA, will be a critical predictor of the future of certification worldwide.

CASE LIMITATIONS
The conclusions drawn from this case need to be tempered by the observation that the data from which this analysis was made came from a single visit with STORA management and one visit to store's forests that was supervised by STORA managers. The researchers have had little opportunity to triangulate their findings by interviews with competitors, NGOs, or lower level employees. Nor did the researchers have time to visit additional STORA-managed forest sites, other than Ludvika, to observe practices there.

LESSONS LEARNED
1. The forest industry and ENGOs can collaborate productively. Coming from a situation of heated conflict in the 1970s, the Swedish forest industry has forged working relationships with ENGOs over the past fifteen years by listening, learning, and collaborating on forest issues. The relationships have led to forest management actions that have achieved mutually beneficial environmental, social, and economic objectives. In the most optimistic scenario, environmentalists have become a messenger to help industry rebuild its somewhat tarnished image with the public.

2. A large pulp and paper company can achieve certification for its forest operations under FSC guidelines. The forest management practices that pulp and paper producers typically use to promote rapid growth, including shorter rotations than solidwood producers, are at odds with the multiple benefits and long-term orientation needed for ecologically-based forest management. That should make it more difficult for pulp producers to gain certification. However, STORA passed certification on 300,000 hectares of its land by having a strong internal commitment to change its practices and allocate the resources needed to implement a new forest management strategy. This course of action has included hiring new staff, retraining its workforce and reducing harvests by a potential 10%.

3. Environmental certification is not necessarily driven by final consumer purchasing decisions. STORA's decision to certify its forests is based on the demand for third-party certification by its European customers, buyers groups, and large paper customers, which indicates that these groups will play a decisive role in the spread of certification.

4. For the present time, the European forest products markets appear tied strongly to FSC-certified products. This reality is driving forest product producers to align themselves with this system. STORA managers see early certification as an opportunity to gain competitive advantage over other producing regions. Under this scenario, producers are using third-party certification as a nontariff barrier to producers outside the region.

5. Paper making presents difficult chain of custody challenges. Unlike some wood products, paper production can involve raw material from multiple sources that is fed simultaneously into a continuous process. In STORA's case less than 50% of the fiber it uses in paper comes from its own lands. To alleviate the problem STORA is pressing the FSC to allow claims of a percentage of certified content. It is also a member of the FCS Working Group that is trying to develop certification standards for Swedish forestry.

6. Companies set limits to environmental concessions to maintain economic viability. In STORA's case the board of directors has placed that limit at a 10% loss in potential harvest. Management considers any losses beyond that to have the potential to endanger the company's ability to compete in the world-wide pulp and paper markets.

7. In seeking certification, STORA is trying to capture a competitive advantage open to it due to current management practices. The company decided to seek certification well after it had decided to adopt ecologically-based forest management. In this case, certification is a reward for behavior the company was already committed to.

Appendix A: STORA's Environmental Policy*

In its environmental work, STORA supports the sections of the international agreements adopted at the Rio Conference that are applicable to the forest products industry, and the ICC's 16 Principles. Thus, STORA as a whole, as well as each STORA company, commits itself to continuous improvement efforts aimed at:

• Practicing a long-term, sustainable forestry policy that preserves biological diversity.
• Producing, developing and marketing high-quality products that are safe for people and the environment, with the emphasis on minimal overall environmental impact.
• Using production methods that are resource-efficient and safeguard both the internal and the external environment.
• Selecting raw materials and chemical additives, and substituting different ones when necessary, to reduce the total impact on the environment.
• Introducing environmental management systems that are compatible with EU Regulation No. 1836/93 relating to voluntary adoption of the Community's ecomanagement and audit scheme.
• Ensuring that employees are informed, receive supplementary training, and feel actively involved in regard to environmental matters, while also conducting an active dialog with suppliers and other interested parties regarding relevant environmental issues.
• Establishing the goal of exceeding the demands contained in various environmental laws and regulations, while also working to ensure that laws and norms in the environmental area are harmonized at an international level.
• Encouraging a balanced view in respect to recycling and energy recovery from recycled fiber.
• Encouraging transportation systems that will contribute to environmentally-sound overall solutions.
• Preventing the occurrence of environmental accidents and making careful consequence assessments in advance of any new operations being implemented, or old ones being phased out.
• Establishing as a long-term goal the development of all operations to achieve sustainable production.

STORA's ambition is to be a leader in the environmental area. Since the mid-1980s, STORA has had a common. Group-wide environmental policy to bring about a unified approach to environmental policy that will, in turn, bring about a unified approach to environmental work. The present environmental policy was ratified by the Board of Directors in August 1994.

This environmental policy summarizes in eleven points the guidelines for environmental work that apply to all operations within the Group.

BACKGROUND AND MOTIVATION
STORA's environmental policy is based on available information relating to environmental issues, the assessments and considerations expressed in what has come to be known as the Rio Declaration, the environmental program for commerce and industry sponsored by the ICC, and other national and international statements of purpose in this area.

The Group's environmental work shall always be based on the most recently available scientific information. STORA shall also work actively to encourage a more favorable climate for environmental work in society as a whole. This means that the Groups own environmental policy will need to be reviewed so that it continues to reflect advances in knowledge and changes in the requirements imposed in regard to the environment.

BASIC PRINCIPLES
STORA supports the applicable parts of the accords from the Rio conference. The three basic documents are:

• The Rio Declaration on Environment and Development, containing twenty-seven principles that will be followed in all long-term environmental and development work, nationally and internationally.
• Agenda 21, which is a practical action program for achieving the objectives expressed in the Rio Declaration.
• Forest Principles, setting out guidelines for utilizing the world's forests without creating a negative impact on the global environment. The Conference also witnessed the signing of two conventions that are significant for the environmental work of the forest products industry:
• The aim of the Convention on Biological Diversity is to improve the preservation of species and ecosystems.
• The aim of the Convention on Climatic Change is to limit the concentration of greenhouse gases in the atmosphere.

• Publications
• Case studies