On behalf of the Softwood Lumber Board, Summit Strategy Group recently assessed the environmental, social, and governance (ESG) performance of the U.S. softwood lumber industry. The report explored market, reporting, and regulatory trends, and it benchmarked industry performance relative to competitive building materials and supply chain expectations. ESG refers to how businesses measure and report their environmental and social performance. Already widely adopted by publicly traded companies, ESG is increasingly used by private firms to boost performance, reduce risk, and increase value.
Our analysis indicates that the softwood lumber industry is well positioned to turn ESG into an advantage if it takes action to improve transparency and disclosure, setting and communicating targets on issues like climate change, biodiversity, and sustainable land-management practices. A major driver of ESG performance is what a company discloses publicly. Investors, ratings platforms, and analysts look for specific nomenclature within corporate ESG communications materials when evaluating a company’s performance. ESG disclosures must embrace this specific language or run the risk of not receiving credit for ESG performance.
Climate change is the most significant environmental issue and presents both risks and opportunities for the softwood lumber industry. While weather events, regulatory pressures, and growing demand for disclosures pose risks to the industry, wood’s ability to capture and store carbon offers a clear opportunity for differentiation in the ongoing shift to a lower-carbon economy. Wood’s challenge lies in the absence of widespread industry goals and transparent communication on corporate efforts to mitigate emissions, without which wood’s benefits may be overshadowed by the perception that competing industries are more committed to climate action.
Concrete and steel have both been scrutinized as high- emitting industries. In response, both have spent considerable effort and capital in recent years to set, communicate, and pursue aggressive carbon-reduction targets as key business indicators. These in turn have spurred innovation and collaboration, while driving industrywide progress toward lower emissions and alleviating some of the investor pressure related to climate. While not as advanced, the composite industry, too, has committed itself to ESG reporting and performance.
Wood’s retail and finance partners are also adopting ESG goals and reporting, with a keen interest in reducing risk in supply chains. Third-party certifications, which attest to wood products’ sustainable management and harvest, are increasingly trusted tools for retailers, such as Home Depot and Lowe’s, and banks as they contemplate their procurements and investments.
Based on the current trends and operating environment, we believe that the U.S. softwood lumber industry should embrace ESG as a business best practice that can protect and grow market share.
Having comparatively lower risk and emissions profiles will not be enough; rather, it will be critical for the industry and its member companies to improve reporting, set ESG targets including net-zero emissions, and address the issues of biodiversity, land management, and old-growth forests, which affect license to operate and corporate reputation. Biodiversity has garnered the attention of investors who use the issue to assess investment risk. Companies that are taking action to protect biodiversity appear as a less risky investment than those that are not fully addressing the issue and, therefore, may benefit from more positive investor actions. We look forward to working with the SLB and its members to help the industry harness ESG as a tool to communicate both the sector’s performance and the unique value proposition of lumber products.
Summit Strategy Group is a California-based consulting firm specializing in corporate reputation, issues management, crisis communications, ESG, and sustainability.