Environmental Sustainability: Not Always Easy

Lessons Learned from Neenah Paper FSC Certification Issues

By: Cary Sherburne

May 13, 2008 -- Participants in the print supply chain are to be applauded for their growing efforts toward creating a more environmentally sustainable business, from increased focus on chemistry-free platemaking, to reduction of waste, recycling and encouraging sustainable forestry practices.  Although many buyers of print are interested in purchasing “green” printing, and providers of print are responding, I quite frequently hear that buyers are not interested in paying more for “green” printing.  Nonetheless, many print service providers and suppliers to the industry are making investments in sustainable practices.  We recently wrote about the significant efforts that Montana-based PrintingForLess has made to create a healthier environment for its employees and a reduced environmental footprint.  In addition, WhatTheyThink has created a special area of the site dedicated to the environment.

Recently, Neenah Paper, Inc., who obtained its first FSC chain of custody (CoC) certification in March of 2003, ran into some certification difficulties.  The company notified its customers on April 25^th (letter included with this article) that its FSC CoC certification had lapsed, resulting in product being manufactured and packaged with the FSC logo during March and April 2008, even though the company was not certified during that period and not authorized to use the logo.  Neenah was quick to point out that none of its chain of custody practices had changed since its original certification in 2003, and that at the time of the lapse, it had been nearing the conclusion of the recertification process with its certifier, SmartWood.  “When we initially certified in 2003 as one of the first premium mills globally and one of the first North American mills in any category,” said John O’Donnell, President of Neenah Fine Papers, “the process took one month.  Recertification, on the other hand, took seven months, much longer than anyone anticipated.”

The Role of the Certifier

I spoke with Dave Bubser, U.S. Region Manager for the certification agent, SmartWood, to gain a better understanding of the Neenah situation from his perspective and the role of the certifier.

Based in Bonn, Germany, the Forest Stewardship Council (FSC) sets the global standard for responsible forestry. The organization was established in 1993 by a collaboration of businesses and environmental groups, including the Rainforest Alliance, which is now the world's leading FSC certifier of forestlands. The Rainforest Alliance’s SmartWood program offers a diverse set of certification and verification services, including its function as an independent, third-party auditor for FSC chain of custody certification, the certification that was originally extended to Neenah in 2003.  SmartWood auditors can verify the legality of forest products, the accuracy of carbon calculations and assess management practices for High Conservation Value Forests.

Although there are other environmentally related certifications available, Bubser says, “We feel that FSC is the most rigorous and has the most integrity, which is why we have chosen to deliver that service.  FSC standards have been developed in a transparent way. Our role is to evaluate companies that are interested in receiving the certification as independent auditors and monitor their ongoing performance over the five-year certification period.”  Bubser points out that FSC certification is a voluntary program that holds a lot of appeal throughout the supply chain, and is the antithesis of what has occurred in the forest products industry in the past.  “The forest products industry grew up over the last 20 to 30 years in an environment of regulation,” he adds. “It has been a fairly controversial industry, particularly among the environmental community, with respect to timber harvesting practices and related activities.  Rather than having performance choices directed by regulation, this program is designed to create incentives on a voluntary basis to recognize organizations in the marketplace for responsible stewardship.”

Bubser explains that chain of custody certification is all about inventory control and making accurate representations about the actual fiber content of, in this case, paper.  There is also FSC certification at the forest level that is more comprehensive and includes environmental, social and economic criteria covering everything from protection of endangered species to water protection and workers’ rights.  That program defines and verifies responsibly managed forests and authorizes the products that come from those forests to carry the FSC logo. “Chain of custody certification connects the marketplace back to the forest,” he says, “giving forest owners and managers market recognition for their efforts.  That link was never there before.  As important as the chain of custody certification is to all of these businesses, it fits into the broader scheme that is designed to promote responsible forest management practices on the ground.”

According to Bubser, the most common barriers to FSC CoC certification that he encounters are largely administrative.  “Sometimes companies are taking on these new standards for the first time,” he says, “and there are requirements for the development of procedures that address the standards.  There are not many cases where a company fails to achieve chain of custody certification.  It is primarily the length of time certification takes, and it can take longer for some companies based on resource availability and other considerations.”

SmartWood, in turn, is audited by the FSC on a regular basis to ensure that it is following appropriate practices.  SmartWood issues certifications and is accountable to the FSC for upholding the standards.

Growing Demand

“We are in the midst of a real tsunami of demand for certification,” says Bubser.  “We used to tell folks that the certification process would take four to six weeks.  Now we are telling people it will be several months before the process is completed, although we believe this to be a temporary situation as we increase staffing and clear the backlog of certification requests.”  SmartWood grew by 100% last year based on this spike in demand.  “Show me a business that can sustain that type of growth without having some difficulties in keeping up,” Bubser comments.  “We have grown at a pretty good clip over the last 10 years, but I have never seen anything like this in the industry.  There is a lot of appeal to the environmental message and the ability to have a link back to the forests. You can’t pick up the paper or turn on the news today without seeing something about sustainability or sourcing issues.”

Bubser cites the Chinese-imported pet food crisis as an example from another industry of the damage that can be done to a brand and the other liabilities that can be incurred when there is inadequate monitoring of the sourcing of materials.

The Neenah Situation

Neenah successfully completed its recertification process on April 29, 2008, according to a letter from the FSC included with this report.  That means that paper manufactured by Neenah as FSC certified between March 1 and April 28, 2008 technically violated FSC standards.  The FSC communication states in part, “FSC follows a strict position with regard to the sale of inventory product after the termination of an FSC certificate: suppliers shall immediately cease to make any use of any FSC trademarks, or to sell any products that the supplier has previously labeled or marked using the FSC trademarks, or to make any claims that imply that they comply with the requirements for certification.”

However, in the case of Neenah, while the certification had lapsed, the FSC did point out that its inspections indicated that the integrity of Neenah’s FSC inventory had demonstrably been maintained at all times. In light of that, the FSC excluded product that was shipped prior to certification expiration from the rules violation for Neenah, yet maintains that product manufactured during the period of lapsed certification cannot be labeled as FSC certified.

According to O’Donnell, “Our biggest mistake was assuming we would be bridging certification due to delays by the certifiers, since we had not changed our operating philosophy.  This is often the case with regulatory bodies.  But in this case, there was a hard stop.  That notification was received in one of our manufacturing facilities on March 3^rd and did not arrive in corporate until mid-April. At the same time, our certifier was indicating that we had almost completed the process.”

In its letter, the FSC took the opportunity to remind the marketplace of the importance of standards compliance, saying, “It is important to remind all participants in the FSC network, and in particular all certificate holders, of the need for clear and accurate internal communication between all departments of a company to ensure that opportunities to incorrectly reflect the status of participation in FSC programs are minimized. Additionally it is vital that sales and marketing staff are kept up to date and aware of the status of certification and of any issues potentially impacting it to prevent opportunities for misrepresentation in the marketplace.”

The Story from Neenah’s Perspective

While this situation may have created some confusion in the marketplace for Neenah customers, it seems to have gone largely unnoticed by investors and was not mentioned in the company’s first quarter earnings call. “Keep in mind that that call represented a first-quarter review,” O’Donnell points out, “and the financial implications occurred in the second quarter.”  O’Donnell indicates that these implications are still being analyzed, and how material they ultimately are will determine whether they need to be discussed during the second quarter earnings call.

One factor, according to O’Donnell, that extended the recertification process was the company’s decision to include four facilities in the recertification process, even though two of them, which had been acquired by the company, had certification in place that was not expiring.  “We believed it would be easier for our customers to have coterminous expiration dates for our certification, but in hindsight, that was not a good decision.”

Throughout the process, Neenah indicates that the company has taken the recertification process very seriously and assumes full accountability for its actions.  “My biggest regret,” adds O’Donnell, “is the issues that we caused for our customers.  We’re being transparent about our situation in the hope that other mills, merchants and printers will be able to learn from our situation.”

What lessons learned did O’Donnell share?  “First,” he says, “you should actively lead your recertification process.  The certifier is interested in the process, as they should be, and less interested in the business implications.  Secondly, expect delays and plan for them.  In our case, had we clearly understood the ‘hard stop,’ we would have planned for that differently in the manufacturing process.  And third, make sure that your internal communications are robust.  Even as an early adopter, we did not have a full appreciation for the business and financial implications a hard cut-off would have for our company, and we should have explored more deeply what the implications of that March 3^rd communication were despite assurances from the certifier that we had nearly completed the process.”

Neenah is in the midst of assessing how much inaccurately labeled paper actually entered the supply chain.  “We believe most of it is still in our facilities,” he says, “and we will relabel that stock to comply with the standard.  During most of the period, we were shipping inventory that had been manufactured prior to the certification lapsing.”

Nonetheless, Neenah remains committed to its Neenah Green initiatives.  “This is an important certification for us and for the marketplace,” O’Donnell says. “This unfortunate situation could give the marketplace the wrong impression—that we don’t care about timetables and expiration dates.  And that is contrary to who we are and how we have acted in the past.  While our customers were frustrated that they didn’t hear about this earlier, they are grading us on intent, and they know we place significant focus on responsible management.”

O’Donnell concludes with this comment:  “Our intent is to continue to take the risks that early adopters take as we explore growing our Neenah Green initiatives.  This situation has not soured us on the importance of leadership in this area, which we believe is critical.  Our hope is that others will learn from our experiences and that they will make sure there is clarity around any issues that arise during their own certification processes.”

Click here to download the cover letter and FSC recertification status

Customer Letter from Neenah Paper

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