June%202004

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Forest Certification Hits Wall StreetMarket
Strides and Stockholder Results

• Catherine M. Mater
• Pres.Mater Engineering
• Senior Fellow The Pinchot Institute for
  Conservation
• Corvallis, Oregon Washington DC
• Tel [phone] Fx 541-752-2952
• Email catherine_at_mater.com
• www.mater.com
• www.pinchot,org

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First, the primer . . .
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In the beginning there was . . .
Then, came . . .
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Lets first examine market strides.
The big surprise might be on . . .
public forestlands
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Food for thought
In 1997
Today
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In 1998, a radical middle approach was initiated
. . .
Certification assessment of public forestlands
Impossible?
Not so fast . . .
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Pennsylvania - 1998

• 2.1 mm acres (all state forests)
• FSC certification

• Major political division on how to manage public
  forests (deer or no deer).
• Internal debate became major public debate.

Reasons

• Certification requirements resolved issue for DOF
• Market demand for PA resource increased overnight
  (national international buyer interest)
• Up to 15 premiums gained on timber sales

Results
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Minnesota - 1998

• 600,000 acres
• FSC certification

• State county forestlands questioned by public
  on management practices.
• Public concerns transferred to legislative budget
  decreases.

Reasons

• Certification recaptured social license
  improved management practices.
• Market demand for lower-grade wood resource
  (aspen) increased overnight.
• Legislative budgets increased to focus personnel
  on certified forestry landowner outreach.

Results
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New York - 1999

• 700,000 acres (all state forests)
• FSC certification

• State legislature systematically pulling funding
  from dedicated reserve account to general
  funding.
• Depleting budget for forestry agency seriously
  impacting health of forests (not cutting enough).
• No political clout to change dynamics.

Reasons

• Certification required more cutting to achieve
  healthyforests.
• Certification required replenishment of reserve
  account for proper forest management practices.

Results
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Tennessee - 2001

• 125,000 acres (all state forests)
• FSC SFI assessment
• FSC certification

• Heavy environmental opposition . Tennessee had
  the largest number of legislative bills targeted
  against forestry practices over all other states
  in the nation.
• Public discontent translated to legislative
  budget cuts . . .
• . . . at a time when private industry divesting
  themselves of their forestlands

Reasons
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Tennessee 2001 (cont.)

• 125,000 acres (all state forests)
• FSC SFI assessment
• FSC certification

• Tennessee achieved the unthinkable - became the
  first Southern state in the nation to achieve
  forest certification.
• Achieved tremendous public environmental
  support practically overnight.
• Became the only TN state agency to achieve
  legislative budget increase (at a time of
  tremendous budget deficit).

Results
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North Carolina - 2001

• 100,000 acres
• FSC SFI certification
• State university lands

• Heavy environmental opposition (Dogwood Alliance
  the chip mill debates
• Intense public discontent
• State university joined forces to evaluate
  radical options for building path to solutions

Reasons
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North Carolina 2001 (cont.)

• 100,000 acres
• FSC SFI certification
• State university lands

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Maine - 2001

• 450,000 acres (all state forestland)
• FSC SFI certification

• Highly contentious public debate over management
  of public private forestlands.
• Initiative to stop all logging on state
  forestlands.

Reasons

• Certification became effective tool in
  re-establishing credibility with environmental
  organizations the public.
• Initiative was defeated.

Results
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Washington - 2003

• 1.2 mm acres (Westside forestland)
• FSC SFI (gap only) assessment on-going

• Highly contentious public debate over management
  of public forestlands.
• Lawsuits filed by environmental organizations
  (WEC) against the state.
• New preferred alternative management policy to
  be determined for all state forests.

Reasons
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Washington - 2003

• 1.2 mm acres (Westside forestland)
• FSC SFI (gap only) assessment

• State recommended for FSC certification with
  conditions.
• State recommended to proceed with full SFI audit.
• Currently trying to secure funding to complete
  full SFI audit.

Results
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At the same time, on Indian Nation lands . . .
Congress mandates independent assessment of
forest management practices, and . . .
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30 Indian Nations step to the plate (FSC SFI
pre-assessments)
16 mm acres of forestlands
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Meanwhile, back to the radical middle . . .
. . . Could federal lands be far behind?
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Take Alaska for example
Of the 17 mm acres comprising the Tongass NF

• 11mm acres not in roadless or wilderness area.

. . . Ridiculous to think about?
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Lets just suppose for 2002 . . .
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Based on direct interviews for log flows . . .
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And lets further suppose that over 90 of that
export log volume is moved by Sumitomo Forestry
Nissho-Iwai Nichimen Corporation

• Sumitomo 2002 key restructuring to strengthen
  company performance included major investment in
  new LVL production line in New Zealand. That
  products facility is now one of the worlds
  largest LVL MDF producer sites in the world.

• Nissho Iwai Nichimen Corporation now has a
  joint venture with Tackikawo Forest Products Ltd
  a sawmill operation in New Zealand.

• As of March 2003, 40 of all New Zealand
  plantations are FSC certified and Tackikawo
  Forest Products is FSC chain of custody certified.

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Based on direct interviews for lumber flows . .
.
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Suppose for lumber flow into the lower 48
purchased by 15 companies, notable percentage of
that volume goes to

• Pella Who recognizes SFI, CSA, PEFC equally
  and has stipulated that all of its lumber
  suppliers need to be third-party certified by
  2008. As of February 2003 63 of their wood
  supply comes from certified sources.

• Premdor-Masonite FSC - certified

• Jeld-Wen also FSC - certified

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Federal lands not so impossible !!
Already have Dept. of Defense and National Park
Service lands certified!
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Lets next look at unexpected new market pull
strides on the retailer/customer end . . .
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2003

• Lanoga Corporation (Lumbermans) is FSC-certified
  and becomes the first retailer in the US to
  finance certification of public forestlands (WA
  state). (FSC and SFI)

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2003
Home Depot announces

• 1999 sold only 15 million in certified wood
  product.
• 2002 sold over 250 million
• Looking for more.

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2003 Home Depot and Tembec (4 billion in
sales/yr. 55 manufacturing operations) announce
major partnership

• Agree to offer large amounts of FSC-certified
  softwood lumber into the US Home Depot markets
• All Tembec holdings 32 mm acres to be
  FSC-certified by 2005.

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Domtar Third largest uncoated freesheet paper
producer in NA announces agreement with WWF to
certify 22 mm acres of Canadian forests under FSC
by 2006
Alberta-Pacific (AlPac) NAs largest single
line kraft pulp mill to undergo FSC certification
in 2005 (15 mm acres)
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With the announcements of Tembec and Domtar, FSC
is slated to become the predominate certification
system in Canada by 2005, funneling product into
the US

• 74 mm acres FSC
• 70 mm acres CSA
• 60 mm acres SFI

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2003
Time Inc. Paperco

• 2003 60 of 600,000 tons of wood fiber per
  year for newspapers, book companies, and
  magazines will come from a certified (FSC and
  SFI) supply.
• By 2004 70
• By 2005 85.

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Maine - 2003
Time Inc. Paperco intervenes and . . .

• Governor announces new initiative to get 10 mm
  acres of forestlands (public private) certified
  within by 2006. (FSC or SFI)

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Minnesota - 2004
Time Inc. Paperco intervenes and . . .
The Governor issues an Executive Order mandating
the certification of all state forestlands by
2006. (FSC and SFI assessments)
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Wisconsin - 2004
Time Inc. Paperco intervenes and . . .
Governor initiates FSC and SFI assessments on all
state and county forestlands. Issues statement
to the public stating that market demand too
great to not get certified.
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Michigan - 2004
Time Inc. Paperco intervenes and . . .
Governor announces the mandate to have all state
forests certified by 2006. FSC and SFI
assessments already initiated.
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Maryland - 2004
Time Inc. Paperco intervenes and . . .
Governor announces an Executive Order mandating
all state forests to be certified by 2006. Also
announces FSC and SFI certification of partial
state lands this week.
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• Kinkos first major paper supplier (over 1,000
  stores in US) to offer FSC certified paper.

• Quad/Graphics, the worlds largest privately-held
  printer of catalogs, magazines, and other
  commercial products (1.8 billion annual sales)
  becomes FSC-certified.

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• 600,00 acres
• SFI-certified - US forestlands
• FSC-certified Idaho and Oregon and
• Initiates FSC assessments on allother timber
  holdings in the US

Idaho
Potlatch Corporation
First publicly-traded forestry corporation in US
to step to FSC plate.
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US Green Building Council LEED certified

• Currently gives credit FSC-certified wood use
• Has captured within 5 years
• 25 of all government and institutional
  construction in US
• 5 of all commercial construction and
• Just approved for residential construction

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And stay tuned for some new announcements in 2004
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Meanwhile, on the wall street front . . .
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New events unfolding almost daily

• Citigroup the worlds largest financial
  institution just announced its new corporate
  policy providing specific investment funds
  dedicated to FSC certified products.
• Others targeted to meet or beat Citigroup US
  Bancorp, Wells Fargo, Goldman Sachs, JP Morgan,
  John Hancock.

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• Innovest- internationally-recognized investment
  research and advisory firm (1 billion under
  advisory mandates) determined that
  FSC-certified companies achieve superior stock
  market returns. In 2003 upgraded Domtar from a
  BBB to A rating when the company committed to
  FSC-certification of all its woodlands and
  operations throughout Canada.

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• Swiss Reinsurance Company one of the worlds
  largest reinsurers in life, health, property,
  motor, and liability insurance creates investment
  portfolio (valued at 50 million) committed
  exclusively to sustainability. Has begun
  investing in FSC-certified companies.

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Forest Certification

• Growing demand
• Growing on Wall Street

Here to stay!