The Indonesian Timber Legality Assurance System (SVLK) - Observatory of Public Sector Innovation

Two decades ago, 80% of Indonesia’s timber exports consisted of illegally-sourced wood. In order to combat this problem and to promote more sustainable forest management, the Government of Indonesia developed an innovative multi-stakeholder approach to ensure that wood products and raw materials would only be obtained or come from sources whose origins and management were legal and sustainable. Thus, the Timber Legality Assurance System (Sistem Verifikasi Legalitas Kayu – SVLK) was born.

Innovation Summary

Innovation Overview

According to media reports, Indonesia supplied 219 million cubic meters of unreported or illegally-sourced timber between 1991 and 2014. This had a devastating effect both environmentally and economically. Not only did it result in the loss of 2.3 million hectares of forest, the country also lost up to USD 9 billion in uncollected non-tax revenue between 2003 and 2014. Against this backdrop, the SVLK initiative was introduced to combat illegal logging and the trade in illegal timber, while at the same time improving governance and the management of Indonesia’s forests – both those under state and private ownership.

In addition to combating illegal logging and the illegal timber trade at home, Indonesia’s SVLK was also established to meet growing demands from international markets (particularly the European Union, Australia, and the United States) for guarantees of timber legality through the certification of sustainable, legally-sourced timber exports.

The innovative SVLK scheme contains a tracking system that aims to ensure that all entities in the timber supply chain obtain their wood and timber products from sustainably-managed forests and conduct their trading operations in accordance with prevailing laws and regulations. Developed with the active participation of a range of different stakeholders, from both government and civil society and public and private sectors, the SVLK system works to:

(1) assess and, where satisfied, verify relevant parties (including concession holders, timber businesses and traders) dealing in the production, processing, transportation, distribution, transfer and domestic trade of timber and wood products;

(2) trace the origin of all timber and wood products, and

(3) issue documentation and/or licenses that certify the legality of timber and wood exports.

The SVLK assurance scheme is a mandatory system that requires all timber from state-owned and private forests to obtain verification of legality – as a guarantee that the timber originates from legal, sustainably-managed sources. It took around 10 years of development before reaching the point in 2013 when the scheme was ready to be implemented.

During the development phase, the government engaged with all stakeholders to determine the definition, criteria, indicators and verification tools on timber legality and forest sustainability; the institutional framework, mechanisms and procedures surrounding SVLK certification, and the requirements for SVLK entities including certification bodies, auditors and independent monitors. The results of these multi-stakeholder gatherings formed the basis for the development of legislation via a series of focus discussions and public consultations at both regional and national levels, as well as implementation pilots, all of which fed into a final, formal process by the Ministry of Environment and Forestry.

Transparency is one of the SVLK’s key principles; therefore, independent third-party certification bodies, which are accredited by the National Accreditation Committee, award legality-assurance certificates to domestic timber and wood products and Verification Legal (V-Legal) documentation to SVLK-certified exporters, while the system’s implementation is monitored by civil society organisations concerned with forestry issues.

Since implementation began, the SVLK system has benefited both people and planet. By promoting better forest management, the SVLK scheme is playing a leading role in environmental protection and is helping to safeguard Indonesia’s forest areas for the wellbeing not only of current inhabitants but also for the next generation. In terms of the international timber trade, the scheme benefits purchasers of Indonesian timber by providing legal assurances that any timber and wood products they import meet internationally-recognised standards with regards to legality and sustainability.

In this way, the SVLK system has also brought great benefits to Indonesia by helping to restore the country’s reputation as a responsible and trusted trader and exporter of timber and wood products. Within the past four years, for example, the SVLK has gained widespread recognition and acceptance from major international markets including the EU and Australia. The SVLK system also benefits other countries (including China, Ghana, Malaysia and Vietnam) that are considering implementing similar timber-verification schemes by providing a reference and lessons learned on how to develop and implement a robust and credible timber assurance system.

In addition to becoming a benchmark for foreign replication, the SVLK system is already providing a framework for similar schemes that aim to trace and verify the source of other commodities in Indonesia. As an initial step towards domestic replication, the SVLK certification mechanism is being applied to palm oil, but there may well be scope for more widespread replication across different sectors in Indonesia.

Innovation Description

What Makes Your Project Innovative?

The prime innovation of the SVLK initiative is its cross-sectoral, multi-stakeholder approach. From the earliest stages of its development through to its implementation, the SVLK has involved a wide range of representatives from a variety of different sectors to help determine the system’s structure and working practices. Stakeholders have included government officials, civil society organisations, business people from the private sector, members of the general public and academics.

Although the Government of Indonesia provides the legal framework for adherence to the SVLK system and certification, independent third-party bodies conduct the certification process, while civil society organisations concerned with forestry matters conduct regular monitoring to ensure entities within the timber industry comply with the assurance scheme. Another notable feature is the SVLK’s appeal and dispute-settlement mechanisms, which aim to ensure an equitable, fair and transparent approach in all dealings with relevant parties.

What is the current status of your innovation?

The SVLK assurance scheme has required mandatory compliance from all entities within Indonesia’s timber industry since January 2013. During the past five years, the scheme has enabled responsible timber producers, traders and exporters to obtain certification verifying that their timber and wood products are legally sourced and support best practice in forest sustainability, in keeping with rigorous domestic and international legal standards.

The success of the SVLK in combating illegal practices in Indonesia’s timber industry led to its being officially recognised by the EU, which has strict rules against illegal logging under its Forest Law Enforcement, Governance and Trade licencing framework. Since recognition was granted in November 2016, Indonesia has exported more than USD 1.9 bn worth of SVLK-certified timber products to the EU. The SVLK obtained similar recognition from Australia in 2014, in accordance with the latter’s Illegal Logging Prohibition Act.

Innovation Development

Collaborations & Partnerships

To balance inputs, including on the economic, social and environmental aspects, development of the SVLK involved a diverse range of stakeholders, including representatives from government institutions; forestry-related business associations; civil society organisations including the Indonesian Ecolabelling Institute and World Wild Fund Indonesia, citizens including members of customary and indigenous communities, academics, and donors including the United Kingdom’s Multistakeholder Forestry Programme.

Users, Stakeholders & Beneficiaries

The SVLK innovation has been utilised by a number of different individuals and groups, all of whom have an interest in forest management and/or the production and trade of timber and wood products. Beneficiaries include among others communities surrounding forests, businesses within timber industry, and the consumers. The SVLK benefits the communities with a better environment and living condition; the businesses with a better market access; and the consumers with certified legal wood products.

Innovation Reflections

Results, Outcomes & Impacts

The greatest impact that the SVLK initiative has been the marked rise in international confidence in Indonesian timber and wood products. Formal recognition by the EU and Australia, as being in accordance with their respective Forest Law Enforcement, Governance and Trade and Australian Illegal Logging Prohibition legislation, has not only helped improve Indonesia's reputation on the international stage, but also provided economic benefits for the country and its people as a result of ever-increasing exports. Since 2013, Indonesia has issued nearly 900,000 V-Legal documents for timber exports to more than 207 countries with a total value of USD 51.3bn. Breaking this overall figure down, Indonesia’s timber exports carrying V-Legal documents have shown incremental increases year to year, from USD 6.1bn in 2013 rising to USD 10.9bn in 2017. This trend has continued this year as of August 2018 Indonesia has exported USD 8.7bn worth of certified timber products overseas.

In the future, impacts on social and environmental aspects need also to be determined.

Challenges and Failures

One key challenge during development was the period of more than 2 years to gain agreement from stakeholders about the definition, shape and form that the SVLK should take, which postponed the system’s implementation. It also took more than 9 years (2007-2016) of lengthy negotiations for the Government of Indonesia to persuade members of the international community to put its trust in the new SVLK system, given the scale of illegal logging and timber trading in Indonesia in the past. When implementation began, some business groups rejected the scheme due to the complexities involved in obtaining SVLK certification. Over time, compliance has steadily increased as those businesses that initially resisted witnessed the benefits to be gained, especially in opening up export markets. Separate concerns for some of the scheme’s users are the costs involved in obtaining certification. The Government of Indonesia has addressed this by providing state funds to facilitate the process, particularly for small forest and business owners.

Conditions for Success

Strong political will and government commitment are crucial to success; so too is the involvement of a wide range of stakeholders, including those from the private sector who, in the case of the SVLK, supported the process by selling certified wood products. It is necessary to provide an environment for open, honest communication between stakeholders; this formed the basis for the development of the SVLK’s regulatory framework, which governs the system’s implementation. A motivating factor for those involved in the scheme’s development was to improve Indonesia’s international reputation; there was a desire to eradicate the long-held perception that Indonesia was full of “illegal loggers” and instead regain trust from the international community for its timber industry and exports. Throughout development and implementation, high quality human resources, strong international cooperation, and financial support from the state and external donors all contributed to its overall success.

Replication

The SVLK innovation has begun to gain widespread recognition and regard. It has become a reference for the potential application of similar timber-assurance systems in a number of countries across three continents, among others Chile, China, Ghana, Laos, Malaysia, Myanmar, Thailand and Vietnam. Some of these countries are also in negotiations with the EU with a view to securing the same kind of voluntary partnership agreement that Indonesia possesses, which would enable them to export certified timber to European markets.

In Indonesia, the approach and methods used by the SVLK scheme to determine the origin and legality of timber has been replicated to one of the country’s other major commodities – palm oil. The scheme’s framework is being applied by the Indonesian Sustainable Palm Oil system, proving that the SVLK initiative could be used in any sector where the origin of products, good governance and sustainability are of paramount importance.

Lessons Learned

Based on the achievements and challenges of the SVLK initiative, we would like to share the following lessons learned:
(1) A long-term commitment is required from all those involved in the development of such a system, as it can take time to accommodate different views, concerns and aspirations;
(2) A wide range of different stakeholders is also recommended within a cross-sectoral structure, to ensure that all voices are heard and a variety of ideas considered;
(3) Laws and regulations pertaining to the scheme should be regularly reviewed and, if and when required, amended in order to incorporate the latest developments;
(4) The implementation of such a legality-assurance system can be a complex and expensive process; therefore, financial and capacity-building support should be sought and made available for any party that lacks the required knowledge or financial means to participate fully;
(5) Greater cooperation is needed at the international level to increase awareness about the SVLK model and to promote replication of similar schemes.

Anything Else?

Implementating SVLK in huge territory of Indonesia is also a challenge with regards to assessment costs, in particular for transportation costs of auditors. The Government of Indonesia facilitates trainings for auditors in outer areas, and encourages the certification bodies to occupy those auditors. The Government of Indonesia also developed a website of Legalwoodmarket.com that contains information on legal and sustainable timber and wood products. This website allows for buyers to search for certified legal and sustainable timber and wood products. To encourage consumption of legal products in domestic markets, the Government of Indonesia also developed a regulation to provide legal foundation governing the processes involved in the procurement of goods and services, including for timber and wood products. Among other things, the regulation lays out requirements pertaining to legality and sustainability in the procurement process. The Government of Indonesia also formulates incentives to encourage procurement process of certified legal timber and wood products