Communicating the Environmental Performance of Wood Products Tarmo Räty, Daniel Lindqvist, Tuula Nuutinen, Anders Q. Nyrud, Sini Perttula, Maria Riala, Anders Roos, Lars G. F. Tellnes, Anne Toppinen and Lei Wang Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm ISBN 978-951-40-2363-7 (PDF) ISSN 1795-150X www.metla.fi Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 2 Working Papers of the Finnish Forest Research Institute publishes preliminary research results and conference proceedings. The papers published in the series are not peer-reviewed. The papers are published in pdf format on the Internet only. http://www.metla.fi/julkaisut/workingpapers/ ISSN 1795-150X Office Post Box 18 FI-01301 Vantaa, Finland tel. +358 10 2111 fax +358 10 211 2101 e-mail julkaisutoimitus@metla.fi Publisher Finnish Forest Research Institute Post Box 18 FI-01301 Vantaa, Finland tel. +358 10 2111 fax +358 10 211 2101 e-mail info@metla.fi http://www.metla.fi/ Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 3 Authors Tarmo Räty1, Daniel Lindqvist2, Tuula Nuutinen1, Anders Q. Nyrud4, Sini Perttula3, Maria Riala1, Anders Roos2, Lars G. F. Tellnes4, Anne Toppinen3 & Lei Wang3 Title Communicating the Environmental Performance of Wood Products Year 2012 Pages 71 ISBN 978-951-40-2363-7 (PDF) ISSN 1795-150X Unit / Research programme / Projects Eastern Finland/Renewing wood product value chains and timber procurement solutions, PUU/3502 Business networks, innovation and new product and service concepts in wood products industries of the building construction value chain and 50251 Improving market communication of wood products’ envi- ronmental values Accepted by Thomas Rimmler, Researcher, 30 March 2012 Abstract The objective of this study is to provide a basis for improving the market communication of the environmental performance of wood products in Nordic countries. The focus is on business-to-business relations. The research questions concern the current state of the art of environmental performance measures, their efficient use, influential hot spots of environmental concerns and gaps between producer and stakeholder perceptions. The study combines an extensive assessment of the relevant literature with an assessment of the views and opinions in the industry today. The sample of 37 interviewed companies was purposively constructed to involve different actors and business strategies. The results of this study are drawn as a synthesis of the literature review and the interviews. The use of EPMs is efficient if grounded on, or resulting in, sustained competitive advantages at the firm or product level. For wood products, this usually necessitates the substitution of wood for materials with inferior environmental credentials. While forest certification is unique to forest products, generic eco-labels, such as green building certificates and EPDs, make it possible to compare the environmental performance of wood with that of other materials. Generic eco-labels such as the Nordic Ecolabel and EU Ecolabel make a claim for relatively better- than-average environmental performance. However, neither is a genuine international or pan-European consumer label. In particular the EU Ecolabel lacks specifications for wood products. Green building certification offers the best opportunities for wood, but these plans could be further developed to take better account of the imputed environmental impacts. EPDs communicate environmental information efficiently, but they are not yet widely used. The introduction of the CE mark for construction products and green building certification will probably increase the motivation to adopt these systems. The responsible and sustainable sourcing of wood constitutes important product information that should be attached to wooden products throughout the whole value chain. Therefore, the industry should promote chain-of-custody certification. Companies that put their stakes on PEFC/FSC and ISO 14001 certificates alone should be aware that these measures may become the minimum requirement in the market in the future. A company that wants to stand out in terms of environmental friendliness will have to accomplish even more Keywords Environmental performance, Green labelling, Certification, Standards, Communication, Interview study, Literature review Available at http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm Replaces url of the publication replaced by this publication. If not needed, remove this line but not the field. Is replaced by url of the publication replacing this publication. If not needed, remove this line but not the field. Contact information Tarmo Räty, Metla Eastern Finland Regional Unit, PO BOX 68, FIN-80101 Joensuu. E-mail tarmo.raty@metla.fi Other information 1 Metla, 2 Swedish University of Agricultural Sciences (SLU), 3 University of Helsinki, 4 Norwegian In- stitute of Wood Technology (Treteknisk Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 4 Foreword The motivation for this study grew from the discussions around the implementation of the EU Strategy for the Baltic Sea Region (EUSBSR). Developing sustainable strategies for wood is considered as one of the priorities for contributing to the prosperity of the region. In early 2010 Professor Pekka Ollonqvist and Tarmo Räty from Metla and Professor Anders Roos from the Swedish University of Agriculture (SLU) were invited to present ideas on how wood products can contribute to sustainable forestry. The key question appeared to be how to communicate efficiently regarding the environmental performance of wood. In spite of the lively debate around the topic, we found it to be poorly stud- ied, especially from the business-to-business perspective. The first versions of the research pro- posal were drafted by Räty and Roos; Professor Anne Toppinen from the University of Helsinki and Anders Q. Nyrud from the Norwegian Institute of Wood Technology (Treteknisk) were soon asked to strengthen the research group. Our research proposal was accepted as one of the projects of EUSBSR implementation under the common umbrella called the EFINORD flagship. Discussions under the umbrella have consider- ably developed our proposal and motivated our work toward a research project. The participating institutions have granted considerable resources for the execution of this study. However, the Nordic Forest Research Co-operation Committee (SNS) grant 112 finally put the project into operation in March 2011. The grant allowed us to undertake a series of interviews across the Nordic woodworking value chain and to run the necessary workshops to coordinate the literature reviews, as well as to compile this report. As a coordinator of the project, I would like to express my gratitude to my colleagues for their ef- forts to solve this tricky problem of efficient communication. Naturally, the support from the SNS, Ministry of Agriculture and EFINORD is also greatly appreciated. This report will hopefully be seen as a fresh start not only for future studies, but also for the dis- cussion on how the environmental performance of wood can be promoted, and what kind of tools businesses and policymakers may have at their disposal to promote the use of responsibly and sustainably originated wood. Joensuu, March 2012 Tarmo Räty Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 5 Contents Executive summary..................................................................................................... 6 1 Introduction............................................................................................................. 11 1.1 The Nordic wood-based value chain.............................................................................. 11 1.2 Environmental marketing and communication in the wood-based value chain............. 12 1.3 Research questions......................................................................................................... 15 2 Methodology........................................................................................................... 16 3 Literature study....................................................................................................... 19 3.1 Business and environmental performance...................................................................... 19 3.1.1 Environment as a strategic capability.................................................................. 19 3.1.2 Relation between environmental and economic performance............................. 21 3.2 Environmental communication...................................................................................... 23 3.3 Environmental performance measures in woodworking industries .............................. 25 3.3.1 General tools – environmental standards and life cycle assessment.................... 25 ISO 14000 certificate family.......................................................................................... 26 CEN Sustainability of Construction Works.................................................................... 27 PAS 2050:2011............................................................................................................... 27 Life cycle assessment (LCA).......................................................................................... 28 Environmental Product Declarations (EPD).................................................................. 28 3.3.2 Process measures ................................................................................................. 29 ISO 14001:2004.......................................................................................................... 30 EMAS.......................................................................................................................... 30 3.3.3 Product stewardship............................................................................................. 31 Forest certification....................................................................................................... 31 Green building ............................................................................................................ 32 International consumer labels ..................................................................................... 33 Carbon footprints......................................................................................................... 34 Normalized measures.................................................................................................. 34 3.4 Synthesis model of the literature study.......................................................................... 35 4 Results from the interview study.......................................................................... 37 4.1 Environmental performance measures........................................................................... 37 4.2 Customers and suppliers................................................................................................. 43 4.3 Communication on the environment.............................................................................. 46 4.4 Environmental strategies in companies.......................................................................... 50 4.5 Views of the forest certification bodies.......................................................................... 53 5 Discussion............................................................................................................... 55 5.1 Environmental standards, labels and certificates............................................................ 55 5.2 Efficient use of environmental performance measures.................................................. 56 5.3 Influential hot spots........................................................................................................ 58 5.4 Gaps in perceptions........................................................................................................ 58 6 Conclusions............................................................................................................ 60 References .................................................................................................................. 62 Appendix 1 Interviewed companies........................................................................... 67 Appendix 2 Interview guide: companies................................................................... 69 Appendix 3 Interview guide: PEFC............................................................................ 71 Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 6 Executive summary Introduction The objective of this study is to provide a basis for improving the market communication of the environmental performance of wood products in Nordic countries. The focus is on business-to- business relations, excluding raw material supply from forests and end-consumer markets. At present, there are few generally accepted standards to measure and convey environmental product attributes to stakeholders in the value chain. Moreover, there is a lack of knowledge about the type of environmental information that would facilitate efficient communication when a business faces consumers or another business. The study contributes to identifying opportunities for improve- ment, e.g. by narrowing the information gaps concerning environmental performance measures, adapting the information content and making use of the best information channels. The research questions consider different aspects of environmental performance measures (EPMs) and their role in business communication: Which EPMs are currently in use? • How can the industry make efficient use of EPMs to promote wood products? • Where are the vital hot spots where environmental concerns are most influential?• Where are there gaps between producer and customer/stakeholder perceptions of EPMs?• Methodology A broad approach was adopted that combined an extensive assessment of the relevant literature with an assessment of the views and opinions of Nordic woodworking industry stakeholders. The literature study conceptualizes EPMs and offers a background for understanding the links between them and companies’ economic performances and defines the main classification prin- ciples for EPMs in order to discuss their role in environmental communication. The interviews complement the literature study by highlighting the current situation and the perceptions among Nordic industry stakeholders of EPMs. A sample of 37 companies to be interviewed was purpo- sively constructed to involve different actors and business strategies and should not be considered a random sample of the industry in Nordic countries. The results of this study are drawn as a syn- thesis of the literature review and the interviews. Literature study Business and environmental performance A given definition of environmental performance is “the results obtained by an organization with regard to its activities that interact with the environment”. The scholarly discussion has been summarized as a corporate environmental performance matrix presenting internal/external and process/outcome dimensions. Hart (1995) justified the natural resource-based view (NRBV) by: “Strategists and organizational theorists must begin to grasp how environmentally oriented re- sources and capabilities can yield sustainable sources of competitive advantage.” According to the NRBV, pollution prevention, product stewardship and sustainable development are considered to Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 7 yield competitive advantage. In our view, pollution prevention also refers to the management of internal processes and product stewardship in the remaining cells of the corporate environmental performance matrix. A core question for the efficient use of EPMs is whether such measures yield sustained economic gains. Although the message from the reviewed studies is mixed, the literature supports the posi- tive relation between environmental and economic performance in business. However, one must of course pay attention to both the environmental and the economic measures used. Cox (2010) identified three major types of corporate communication in the public sphere with respect to the environment: green marketing, influencing and aggressive strategies. Green mar- keting is a common tool, and the woodworking industries usually rely on the generally positive environmental profile of wood. However, they should take account of a wider landscape of en- vironmental communication, involving a more proactive approach to influencing policymakers and the public and to investigating how environmental properties can be used in the competition against other materials. EPMs in woodworking industries Environmental performance measures are discussed in three consecutive categories from general rules to specific product labels, such as scientific or technical standards and general rules, pro- cess measures and product stewardship. The role of the ISO 14000 environmental management standards is fundamental to the elabora- tion of almost any EPM. They set generic criteria for how environmental management is assessed, requirements for environmental labelling and declarations as well as carbon footprint calcula- tions, and life cycle assessment (LCA). The standards from the CEN Technical Committee CEN/ TC 350 “Sustainability of Construction Works” will play a focal role in the environmental evalu- ation of buildings and the materials used. The PAS 2050:2011 (BSI 2011) standard is a publicly available specification for assessing product life cycle GHG emissions and carbon footprints. LCA is a generic scientific method to assess the full environmental impacts of products. The stag- es in LCAs are explicitly described in the ISO 14040 series standards. The CEN standards provide guides for the execution of LCA for buildings. An important implementation of LCA is the Envi- ronmental Product Declaration (EPD). In EU regulation, EPDs are considered as the main source of environmental information for assessing the conformity of construction products. The key process measures are ISO 14001:2004 and the Eco-Management and Audit Scheme (EMAS). These measures aim to improve organizational capabilities as well as the managerial cognition and framing of environmental issues. The EMAS is a European environmental manage- ment system and is considered to be more rigorous than ISO 14001. Both measures are supposed to help companies to improve their financial and environmental performance and at the same time communicate these environmental improvements to different stakeholders. Product stewardship uses product differentiation to gain sustained advantages. The measures here range from product-specific eco-labels (forest certification) to rating systems for buildings (green building). Measures can also be material-based or take account of a wider set of sustainability cri- teria (consumer eco-labels). Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 8 Two sustainable forest management (SFM) certificates are currently internationally accepted in the Nordic countries: the Programme for Endorsement of Forest Certification (PEFC) and the Forest Stewardship Council (FSC). Both certification bodies also offer chain-of-custody certifica- tion for wood products. This is an efficient tool for protecting the relevant parts of the value chain from environmental claims, especially in construction. The FSC and PEFC are often found to be problematic, as consumers generally cannot identify sustainability criteria in forestry and the la- bels are not comparable with non-wood products. The Nordic Ecolabel and EU Ecolabel initiatives apply to multiple product categories. A sustain- able source of wood is always required. They cooperate with each other in labelling activities, but are managed by independent bodies. The Nordic Ecolabel is limited to the Nordic countries, but it can be used for a large number of wooden product categories. However, the possibilities for using the EU Ecolabel in wood products are currently limited. In common with the PEFC, they are ISO 14024:1999 Type I environmental labels. Carbon footprint calculations are based on the same principles as the EPDs, and are frequently used as consumer labels. If they are in accordance with ISO 14021, they are known as Type II en- vironmental claims. BREEAM and LEED are the most frequently used international green building certificates. Gen- erally, the rating tools vary in their scope from single- to multiple-dimensional tools. As a mini- mum they assess the energy efficiency of a building, although they extend to a number of other sustainability criteria including sustainable sourcing of building materials. New rating tools are currently being developed to take better account of the actual environmental impacts of develop- ment. Results of the interview study Sustainable forestry certificates (SFM), environmental management systems (EMSs) and the Nor- dic Ecolabel are generally well known among the firms participating in the study. SFM measures are considered to be mandatory for market entry or to maintain markets, especially in exports and B2B trade. The availability of chain-of-custody certified wood products is still low. EMS certi- fication is also important for export markets. Consumer labels other than SFM are hardly used. Green building certificates are used by large constructors, but their perceived usefulness seems to be low. LCA measures, including Environmental Product Declarations (EPD), are not widely used, but the interviewees considered their role to be a promising one. The sustainable origin of wood and the ability to document the trustworthiness of company opera- tions seem to be the most important characteristics of EPMs. The competitive or operational ad- vantages of EMSs were not always identified; the proactive use of different measures was identi- fied in a few cases. Non-wood materials are not generally seen as creating competitive pressure. Certificates are considered to be part of regular managerial practices, but some key actors con- sidered problems with multiple certifications and hoped to achieve cost and resource savings by integration. The environmental awareness of customers is believed to be rather low, but higher among indus- trial and public sector customers. The most frequently required environmental documentation is Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 9 forest certification. Owners’ or investors’ interest in documentation is limited, however. Docu- mentation from suppliers is required in the case of chain-of-custody certification only. Companies do not consider customer benefits to be a driving force of the use of EPMs. They might help in building an image but there are no tangible benefits. Environmental communica- tion is targeted to customers and utilizes EPMs or promotes other environmental aspects, such as recyclability, of wood products. The greatest potential for green marketing is seen in timber con- struction. Reliance on environmental friendliness alone can prove problematic in a competitive environment, where other materials also try to carry out green marketing. Quite commonly companies have a written environmental policy statement. The specific goals and priority areas of environmental policies are most often related to raising awareness of the re- newable role of wood materials, minimizing the footprint from transportation and developing on- site material sorting and recycling. Work practices and following up of the policy rarely extend beyond what is mandatory for the implementation of EMSs. With respect to strategies to influence consumers’ needs and wants, company strategies are po- larized. We found that almost half of the companies act proactively in their strategies for product development. Companies do not actively seek input from NGOs. According to the interviewed PEFC representatives, environmental organizations’ attitudes and slightly differing forest management requirements justify parallel forest certification systems. The competing chain-of-custody certification systems provide benchmarks for each other. The PEFC has recognized that there are no price premiums for individual products. It has cooperated with green building certification bodies; the problems with LEED need to be solved at the inter- national level. Discussion and conclusions The use of EPMs is efficient if grounded on, or resulting in, sustained competitive advantages at a firm or product level. For wood products, this usually necessitates the substitution of wood for materials with worse environmental credentials. While forest certification is unique to forest products, generic eco-labels, such as green building certificates and EPDs, make it possible to compare the environmental performance of wood with that of other materials. An overview of the environmental assessment standards and their application as certificates or la- bels in the woodworking industries is given in Figure 6. Certification and labelling chains have three end points: generic eco-labels, green building and the CE mark. These are the tools and markets in which wood competes with other materials. Generic eco-labels such as the Nordic Ecolabel and EU Ecolabel make a claim for relatively better-than- average environmental performance. However, no genuine international or pan-European con- sumer label exists. In particular, the EU Ecolabel lacks specifications for wood products. Green building certification offers the best opportunities for wood, but the plans could be further devel- oped to take better account of the imputed environmental impacts. EPDs communicate environmental information efficiently, but they are not yet widely used. The introduction of the CE mark for construction products and green building certification will prob- ably increase this motivation. Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 10 The responsible and sustainable sourcing of wood constitutes important product information that should be attached to wooden products throughout the value chain. Therefore, the industry should promote chain-of-custody certification. Companies that put their stakes on PEFC/FSC and ISO 14001 certificates alone should be aware that these measures may become the minimum require- ment in the future market. A company that wants to stand out in terms of environmental friendli- ness has to accomplish even more. No single wood product, beside construction value chains as a whole, was considered promising for yielding sustained competitive gains. However, the environmental demand from the public sector and the export markets were considered the most sensitive. The study has explored a wide range of topical issues regarding the use of EPMs, related commu- nication, perceived strategic importance and key areas for development. From the communication perspective, our results suggest that the Nordic wood industry still need hands-on help to develop the role of EPMs in its market communication. Public actions are needed, mostly in promoting production and the use of Environmental Product Declarations and the development of green building initiatives. Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 11 1 Introduction Environmental issues and concerns related to climate change and energy scarcity are attracting public attention in Europe (European Commission 2011a, European Commission 2011b). This development has resulted in increased interest in measuring, monitoring and communicating the environmental properties of consumer goods. In corporate management this development has put the focus on the environmental performance of corporate firms’ and organizations’ practices (Nawrocka and Parker 2009, Ottman 2011). The forest sector presents the same picture: the ex- tent of environmentally certified forests has been increasing over the latest decade (UNECE/FAO 2011a). The key buying segments are implementing stricter environmental policies for corporate image-building and to pre-empt bad publicity. The environmental importance of the main user of wood products, the construction sector, is responsible for more than 40% of the global energy use and accounts for one-third of global greenhouse gas emissions (UNEP 2009). Hence, envi- ronmental performance wood products can contribute to the United Nations Environment Pro- gramme’s (UNEP) characterization of a “green economy”, i.e. “low carbon, resource efficient, and socially inclusive” (UNEP 2011). Discussions are being conducted in different international forums about the contributions and role of the forest sector in the green economy (Forest Europe et al. 2011, UNECE/FAO 2011b). Accordingly, there are reasons to believe that the societal trend will engender a greater demand for environmental performance declarations on forest products. The objective of this work is to provide a basis for improving the market communication of the environmental performance of wood products in Nordic countries. It provides a basic description of the principal intentions of environmental performance measures and their role in market com- munication. The main share describes a field study on environmental performance measures in the forest supply chain conducted in Sweden, Finland and Norway. 1.1 The Nordic wood-based value chain The Nordic countries are important exporters of wood products, mainly to the European markets. Finland and Sweden are currently among the largest exporters of sawn goods and solid wood products in the world, whereas Norway is at present a net importer of sawn wood and solid wood products (Table 1). The forest sector has a more prominent status in Finland and Sweden than in Norway, both with respect to production and in relative measures such as the share of GDP. The markets for solid wood products can therefore be expected to differ between the countries in this study. Whereas the domestic business-to-business and business-to-consumer markets are most important for Norwegian sawmills and wood industries, Finnish and Swedish producers are fo- cused on industrial, business-to-business markets and foreign customers. Table 1 Forestry and primary processing in the Nordic sawn wood industry, 2010 million m3 Finland Norway Sweden Total harvest 50.9 8.9 70.2 Sawn wood production 9.5 1.9 17.1 Imports 0.6 0.9 0.4 Exports 5.8 0.5 11.4 Domestic consumption 3.7 2.3 6.1 Source: Metla Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 12 The domestic value chain for wood can be divided into six stages or activities (Figure 1): 1) for- estry and raw material supply, 2) primary processing (sawmills), 3) secondary processing (value- added producers), 4) wholesale, retail and export activities (builders’ merchants, DIY stores or ex- port agents), 5) construction (contractors and sub-contractors), which serves directly 6) end-users (builders, investors and private consumers). The stakeholders in the various value chain stages in- clude forest owners, loggers, sawmills, wood industry, retailers and selected end-customers such as building contractors, developers and private customers. Key professions such as architects and structural engineers as well as both local and national authorities can also influence the choices and requirements. An important characteristic of wood products markets is the dominance of business-to-business relationships. Primary producers generally sell to builders’ merchants or industries, on export markets through agents or directly to industrial buyers. The share of wood sold at do-it-yourself stores to private end-consumers, although economically promising, is relatively small. Informa- tion also flows through the same multi-stage value chain, in both directions. Accurate informa- tion exchange will improve the functioning of the supply chain and improve value for customers – including those who depend on the environmental performance of the product. However, in less fortunate cases the relevant information, e.g. on environmental properties, will not reach the end- consumers in a proper format. 1.2 Environmental marketing and communication in the wood-based value chain Although the need to quantify and monitor environmental product properties and inform custom- ers and the general public about the “greenness” of wood appears evident, the wood industry often faces a more complex situation regarding the execution of these tasks. At present, there are few generally accepted standards to measure and convey environmental product attributes to stake- holders in the value chain. Moreover, there is a lack of knowledge about the type of environmen- Forest Export Agent: export Import Retail: DIY Primary: sawmill Value-added producers Wholesale: builders’ merchant Private consumer Construction value chain Investor/ Builder Domestic market Forest Agent: export Retail: DIY Primary: sawmill Value-added producers Wholesale: builders’ merchant Private consumer Construction value chain Investor/ Builder Domestic market Figure 1 The Nordic wood product value chain, adapted from Nord (2005). Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 13 tal information that would facilitate efficient communication when a business faces consumers or other businesses. The impact of environmental information is critical at the industrial customer’s, wholesaler’s or retailer’s gate, where wood faces competition with other materials. Providers of wood products have to take into account the purchasing policies followed by the customer to secure the environ- mental performance of the products and publicity that may damage the company’s image. These policies are furthermore reinforced by the end-consumer demands or policy requirements in the country. At present the dominant environmental green-labelling scheme in the sector is forest certification. Forest certification is related to the sourcing of wood from sources that are managed according to certain environmental and other criteria. The application of these standards is monitored by independent parties. Chain-of-custody certification means that the certified material is tracked through the supply chain. The majority of certified firms in the Nordic wood industries are either raw material suppliers or primary processing firms. Green purchasing behaviour is considered as a complex process that is affected by a wide range of factors: values, product group, type of market and the buyers’ position in the supply chain. Green marketing and communication must therefore be evaluated and interpreted in the context of the firm’s overall marketing strategy. According to previous studies, European consumers’ percep- tions of European forest management and wood products are favourable (c.f. Rametsteiner et al. 2007). This sentiment, coupled with the fact that wood products in general exhibit favourable en- vironmental properties (c.f. UNECE/FAO 2011a), offers a possibility for the industry to use green marketing arguments to promote the use of wood products. At present, however, there are very few examples of wood products of which their environmental properties are used in marketing to- wards end-customers (UNECE/FAO 2011a). This may be explained by a very deliberate strategy – or the concepts and channels to inform about environmental properties not being appropriate. Different aspects of customers’ preferences for wood products have previously been investigated empirically: suppliers’ vs. customers’ ratings of lumber and supplier performances (Weinfurter and Hansen 1999); lumber quality dimensions (Hansen et al. 1996); lumber requirements among industrial customers at wood treating plants (Reddy and Bush 1998); consumer preferences for indoor furniture (Pakarinen and Asikainen 2001); and preferences for specific applications or spe- cies (Dunn et al. 2003, Nicholls et al. 2004, Jonsson 2005, Costa and Ibanez 2007, Nordvik et al. 2009). This research and other studies provide examples of the key features affecting the prefer- ences for wood. Forest products marketing research has also addressed the question of consumers’ attitudes to- wards certification and their willingness to buy certified wood products (cf. Ozanne and Smith 1998, Forsyth et al. 1999, Bigsby and Ozanne 2002, Veisten 2002, Kärna et al. 2003, Ozanne and Vlosky 2003, Hansmann et al. 2006, Veisten 2009, Aguilar and Cai 2010, Thompson et al. 2010). Ozanne and Smith (1998) identified a segment of consumers in the United States who would probably be willing to pay a premium for environmentally certified wood products. These “green” consumers were described in socio-economic terms as liberal, female and well educat- ed. Green consumer segments were also identified by Veisten (2002) as well as by Bigsby and Ozanne (2002). Anderson and Hansen (2004) and Aguilar and Cai (2010) established that eco- labels on wood products were preferred attributes, but they were generally outweighed by other product properties. In an examination of the factors underlying the preferences for eco-labelled Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 14 wood products, Hansmann et al. (2006) found that eco-behaviour was influenced by a sustainabil- ity orientation among consumers emphasizing the ecological and social aspects of forests, and by the communication of label information. The research on environmental marketing in industrial settings is definitely thinner. All the previous studies show a limited overall willingness to pay for environmentally certified wood products, but they also indicate the presence of specific segments of green customers. In this way, the study of consumers’ attitudes towards environmentally certified forest products relates to, and illustrates, the broader issue of how consumers react to eco-labelled products in general. Peattie and Crane (2005) gave a critical overview of green marketing, concluding that consum- ers are (for good reasons) suspicious of green labels. Once customers with green preferences have been discovered, it may be infeasible to characterize these groups in socioeconomic terms. Problems in identifying green customers in non-wood product areas for example were reported by Straughan and Roberts (1999) and De Pelsmacker et al. (2005) and confirmed in several for- est products surveys. The evidence suggests that green purchasing is often strongly influenced by attitudes rather than socioeconomic factors (Kaiser et al. 1999, Straughan and Roberts 1999, Diamantopoulos et al. 2003). Concerning the eco-labelled products, success in communication along the value chain is crucial both for efficient processing and for distribution – as well as for optimal customer customization. This issue has not been considered in detailed scholarly discussions in the Nordic wood industry. Generally speaking, inefficiencies in communication may well also arise from the selection of the media or message to be distributed or the information being transmitted. Several obstacles and pitfalls have been identified when surveying green marketing communication. Peattie and Crane (2005) referred to mistakes in the past that have increased the general mistrust in green market- ing and Forsyth et al. (1999) claimed that intentions to buy green are generally exaggerated, for example in survey studies. However, instead of relying on traditional models for marketing com- munication, one can also make use of a more general approach to environmental communication that sheds light on the context of the communication process (Cox 2010, Rotherham 2011). The way in which a supply chain works has an impact on how environmental information is passed on. MacFarland et al. (2008) called this supply chain contagion1; the level at which initial concerns about the environment of the upstream supplier will be passed though the chain depends on the structure of the communication patterns and structures of the supply chain. The integrity of the chain of custody has also appeared crucial; Simpson et al. (2007) concluded that suppliers were found to be more responsive to their customers’ environmental performance requirements when increasing levels of relationship-specific investment occurred. The current state of the art and the market situation emphasize the need to select a wide approach for the study of the efficiency and effectiveness of environmental performance measures, particu- larly when consideration is made of the communication aspects, the information content and the present diffusion of EPMs in the Nordic wood sector. An enquiry into the issue could help the 1 McFarland et al.’s observation was that in the case of “environmental uncertainty and the perceived similarity and frequency of contact between boundary personnel”, propagation of inter-firm behaviour from one dyadic relationship to an adjacent dyadic relationship within the supply chain is manifest. Dependence asymmetry has a negative effect on manifest contagion. Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 15 sector to identify opportunities for improvement, e.g. by narrowing the information gaps concern- ing environmental performance measures, adapting the information content and making use of the best information channels. 1.3 Research questions In the present report environmental performance measures (EPMs) for wood products and their use in corporate downstream and upstream activities are described and analysed. A multitude of EPMs is available and inefficiencies may well arise from a lack of suitable measures or knowl- edge of how to communicate the environmental properties of wood products and wood in building (Hansen et al. 1996, Rotherham 2011). To serve the purpose of providing cost-efficient informa- tion that improves market efficiency with regard to environmental attributes, it is crucial for the communication of EPMs to be focused on the key characteristics. It is therefore relevant to review these measures in woodworking industries and to identify and assess the measures that are cur- rently used for market communication. This study investigates how environmental performance indicators for wood products are communicated at all levels of the supply chain and within corpo- rate internal processes. The focus is on performance in business-to-business relations – although business-to-consumer interactions are also discussed – and the study is geographically oriented to the Scandinavian countries Finland, Sweden and Norway. Hence, the research questions consider different aspects of environmental performance measures and their role in business communication: How is environmental performance measured in the forest products, sawmilling and • woodworking industries and related sectors such as retail, construction and furniture? Efficiency of EPMs: How can the industry make efficient use of EPMs to promote wood • products? What benefits do firms along the supply chain – both suppliers and buyers – find in EPMs? Influential hot spots: What are the perceived most vital products, customer segments and • stakeholders where environmental and sustainability concerns are most influential? Gaps in perceptions: Where are there gaps between producer and customer/stakeholder • perceptions when it comes to the sustainability and environmental dimensions of wood products? Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 16 2 Methodology The main research focus for this study involves the classification of environmental performance measures, perceptions of the effective use of EPMs, the most interesting and relevant products for environmental performance information, customer segments and stakeholders for EPM-focused communication, and “gaps” between suppliers’ and buyers’ views on the environmental perfor- mance of wood products. Hence, a broad approach was chosen; joining a theoretical literature study with qualitative interviews appeared to be the most suitable method. This approach com- bines an assessment of quite extensive literature from the last two to three decades with the domi- nant views and opinions in the industry today. The research approach is shown in Figure 2. The literature review is warranted by the need to assess the main functions of environ- mental performance communication in wood products markets. The central purpose of the literature study is to link EPMs with firm performance, define the main classification principles for EPMs and discuss their role in environmental communication. The data of the review are based on a literature search, e.g. on EPMs and performance, principles for EPM and market communication. The interviews complement the literature study by highlighting the current situation and, even more so, the perceptions among stakeholders of EPMs. The interviews also shed light on the wood industries in Finland, Norway and Sweden. Considering the focus of this investigation on views, perceptions, contingencies and modalities (Strauss and Corbin 1990, Miles and Huberman 1994, Silverman 2000) and an interest in contextual understanding (Bryman 2001), a qualitative approach was selected with forty interviews with value chain professionals in the three coun- tries. It should be emphasized that the interviewed companies do not constitute a representative sample of Nordic woodworking industries. The selection was purposively performed to involve different actors in the business relations, suppliers and buyers, large-scale and small-scale producers, retail- ing chains and industrial buyers. The sample also covers different business strategies from com- panies with a clear focus to companies that cater for the mass market. The companies also range Figure 2 Overview of the research approach Synthesis results: Classification of EPMs Perceptions of EPMs and efficient use Relevant products for environmental performance information, EPM based customer segments Communication 'gaps' Theoretical literature study Performance, communication, EPM Interview study Study need: Views and use of EPMs EPM:s in use Need for improved EPM:s - • • • • • • • Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 17 from very environmentally aware players to regular production-oriented sawmilling conglomer- ates. The company-level information is kept confidential. Figure 3 summarizes the value chain profile of the sample. A summary of the interviewed companies is given in appendix 1. The companies represent different phases of the supply chain: primary producers, value-added producers, construction, wholesalers and retailers. Three of the interviews were conducted with organizations: the Programme for the Endorsement of Forest Certification (PEFC Finland), PEFC Norway and a wood industry association in Finland. When applicable, the wood industry associa- tion’s responses were accounted for as a value-added company. The sawmills are classified as primary producers. When a primary producer conducts downstream value-adding production it is classified as both a primary and a value-added producer. The group of value-added producers consists of different types of companies: flooring companies, private house manufacturers, treated wood manufacturers and outdoor furniture and equipment manu- facturers. Retailers and wholesalers are considered as one group. The constructors’ group covers private house manufacturers, professional constructors and developers. The company size is also taken into consideration in the sample. The division follows the Euro- pean Commission recommendation regarding the definition of an SME.2 However, as our sample also contains larger companies, we call companies with a turnover exceeding 500 million euro as “very large”. The counts of companies of different sizes and the main exporting markets are given in Table 2. 2 http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/index_en.htm 0 5 10 15 20 25 30 35 40 Primary Value-added Constructor Wholesale Retail Organization Figure 3 The supply chain phases of the interviewed companies and organizations (n = 40). Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 18 The interview guide involved the following topical areas: general information about the company, EPMs that are known or in use, customers, communication and environmental strategy (appen- dix 2). Pilot interviews were conducted prior to the larger data collection and some minor changes were subsequently made to the questionnaire. In conformity with qualitative research practices, the interview guide was also adjusted slightly as new information was acquired. The interviewees approached were persons with overall responsibility for and insight into the company’s environmental marketing/purchasing procedures. In the individual cases, their roles in the company varied from CEO, marketing manager or production responsible. In a few cases spe- cialized environmental managers responded to the questions. In some individual cases, the neces- sary information had to be elicited from two persons in the same company with complementary information on the EPMs in the company (Campbell 2009). The interviews were mostly conducted face to face, but they were held by telephone in some cas- es and by email in one case. All the interviews were carried out in the local language and lasted between thirty minutes and more than one hour. They were recorded in Finland and Sweden, and transcript summaries were written down. In Norway the interviewer used written notes. Further- more, the answers to a set of key questions were assembled in a matrix format allowing easier pattern matching and comparisons across interviewees. To coordinate the procedures in the three countries, meetings were organized before the actual data collection took place, and when most of the interviews had been conducted and the matrix sheets were about to be assembled. The data analysis adhered to the recommended qualitative theme-creating procedures. Table 2 Interviewed companies based on their turnover and main export markets Company size Turnover, me Count Export markets* Count Very large 300+ 12 Scandinavia 12 Large 299–50 9 Europe 14 Medium-sized 49–10 10 UK 9 Small 9 -2 4 Transition 4 Micro -2 2 Middle East 4 Total companies 37 Far East 7 Organizations 3 USA 2 Total interviews 40 Exporting companies 26 * Multi-market companies are recorded several times; the total count equals the number of exporting companies in the sample. Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 19 3 Literature study 3.1 Business and environmental performance 3.1.1 Environment as a strategic capability Environmental considerations have filtered into marketing and supply chain management curri- cula (Belz and Peattie 2009, Christopher 2011). Traditionally, the evaluation of an organization’s performance was based on cost, quality, time and service. More recently, environmental perfor- mance has been suggested as a new dimension of operations performance (see Jimenez and Lor- ente 2001). What is actually counted as environmental performance is not clearly defined in the existing lit- erature. International Organization for Standardization (ISO) 14031 states: “Environmental per- formance evaluation standard defines environmental performance as the results obtained by an organization with regard to its activities that interact with the environment” (ISO 2007). Thus, EPMs cover general environmental strategies in business, monitoring or auditing of operations, product development and design, certification of the chain of custody or modification of market- ing functions, to give some examples. EPMs must serve an information need to be useful and our study seeks to understand how this in- formation on environmental performance is transferred, whether the metrics efficiently fulfil the information needs and whether the right type of information is communicated. The stakeholder theory (see e.g.Freeman 1984, Donaldson and Preston 1995, Mitchell et al. 1997) identifies and models groups that have an interest in companies’ performance. It formulates meth- ods that can be used to address the “Principle of What and Who Really Counts” for the company, as Freeman put it. Aside from the shareholders, employees and customers, local communities, regulators and, especially if environmental performance is concerned, non-governmental organi- zations (NGOs) are also considered as stakeholders. The discussion on EPMs escalated in the early 1990s and scholars have made several attempts to categorize them. James (1994) formulated five main categories of EPMs: environment focused, process related, business focused, normalized and finally aggregated measures. The first three categories were further divided into sub-categories. While James’s categories are detailed, a more generic framework was provided by Ilinitch et al. (1998). She summarized the works of Wood (1991) and Lober (1996) into a corporate environmental performance matrix based on the main recipients (internal or external) and focus (process outcome), as shown in Table 3. Table 3 A corporate environmental performance matrix (Ilinitch et al. 1998).. Internal External Process Organizational systems Stakeholder relations Outcome Regulatory compliance Environmental impacts Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 20 Both the James and Ilinitch frameworks above are useful for organizing different performance measures in the relevant dimensions; both draw a line between internal and external uses of envi- ronmental information. However, as Ilinitch pointed out, the problem with the performance ma- trix is the strict independence of categories,3 especially in the process and outcome dimension. Environmental performance does not relate only to goods made of sustainable forest-based ma- terials, as SFM certification endorses. Internal environmental performance categories refer to the use of environmental measures as part of the organizational processes to improve the firm’s ca- pacity. External stakeholder relations cover marketing communication, but a wide range of com- munication tools can be used to improve the environmental performance of a company. Neither James’s nor Ilinitch’s framework is directly connected to the theoretical discussions on how a company may gain competitive advantage by using a particular EPM. To achieve this, we have to consider that environmental qualities communicated as EPMs, or the communication skills as such, may constitute key resources. The approach is known as the resource-based view (RBV, see e.g. Wernerfelt 1984, 1995, Barney et al. 2011). The theory emphasizes the role of the firm’s own resources and competencies in creating sustained competitive advantage. On this ac- count, the firm must have so-called VRIN resources enduring non-substitutable value, i.e. the ad- vantage must be hard to accomplish otherwise. Rarity, tacitness as well as social complexity are common attributes of resources that contribute to sustained competitive advantage, and in connec- tion with the wood products industry, have been reviewed by Lähtinen (2007). Hart (1995) raised the natural environment as a key issue in his extension to the RBV, the natural resource-based view (NRBV): For the resource-based-view to remain relevant, its creators must embrace and internalize the tremendous challenge created by the natural environment: Strategists and organization- al theorists must begin to grasp how environmentally oriented resources and capabilities can yield sustainable sources of competitive advantage. (Hart 1995) He formulated three environment-related strategies for competitive advantage based on resources or capabilities: Pollution prevention1. Key resource: continuous improvement to achieve lower costs Product stewardship 2. Key resource: stakeholder integration to pre-empt competitors Sustainable development3. Key resource: shared vision to achieve future positions Pollution prevention focuses on the necessary developments in production and operations to achieve lower costs. It provides some justification for the use of the process dimension in James’s and Ilinitch’s categories of EPMs. Hart and Dowell (2011) showed that pollution prevention strat- egies, imposed as organizational capabilities or managerial cognition and framing actually yield financial benefits. Whether the development of processes is internal or external, as suggested in 3 In Ilinitch’s words “orthogonal categories”. Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 21 Table 3, appears to be a less important dimension. For example, Sharma and Vredenburg (1998) found that effective stakeholder integration (a process measure) enabled firms to manage their waste reduction (external measure) and energy savings (internal measure) better. Thus, from the NRBV point of view, process measures make up one conceptual categorization of EPMs aiming for continuous improvement of performance. In product stewardship, the environment is involved as an “external” stakeholder in product de- sign and development. To gain sustained advantages, firms should pre-empt competition either by gaining access to critical and limited raw material or business locations or by acquiring a domi- nant position in the market as a playmaker dictating the rules. Inherently, product stewardship generates EPMs that differentiate the products in environmental terms. As environmental issues enter the business at any stage of the supply chain, from raw materials to the disposal of products, life cycle measures play an important role in this category. Sustained advantages are usually not generated just by using wood. Thus, effort should be put into the products or product lines in which non-substitutable value can be created. Beside the physical properties of wood, the reputation of wood should also be examined carefully. These strategies can be extremely efficient; pre-emption has been used as the disadvantage for wood in Nordic building codes for decades. Fortunately the situation has changed recently: the building codes were adjusted for material neutrality in Sweden in 1995 and in Norway in 1997, but in Finland not until 2011. Sustainable development as a strategic capability refers to the preparation for future technologies and markets (Hart and Dowell 2011). The level of discussion in this field has remained low com- pared with that on pollution prevention and product stewardship and has mainly concentrated on sustainability in developing markets, providing a limited rationale for the use of EPMs in Nordic woodworking industries. 3.1.2 Relation between environmental and economic performance A core question in the business literature regarding environmental performance is whether it is observed to result in any economic gains. While studies on this topic in woodworking industries are rare, with the exception of Toppinen et al.’s (2011) analysis of reporting practices in large companies, we examine the results from the academic business literature and the alternative views to study the issue. The scholarly discussion on the role of environmental performance in companies’ economic per- formance grew in the early 1990s (e.g. Porter 1991, Walley and Whitehead 1994). It was motivat- ed by the assumption that environmentally oriented customers would prefer “greener” products. As James (1994, p. 60) put it: However, many customers do value good environmental performance as part of the overall product mix – particularly if this is provided as a bonus rather than at a pre- mium – and are therefore interested in measures which demonstrate this. Thereafter, a number of studies tried to discover whether the impact of EPMs on business success is negative or positive – so far with inconclusive results (e.g. Wagner et al. 2001). Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 22 The relation between environmental and economic performance depends on the measures used, but also on the way in which the phenomenon is put under the loupe. Wagner et al. (2001) re- viewed some studies from the late 1990s on environmental and economic performance. Generally, economic performance can be measured as financial value (e.g. stock market value, Tobin’s Q) or financial performance (e.g. profitability or competitiveness) or both. In their view, event studies, i.e. the effects on the share value of announcements of environmental awards or environmental re- ports (see Hamilton 1995, Klassen and McLaughlin 1996), indicate that bad (good) environmen- tal performance actually causes bad (good) performance regarding stock markets. Another way to look at environmental performance is to compare alternative stockholder portfo- lios, one with positive references to environmental performance and one without them. The in- herent problem here is ruling out industry-related behaviour; industries that face environmental pressures or that are otherwise particularly prone to admit EPMs may gain different rates of return on assets. For example, Cohen et al. (1997) and Edwards (1998) showed that a number of environ- mental portfolios outperformed their references, but the difference was relatively small and not always statistically significant. While none of the event or portfolio studies above rule out a positive relation between environ- mental and economic performance, the six multivariate regression studies over a sample of firms reviewed by Wagner et al. (2001) showed an inconclusive direction. Russo and Fouts (1997) used the resource-based view to test the hypothesis that green companies are more profitable than other companies. The study was conducted on a sample of 243 companies that gained an environmental rating in 1991 and 1992. The authors found that “it pays to be green”,4 i.e. environmentally rated firms gained a higher return on assets and faster-growing rated firms gained even more. To summarize, any result on the issue should be treated with caution, as the outcome apparently depends on the model, data set and time period, as well as the performance measures used. Obvi- ously, answers can be best found in homogeneous business environments. As the results from direct comparisons of environmental and economic performances are indeci- sive, researchers have turned their interest toward the impact of alternative environmental strate- gies on economic performance. Generally speaking, a company’s business strategy can be either reactive or proactive, and the preferred choice5 can lead to different paths of learning and inno- vation at the business–environment interface and consequently to the accumulation of organiza- tional capabilities (Hart 1995, Sharma and Vredenburg 1998). More precisely, the reactive strat- egy occurs when companies make changes in their processes after some threat or opportunity has already occurred, whereas the proactive strategy means that companies act before they are under pressure to respond to some threats or new opportunities (Vaccaro 2009). From this viewpoint any strategy that acknowledges the RBV or NRBV is proactive to a certain degree. The gains of the reactive strategies have been in serious doubt. Gray and Shadbegian (1993) showed that environmental regulation induced high compliance costs that could be reduced if companies could anticipate and prepare for the regulations in advance. Dowell et al. (2000) found 4 This question has also appeared crucial since. Hart and Dowell (2011) pointed out that “the most com- monly addressed issue is, whether and under what circumstances it pays to be green”. 5 One can also consider a continuum of choices. Buysse and Verbeke (2003) reviewed some early studies on environmental management practices that identified generic levels of corporate social responsibility strategies, such as reactive, defensive, accommodative and proactive. Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 23 that multinational firms in developing countries proactively adopting single stringent global envi- ronmental standards had higher market values than those more reactively defaulting to less strin- gent or adapting to local rules and regulations. González-Benito and González-Benito (2005) carried out a detailed study of different environ- mental proactivity and business performance measures and showed that the relationships must be disaggregated into more specific associations. Consequently, environmental measures were factor- ized into four categories: planning and organizational practices, logistic processes, product design and internal production management. When the factors were tested in regression models against different business performance measures, it was found that planning and organizational practices did not drive business performance. This observation suggests that investments in environmen- tal management certification probably do not yield any relative gains for the firms. However, the product design factor appeared as a significant explanatory variable for marketing performance, supporting the idea that product stewardship can pay off; in other terms, customers value concrete and objective proof of environmental proactivity that is physically attached to products. Environmental performance is usually not the core purpose of a firm, but it is still of some in- terest to stakeholders. This setting gives rise to the so-called agency problem, i.e. how different views of stakeholders’ welfare can have an impact on the firm value. Jiao (2010) reviewed the support from previous studies as resulting from two reasons: a negative one because managers tend to please non-dividend-receiving stakeholders due to personal reasons and a positive one because it is considered crucial to the competitiveness and survival of modern firms as an intan- gible resource, comparable with reputation and human capital as the RBV suggests. Jiao’s own econometric experiment with non-shareholder valuations showed that meeting the environmental performance expectations as well as employee concerns has a positive impact on a firm’s market value. The result was not shared with product characteristics, however. This does not necessarily contradict González-Benito and González-Benito (2005), as Jiao’s product dimension accounted for general quality and safety issues, as well as innovativeness and marketing/contracting, not en- vironmental designs. The literature above supports the positive relation between environmental and economic perfor- mance, and one must pay attention to both the environmental and the economic measures used. Product stewardship appears to be especially attractive, as process measures more often fail to boost the economic performance too. Nevertheless, the reviewed studies have serious weaknesses. Multi-industry studies do not take into account the variation in the business environment across industry sectors. For example, in woodworking industries products are frequently sold to the con- struction value chain, such that environmental assessment of the wood products takes place as part of a building, a number of intermediaries away from the wood producer. In these cases, any economic gains from the environmental properties of wood can become obscure. Wood is also one of the few materials that carry positive environmental properties, giving one possible source of competitive advantage. 3.2 Environmental communication Communication is generally understood as a flow of information. However, in its fundamental form it occurs only when the partners also mutually understand a set of symbols. The two driv- ers of the understanding of the information are the interest and the context. Actually, most of the theories of environmental communication assume that human perceptions of the environment are Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 24 interested (see Milstein 2009). This is to say that communication arises from particular social, economic and political contexts and interests. The contexts and interests help to shape our com- munication, often in ways that we are unaware of, and direct us to see nature through particular lenses, while also obscuring other views of nature (ibid.). The variety of interests has a direct impact on the design of marketing efforts. Information flows cannot present binary views of the environmental properties of goods, but they have to be de- signed to strengthen the beliefs and desires of a particular set of stakeholders. Information flows have to be tailored and targeted to account for the variety of interests. According to Cox (2010), environmental communication scholars have identified three major types of corporate communication in the public sphere relating to the environment. The first is what we usually consider as marketing the environmental values of goods: green marketing. This is the construction of environmental identity for corporate products, images and behaviour. An important discourse usually connected to green marketing is green consumerism. This is the case when marketing encourages the belief that by buying allegedly environmentally friendly products consumers can do their part to protect the planet. The second major type of environmental communication in Cox’s analysis is labelled influencing. It consists of industry campaigns aimed at influencing environmental legislation, agency rules and public opinion. Also, Hart (1995) argued that communication can be an efficient component of the product stewardship strategy in the NRBV. He considered that aside from exclusive access to raw materials, pre-emption of competitors could be achieved “by establishing rules, regulations, or standards that are uniquely tailored to the firm’s capability”. In influencing it is crucial to identify the opinion leaders and decision makers. Several nodes in the wood value chain can act as opinion leaders. The buyers of main builders’ merchants, main engineering consultants and constructors and even CAD tool developers may represent such opin- ion leaders along the wood product value chain. The empirical evidence from agency problem studies, discussed and tested by Jiao (2010), suggests that the question is not only whether man- agers desire to please some stakeholders, but whether meeting the environmental concerns of stakeholders may have a positive impact on the value of the firm. Fraj-Andrés et al. (2009) found two dimensions (factors) of environmental marketing, strategic and tactical dimensions, of which the strategic dimension refers to practices of eco-design and the use of cleaner or recycled materi- als and green logistics, whereas the tactical dimension is close to the consumer-oriented concept of green marketing as it involves green advertising, green product lines, eco-labels and environ- mental sponsorship. While testing a set of hypotheses, the authors showed that the strategic and tactical dimensions have a parallel but independent impact on economic performance. Thus, reli- ance on end-users’ attitudes toward a better environment does not appear to be a sufficient envi- ronmental communication strategy; companies should also take account of a wider landscape of environmental communication. The last type of environmental communication according to Cox’s is the adoption of aggressive strategies to discredit or intimidate environmental critics. The wood industries have usually trust- ed the generally positive environmental profile of wood, but counter arguments against logging have been presented. This is in spite of the fact that reputable scientific research has indicated that wood can be used sustainably, such that both increased sequestration rates and increased loggings Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 25 are available in boreal and hemiboreal forests.6 Aggressive strategies usually originate from rain- forests and/or illegal loggings. It would be risky to suggest how wood producers should react to the aggressive strategies, but reliance on the positive image of wood in a competitive business is not necessarily enough. 3.3 Environmental performance measures in woodworking industries Toivonen et al. (2008) explored how environmental product attributes were perceived by UK in- dustrial customers. According to the study, environmental quality is seen as an important quality attribute whereby the sustainability of forestry is highly ranked. The study also suggests that en- vironmental quality is multidimensional, which requires good product information from the sup- plier. The authors called for more thought-through environmental information complementing the eco-labels. This result motivates this part of the present study about the possibilities for produc- ers and vendors to forward their message to their customers. A multitude of individual EPMs and methodological solutions is available. Inefficiencies in markets may well arise from EPMs that are not properly understood or relevant to the customer. The societal motivation for the measurement of environmental performance comes primarily from climate policy, in which environmental credentials are measured as saving of fossil energy and carbon sequestration. In this regard, the benefits of using wood can gain support from research (see e.g. Gustavsson et al. 2006, Upton et al. 2008, Sathre and O’Connor 2010). The United Na- tions Environment Programme (UNEP) has developed a tool known as “Common Carbon Met- rics” to compare the carbon efficiency of building operations (see UNEP-SBCI 2009). The gains arise not only from 100% renewability of sustainably managed forests as a raw material, but also from substituting fossil energy-intensive materials. Environmental performance measures are discussed in three categories. First a set of general rules for environmental measurement as scientific and technical standards is discussed. The second group, the process measures, targets improved operational environmental performance. Finally we discuss product stewardship measures. The categorization is not always unambiguous, but generally the hierarchy is bottom up; the first discussed measures can contribute to the measures discussed later and the discussion moves from generic to specific ones. 3.3.1 General tools – environmental standards and life cycle assessment The object of this section is international standards that contribute to industry practices with re- spect to the environment. One purpose of a standard is to overcome the technical obstacles to and facilitate international trade by establishing common rules of evaluation, practices or measures. As a difference from certificates and eco-labels, standards do not benchmark the object but give rules on how to benchmark, thus they are usually used to guide such calculations, including when environmental certification is conducted. 6 Recent studies show that the economic potential of a stand and net CO2 emissions are negatively related (see e.g. Routa et al. 2011), at least in boreal coniferous forests. Also, (Kolari 2010) showed that even after a clear cut, a 12-year-old sapling site was at the turning point from the source to a sink of CO2. Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 26 ISO 14000 certificate family The International Organization of Standards (ISO) is the largest developer and publisher of inter- national standards. Even though ISO 9001 for quality management systems is closely related to environmental issues, we consider here only the family of ISO 14000 environmental management standards as EPMs. Table 4 lists the components. Most of the generic standards under the ISO 14000 certificates can be used directly or as part of region- of field-specific standards. The direct use of ISO 14001 at the corporate level is discussed in chapter 3.3.2. A new development in the ISO 14000 family is ISO 14067 “Carbon Footprint of Products”.7 It will provide requirements for the quantification and communication of greenhouse gases (GHGs) associated with products. It will also harmonize the calculation methods as well as provide guid- ance for communication on carbon footprints. The applications of carbon footprints are discussed in chapter 3.3.3. 7 The draft international standard (DIS) is already published. The status as of early 2012 is “enquiry”, preceding the “approval” and “publication” stages. Table 4 The family of ISO 14000 standards ISO Guide 64:1997 Guide for the inclusion of environmental aspects in product standards ISO 14001:2004, 14004:2004 Environmental management systems ISO 14015:2001 Environmental management – Environmental assessment of sites and organizations (EASO) ISO 14020:2000, 14021:1999, 14024:1999, 14025:2006 Environmental labels and declarations ISO 14031:1999, ISO/TR 14032:1999 Environmental management – Environmental performance evaluation ISO 14040:2006, 14044:2006, ISO/TR 14047:2003, 14048:2002, 14049:2000 Environmental management – Life cycle assessment ISO 14050:2002 Environmental management – Vocabulary ISO/TR 14062:2002 Environmental management – Integrating environmental aspects into product design and development ISO 14063:2006 Environmental management – Environmental communication – Guidelines and examples ISO 14064-1:2006 Greenhouse gases – Part 1: Specification with guidance at the organi- zation level for quantification and reporting of greenhouse gas emis- sions and removals ISO 14064-2:2006 Greenhouse gases – Part 2: Specification with guidance at the project level for quantification, monitoring and reporting of greenhouse gas emission reductions or removal enhancements ISO 14064-3:2006 Greenhouse gases – Part 3: Specification with guidance for the valida- tion and verification of greenhouse gas assertions ISO 14065:2007 Greenhouse gases – Requirements for greenhouse gas validation and verification bodies for use in accreditation or other forms of recognition ISO 19011:2002 Guidelines for quality and/or environmental management systems audit- ing Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 27 The role of the ISO 14000 series is fundamental to the elaboration of almost any EPM. It sets cri- teria for how environmental management is assessed, what is required from environmental label- ling and declarations, how life cycle assessments should be executed and how greenhouse gases are reported and assessed. Although the list of ISO 14000 tasks includes a large number of stan- dards, it remains rather general; the rules do not deal with industry-specific issues. Such issues are instead dealt with by regional or industry-specific standards. CEN Sustainability of Construction Works The ISO 14000 standards are currently being negotiated and implemented in the European wood- working industries. The process is coordinated by the European Committee for Standards (CEN). An important development is the work of CEN Technical Committee CEN/TC 350 for standards of “Sustainability of Construction Works”, scheduled for 2013. Sustainability covers all the three usual bottom lines – environment, social and economic performance – and some main standards for the environmental and social evaluation of buildings have already been approved. Currently most of the EPDs in the building sector comply with the generic ISO 14020 series. The CEN standards work in accordance with ISO, but they also provide new guidelines for EPDs in construction materials. In the near future, these guidelines will contribute to any practical life cycle, footprint or green building measure to be used in the construction value chain, at least in Europe. Even if the most immediate contribution of CEN standards is to improving pan-European EPDs, the main contribution of the CEN Sustainability of Construction Works standard lies in provid- ing overall rules for evaluating the performance of a building instead of building parts or materi- als. In this view, upstream producers should look further than the next phase of the value chain; they should set targets for how their products contribute to the environmental performance of the whole building. PAS 2050:2011 While ISO and CEN standards have been written in consensus among national industrial organi- zations, the results are usually compromises. The standard specifications are also protected with copyright that denies the purchaser’s right to distribute the standard further. The Publicly Avail- able Specification PAS 2050:2011 (BSI 2011) takes an alternative approach: it “is a publicly available specification for assessing product life cycle GHG emissions, prepared by the British Standards Institution (BSI) and co-sponsored by the Carbon Trust and the Department for Envi- ronment, Food and Rural Affairs (Defra). The PAS 2050 is an independent standard, developed with significant input from international stakeholders and experts across academia, business, gov- ernment and non-governmental organisations (NGOs) through two formal consultations and mul- tiple technical working groups” (BSI 2008). PAS 2050 can be used not only in calculating the carbon footprints of the firms’ products, but also for guiding the evaluation and comparison of greenhouse gases’ impacts of different designs using a common, recognized and standardized approach. As an open platform, the threshold for applications is lower, but the procedures to reach third-party auditing according to PAS 2050 are still in their early stages. The United Kingdom Accreditation Service (UKAS) has put in place an accreditation system for assessors wishing to certify organizations to PAS 2050. Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 28 PAS 2050:2011 and the as yet unpublished ISO 14067 necessarily overlap, even though the docu- ments have been coordinated to some extent by the BSI. The key difference between the PAS 2050 approach and the ISO 14067 approach is that PAS 2050 focuses on providing a consistent quantification method only, whereas ISO 14067 is aimed at providing a standard for both the quantification and the communication of carbon footprints. Life cycle assessment (LCA) LCA is a generic scientific method to assess the full environmental impacts of products associated with all stages of their life cycle. The life cycle is usually considered to cover cradle to grave, or cradle to gate, i.e. from raw material extraction to either disposal or reuse of the product, or to the delivery of the product. Obviously the adopted approach depends on the scope of the application. Roughly, for producers illustrating the environmental footprint of their products, cradle-to-gate LCAs suffice, while end-users may also pay attention to the disposal/reuse of the product. Generally the LCA includes four tasks. In the “goal and scope” the fundamental decisions on functional units (how to relate impacts) and system boundaries (which phases of the life cycle are accounted for) are made, as well as a number of other methodological decisions. In the life cycle inventory data on the inventory of flows from and to nature are created. In the life cycle impact assessment the flows from the LCI are evaluated with respect to the impacts they create. Life cy- cle interpretation, finally, is a systematic technique to identify, quantify, check and evaluate the results. These stages are quite explicitly described in the ISO 14040 series, giving standardized rules on how to proceed in each stage. Also, CEN Sustainability of Construction Works guides the execution of life cycle assessment for buildings. LCA studies are demanding. In practice companies rely on LCA providers who have experience with the necessary databases and LCA tools. A collection of providers, third-party databases and LCA tools can be found on the EC “Life Cycle Thinking and Assessment” site.8 Environmental Product Declarations (EPD) Environmental Product Declarations are the environmental measures developed for both materials and products. The fundamental methodology behind EPDs is LCA, thus aside from ISO product labelling and declarations (ISO 14021, 14024 and 14025), the ISO 14040 standard can be used. If the EPD conforms to the ISO 14025 requirements, it is a Type III environmental declaration. EPDs are basically open documents issued by a producer or an industry organization. The na- tional systems are usually managed by industry foundations. Some current sources of EPDs are listed in Table 5. While comparing the three EPD platforms in Table 5, one can see the unsettled international state of the art. Finnish EPDs are relatively short, covering mainly the tabulated environmental im- pact of resource use and output, whereas the format of the Norwegian EPDs is somewhat more detailed. In Sweden the motivation for producing EPDs appears to be low. Finnish systems have been stalled for a while, waiting for new standards, but in Norway EPDs are updated regularly according to ISO 14025. The German EPDs are detailed compared with the Nordic ones, cov- ering tens of pages of documentation on the sources of information. French EPDs are also de- 8 http://lca.jrc.ec.europa.eu/ Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 29 tailed; the key information is given as a concise table, but augmented with detailed producer- specific documentation. The key contents of the national documents are generally the same. The information is mainly of interest to professionals; however, simple indicators like global warming potential, embodied energy and carbon are usually easily extracted. EPDs are, without doubt, the key source of quantitative environmental information. While pan- European practices in the implementation of EPDs are still under construction, it is obvious that multi-market producers have found EPDs a risky investment. Concerning the whole construction industry, a recent CEN standard for core rules of construction products EPDs, EN 15804, enables producers to distribute EPDs according to a common European format. The standard covers three main groups of indicators: Indicator1. s for environmental impacts Indicators for the use of resources2. Indicators3. for other environmental information. Altogether, 22 sub-indicators are listed, not all of which are obligatory in national EPDs. This re- cent introduction is probably one reason why EPDs have been introduced differently in different countries. Since they are perceived to provide a firm background for producing and delivering en- vironmental information, some European countries have already taken steps to implement EPDs as part of the CE marking of construction products. The need for this is actually declared in EU Regulation No. 305/2011 for the implementation of the CE mark of construction products (The European Parliament and the Council of the European Union 2011, Whereas paragraph 56). An important implementation of EPD is the carbon footprint. However, not all the footprint mea- sures are particularly tightly connected to the standards discussed here. 3.3.2 Process measures Process measures are measures used for strategies related to “pollution prevention” (see page 20). This strategy aims to improve organizational capabilities as well as the managerial cogni- tion and framing of environmental issues, usually implemented as an environmental management system (EMS). Two key measures are the International Organization for Standardization’s ISO 14001 and the European Eco-Management and Audit Scheme (EMAS). They both emerged in the middle of the 1990s and soon became the most widely used standards. However, during the last decade ISO 14001 has become the most popular environmental management system. At the mo- Table 5 Some sources of Type III Environmental Product Declarations Country Note Number Link Finland Partly trilingual 30 http://www.rts.fi/ymparistoseloste/voimassaol- evatympselosteet.htm France 5000 commercial titles 600 http://www.inies.fr/ Germany Extensive 160 http://bau-umwelt.de/hp474/Umwelt-Produkt- deklarationen-_EPD.htm Germany EPDs and more xml database 600 Ökobau.dat Norway Norwegian/English 66 http://www.epd-norge.no/?lang=en_GB Sweden Managed by miljöstyrningsrådet, international site a few http://www.msr.se/sv/epd/ http://www.environdec.com/ Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 30 ment about 200 000 organizations in over 150 different countries use ISO 14001, whereas there are only about 4500 EMAS certified organizations. ISO 14001:2004 The most well-known environmental standard of the ISO 14000 family is the ISO 14001 Environ- mental Management System. It is one of the most important standards for the wood industries, al- though it is generic and applicable to any field and level of business as well as organizations. ISO 14001 was established in 1996 and is based on improvement in the management system (Bracke and Albrecht 2007). ISO 14001 is comprised of five principles: 1) environmental policy, 2) planning, 3) implementa- tion and operation, 4) checking and corrective action and 5) review and improvement (Quazi et al. 2001). It provides guidance in balancing environmental and economic responsibilities and an as- surance to stakeholders about the environmental performance of the company. It also helps to deal with environmental regulations and supports the company’s environmental communication. According to a study by Psomas et al. (2011), companies that become ISO 14001 certified be- cause of internal motivation are more likely to improve their environmental performance than those that adopt the system as a result of pressure from the outside. The study also found that com- panies that adopt ISO 14001 certification require commitment from both top and middle manage- ment in order to succeed in achieving better environmental performance. The ISO 14001 certificate works as an independent and widely used indicator of environmental concern. However, since at least some of these principles also apply to other eco-labels or certifi- cate schemes, it is a convenient starting point for the implementation of the environmental strat- egy of a firm. For example, PEFC certification requires compliance with ISO 14001. The environmental impact of ISO 14001 certification can, however, be questioned. As the same rules are applied to any size of organization, firms, public authorities or associations of any field, the criteria to meet the requirements cannot be very specific. These types of contradictions be- tween the anticipated and the experienced gains are one of our interests in the interview study. EMAS The EMAS, the Eco-Management and Audit Scheme,9 is a European environmental management system launched in 1995 by the European Council of Ministers and it can be used in both private and public sectors. The EMAS is a voluntary tool and it fits the needs of any size and type of company. It helps com- panies to improve their financial and environmental performance and at the same time communi- cate these environmental improvements to different stakeholders. Companies that want to obtain EMAS certification have to: conduct an environmental review, adopt an environmental policy, develop an environmental programme, establish an effective environmental management system, carry out an environmental audit and provide an environmental statement. Compared with ISO 14001, the EMAS is more rigorous and formulates a link between a company and the authorities. 9 http://ec.europa.eu/environment/emas/index_en.html Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 31 It also requires continuous improvement in environmental performance (Bracke and Albrecht 2007). The EMAS controls compliance with environmental regulation, the development of envi- ronment protection plans and open environmental reporting. It is characterized by autho- rized auditing by an independent agent. Since ISO 14001 had become the most common environmental management system in the world, the European Commission launched the EMAS II in 2010, which is open to organizations outside the EU area. Since 2001 it has become possible to integrate the ISO 14001 management system with the EMAS (Bracke and Albrecht 2007). This has im- proved the opportunities for companies using ISO 14001 to adopt EMAS certification as well. To acquire the EMAS certificate besides ISO 14001, companies need to implement modifications that include continual improvement of environmental performance, com- pliance with environmental legislation, giving public information through annual report- ing and ensuring employee involvement.10 3.3.3 Product stewardship Forest certification Since the Programme for Endorsement of Forest Certification (PEFC) approved four regional pro- grammes (ATFS, CSA, MTCC, SFI), the PEFC and the Forest Stewardship Council (FSC) have become the only widely used sustainable forest management (SFM) certificates globally. The standards behind the certificates are different. Being an ISO Type I environmental label, the PEFC relies on the ISO framework, whereas the FSC is developed in accordance with the requirements of the ISEAL Code of Good Practice for Setting Social and Environmental Standards. The ISEAL Alliance is an international non-profit organization that codifies the best practices of social and environmental standards systems. The total amount of certified forests in early 2011 was 375 million hectares (UNECE/FAO 2011a). The main development in certification has taken place in Russia, whereas in Western Europe the area is only increasing slightly less than the total area of forest land, keeping the share of certified forest at 51% (UNECE/FAO 2011a). Globally, 9.3% of forests are certified. The sources of certi- fied wood are highly differentiated worldwide, the amount of double certified forests being neg- ligible (about 1%). Also in Nordic countries, wood industry firms are now implementing double certification. The ambition in Europe to create more responsible wood products is manifested in a concerted European action against the importing of illegal roundwood, the Forest Law Enforcement, Gover- nance and Trade (FLEGT) Action Plan. The main components of FLEGT are voluntary partner- ships with exporting countries and a due diligence system in which companies must do their best to ensure legality (UNECE/FAO 2010). FLEGT and SFM certification have worked efficiently; it is hard to find wood products from controversial sources in European consumer markets. More- over, the EU Timber Regulation, banning the trade of illegally sourced timber and wood products, will enter into force in March 2013. 10 http://ec.europa.eu/environment/emas/pdf/factsheet/fs_iso_en.pdf Working Papers of the Finnish Forest Research Institute 230 http://www.metla.fi/julkaisut/workingpapers/2012/mwp230.htm 32 As timber is rarely sold to end-users, the FSC and PEFC offer chain-of-custody (CoC) certifica- tion. Basically, CoC certification holders must show the quantity of used wood that comes from certified sources. The FSC gives an option for an “FSC controlled wood certificate” or FSC MIX label, whereby non-FSC wood has to meet 5 of the most sensitive societal and environmental cri- teria. In the PEFC the share of non-certified wood can be up to 30%, but it has to be declared on the label and suppliers of uncertified raw material should provide self-declaration for their prod- ucts. Even if consumers in the developed world can choose certified wood products, the problem ap- pears in their motivation (Kraxner et al. 2009). Consumers do not pay enough attention, as wood products are not usually especially important for their daily life. The low motivation might also be connected to the lack of references. As noted above, illegally sourced wood is practically non- existent on markets; the consumer has no truly bad wooden alternatives for comparison. Even if there are indications of better economic performance for wood products with SFM cer- tification, verification of sustainable forest management practices and the origin of wood can be useful in professional markets and market communication. SFM certification is an efficient tool to protect the relevant parts of the CoC for environmental claims, especially in construction. Proved SFM also works as a reference for the better-known consumer eco-labels, such as the Nordic Eco- label and EU Ecolabel. Green building The environmental rating of buildings has gained interest since the introduction of the first assess- ment system for sustainable buildings, BREEAM, in 1990. Ding (2008) listed 20 building perfor-