bneGreen: Emerging Europe’s perfect storm for illegal logging

bneGreen: Emerging Europe’s perfect storm for illegal logging
By bne IntelliNews September 1, 2021

A group of companies found to have illegally logged as many as 4mn trees in Siberian forests supplied furniture giant Ikea with wood for years, with a product likely to have contained the illegally sourced Russian wood sold every two minutes, according to the results of an investigation by environmental NGO Earthsight released in July. 

The sheer scale of the logging, and the damage caused to Siberian forests that are one of the world’s critical ‘carbon sinks’, makes the scandal stand out. However, it is only one of numerous cases of illegal logging, ranging from small-scale thefts for firewood to huge scams to supply international companies, uncovered in the emerging Europe region. Poverty, corruption and the difficulties in enforcing the law in huge, sparsely populated regions like Siberia make it almost impossible to eradicate illegal logging, despite the harm it does to both the economy and the environment. 

While the timber was certified as legal and sustainable by the Forest Stewardship Council (FSC) before being shipped to an Indonesian manufacturer that supplies Ikea, Earthsight’s year-long investigation – based on undercover meetings, visits to logging sites, satellite imagery analysis and scrutiny of official documents, court records and customs data – showed the logs supplied by the ExportLes group of companies “were connected to numerous breaches of forestry and environmental laws”. Even in areas of FSC-certified forest, the investigation found illegalities were “rife”. 

In the ExportLes case, Earthsight’s 'Ikea’s House of Horrors' report revealed companies in the group “cleared more forest than allowed, logged protected forest zones within their leases under the false pretext that trees were diseased, and illegally stripped miles of shorelines crucial for fish spawning and erosion and flood control”. In total, it estimated that companies owned by ExportLes’ owner Evgeny Bakurov sourced 2.16mn cubic metres of wood from protected forests over a 10-year period. Illegally harvested wood is believed to have been incorporated into Ikea products, including the Sundvik range of children’s furniture and Flisat dollhouses. After the report was published, Ikea told Earthsight that it had cut ties with the logging companies in the report, newswires reported.

The previous year, a separate report from the same NGO claimed that more than 100,000 tonnes of lumber linked to another huge illegal logging scandal in the Russia taiga forests had entered the European market. Russian prosecutors said BM Group, the company at the centre of the scandal, had illegally logged 600,000 cubic metres of wood, with a street value of over €870mn when turned into finished products. However, in December 2020 a court in Khabarovsk dismissed the bribery case against the head of BM Group, Alexander Pudovkin. 

Earlier, the WWF warned that illegal logging of temperate hardwoods had “reached crisis proportions” in the Russian Far East, as companies rushed to supply Chinese companies producing furniture and flooring for international markets. According to the NGO, much of the illegal logging took place in habitats of the Amur tiger. 

A perfect storm of conditions 

The global furniture industry is growing rapidly, spurred on not just by increased demand in developed countries, especially among millennials, but also fast growth in emerging economies where disposable incomes are rising and there has been a boom in construction of housing – just waiting to be filled with furniture. A June 2021 Research and Markets report says the global furniture market is projected to grow from $564.17bn in 2020 to $671.07bn this year, and to further expand to $850.38bn in 2025. 

This in turn is spurring on demand for ever-increasing supplies of wood, the cheaper the better. High demand is one of the reasons for illegal logging identified by the authors of an academic paper published in March. Economic factors are demand for cheap timber (local or international) combined with poverty and lack of environmental awareness in source countries. The second set of reasons concern a lack of public power in the logging area: illegal logging is rife in wooded conflict zones, but this is also a phenomenon across developing countries. “Most of the domestic forest resources of developing countries are located in remote areas. They are usually large areas of vegetation, vast and rich in a variety of complex ecosystems. There are few sufficient forest surveys, and the basic information is not fully grasped, so the probability of illegal logging is increased,” says the paper. 

The difficulty in monitoring logging activity creates fertile ground for corruption. “Corruption can be found at all stages of the timber trade – from the harvesting of timber, its transportation, processing, manufacturing, exporting, importing and selling. This further exacerbates the destruction of forests, with devastating consequences for local communities, biodiversity and the environment,” says a joint report from Global Witness and Transparency International EU

“Corruption in logging is usually fuelled by a lack of institutional capacity to monitor and enforce existing legal and policy frameworks, low transparency and accountability, low or non-existent civil society inclusion and participation, and overall weak governance,” it adds. 

To give an idea of the scale of the problem, they cite a report from the United Nations Environmental Program (UNEP) and Interpol that shows that “environmental crime is growing at an alarming pace – two to three times faster than global GDP growth. Illegal logging, which has corruption and organised crime as main drivers, tops the ranking of environmental crimes with an estimated value of $50bn-152bn annually.” 

From the deforestation of the Amazon and other forests to poverty-stricken individuals chopping down trees to heat their homes, the problem of illegal destruction of trees is estimated to have increased since the start of the pandemic, along with other forms of environmental crime. 

In 2019, the World Bank put the cost of the illegal logging, fishing and wildlife trades at a staggering $1 trillion to $2 trillion. Admittedly, most of this was in ‘ecosystem services’ that are not currently priced by the market, such as carbon storage, biodiversity, water filtration and flood retention. But the development bank also estimated that governments in low-income countries where livelihoods disproportionately depend on natural capital lose out on $7bn-12bn in potential fiscal revenues every year. 

The cost is not only fiscal and environmental. In Romania alone, six forest rangers have been murdered and at least 650 violent incidents against rangers have been reported in the last few years, according to the Environmental Investigation Agency (EIA)

The death of anti-corruption activist and adviser to the mayor of Ukraine’s Kherson, Kateryna Handziuk, the victim of a vicious acid attack, has also been linked to her investigations into illegal logging. Handziuk was doused in acid and died at the age of just 33 after multiple operations. In the investigation following her death, friends and government sources said her work to expose illegal logging networks in forests controlled by the State Agency of Forestry Resources (SAFR) were a likely reason for her murder. 

Around the world, a report from Global Witness says three environmental activists were murdered every week in 2018. 

Virgin forests

Russia, the world’s largest country, also has the biggest forested area in the world at around 12mn square kilometres. Forests cover just over 70% of the huge Russian territory. The taiga spreads across most of Siberia, but there is also the huge Primorye Forest in southeast Russia. In Central and Eastern Europe (CEE), forests cover more than 60% of Bosnia & Herzegovina, Estonia, Latvia and Slovenia, and substantial swathes of other countries in the region. 

Not only that but the CEE region has some of Europe’s last virgin forests – the remnants of the wild forests that covered most of the continent thousands of years ago. They have become far rarer over the last 2,000 years, and increasingly in the last few hundred years, as forests were chopped down for timber or cleared for agriculture, towns or transport infrastructure. Today, these forests are home to Europe’s last big predators like bears and wolves as well as myriad plants and smaller animals. Europe’s largest virgin forest area is the Virgin Komi Forests, a UNESCO World Heritage site in the northern Ural mountains.

Also among Europe’s oldest forests is the ancient Bialowieza Forest in Poland. In 2017, a row erupted over logging in the forest, parts of which are remains of primeval forest, which the government said was needed to fight the spruce beetle. That sparked the outrage of UNESCO, which designated part it as a World Heritage Site, as well as of the EU, and scientists and environmentalists worldwide. The following year, the Court of Justice of the European Union (CJEU) ruled that Poland had broken EU law. 

Romania’s ancient forests are dear to the hearts of many in the country, which has led to thousands joining protests against illegal logging in the country. Romania has two-thirds of the last virgin forests in the temperate climate zone. These precious ecosystems, protected by European laws under the Natura 2000 protected areas, are systematically destroyed by massive logging operations, without the intervention of the Romanian authorities, NGO Agent Green said, quoted by Business Magazin.

In one scandal that broke in 2015, Agent Green released a secretly filmed video that appeared to show a shipment of undocumented wood from a Romanian national park being delivered to Austrian company Holzindustrie Schweighofer (HS), which dominates Romania’s timber sector. The EIA published a report claiming the company had processed “large amounts of illegally harvested timber” from Romanian forests. Ikea became entangled in the scandal the following year, when it admitted to a French documentary-maker that it had sourced timber from HS. 

In Ukraine too, an Earthsight reported claimed that Ikea suppliers had illegally sourced wood used in some of the Swedish company’s most popular chairs. The report detailed illegal logging in the Carpathian Mountains, home to endangered lynx and brown bears. According to Earthsight, Ukrainian inspectors found that a state-run forestry business named Velyky Bychkiv had allowed Ikea supplier VGSM to cut trees during periods when logging was not permitted. However, Ikea later said that an independent audit “did not reveal any signs that illegally harvested timber got into our supply chain”. 

Small-scale logging 

In October 2019, Serbia’s defence ministry sent soldiers to an area near the border with Kosovo to prevent illegal logging there; trees were being cut down then dragged across the border. The action was repeated in summer 2021, when gunfire was exchange. This was just some of the estimated 17,000 hectares of forests that are lost every year in Serbia as a result of illegal logging, with a value of around RSD3.84mn (€32,500). According to NGO GF Integrity, most of the wood is stolen by households for firewood. The problem is common in Serbia, due to the poverty of many Serbians and the difficulties in securing its forests. 

Elsewhere in the Western Balkans, Albania introduced a 10-year ban on logging and banned timber exports in 2016, though households are allowed to collect firewood. However, forests have reportedly continued to shrink since then. 

The problem is complicated in EU members in the region, as under the Renewable Energy Directive, member states are allowed to subsidise burning woody biomass. Analysis of satellite monitoring data by the European Commission's Joint Research Centre showed the pace of logging has increased in parts of the EU in recent years, especially in Estonia. Siim Kuresoo, vice-chairman of the Executive Committee for the Estonian Fund for Nature responsible for forest and climate programmes, wrote in 2020 that such “subsidies are helping fuel a dramatic surge in logging”.

Crackdowns announced 

Several governments from the region have announced crackdowns on illegal logging, prompted by both international criticisms and public pressure. 

In June 2020, Ukraine’s government announced a crackdown on illegal logging following the Earthsight report that claimed illegally harvested wood from the country had been found in Ikea’s supply chain. 

“The first step that we will take to change the situation is an audit... and a change of leaders for most of the forestries who have been in these positions for years,” said Prime Minister Denys Shmyhal, reported Reuters. “It is very important to prevent illegal timber cutting,” he added. 

The Romanian authorities have received repeated warnings from the European Commission to intervene and stop illegal logging in virgin forests in protected areas. In June 2020, the European Commission issued an ultimatum on the "systemic, continuous failure of the local authorities to protect some of the most valuable forests in Europe.”

Seven months later, Romania launched a new electronic timber traceability system, the SUMAL 2.0. This is intended to provide digital coverage of all aspects of timber supply chains in the country, moving away from the old paper-based permit and management system that was widely abused. However, environmental NGOs were quick to find the fatal flaw in the new system. As the EIA pointed out, “Unfortunately, the new system has inexplicably removed all public transparency.

“The release of SUMAL 2.0 had promised that a new range of data would be made transparent, including links between transport and forest permits, authorised boundaries of valid permits, the GPS tracks followed by trucks, and photos of each loaded vehicle. However, instead of making new data available, the government stopped publishing data altogether,” the NGO said. 

It stressed the importance of keeping timber sector data transparent to combat corruption and allow public oversight of the sector. “If and only if Romania’s government returns public transparency to the country’s forest sector data, the new SUMAL 2.0 system can stand as a model for innovative, participatory and effective forest management. Without this transparency, however, the government risks exacerbating an already dire illegal logging crisis,” said Alexander von Bismarck, executive director of the EIA, in February. 

Doing it better

One company that has made transparency a central part of its business is Russia’s Segezha Group, which is ranked the environmental, social and governance (ESG) leader amongst sustainably minded Russian timber companies, in a country where ESG is becoming of increasing importance to investors. Just seven years after its launch, Segezha held a successful IPO on the Moscow Exchange in April 2021, raising $400mn to finance future growth in the transaction that gave it $1.4bn valuation. 

Segezha president Mikhail Shamolin said the IPO was a landmark for the forestry industry in Russia. “As the only publicly listed Russian company in the sector, we are at the forefront of the industry at a time of modernisation and structural change. Segezha Group is also a responsible steward of Russia’s abundant forestlands, which are a resource of global significance as well as a key competitive advantage for the company. I believe that this resource will play a key role in the global transition to a sustainable future, with Segezha Group leading the way among Russian businesses,” Shamolin added.  

Shortly before the IPO, Segezha joined the UN Global Compact, the world’s largest corporate sustainability initiative, and the company’s board of directors approved its sustainability strategy and ESG policy.  "Segezha’s new Sustainability Strategy is based on four pillars: innovative forest business; making Russia’s forest regions a better place to live; climate-smart forest management and production; and responsible forest supply chain,” the company said in a press release at the time. 

Going electronic 

New technologies are being developed to help get around the problem of there being too few people to enforce forestry laws. Among the innovative startups to come out of the emerging Europe region in this area is Estonia’s Timbeter, which has produced an app it says is intended to make the industry more sustainable, profitable and efficient – including to prevent illegal logging – with digital workflow management. The process starts with taking a picture of a timber pile on a smartphone or tablet, after which it determines the number, volume and diameter of logs and allows them to be tracked through the supply chain. 

The company received a $1mn investment led by TMT Investments and Change Ventures for its international expansion in 2020. Earlier this year, the company announced it is working with the government of Georgia to strengthen sustainable forestry practices in the South Caucasus country, where it will support the digitisation of forest management. “Our goal is to make sure that forests are managed sustainably,” said Anna-Greta Tsahkna, CEO of Timbeter. “Digital solutions like Timbeter help companies to increase safety and efficiency and also easily provide needed data for the government that will help to fight the illegal logging. We hope to provide reliable data for sustainable management of Georgian Forests.”

The company is already working with major international companies including Chile’s CMPC, International Paper and Faber-Castell in Brazil, Laos’ Mekong Timber Plantations and Australia’s SEQH. 

In neighbouring Latvia, JSC Latvia’s State Forests (LVM) and the Startup Wise Guys (SWG) accelerator have set up a free international acceleration programme to promote innovation and efficiency within the forestry sector. Launched in August 2021, SilvaTech helps entrepreneurs turn an idea into building a tech product.