Incentives to Save the Planet - Part 2

In Part 1 of this blog I outlined how the Rainforest Alliance's sustainable forestry certification program, called SmartWood, pioneered market-based incentives for conserving forests starting in 1990, and some of the remarkable innovations and impacts this fostered. A pessimistic but thoughtful piece about using market incentives to save forests appeared in The Economist recently. I don't agree with all of its conclusions, but it touched on the right questions and makes a useful short framework for the lessons the Rainforest Alliance has learned.

One reason The Economist cites for its pessimism is that consumers don't want to pay more for sustainable goods and services, mentioning a study showing that most HomeDepot customers would not pay 2% more for Forest Stewardship Council (FSC) certified wood. But there is at least some counterweighting evidence suggesting FSC certified wood is more valuable and can command a higher price. For example, in Pennsylvania where State forests are FSC certified, chain-of-custody buyers sourcing FSC wood paid about 10% more for it over a five-year period.

In general it is certainly true consumers don't want to pay more for sustainable certified products and this has been confirmed by study after study as well as by the Rainforest Alliance's experience, but it cuts two ways. It doesn't follow that companies have no incentive to invest in sustainability if it's not clear that they can charge more for it; it simply means they need to find ways to price sustainable products competitively.

The Rainforest Alliance has witnessed an evolution over the past 20 years from sustainability as a niche phenomenon of expensive specialty wood and coffee to mainstream brands on supermarket shelves and FSC wood in the lumber yard, competitively priced. Once companies embrace certification, they find ways to leverage its economic benefits of improved yields, market access and management efficiency to bring it mainstream at mainstream price points.

The good news is that given a reasonable choice, consumers will give preference to sustainable products, and that has been true right through the economic downturn. Marketing studies have shown that companies which invested in a sustainable sourcing didn't do it simply for charitable reasons; it helped them secure reliable supply chains, build customer loyalty and survive and thrive in the downturn. For example, during the worst of the recession, US wood and paper markets were flat, while demand for FSC certified wood and wood products grew faster than ever, led by certified paper and an explosion in green building. Today, Home Depot, IKEA, Xerox, Kinko's, Staples, Scholastic, Tetra Pak and many others now carry and source FSC-certified products.

From the beginning the Rainforest Alliance and FSC found it was critical to bring all the stakeholders to the table, from foresters to indigenous peoples, and balance their interests. This has always been a basic tenet and a basic strength of FSC certification, though it's necessarily a contentious process. There are always claims and counterclaims about to what degree FSC standards or any management standards can ultimately protect forests -- especially tropical forests -- and
The Economist
echoes some of them. But a few things are beyond contention:
  • The vast majority of the world's forests are privately owned working forests, not government preserves, and protecting them requires working forest management standards.
  • FSC is the gold standard for forest management.
  • At least in some significant cases, FSC has been shown to provide much more effective protection for forests than government preserves do.
  • Forest management is a complex field and FSC standards are technical, so assessing their results requires expert studies. These show reliable evidence that FSC certification works. It improves forest management and monitoring and keeps improving it over time, conferring important environmental and social benefits to forests and wildlife, workers and communities, in addition to giving competitive advantages to companies.
  • FSC certification has exploded in this decade, with certified forest acreage quadrupling from 40 million acres in 2000 to 157 million acres and counting today, growing robustly right through the downturn. Chain-of-custody certifications also grew from well under 1000 to almost 20,000 in the same period. Demand for FSC wood and paper is growing even faster than the supply.
That last bullet point means that there must be compelling incentives driving the growth.
The Economist
piece argues those incentives have severe limits, only work with a few "tree huggers" in Western niche markets and can't reach non-treehugging nations like China, India and Russia. Yet they do. Today there are many SmartWood and FSC forest management and chain of custody certificates in
, and
, and Rainforest Alliance and other NGOs are working with China and other emerging economies to encourage the
The Economist
makes the reasonable-sounding assertion that "Market-led schemes can succeed up to a point but without government support they soon hit their limits," but Rainforest Alliance's experience indicates that the reverse is also true. FSC's phenomenal growth predated and probably helped light governments' way to REDD and the US and EU bans on illegal logging by finding and tapping companies own incentives to track and source sustainably. Government interdiction has definitely helped curb
, but government prohibition and regulation can only take us so far towards conserving the vast majority of the world's forests, which are privately owned.

The budgets of all the world's environmental ministries combined are insignificant compared to the value of global industry, consumer spending, and resource-based livelihoods. Find the incentives that can put all this economic activity on a sustainable footing, and its sheer size and value become powerful forces for global-scale sustainability that will dwarf what governments and the UN can do by themselves.