"Environmental auditors approve green labels for products linked to deforestation and authoritarian regimes"

A new ICIJ-led cross-border investigation exposes how a lightly regulated sustainability industry overlooks forest destruction and human rights violations when granting environmental certifications.

Major environmental auditing firms ignore or fail to recognize glaring environmental damage caused by loggers and other clients whose practices they certify as sustainable, undercutting an elaborate global system meant to fight forest destruction and climate change.

With alarming frequency, the auditors and so-called certification firms validate products linked to deforestation, logging in conflict zones and other abuses, according to an investigation by the International Consortium of Investigative Journalists and 39 media partners. Certification helps the firms’ clients produce and promote teak yacht decks, high-end furniture and other products in markets all around the world.

The ICIJ investigation, Deforestation Inc., showed how companies use the results of flawed audits to advertise products and operations as compliant with environmental standards, labor laws and human rights, misinforming shareholders as well as customers. The damage can be devastating and long-lasting. [...]

ICIJ found that many companies declared as sustainable forestry operations that fell well short of their own claims or voluntary standards. [...]

ICIJ examined inspection records, environmental violation data and court filings, concerning companies in at least 50 countries. The analysis identified 48 auditing firms that had declared sustainable the practices of companies in the forest products industry that had been charged with such violations as logging in Indigenous forestland and protected reserves, using false permits, and importing illegally harvested timber. [...]

“It’s the whole system that we rely on, on certifications in general, that doesn’t work,” Grégoire Jacob, a consultant working in the forest-products industry, told Radio France, an ICIJ partner. [...]

The auditors themselves ー who make up a growing $10 billion industry ー are rarely held accountable for downplaying or missing red flags in clients’ operations and sustainability reports. [...] 

The global investigation also sheds light on governments’ weak efforts to stop the trade of conflict wood from authoritarian regimes in Myanmar and elsewhere. Sustainability certification firms enable companies at the center of such trade to mislead the public. [...]

At the heart of this self-regulating system are international organizations such as the Forest Stewardship Council (FSC), the Programme for the Endorsement of Forest Certification (PEFC) and the Roundtable on Sustainable Palm Oil (RSPO). They rely on third-party auditing firms to vet clients and certify that wood-product companies, palm oil producers and others harvest responsibly and don’t use materials linked to illegal logging and other environmental crimes.

The environmental auditing sector is part of the $200 billion testing, inspection and certification industry. It includes specialized units of auditing giants such as KPMG and PwC, large, publicly traded companies such as the Swiss multinational SGS Société Générale de Surveillance SA and smaller firms such as PT Inti Multima Sertifikasi in Indonesia. The auditors typically perform risk assessments for their clients, inspect mills, interview company foresters and ensure that operations and products are in line with voluntary environmental standards designed by private certification organizations. [...]

FSC’s director general, Kim Carstensen, responded to the criticism in an interview with ICIJ and German broadcaster WDR.

“We believe we are a good label in a number of criteria. We have a governance system that involves stakeholders. We have strict environmental regulations. We have strict social rules as well,” Carstensen said.

In an ideal world, he added, governments would play a larger role in forest protection.

“But the situation is not an ideal world,” Carstensen said. “So in a situation where a government allows logging in an area where there is a question of whether this is responsible management or not so responsible management, we think certification should still play a role, and we think FSC certification could be the case in that situation.”

As a “voluntary tool,” FSC “does not claim it can solely solve multi-layered problems such as deforestation,” a spokesperson added in a statement.

FSC uses a firm called Assurance Services International (ASI) to accredit auditors and monitor their activities. ASI declined to address ICIJ questions about how companies certified by ASI-accredited auditors later were accused of environmental or other wrongdoing. In a statement to ICIJ, a spokesperson for Bonn-based ASI said its investigators had “blocked” 88 companies holding FSC certifications in the last five years, stripping them of the certification.  “If we identify integrity risks, then we follow up on it with rigor,” the spokesperson said.

PEFC’s head of communications, Thorsten Arndt, said that the “credibility of PEFC and other certification systems has been assessed multiple times,” adding that the United Nations has recognized the group PEFC “as an indicator for progress towards the Sustainable Development Goals (SDGs) and the Biodiversity Agreement,” a series of social and environmental goals.

Arndt wrote that PEFC sets and revises its standards based on “the latest scientific knowledge, research and relevant emerging issues” to ensure that forests are “managed sustainably.”

Arndt also disputed critics’ claims that PEFC is industry friendly, saying that the organization was founded by small- and family-forest owners and that the forest-product industry remains  only one of nine stakeholder groups that set PEFC standards, along with Indigenous communities, trade unions and other non-industry actors.

For their part, auditing firms said that the third-party verification system had contributed overall to improving the management of forests around the world, increased scrutiny and required greater transparency of forest-product companies.

Firms contacted by ICIJ conceded that there may be cases where an auditor overlooks or misunderstands problems or even clients’ fraudulent intentions. But, they said, those represent only a small percentage of the audited cases. [...]