Forest Certification Hits Wall Street Market Strides and Stockholder Results

1. 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: 541-753-7335 Fx: 541-752-2952 Email: catherine@mater.com www.mater.com www.pinchot,org

2. First, the primer . . .

3. In the beginning there was . . . Then, came . . .

4. Let’s first examine market strides. The big surprise might be on . . . public forestlands

5. Forest certification was considered a “flash-in-the-pan” • No publicly managed forestlands in the US were even considering certification. • Forest certification is here to stay. • Over 60% of all certified non-industrial forestlands in the US are owned/managed by government agencies. Food for thought: In 1997: Today:

6. Unthinkable! Yes In 1998, a radical middle approach was initiated . . . Certification assessment of public forestlands Impossible? Not so fast . . .

7. 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:

8. 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:

9. 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 seriouslyimpacting 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:

10. 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:

11. Tennessee – 2001 (cont.) • 125,000 acres (all state forests) • FSC & SFI assessment • FSC certification • Tennessee achieved theunthinkable - 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:

12. 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:

13. Like Tennessee – achieved the unthinkable • Incorporated lessons learned into academic curriculums at NCSU & Duke University • Now have environmental attention regarding certification as a solution on both public & private lands Results: North Carolina – 2001 (cont.) • ~100,000 acres • FSC & SFI certification • State & university lands

14. 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:

15. 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:

16. 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:

17. At the same time, on Indian Nation lands . . . Congress mandates independent assessment of forest management practices, and . . .

18. 30 Indian Nationsstep to the plate: (FSC & SFI pre-assessments) 16 mm acres of forestlands

19. Meanwhile, back to the radical middle . . . . . . Could federal lands be far behind?

20. 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?

21. Let’s just suppose for 2002 . . .

22. . . . About those imports Based on direct interviews for log flows . . .

23. And let’s 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 world’s 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.

24. Based on direct interviews for lumber flows . . .

25. 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

26. Federal lands … not so impossible !! Already have Dept. of Defense and National Park Service lands certified!

27. Let’s next look at unexpected new market pull strides on the retailer/customer end . . .

28. 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)

29. 2003 Home Depot announces • 1999 sold only $15 million in certified wood product. • 2002 sold over $250 million • Looking for more.

30. 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.

31. 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): NA’s largest single line kraft pulp mill to undergo FSC certification in 2005 (~15 mm acres)

32. 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

33. 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%.

34. Maine - 2003 Time Inc. Paperco intervenes and . . . • Governor announces new initiativeto get 10 mm acres of forestlands (public & private) certified within by 2006. (FSC or SFI)

35. 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)

36. 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”.

37. 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.

38. 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.

39. Kinko’sfirst major paper supplier (over 1,000 stores in US) to offer FSC – certified paper. • Quad/Graphics, the world’s largest privately-held printer of catalogs, magazines, and other commercial products ($1.8 billion annual sales) becomes FSC-certified.

40. 600,00 acres • SFI-certified - US forestlands • FSC-certified Idaho and Oregon; and … • InitiatesFSC assessments on allother timber holdings in the US Idaho Potlatch Corporation First publicly-traded forestry corporation in US to step to FSC plate.

41. 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

42. Clue And stay tuned for some new announcements in 2004

43. Meanwhile, on the wall street front . . .

44. New events unfolding almost daily: • Citigroup – the world’s 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.

45. 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.

46. Swiss Reinsurance Company– one of the world’s 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.

47. If you’re not at the table on this one . . . . . . you’re not at the table!! Forest Certification: • Growing demand • Growing on Wall Street Here to stay!