Plantation Forestry in Indonesia: The Greenspirit Strategies Perspective

An Assessment of Asia Pulp & Paper (APP) and its Pulpwood Suppliers¶ Forestry Operations

November 2010

Table of Contents
Introduction Overview of APP¶s Indonesia Operations Our Approach About Indonesia Indonesian Land Use Planning APP Mill Operations Forestry Plantation Operations Peatlands Protecting Biodiversity Certification Pulpwood Tracking and Verification Fibre Supply Poverty Alleviation Community Development Cutting Edge Research and Development Conclusion Appendix A ± Some Key Facts about APP Operations Appendix B ± Forest Stewardship Council Appendix C ± Procurement Policy Advice for Pulp and Paper Buyers Appendix D ± Itinerary Details 3 4 5 7 8 11 14 15 17 20 22 23 24 26 29 31 33 37 38 40

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Introduction
As the world faces the issue of climate change, myriad environmental groups have sought ways to preserve our remaining forests ± to capture greenhouse gases, clean the air and help restore the environment. Among the forests of the world to attract environmental attention are Indonesia¶s tropical forests. After repeated allegations by environmental groups questioning the environmental policies and behaviour of Indonesia-based Asia Pulp & Paper (APP), the company asked Greenspirit Strategies Ltd. to conduct a review of its operations to evaluate their sustainability practices and determine if the company is behaving in an environmentally responsible manner. While Greenspirit Strategies is familiar with APP¶s operations having visited some of the company¶s operations about a decade ago, we agreed to take the current assignment only if we were given free reign to investigate what we felt important. To that end, we: y

y y y

Insisted that a Greenspirit Strategies team conduct an onsite, detailed inspection of APP¶s documents and operations of our choosing in Indonesia. Specified the locations and operations that we wished to see, including those in some environmentally sensitive areas. Demanded full access to employees and villagers affected by the operations we chose to inspect. Required both on-the-ground and aerial tours of the areas we were interested in so that we could determine real impacts of APP operations on nearby rainforest lands.

Approximately 85 percent of APP's fibre supply comes from fast growing, high yield, renewable plantations like this one.

As a result of our inspection, we have concluded that APP is behaving responsibly and operating in a sustainable manner. It is clear that APP and its pulpwood suppliers¶ resources are helping to alleviate poverty in Indonesia and ± directly and indirectly ± reduce illegal encroachment and habitat destruction. By targeting APP and its pulpwood suppliers, Western environmental groups are making it that much more difficult to reduce deforestation in the country. The tragedy here is that, as our investigation made clear, Western environmentalists have ignored a primary cause of deforestation in Indonesia ± poverty ± to focus on an easy but innocent target: a large Indonesian pulp and paper company. We do not suggest APP has operated flawlessly. Nor do we believe the company has done all it can. However, we find that APP has consistently applied its resources both to improve its own sustainability efforts and to create opportunity for communities around its Indonesian facilities. The following document expresses conclusions based on our field research, current science and our personal observations. APP has not shaped our conclusions or imposed its opinions. 3

Overview of APP¶s Indonesia Operations
Within Indonesia, APP operates six pulp and paper plants, including two ± Indah Kiat and Lontar Papyrus ± on the island of Sumatra. APP¶s mills are state-of-the-art in terms of both their pulping processes and emission controls. As you will see in this report, the mills remain a key engine of Indonesia's and Sumatra's economic, social development and poverty alleviation efforts. The virgin fibre supply for these mills is provided by APP's fibre suppliers in Indonesia who harvest primarily on sustainably managed eucalyptus and acacia tree plantations. Contrary to the claims of environmental activists, 85 percent of APP's virgin fibre comes from fast growing, high yield, renewable plantations growing on less than two percent of Indonesia¶s total landbase. Approximately 15 percent comes from legally sourced mixed tropical hardwood, which comes from trees harvested from government forests granted to APP companies for the establishment and management of pulp plantations. APP forestry suppliers must clear patches of natural forest trees that can be found on these concession lands that the Government of Indonesia describes as degraded (logged over areas, non old growth and non high conservation value forests) or denuded wasteland. The removal of these remnant trees is necessary to make room for plantation fields. APP's mills have been configured in such a way that mixed tropical hardwood is less useful and efficient to process. Plantation fibre is strongly preferred and APP is rapidly moving toward the use of minimal mixed tropical hardwood. The company and its pulpwood suppliers have adopted tough monitoring and enforcement rules, ensuring a zero tolerance policy for illegal forest fibre.

Indonesia is facing serious deforestation and habitat loss, but our findings suggest it is not being caused by APP and its pulpwood suppliers.

In recent years Indonesia generally, and APP specifically, have come under attack from Western environmental activists such as Greenpeace, Rainforest Action Network, and ForestEthics, who accuse the country and the company of many wrongdoings that range from illegal logging and habitat destruction to fuelling climate change. Based on our detailed on-the-ground and aerial surveys of APP¶s and its pulpwood suppliers¶ operations, there is no evidence to substantiate these accusations. Doubtless, Indonesia is facing serious deforestation and habitat loss. But this report will show that illegal encroachment into parks and protected areas as well as forestry concessions is not being caused by APP and its pulpwood suppliers, who are engaged in word-class sustainable forest management.

Instead, as the Food and Agriculture Organization of the United Nations (FAO) notes, a primary cause of deforestation and habitat loss is poverty. This was confirmed by our observations in Sumatra, where deforestation and habitat loss are being caused in large part by thousands of national migrants illegally encroaching on forests in search of better livelihoods. These small groups, spread across islands like 4

Deforestation and habitat loss are being caused by thousands of national migrants illegally encroaching on forests in search of better livelihoods.

Sumatra, are ignoring Indonesia¶s National Spatial Plan ± a plan APP and its pulpwood suppliers must legally abide by ± by cutting and burning forests, and replacing them with agricultural crops and settlements. As is the case in many developing countries, this illegal encroachment is driven by poverty and the desire to make a better life for one¶s family. It is not without irony that many of the attacks being levelled at Indonesia come from Western nations that long colonized that country and others like it. Indonesia and other emerging nations are trying to modernize their economies and lift their The further away we went from APP and its peoples out of poverty by, in part, taking pulpwood suppliers¶ forestry operations, the more advantage of the natural resources that made them illegal encroachment and burning of forests we a target for Western colonial powers. However, saw from the air. environmental groups in developed nations seem intractably committed to halting the progress of emerging nations ± apparently in an effort to preserve the lifestyles enjoyed by the West.

Our Approach
This report was written by Greenspirit Strategies Ltd., a Vancouver, Canada-based sustainability consulting firm focused on the energy and natural resource sectors. Based on our ground site visits and aerial surveys of Sumatra, this report looks at how forest management works in Sumatra and Indonesia, highlights APP mill and pulpwood supplier plantation operations, describes the new research taking place in Indonesian plantation forestry, explains how APP and its pulpwood suppliers engage with their local communities and outlines what the impacts of de-selecting Indonesian pulp and paper products would likely be. The appendix includes a pragmatic, science-based approach to policy and procurement of Indonesian pulp and paper products for buyers worldwide. Greenspirit Strategies strongly believes that sustainable forest management is a primary component of a more sustainable world and that sustainable forest management can greatly contribute to the economic, social and environmental well-being of people in developing countries. The Greenspirit Strategies team was composed of Dr. Patrick Moore, Chairman and Chief Scientist; Tom Tevlin, President and CEO, and Trevor Figueiredo, Senior Vice President. Dr. Moore is a Greenpeace co-founder and former leader with a PhD in ecology who departed Greenpeace, in part, because of its poor understanding of science. In August 2010, Greenspirit Strategies team members travelled to Sumatra, Indonesia to examine APP's and its pulpwood suppliers¶ operations on the ground in Riau and Jambi provinces. We interviewed employees and community leaders, toured both APP mills on Sumatra (Indah Kiat and Lontar Papyrus), and assessed the plantation forestry concessions that provide pulpwood to the mills ± from both the air and the ground. We conducted detailed aerial flyovers of the Bukit Tigapuluh National Park and nearby plantation forestry concessions in Jambi province. We also conducted detailed ground and 5

aerial flyovers of the Kerumutan Peat Swamp Forest, including the national park.We further surveyed the Giam Siak Kecil Biosphere Reservethe Kampar Peninsula and the surrounding region. The Greenspirit Strategies team also investigated APP and its pulpwood suppliers¶ community initiatives and assessed a cutting-edge research and development facility. Greenspirit Strategies team members' helicopter flight plans and full itinerary are shown in the appendix.

Indonesia has the opportunity to ³leapfrog´ past mistakes by other countries and manage their forests to a world-class standard.

We often forget that many developed countries, including the United States, Canada and those in Europe built their high living standards on a foundation of natural resource extraction. In the past, those extraction processes were often environmentally damaging. Yet, given technological progress and today's immensely better understanding of how to manage forests in an environmentally sound way, developing countries like Indonesia have the opportunity to ³leapfrog´ past mistakes and manage their forests to a world-class standard. Our focus in this report is to assess how well APP is doing that.

We encountered this elephant near the APP Lontar Papyrus mill in Jambi Province, Sumatra. As you will see in this report, APP and its pulpwood suppliers are working on a range of wildlife and habitat protection programs.

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About Indonesia
Indonesia is the world¶s fourth most populous country, with its more than 220 million people spread across a relatively small land mass of individual islands. Indonesia consists of 17,508 islands scattered over both sides of the equator, about 6,000 of these islands are inhabited. The largest are Java, Sumatra, Borneo (shared with Brunei and Malaysia), Papua (shared with Papua New Guinea), and Sulawesi. Approximately 60 percent of Indonesia¶s population lives in rural areas where forestry and/or agriculture are the main source of economic livelihood.

Pristine marshland as seen from the air, Sumatra, Indonesia

According to the Indonesian Central Bureau of Statistics, as of March 2008, nearly 35 million Indonesians live below the poverty line and are unable to afford food amounting to 2100 calories per day. Indonesia has extensive natural resources, including forests, crude oil, natural gas, tin, copper, and gold. Indonesia¶s major imports include machinery and equipment, chemicals, fuels, and foodstuffs. Recent history

Approximately 60 percent of Indonesia¶s population lives in rural areas where forestry and/or agriculture are the main sources of livelihood.

A Dutch colony for more than 300 years, Indonesia¶s first free parliamentary election took place in 1999. Indonesia is now the world¶s third-largest democracy, the world¶s largest archipelagic state, and home to the world¶s largest Muslim population. Its current priorities include: y y y y y Alleviating poverty Improving education Preventing terrorism Consolidating democracy after four decades of authoritarianism Implementing economic and financial reforms Nearly 35 million Indonesians live below the poverty line and are unable to afford food amounting to 2100 calories per day.

The country has weathered the global financial crisis well out of its heavy reliance on domestic consumption as the driver of economic growth. The economy slowed significantly from the 6 percentplus growth rate recorded in 2007 and 2008, expanding at 4 percent in the first half of 2009, but still outperformed its regional neighbors and joined China and India as the only G20 members posting growth during the crisis. 7

The government made economic advances under the first administration of President Susilo Bambang Yudhoyono and introduced major reforms in the financial sector. Indonesia¶s debt-to-GDP ratio has declined recently because of strong growth in GDP and sound fiscal stewardship. The Greenspirit Strategies team¶s first visit to Indonesia as researchers engaged by APP was 10 years ago, and in those 10 years we have witnessed firsthand the rapid economic advances the country has made. The country¶s infrastructure has improved enormously, and standards of living have risen substantially. Signs of this new wealth can be seen in the newer cars being driven on Jakarta roads and the cellular phones and digital cameras being used even in the most rural villages. Plantation-grown pulpwood being Indonesia¶s unloaded from barges, Sumatra, forest sector has Indonesia been a driving factor in the country¶s increasing standards of living. World Bank figures show that agriculture, forestry, and mining contribute about 25 percent of Indonesia¶s GDP and about 30 percent of overall government budget revenue. The government currently faces the challenge of improving Indonesia's insufficient infrastructure to remove impediments to economic growth, while addressing climate change mitigation and adaptation needs, and conserving forests.

The Greenspirit Strategies team¶s first visit to Indonesia as researchers engaged by APP was ten years ago. In ten years, we have witnessed firsthand the rapid socioeconomic advances the country is making.

Indonesian Land Use Planning
National Spatial Plan Unlike the United States, where much production forest is in private hands, Indonesia's forest sector operates more like that of Canada, where the government owns most production forests and private companies pay fees to harvest fibre from public land. Given most production forest land is government owned, it is the Indonesian government that determines how production forest is allocated and managed. Although environmental activists make it appear as if Indonesian forest companies are operating

This photo illustrates the clear delineation between a plantation forest on the right and a natural forest of mixed tropical hardwoods on the left. 8

without any oversight and developing concessions wherever they so choose, the opposite is in fact true. It is clearly visible from the Greenspirit Strategies team¶s air and ground observations on Sumatra that the Indonesian government has placed a priority on balancing sustainable development and conservation within its tropical forests. Indonesian forest companies are, by law, required to adhere to strict land use planning and environmental regulations. The Government of Indonesia's National Spatial Plan is the overarching planning tool that determines land-use priorities in the country, balancing development and poverty alleviation goals while protecting high conservation value forests. From a policy and planning perspective, the Indonesian Ministry of Forests is actively engaged in enhancing its spatial plan for the country, rehabilitating forest and riparian zones, conserving biodiversity, and enhancing fire protection and control. Measures are also well underway to revitalize forest development and industry, enhance forest community empowerment, improve climate change mitigation and adaptation and further develop forestry corporate governance.

The total forested area in Indonesia is 110 million hectares (271 million acres), roughly the size of Spain. Based on the National Spatial Plan, 51 million hectares (126 million acres) of this forest (about the size of Sweden) is set aside for conservation and the rest is considered production forest to be used to alleviate poverty and drive sustainable economic development for the more than 220 million Indonesians. Of the total 110 million hectares, just over 3 percent (roughly 3.5 million hectares or 8.6 million acres) can legally be used for sustainable pulpwood plantation development to support the pulp and paper sector. This fact alone should make it clear that, contrary to the allegations of Western environmental groups, it is impossible to ³destroy Indonesia¶s biodiversity´ by converting 3.5 million of 110 million hectares to plantation forests. The National Spatial Plan allocates only three percent of Within the 3 percent set aside for sustainable pulpwood, Indonesia's total landmass to APP fibre suppliers¶ projected plantable area is around 1.4 pulpwood plantation forestry. million hectares (3.5 million acres). Of the 1.4 million This fact alone makes it clear hectares, according to government mandated studies, around it is impossible to destroy 400,000 hectares (988,421 acres) are considered degraded Indonesia¶s natural forests and low-value forestry area and 1 million hectares (2.5 through conversion. million acres) are ³denuded wasteland.´

Total forested area in Indonesia is 110 million hectares, roughly the size of Spain. Fifty-one million hectares of this forest (about the size of Sweden) is set aside for conservation and the rest is allocated for agriculture, forestry and other uses.

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Within the gross area of pulpwood plantation concessions, the government requires that 30 percent be retained as set aside areas. Beyond production, the Government of Indonesia has made a significant commitment to rainforest restoration. Specifically, it has committed to riparian rehabilitation of 2.5 million hectares or 6.2 million acres (500,000 ha/yr or 1.2 million acres/yr), industrial and community plantation forest of 3 million hectares or 7.4 million acres (600,000 ha/yr or 1.5 million acres/yr), and forest ecosystem restoration of 2 million hectares or 4.9 million acres (400,000 ha/yr or 988,421 acres/yr). Assessment Process While the government's overarching National Spatial Plan determines where plantation concessions can be located, Indonesian forest companies must further undertake detailed and rigorous socioenvironmental assessment processes before they can operate on any concession area. Specifically, a detailed environmental impact and socio-economic assessment referred to as an AMDAL must be undertaken by a government certified independent auditor. Additional assessments by independent, third-party auditors referred to as microand macro-delineation assessments must also be undertaken. This rigorous assessment process ensures: All concession areas are y y y y Protection of high conservation value areas and wildlife habitat Detailed community and stakeholder engagement and consultation Review and protection of cultural heritage sites and values Impact assessment to improve surrounding community's standard of living and health subject to random inspections and audits by the Ministry of Forests to ensure they are complying with sustainable forest management principles.

The Greenspirit Strategies team flew over thousands of hectares of natural forest in conservation.

Even after these assessments are completed satisfactorily, and a concession is granted, pulpwood suppliers must commission ± as required by law ± a feasibility study and a long-term management plan. Additionally, every year, a working plan must be developed for each concession area that incorporates core sustainable forest management criteria. And every month, pulpwood suppliers must provide a detailed report to the Indonesian Ministry of Forests, advising on areas they plan to plant and/or harvest. 10

APP pulpwood suppliers are responsible for planting more than 200 million trees per year and, by planting more trees than they harvests, they are progressively contributing to an increase in the forested area.

In addition to these rigorous legal requirements and assessments, APP pulpwood supplier plantations and APP mills have gone the extra step of getting certified by independent, third party auditors to the ISO 14001 standard as well as to the Indonesian Eco-labelling Institute (LEI) and the Programme for the Endorsement of Forest Certification (PEFC) chain of custody scheme (see page 20 for more information on certification).

The vast majority of APP¶s fibre supply comes from sustainable plantation forestry, which means the trees are planted expressly for the purpose of pulp production. In Indonesia, APP pulpwood suppliers are responsible for planting more than 200 million trees per year and, by planting more trees than they harvest, they progressively contribute to an increase in the forested area. Finally, APP pulpwood suppliers in Indonesia only develop least-valuable degraded forests and denuded wasteland, as defined by the government.

APP Mill Operations
Founded in the 1970s, APP is a brand umbrella for paper products manufactured by several pulp and paper companies in Indonesia. Headquartered in Jakarta, APP Indonesia is one of the world¶s leading pulp and paper producers. With current annual combined pulp, paper and packaging grades capacity of over seven million tons, the eight independently owned pulp and paper production facilities manufacture a wide range of tissue, towel, office and graphic paper products under the APP brand as well as a number of proprietary brands and private labels. Within Indonesia alone, APP operations include: y y y y y y

Indah Kiat Perawang (Riau Province, Sumatra) Indah Kiat Serang (Banten Province, Java) Indah Kiat Tangerang (Banten Province, Java) Pabrik Kertas Tjiwi Kimia (near Surabaya, East Java) Pindo Deli (Karawang, West Java), and Lontar Papyrus (Jambi Province, Sumatra)

This tree nursery is owned by a local community in Riau Province, Sumatra. The tree seedlings are purchased by APP pulpwood suppliers for use on their plantations. Profits go directly to the community.

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The APP Lontar Papyrus mill in Jambi Province, Sumatra. This mill is among the most advanced and environmentally-friendly in the world. APP markets its products in more than 65 countries on six continents. APP¶s major paper mills are certified under the Indonesian Ecolabelling Institute (Lembaga Ekolabel Indonesia or µLEI¶) and Programme for the Endorsement of Forest Certification (PEFC) Chain-of-Custody standards. Greenspirit Strategies assessed APP mills Indah Kiat in Riau province and Lontar Papyrus in Jambi province. We note that these production facilities are among the most advanced and environmentally efficient in the global pulp and paper industry, enabling cleaner production. Carbon Footprint In 2007, APP partnered with the independent, UK-based sustainability consultancy, Environmental Resources Management (ERM), to carry out the world¶s first Carbon-Socio Footprint Assessments for a pulp and paper company. In undertaking the Carbon footprint calculation on APP¶s pulp and paper mills, ERM used existing industry-standard tools and guidelines (including ICFPA¶s 2005 calculation tools for estimating GHG emissions from pulp and paper mills; WRI¶s 2004 Greenhouse Gas Protocol, IPCC¶s 2006 guidelines for national GHG inventories, and NCASI¶s 2001 technologies for reducing carbon dioxide emissions, as well as other tools approved by the UNFCCC).

APP¶s weighted average carbon footprint for 2006 was 1.56 tons of CO2 produced per ton of paper, excluding pulpwood plantation sequestration. This is on the low end of the 1.46 to 2.20 tons of CO2 produced per ton of paper range of the North American paper industry.

According to ERM¶s 2008 report which evaluated eight production facilities in Indonesia, APP¶s weighted average carbon footprint for 2006 was 1.56 tons of CO2 produced per ton of paper, excluding pulpwood plantation sequestration. This is on the low end of the 1.46 to 2.20 tons of CO2 produced per ton of paper range of the North American paper industry. This was the first assessment to determine opportunities for improvement. Currently APP is working with ERM to conduct Carbon Footprint Monitoring (CFM), which includes the following assessments: y Best-practice carbon footprint assessments in compliance with international standards, such as the GHG Protocol and ISO 14064; and 12

y

ISO 14044 consistent assessment of the entire gate to end-use emissions of most common paper products. It is our view that APP has taken the government¶s CO2 emissions reduction policy, seriously and continues to show improvement in the area that is comparable to North American mill results.

The objective is for tangible emissions to be reduced through the Clean Development Mechanism (CDM) ± and other initiatives ± and the production of carbon neutral paper in the long-term. Mill CO2 mitigation During our visit to Indah Kiat Pulp & Paper we were briefed on a number of CO2 emissions reductions measures, including: y

Methane recovery and utilization of methane for heat generation through improved wastewater treatment (Serang) o Potential carbon emission reduction = 59,067.69 CER (Certified Emission Reduction) for next 10 years o Status : Validated on 9 December 2009 Fuel switch to biomass (oil palm bunch waste) (Perawang) o Potential carbon emission reduction = 225,626.04 CER for next 10 years o Status : Draft PDD (Project Design Document) Methane recovery and utilization of methane for heat generation through improved wastewater treatment (Ekamas Fortuna) o Potential carbon emission reduction = 17,000 CER for next 10 years o Status : Data collection

y

y

It is our view that APP has taken the government¶s CO2 emissions reduction policy seriously and continues to show improvement in the area that is comparable to North American mill results. Indonesian GHG emissions

Plantation forests, like this APP pulpwood supplier plantation in Sumatra, act as carbon sinks.

In 2005, UNDP reported that Indonesia¶s CO2 emission per capita was only 1.7 tons. These emissions are significantly lower than its neighboring developed country of Australia, which emits 16.2 tons of CO2 per capita, or that of the USA, which emits 20.6 tons of CO2 per capita. Rightly, we think, Indonesia ± along with most Asian countries ± views as national priorities economic development to alleviate poverty, social welfare, and environmental protection (including protection of high conservation value forests, biodiversity, and endangered species), with the need for a balanced 13

approach to GHG emissions reductions. President Yudhoyono, during post-Kyoto negotiations, pledged that Indonesia would reduce carbon emissions by 2020 to 2005 levels. As noted above, APP has indicated that it is committed to making its carbon footprint as small as possible and is working with credible, independent environmental consultants to monitor its progress toward GHG emissions reductions.

Rightly, we think Indonesia is looking to balance GHG emission reductions while encouraging economic growth to alleviate poverty.

Forestry Plantation Operations
APP¶s two pulp and paper mills in Sumatra, Indonesia -- Indah Kiat and Lontar Papyrus -- are fed by its pulpwood suppliers in Sumatra and Kalimantan, Indonesia. Greenspirit team members assessed APP pulpwood supplier plantation operations near the Indah Kiat mill in Riau Province, Sumatra, as well as near the Lontar Papyrus mill in Jambi Province, Sumatra.

An APP eucalyptus plantation, Sumatra, Indonesia

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Peatlands
In reviewing APP pulpwood supplier plantation operations on peatlands, including those near the Kerumutan National Park, Greenspirit Strategies learned about the specific processes that pulpwood suppliers are undertaking to ensure these peatlands are managed sustainably. Contrary to environmental activist claims, Greenspirit Strategies found that APP pulpwood suppliers have adopted a range of best practices to ensure sustainable forest management on peatlands, including: y Ensuring responsible water management in peatlands to enable strong tree growth while limiting peat subsidence. Educating and providing livelihoods to communities that, faced with joblessness and poverty, resort to the illegal clearing and burning of peatlands for agricultural production. Contrary to environmental activist claims, Greenspirit Strategies found that APP pulpwood suppliers have adopted a range of best practices to ensure sustainable forest management on peatlands.

y

y

Proactive fire prevention and suppression with active involvement and engagement from local communities. Voluntarily setting aside vast swaths of natural peatland forest considered to be of special merit for permanent conservation and protection.

y

Environmental activists often act as if companies like APP operate in a vacuum. If these companies simply stopped operating, some activists argue, conservation efforts would improve enormously. But this is a false argument. Our observations from the air confirm the FAO¶s general finding that a root cause of natural forest clearing is the encroachment and burning of forestland for conversion to crops and settlement. We saw firsthand the illegal encroachment and burning that result in the deforestation of tens of thousands of hectares of land annually in Indonesia.

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Encroachments like these by migrant nationals are the root cause of illegal conversion of natural forest in Indonesia. We witnessed hundreds of these encroachments strewn across the Sumatran landscape. The best means of avoiding this illegal encroachment is to provide communities with economic opportunities they would not otherwise have ± opportunities that APP and its pulpwood suppliers are currently providing. APP and its pulpwood suppliers are engaged in active monitoring in areas where they operate and work to educate communities about the benefits of preserving forest and peatlands. That¶s why the further away we flew from APP¶s pulpwood suppliers¶ operations, the more illegal encroachments we saw. Contrary to activist claims, if these pulpwood suppliers halted operations in their areas, illegal encroachment and forest burning would likely increase dramatically. For more information on peatlands, please see Appendix A. 16

APP¶s pulpwood suppliers¶ presence on peatlands helps protect them from illegal encroachment.

Protecting Biodiversity
During our assessment, the Greenspirit Strategies team flew over vast areas of wilderness that have been voluntarily set aside by APP¶s pulpwood suppliers to ensure biodiversity and habitat protection ± the expanse of this area cannot be understated. In total, these suppliers have voluntarily set aside close to 400,000 hectares (over 988,000 acres) of allocated production forest for conservation purposes ± that¶s roughly the size of Rhode In many parts of the Island. developing world, a protected area is often protected in But in many parts of the developing world, a protected area is name only because of illegal protected often in name only. Because of illegal encroachment. encroachment, these areas often succumb to deforestation and habitat destruction. APP and its pulpwood suppliers work with government, local communities and NGO partners to ensure these protected areas remain truly protected through active monitoring, management and education efforts.

The Greenspirit Strategies team flew over vast areas of wilderness in Sumatra. APP and its pulpwood suppliers indicated to us they have initiated a range of projects to help protect untouched regions like these, including voluntary set-asides that total close to 988,000 acres ± the size of Rhode Island.

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Conservation areas that APP and its pulpwood suppliers have set aside and are assisting in protecting, include: y The UNESCO designated Giam Siak Kecil-Bukit Batu (GSK-BB) Biosphere Reserve in Riau province, Sumatra. APP and its pulpwood suppliers initiated development of this UNESCO reserve. And of GSK-BB¶s 178,722 hectares (441,631 acres), almost half ± 70,721 hectares (174,755 acres) ± came from APP¶s suppliers¶ voluntary set-aside. According to UNESCO, the reserve serves to protect a multitude of species, including many endangered flora and fauna.

APP and its pulpwood suppliers told us they were behind the first and only UNESCO biosphere reserve created by the private sector anywhere in the world.

The reserve also acts as an enormous carbon sink. A 2008 estimate by the engineering firm URS suggests that Giam Siak Kecil alone stores some 1.7 billion tons of carbon underground. This is the first and only UNESCO biosphere reserve created by the private sector anywhere in the world. y The core zone of Taman Raja Nature Preserve is a 10,000 hectare (24,710 acre) protected area that includes Sumatran tiger habitat. APP and its suppliers say they are working together with government and community leaders to develop a wildlife corridor on concession lands between Taman Raja and Bukit Tigapuluh National Park so tigers and other wildlife have access to the entire region. APP pulpwood suppliers and other concession holders have voluntarily set aside 106,000 hectares (261,931 acres) of production forest for a Senepsis Tiger Sanctuary in Riau province, Sumatra. This sanctuary will help to protect the Sumatran tiger ± listed as an endangered species by the International Union for the Conservation of Nature ± by expanding existing wildlife reserves.

y

APP and its pulpwood suppliers are working together with well-known Indonesian wildlife conservationist Bastoni (many Indonesians have only one name) of the wildlife conservation group BKSDA to help protect and expand tiger populations on Sumatra.

APP and its pulpwood suppliers are working with well-known Indonesian wildlife conservationist Bastoni to help protect and expand tiger populations on Sumatra.

In our interview with Bastoni, he noted that APP is one of the few organizations that funds and supports his vital work to ensure the survival of the Sumatran tiger. 18

Bastoni is more than a tiger researcher. He is actively involved in projects aimed at increasing and protecting tiger populations. Bastoni and his multi-stakeholder working group act as intermediaries when villagers come into conflict with tiger populations. The working group as been formed out of concern that illegal logging and encroachment are major causes of tiger population decline. Bastoni works with villagers to educate them on the need to protect tigers and he acts quickly to move tigers away from populated areas where they may come into conflict with humans. The Tiger Working Group, which APP and its suppliers fund, has developed a range of programs to enhance tiger survival, including education and monitoring efforts to combat illegal logging and encroachment, tiger surveillance and research using radio collars and camera traps, and enhanced signage and fencing to clearly mark tiger areas and prevent human intrusion. It¶s important to note that

APP is working together with government and community leaders at this village near Taman Raja to develop a wildlife corridor on concession lands to link Taman Raja with Bukit Tigapuluh National Park, so tigers have a larger wilderness area to roam. APP pulpwood supplier plantation concessions in this area act as a buffer between the tiger sanctuary and further human encroachment. The Greenspirit Strategies team found no evidence to support environmental activist claims that suggest APP suppliers are destroying tiger habitat APP supplier plantation in this area. To the contrary, our examination and interviews concessions act as a buffer with community leaders and APP employees suggest that between the tiger sanctuary without operations on these concessions, it¶s likely that tiger and further human habitat would be further destroyed by illegal encroachment. encroachment. According to APP, 50 percent of the company¶s pulpwood supplier concession of 44,330 hectares (109,541 acres) in Dumai, Riau, are already occupied by migrant settlers. The company works with these settlers, hires many to work on the plantations, and educates them on sustainable forestry practices. Providing these settlers with jobs and training means they are much less likely to encroach into the natural forest and 19

tiger sanctuary surrounding the concession. If APP¶s pulpwood supplier abandoned this area, as many environmental activists demand, it¶s likely the tiger sanctuary and surrounding natural forest would be further encroached upon by migrant settlers looking for better Bastoni told us that no livelihoods for their families (See what has happened in Teso Western NGOs are involved in Nilo, for example, in Appendix A). the kind of active tiger protection work that he does Bastoni is also working on breeding projects to increase tiger and that is so vital to the populations. In one such project, he relocates injured tigers future of the Sumatran tiger. to a sanctuary area where they can breed. When newly born tigers are sufficiently grown and ready, they are released into the wild to grow the population. Surprisingly, Bastoni told us that while Western NGOs are well known for their political activism and basic research, none are involved in the kind of active tiger protection work that he and his organization are involved in and that is so vital to the future of the Sumatran tiger. y Bukit Tigapuluh National Park is an area rich in biodiversity. Surrounding this 143,000 hectare (353,360 acre) park are APP pulpwood supplier concessions located in areas the Indonesian government has declared as production forest in addition to other land use such as mining and agriculture. A multi-stakeholder panel made up government, industry and NGOs such as the World Wildlife Fund (WWF) and the Frankfurt Zoological Society have reviewed the ecological value of these concession areas. APP management committed to abide by any decision made by the Indonesian government based on the findings of the multi-stakeholder panel. In the interim, APP says they have voluntarily agreed to not receive any pulpwood from the production forest surrounding the national park until the multi-stakeholder panel has completed its assessment.

Certification
In addition to the detailed assessments and regulations APP and its pulpwood suppliers must follow by law (see the section on Indonesian Land Use Planning), the Greenspirit Strategies team learned that APP and its suppliers have pursued additional independent, third-party verified certification to demonstrate their commitment to sustainable forest management. The four largest APP pulpwood suppliers, PT Arara Abadi (Riau), PT Wirakarya Sakti (Jambi), PT Satria Perkasa Agung (Riau) and PT Finnantara Intiga are all EMS certified under ISO 14001.

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Lembaga Ekolabel Indonesia (LEI) is the national standard for sustainable forestry in Indonesia. LEI is a rigorous, independent forest certification standard that has been accepted by other forest certification schemes and customers around the world. APP pulpwood supplier PT Wirakarya Sakti (Jambi Province) achieved LEI certification from the independent, accredited certification body, PT TUV International Indonesia in September 2008 for an area covering 246,482 hectares (609,070 acres). This represents the largest An APP pulpwood supplier has the largest LEI certified plantation in Indonesia. LEI certified plantation in Indonesia.

In 2009, APP mills ± including both Sumatran mills, Indah Kiat and Lontar Papyrus ± were also certified to the LEI Chain of Custody, so pulpwood is tracked from the forest floor, to the mill, and through the transportation chain in order to verify sustainable forest management. Separate from the LEI chain of custody certification, APP mills have also been certified to a range of other world class sustainability standards, including Indonesia Ecolabel, European Ecolabel, Japan Ecolabel and Programme for the Endorsement of Forest Certification (PEFC) chain of custody.

Pulpwood must meet rigorous, independent chain of custody requirements that track it from the forest floor to the mill and through the transportation network to ensure it comes from well-managed forests. So, in addition to the efficiencies and emissions reductions gained through the use of modern facilities (APP¶s mills are among the most up-to-date we have seen), these chain of custody systems and protocols are crucial to APP¶s sustainability program, and are improved continuously based on external audits. To achieve all these third-party, independent certifications, over the past five years, APP has restructured and improved its sourcing and chain of custody policies. 21

Chain of custody certification protocols in use by APP include: y Pulpwood: Indonesian Ecolabelling Institute (LEI) chain of custody/legal origin verification (2007) & LEI sustainable forest management standard Pulpwood: SGS Timber Legality & Traceability Verification (Stage 1: Verified Legal Origin) Pulp & Paper Products: Green Purchasing Law o Revised on April 1, 2006 in Japan, conforming to ³Green Purchasing Method,´ Ministry of the Environment of Japan o To certify the legality and sustainability aspects of pulpwood  Standard & Procedures  Fiber Procurement & Sustainability Policy  GPL Certification Policy & Code of Conduct Pulp & Paper Products: LEI certified Pulp & Paper Products: PEFC certified & Non-Controversial

y y

y y

Since most APP production facilities are PEFC chain of custody certified, regulations and guidelines under PEFC principles are rigorously implemented. APP officials demonstrated to Greenspirit Strategies during our site visits that the company evaluates and conducts risk assessment analysis on all of its pulpwood suppliers according to PEFC guidelines. APP¶s procurement policy, both in HQ and at each mill, has been restructured to accommodate this implementation.

Pulpwood Tracking and Verification
Because APP mills are PEFC and LEI chain of custody certified, its pulpwood suppliers must meet rigorous legal origin verification criteria in order to ensure only legal pulpwood of known origin is processed at these mills. To meet these criteria, APP and its pulpwood suppliers are independently audited against Indonesian law and Ecolabel Institute and Timber Legality and Traceability Verification (TLTV-VO) standards by one of the world¶s leading auditors, SGS. As the Greenspirit Strategies team witnessed during our review of Indah Kiat and Lontar Papyrus mills, APP takes such detailed measures as to check the door serial numbers of logging trucks seeking entry into its mills in order to match each truck to its pulpwood load and legal documentation. APP officials indicated to us that these serial numbers are much more difficult to forge than licence plates and are simply another means of ensuring each truck entering its mills is carrying legally harvested fibre. SGS has independently verified that these tough measures are working and that no illegal pulpwood is being harvested by APP pulpwood suppliers or being introduced into APP mills.

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Truck loads are matched against legal documentation. SGS has independently verified that tough measures like those pictured above are working and that no illegal pulpwood is being harvested by APP suppliers or being introduced into APP mills.

Fibre Supply
Over the past two years, APP¶s pulpwood consumption in Indonesia has roughly consisted of 85 percent sustainable plantation wood and 15 percent mixed wood residues from pulpwood plantation development in degraded areas. However APP¶s target from 2011 forward is consumption of approximately 10 percent of mixed wood residues and other waste wood materials (wood shavings, trimmings and others ± a common practice in pulp mill operations worldwide). Additionally, APP pulpwood suppliers are working to have all their forestlands certified to the LEI standard. Today, roughly 30 percent of APPs fibre supply originates from certified sources such as PEFC and LEI, another 35 percent originates from independently audited, legally harvested sources, with the balance being recycled materials. 23

Poverty Alleviation
Travelling to a range of APP and its pulpwood suppliers¶ operations across Sumatra, the Greenspirit Strategies team encountered some of the thousands of hard-working employees that make up APP and its pulpwood supplier companies. APP directly employs more than 62,000 workers while its suppliers directly employ an estimated 8,500 workers ± together direct employment for these companies totals more than 70,000 workers in Indonesia. Notably, most of the people who work for APP pulpwood suppliers are local hires from rural areas surrounding forestry concessions. If indirect jobs are also considered, total employment by APP and its pulpwood suppliers leaps to over one million jobs worldwide according to a 2008 study by IMB Bogor University of APP is working on a range of poverty Agriculture (Indonesia). That a single company and alleviation efforts. its fibre suppliers could facilitate the employment of over a million people demonstrates the substantial impact APP and its suppliers are having on poverty alleviation efforts in developing countries such as Indonesia. As the FAO indicates, poverty alleviation is a key factor in improving environmental protection. In Indonesia, illegal encroachment and burning of forests for agriculture, settlement and oil palm conversion remain critical issues and are at the heart of the deforestation in Sumatra and other parts of the country. These issues are driven by poverty. As the FAO notes in its APP and its suppliers directly 2007 State of the World¶s Forests Report, ³the countries that employ more than 70,000 face the most serious challenges in achieving sustainable people in Indonesia. If forest management are, by and large, the countries with the indirect jobs are also highest rates of poverty and civil conflict.´ considered, these companies employ more than one million When people have to feed their families, environmental people worldwide. protection becomes a distant priority. The link between poverty alleviation and forest protection is a link that environmental activists simply ignore. In fact, in January 2010, Greenpeace called for a total moratorium on forestry in Indonesia. This would put hundreds of thousands of people out of work and, consequently, likely accelerate deforestation in the country. In response, Indonesian Forestry Minister Zulkifli Hasan told the Jakarta Globe: ³What should we do with our industry? Can [Greenpeace] provide any solutions for the logging industry and people who make their living from the forestry sector?´ According to Zulkifli, the moratorium would cause economic stagnation. Besides, he said, the country already had programs in place for sustainable forestry management: ³If we want to blame somebody 24

because of deforestation, blame the illegal loggers and their buyers,´ he added.

In 2008, the United Nations recognized APP¶s contributions to poverty alleviation and sustainable development by honouring its Tjiwi Kimia paper mill on East Java. The mill was recognized for its efforts in meeting the UN Millennium Development Goals (MDGs). The MDGs are core goals focused on sustainable development that the UN hopes the world will achieve by 2015. These goals include the eradication of extreme poverty and hunger, achieving universal primary education, promoting gender equality, reducing child mortality and ensuring environmental sustainability. Providing people with sustainable livelihoods is critical to meeting the MDGs and ensuring forest protection in much of the developing world. We saw that APP and its pulpwood suppliers are playing no small part in this vital effort. It is a tragedy that Western environmental activists attack the very industries that are engaged in poverty alleviation efforts while ignoring the unsustainable agricultural practices, illegal forest encroachment and illegal logging and poaching that are the true cause of Indonesia¶s forest destruction and only give people a short-term fix to escape the miseries of poverty.

Deforestation is driven by poverty. When people have to feed their families, environmental protection becomes a distant priority.

Providing people with sustainable livelihoods is critical to meeting United Nations poverty reduction goals and ensuring forest protection in much of the developing world.

Indonesia has made enormous strides in increasing standards of living in the last 10 years. Much is left to do and the forest industry is helping. We thought the message on this truck said it all.

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Community Development
APP has made substantial investments in development projects in areas and villages surrounding their operations to reduce poverty by:       Supporting education Developing skills training Providing medical care Establishing entrepreneurial community enterprises Providing environmental protection and education Assisting with disaster relief The Greenspirit Strategies team visited this village near the Taman Raja Nature Reserve. APP suppliers PT Wirakarya Sakti and PT Rimba Hutani Mas are working closely with some 600 families on development projects aimed at poverty alleviation.

The Greenspirit Strategies team assessed a range of these community development projects and sites and we were impressed by how involved and engaged APP and its suppliers are with their surrounding communities.

Near the Taman Raja Nature Preserve, APP¶s pulpwood supplier is working closely with the local community and some 600 families on development projects aimed at poverty alleviation. As noted previously, an important additional benefit of reducing poverty in this area is that people are less driven to illegally encroach on protected areas in search of an income. In our visit to this region, village leaders told us they are working with APP, government and NGOs in a range of areas including building schools, providing healthcare, and developing an organic fertilizer business for local farmers in the region. Local leaders indicated that with the help of APP¶s pulpwood supplier, they are educating villagers on the need to conserve the Taman Raja Nature Preserve, including a nearby water catchment area that has high biodiversity values. In coordination with local leaders and an NGO, a wildlife corridor between Taman Raja and Bukit Tigapulah National Park is being developed so Sumatran tigers and other wildlife have access to the entire region. An APP pulpwood supplier financed aquaculture program is teaching villagers to become fish farmers so they can provide a livelihood for their families without destroying the surrounding forests.

In another example of APP¶s commitment to community development, its supplier has funded an aquaculture program to provide economic and 26

educational opportunities for the people of four villages living along the Batanghari River in Jambi Province, Sumatra.

This boy¶s family is learning to farm fish and produce honey to earn an income. Prior to development of the aquaculture project, many of the people in the surrounding region lived nomadic lives, using the forest for subsistence and cutting down large areas of forest to plant crops. As local leaders indicated to the Greenspirit Strategies team during our visit, the APP pulpwood supplier financed aquaculture program is teaching villagers how to become fish farmers so they can provide a livelihood for their families without destroying the surrounding forests. Some 77 families are participating in the project, managing their own fish ponds, and harvesting and marketing the fish to the surrounding communities. Local leaders told us the project has resulted in decreased illegal logging, forest burning and conversion to agriculture. In demonstrating the effectiveness of the program, one local leader paraphrased the well-known Chinese proverb, saying ³give a man a fish and he eats for a day, teach a man to fish and he will eat forever.´ During our visit to Sumatra, the Greenspirit Strategies team also visited two Community Development Centres (CDCs), one located near the APP Indah Kiat mill in Riau and the other located near the APP Lontar Papyrus mill in Jambi. These centres play a vital part in the social, educational and economic development of surrounding communities. The CDCs provide training in a variety of fields such as aquaculture, honey production, farming and fertilizer production from cattle, weaving, and computer training as well as access to books, internet and library services. The CDCs also help farmers market their products in different areas. Based on our experience, these community development programs compare favourably with those of other leading companies around the world.

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APP funds community development centres (CDCs) to provide training for local communities in a variety of fields such as aquaculture, honey production, farming and fertilizer production from cattle, weaving, computer training, and access to books, internet and library services.

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Cutting Edge Research and Development
Contrary to the portrayal promoted by Western environmental groups, APP and its fibre suppliers are using cutting edge research and technology to grow more fibre on less land ± thus reducing the impacts on natural forests and habitat. An in-depth meeting with APP supplier PT Arara Abadi¶s Vice Department Head Evi Eriana in Riau allowed Greenspirit Strategies staff some impressive insight into the way in which APP and its pulpwood suppliers plan to meet the challenge of increasing pulp and paper output on a restricted landbase. APP pulpwood suppliers are emphasizing genetic, technological and environmental research to produce the best planting material in the world. We learned R&D at PT Arara Abadi is focused through six departments: y y y y y y Tree Improvement Department Silviculture Department Nursery Department Biotechnology Department Plant Protection Department, and Technical Extension Department

The mission is to ensure sustainable plantation development by performing research to overcome problems encountered in plantations, to provide genetically improved plant material (tissue culture plants and seed), to provide technical training to districts (e.g., nursery training), to support plantation activities, to contribute to pest and disease control, and to advise on all activities including best planting methods. The main species under research are Eucalyptus pellita, Eucalyptus hybrids, Acacia mangium, and Acacia crassicarpa.

APP pulpwood suppliers are emphasizing technological and environmental research in order to produce the best planting material.

Alternative species include Eucalyptus urophylla, Acacia hybrids, Eucalyptus camaldulensis, 29

Eucalyptus grandis, Eucalyptus tereticornis, and Eucalyptus brassiana. As Greenspirit Strategies learned on our review of the research facility, APP has now developed one of the fastest growing trees in the world. This clone, a Eucalyptus pellita, grows tall and straight, and produces fewer branches. In combination with cutting edge silvicultural practices, this tree grows at more than 50 m3/ha/yr MAI and has the potential to reach 110 m3/ha/yr MAI. By comparison, in 1991, the fastest growing tree grew at 20 m3/ha/yr MAI.

As Greenspirit Strategies learned on our review of the research facility, APP has now developed one of the fastest growing trees in the world.

Another tree, Acacia crassicarpa, which is specifically planted in wetland or peatland has also shown an astounding improvement in growth, from 17.5 m3/ha/yr MAI in 1990 to greater than 70 m3/ha/yr MAI today. This research means that APP pulpwood suppliers can grow more fibre on less land, allowing for the preservation of more natural forest. APP¶s research is conducted in collaboration with both Indonesian institutions and universities and academics around the world, including: Indonesian y Centre for Forest Biotechnology & Tree Improvement Research & Development, B2PBPTH Yogyakarta y BAPEDAL (Environmental Department, Riau, Federal office in Jakarta ) y Research & Development Centre of Forest and Nature Conservation y (PUSLITBANGHUTKA), Forestry Department Bogor y SEAMEO, BIOTROP, Bogor y IPB, Bogor y UNRI, Pekanbaru International y Jaako Poyry y Peking University y Michigan Technical University. y Taiwan Chung Hsing University y Chinese Academy of Forestry y CIRAD, France ± since 2005 y Kyoto University This research means that APP¶s pulpwood suppliers can grow more fibre on less land, allowing for the preservation of more natural forest.

This collaboration with academic institutions around the world has made APP a leader in plantation research and development. 30

Conclusion
Greenspirit Strategies¶ view after extensive assessment of the region is that [legal or government sanctioned] paper and pulp suppliers such as APP in Indonesia have made exceptional progress in the 10 years since Greenspirit Strategies last assessed the region. During the time the team spent on the ground and in the air viewing Sumatra, plantations, mills, forest communities and also interviewing management, we saw dramatic improvements in: Our view after an extensive y Sustainable peatland operations assessment of the region is y Habitat protection and voluntary set asides for parks and that the scare-stories protected areas created and marketed by activist groups like y CO2 emissions reduction programming Greenpeace, Rainforest y Community engagement and poverty alleviation efforts Action Network and y Cutting edge plantation research and development ForestEthics are often false. That is not to say there aren¶t serious challenges facing the region with respect to deforestation and habitat loss. Again, our view is the company has had a significantly beneficial effect on curtailing deforestation and habitat loss, which are the result of poverty in the form of national migrants illegally encroaching on forests in search of a better life. In spite of the fact some activist groups would prefer you ignore this point completely, the company operates on the basis of achieving full legal compliance with the national and provincial governments where it operates. The country¶s National Spatial Plan allocates just over 3 percent of Indonesia's total 1l0 million hectares of forest (roughly 3.5 million hectares or 8.6 million acres) to pulpwood plantation forest. Of this, APP¶s plantable area is only around 1.4 million hectares. Contrary to the claims of Western environmental groups, it is impossible to destroy Indonesia¶s biodiversity by converting 3.5 million of 110 million hectares to plantation forests. Second, and importantly, the company¶s performance is based on the three classic pillars of After our extensive assessment of the region, sustainability ± economic strength, environmental compliance and social responsibility. However, in a we believe APP and its pulpwood suppliers developing country where US$7 billion a year is are managing their forests sustainably. collected by the state in forest industry taxation, there¶s little doubt the sector helps support millions of families.

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Third, conservation beyond compliance means APP is focussed on a wide range of large landscape forest protection and sustainable forest management activities that promote third-party certification of practices, chain of custody, CO2 emissions reductions and recycling. There are 35 million Indonesians living below And finally, the importance of the social aspect of the poverty line, and many of company¶s activities as we viewed them cannot be them are driven to desperate overstated. measures, including encroachment into protected There can be no doubt that poverty and social and areas in a bid to provide a environmental degradation in developing countries are decent life for themselves and closely linked. As we have reported earlier in this piece, their families. there are 35 million Indonesians living below the poverty line, and many are driven to desperate measures, including encroachment into protected areas and forest plantations, to provide a decent life for themselves and their families. A far better option would be for a robust forest sector, supported by western activists, to contribute support toward poverty alleviation, community empowerment, and education. We are discouraged that the activities and rhetoric of certain activist groups have a negative impact on important efforts toward poverty alleviation in a developing country, and consequently, hurt environmental protection in Indonesia. While there remains little doubt Western environmental activists have decided to target APP, our ground and aerial surveys of APP¶s and its pulpwood suppliers¶ operations indicate to us the anti-APP campaign is groundless.

Greenspirit Strategies team with APP staff in Sumatra, Indonesia.

We hope this view will influence Western environmentalists to focus on the right target ± poverty alleviation in Indonesia ± which will in turn help to reduce illegal encroachment and habitat destruction in the country. We are convinced APP and its pulpwood suppliers are making a positive contribution in that regard. However, by targeting APP and its suppliers, Western environmental groups are, in real terms, making it much more difficult to reduce deforestation in the country.

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Appendix A: Some Key Facts About APP Operations
After spending 10 days reviewing APP operations in Indonesia, we feel it is important to offer a summary of our observations: 1. As we noted previously, 85 percent of APP's pulpwood supply comes from fast growing, high yield, renewable plantations. Approximately 15 percent comes from legally sourced mixed tropical hardwood. APP's mills have been configured in such a way that mixed tropical hardwood is less useful and efficient to process. Plantation fibre is strongly preferred and APP is rapidly moving toward minimal mixed tropical hardwood. 2. APP¶s pulpwood suppliers are not seeking any new concessions apart from what has already been applied for ± period. Cutting edge advances in research and technology mean APP pulpwood suppliers can grow more fibre on less land, resulting in increased fibre supply without requiring an increased land base.

Eighty-five percent of APP's pulpwood supply comes from fast growing, high yield, renewable plantations like this one.

3. Detailed aerial surveys of areas in which APP pulpwood suppliers are located, such as PT Bina Duta Laksana (PT BDL) and PT Mutiara Sabuk Khatulistiwa (PT MSK) in the Kerumutan area and PT Artelindo Wiratama outside Bukit Tigapuluh National Park ± and interviews with local community leaders ± show they are operating within the confines of government approved land use plans. These companies have also undertaken social and high conservation value forest assessments based on a national protocol. In Kerumutan, more than 52 percent of the companies¶ concessions are set asides. See point 12 below for information on management in the Kampar Peninsula. 4. APP supplier concession operations help to protect natural forest by acting as a buffer against further illegal encroachment of the natural forest area. 5. Pictures can often be misleading. Greenpeace¶s reports Pulping the Planet and Empires of Destruction are replete with photos purportedly showing APP pulpwood supplier clear-cuts, leaving the impression that these are recent clear-cuts of natural forest, the better to stir outrage against APP. In fact, many of these pictures have been taken after a pulpwood plantation concession ± not a natural forest ± has been harvested. This is not a clear-cut of a natural forest, but rather Greenpeace fails to indicate that once harvested, these concessions are rapidly a recently harvested plantation forest. This area will be rapidly replanted and in a few short years, a new 33 forest will grow here.

replanted and in few short years, a new forest will grow ± ready once again for harvesting. We call this a renewable resource. 6. Contrary to some environmentalists¶ allegations, APP pulpwood suppliers are not endangering Sumatran tiger habitat. On the contrary, and as we have already noted, without such operations, Sumatran tiger habitat would likely be further endangered.

7. As the FAO makes clear in its State of the World¶s Forests Report (2007), deforestation and habitat destruction are driven primarily by urbanization and the clearing of land for agriculture. In this sense, all of Sumatra would once have been considered tiger habitat. Much of this habitat has been destroyed by the growth of cities. 8. As the FAO also notes, plenty of deforestation is driven by poverty. Our detailed aerial flyovers of Sumatra made this very clear. We saw large numbers of illegal encroachments where natural forest had been destroyed. These areas were mostly located away from APP supplier concessions because these suppliers carefully monitor their areas and the surrounding region. The companies work with local communities to prevent illegal encroachment. As we saw from the helicopter, the further away you go from company owned concessions, the more illegal encroachment you find ±because there is little monitoring of these areas. 9. As we were told by many experts in Sumatra, national migrants generally encroach on forested and protected forest areas in search of an income. According to the Indonesian Central Bureau of Statistics, as of March 2008, nearly 35 million Indonesians live below the poverty line, unable to obtain food amounting to 2100 calories per day. They clear land and plant crops or oil palm. In many cases, these migrants do not bother with the illegal selling of cleared mixed tropical hardwood since they do not have the resources to remove it ± instead, they simply burn it on site. Often, the fires spread uncontrollably, destroying nearby plantations, protected forest and peatlands. Peatland fire is the major cause of carbon emissions.

Illegal encroachments ± not APP¶s supplier plantation operations ± are at the heart of Sumatran tiger habitat destruction.

10. It is these illegal encroachments ± not APP supplier plantation operations ± that are at the heart of Sumatran tiger habitat destruction. As we have already noted, APP and its pulpwood suppliers are engaged in a range of programs to prevent illegal encroachment and protect tiger habitat, including poverty alleviation and specific tiger conservation initiatives. These are important initiatives that, as Indonesian wildlife conservationist Bastoni noted, are not being funded by Western NGOs. Without support from APP, the tiger would

In many cases, migrant nationals do not bother with the illegal selling of cleared mixed tropical hardwood since they do not have the resources to remove it ± instead, they simply burn it on site.

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likely be much worse off.

Case Study: Encroachment into Teso Nilo National Park, Riau Province, Sumatra
This is an example of the real risks associated with passive conservation in Sumatra. These maps based on satellite data show illegal encroachment is the root cause of deforestation in Sumatra. The yellow portion of the map indicates the extent of illegal encroachment. Neither APP nor its pulpwood suppliers operate here. Consequently, there is inadequate monitoring and little attempt at poverty alleviation. In only eight years (2000-2008), encroachment into the park has risen rapidly. If this rate of encroachment continues, Teso Nilo will likely be entirely deforested by 2020. Western environmental groups ignore the root cause of deforestation because it much easier to blame a large forest company than it is to do the difficult work of poverty alleviation and sustainable development

Teso Nilo encroachment, May 2000

Teso Nilo encroachment, April 2008

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11. Growing plantation forests on peat soil makes sense from an environmental perspective because as acacia leaves and tree matter fall to the ground and are cut during harvesting, they add to the depth of the peat. 12. Recently, APP announced that it will create the Kampar Carbon Reserve -- an area one quarter the size of Singapore ± on concession land held by its pulpwood supplier PT. Putra Riau Perkasa (PRP). Working in partnership with the Singaporebased NGO Carbon Conservation, APP will turn more than 15,000 hectares (37,065 acres) of critical peat forest from concessions allocated for pulpwood plantation to conservation land acting as a carbon reserve. In coordination with the United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD), the program will use REDD credits to provide education, job training and community development programs to local villagers.

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Appendix B: Forest Stewardship Council
In 2007, the Forest Stewardship Council (FSC) revoked APP¶s FSC chain of custody for its mills even though APP had complied with all chain of custody requirements and received its Forest Stewardship Council certification from an independent, world-class auditor, SGS. SGS told the Wall Street Journal that FSC¶s behavior would likely make other producers in the tropics wary of pursuing FSC certification, since it could be arbitrarily taken away. SGS was quoted as saying that this ³will truly drive away most of the big players in tropical forestry.´ A major flaw of the FSC system is that it is heavily influenced by environmental activists who appear to have a strong bias against large companies ± whether or not those companies are operating sustainably. It is likely the FSC received substantial pressure from members to pull APP¶s certification. Greenspirit Strategies believes this was a purely political and trade-related decision based on zero scientific grounding. Nonetheless, based on our interviews with APP management, the company remains open to further discussions with the FSC on restoring its certification. By the same token, we strongly urge the FSC to reconsider its unfortunate decision to revoke APP¶s chain of custody logo and rather to engage constructively with the company in a manner that is fully transparent. Independent auditor SGS noted that the Forest Stewardship Council decision ³will truly drive away most of the big players in tropical forestry.´

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Appendix C: Procurement Policy Advice for Pulp and Paper Buyers
Certification systems based on principles of sustainable forest management emerged in the past two decades as a means of giving customers the assurance that a forest product was derived from sustainably managed forests. In short, the certification system takes a highly complex subject involving environmental and social sciences and economics and condenses it down to the simplest market signal ± a stamp or marquee designating the product¶s sustainable production. As new, credible certification systems have entered the sustainable forest management marketplace, procurement officers have looked to these various systems in order to filter

We urge procurement policies be evaluated on the basis of whether they are ³inclusive´ or ³exclusive´ ± that is, whether or not they give preference to range of independent, third-party forest certification standards.

sustainable forest practices from unsustainable ones. As one UK-based procurement executive explained, ³We have not been able to buy otherwise competitive products from well-managed forests, for the sole reason that they have the wrong label on the package.´ Given the variety of systems now available, procurement officers must create procurement policies squarely based on performance in order to ensure those policies endure.

We urge an inclusive approach to procurement rather than an exclusive one ± that is, procurement policies should give preference to a range of independent, third-party forest certification standards rather than favouring any one certification label in particular. As one UK-based procurement executive explained during the early days of this debate: ³We have not been able to buy otherwise competitive products from well-managed forests, for the sole reason that they have the wrong label on the package.´ APP pulp from well-managed forests ready for shipment

More recently, companies have adopted procurement policies that appear to satisfy NGO concerns while remaining inclusive by giving preference to a range of independent, third-party forest certification standards. Sample Procurement Policy

Below is a sample procurement policy that we provide as a reference for pulp and paper buyers worldwide. This type of policy, focused on environmental criteria rather than on geo-political locations or brand-specific requirements, provides enhanced flexibility to buyers while ensuring the procured forest products are from well-managed forests: 38

Recognizing the vital and diverse nature of forest values, it is our intention to use only products derived from sustainably managed forests. Sustainable forest management maintains the health and productivity of forest ecosystems, while facilitating forest-based economic and social development. It will incorporate, without being limited to, the following objectives:
y y y y y y

Conservation of biodiversity; Conservation of soil and water quantity and quality; Maintenance of contributions to global ecological cycles (eg carbon cycle); Protection of a representative network of forested areas; Regulation of harvest levels with regard to long-term productivity; and Integration of timber-related and non-timber related uses (e.g. recreation, community forestry)

We will also give preference to certified forest products, including products certified by:
y y y y

Indonesian Ecolabelling Institute ± Lembaga Ekolabel Indonesia (LEI) The Programme for the Endorsement of Forest Certification (PEFC) Forest Stewardship Council (FSC) Other nationally recognized sustainable forest management standards

We will do so in order to ensure that the forest products we purchase come from sustainably managed forests.

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APPENDIX D: Itinerary Details
Greenspirit Team Flight Plans Day 1

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Day 2

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Day 3

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Greenspirit Strategies Itinerary The Greenspirit Strategies team conducted assessments in the following key areas: y y y y y y y y y y y y y y y y y y y y y y y y Aerial helicopter flight over GSK-BB Plantation forest mosaic on the way to GSK-BB Giam Siak Kecil - Bukit Batu Biosfer Reserve Fly from GSK-BB to RUJ Discussion with Pak Bastoni, head of BKSDA Aerial flyover Senepis Tiger Sanctuary Land at IKPP Perawang Forestry discussion in Arara Abadi Office Review IKPP chain of custody, mill gate, log yard, chip yard Review R&D Center Review tissue culture laboratory, eucalyptus nursery, eucalyptus trial plot Assess Acacia/Eucalyptus plantation Assess community nursery Review IKPP community development center Aerial helicopter flight from Perawang to Kampar Peninsula ± land and review at Kampar Aerial helicopter flight over Kerumutan -- See aerial view of BDL & MSK. Check boundary of Kerumutan National Park Land at BDL and interview community Aerial helicopter flight to TT Car ride to Sungai Tapa Assess community forest and interview locals Aerial helicopter flyovers and ground assessments: TNBT, Eks-dalek, access road, Artelindo, Taman Raja Interviews with community in Taman Raja Assess Lontar Papyrus mill chain of custody system Management interviews in Jakarta

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