FOREST CONSERVATION POLICY 5 TH ANNIVERSARY UPDATE MAY 2018

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Kristopher McCarthy
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1 FOREST CONSERVATION POLICY 5 TH ANNIVERSARY UPDATE MAY 2018

2 FOREWORD BY DIRECTOR OF SUSTAINABILITY When APP launched the Forest Conservation Policy (FCP) in 2013, we were armed with limited knowledge and experience on the subject but with full awareness

4 2 FOREWORD BY DIRECTOR OF SUSTAINABILITY When APP launched the Forest Conservation Policy (FCP) in 2013, we were armed with limited knowledge and experience on the subject but with full awareness that it had to be done. More importantly, it had to be done right. APP made a firm decision to have a deforestation-free supply chain, which is a commitment that remains steadfast. We have proven this with maintaining 100% plantation fiber supply to all our mills since We also knew that change was not going to happen overnight and it was not going to be easy. Hence, we were prepared to embark on a journey, filled with challenges that we could and could not anticipate. The launch of the FCP signified a complete business model transformation for APP as well as for all of our suppliers across Indonesia. Since then, the four pillars of the FCP have become completely embedded in our business and day-to-day operations. Throughout the journey of implementing the FCP over the past five years, our approach has evolved from first focusing on changing practices in APP concession including third party suppliers concession areas, to now working together with communities to protect forests both within the concessions but also at the larger landscape level. Community involvement is an especially prevalent aspect of the FCP implementation. Aside from communities, we are also strengthened by the support of our other implementation partners

5 3 and stakeholders, having engaged critical voices to understand different perspectives while ensuring that we do not rest on our laurels. The understanding that a multi-stakeholder approach is crucial to the success of the FCP is why we give serious weightage and consideration to the expectations of our stakeholders. APP also appreciates that stakeholders would like to view tangible and measurable results while hearing from us on the progress, milestones and success thus far. However, we still encounter many challenges along this journey; some old and some new. Third party forest clearance and social conflicts are among our many prevailing challenges that we continue to face. Meanwhile, our more recent challenges include measuring the impact of our FCP as well as our efforts for peat land management. rewetted peatlands, rehabilitation and restoration as well as conflict resolution, among others. As we take the FCP forward, our focus will be to assess our progress by developing more sciencebased targets with measurable metrics and improving data collection, reporting and transparency, continue working alongside our partners and stakeholders. We still have a long journey ahead of us and the road can be a little bumpy at times as we strive to fulfill our FCP commitments while aspiring to become a more sustainable and more responsible global corporate citizen. We thank you for accompanying and supporting us thus far but for us to achieve our collective goals, we certainly hope to continue receiving your support in the years to come as we strive to continuously and consistently improve ourselves in this journey. In the FCP 5th Anniversary Progress Report, we share our progress to date, significant achievements we have had to date, our thoughts on the challenges we have faced over these last five years and how we have resolved or are approaching them as we move forward. Some of our initiatives and efforts however require a longer duration before any significant result or success can be achieved, including our work on development of alternative species to grow in Elim Sritaba May 2018

4 A WORD FROM OUR IMPLEMENTATION PARTNER THE FOREST TRUST (TFT) Having worked with APP since February 2012 to launch the Forest Conservation Policy, TFT has been deeply involved in this exciting

The first is that company leaders who state their vision and values through an ambitious policy, like APP did, can drive an immense amount of change.

conservation, is not a small task. But APP is proving to the world that it is possible.

6 4 A WORD FROM OUR IMPLEMENTATION PARTNER THE FOREST TRUST (TFT) Having worked with APP since February 2012 to launch the Forest Conservation Policy, TFT has been deeply involved in this exciting journey as a partner, both on the ground and strategically. As I look back at the work achieved to date, there are three key learnings that stand out. The first is that company leaders who state their vision and values through an ambitious policy, like APP did, can drive an immense amount of change. Overcoming the challenge of transforming a business model reliant on natural forest fibre to make it exclusively reliant on plantation fibre,while at the same time becoming an agent for forest conservation, is not a small task. But APP is proving to the world that it is possible. Along the way it discovered ways to reduce waste (9% reduction in fibre waste) and optimize production, efficiently combat fires, accelerating the transition of the company into a way of operating that is in line with what the world expects from such a large business. The second learning is that while change can be fast in some respects, it does not happen overnight. Solving the numerous social conflicts that were simmering when the work started in 2012required time, because it meant engaging on the ground with skilled people to find a mutually agreeable solution to issues that have been present for years and that are extremely complicated. Allowing time for a company to change, while at the same time making sure that things go as fast as they possibly could, is of

The third learning is that none of the above is possible without strong partnerships and a genuine stakeholder engagement, keeping ears wide open to criticism, even if it sometimes appears

7 5 paramount importance. This understanding however led to the realization that progress is hard to monitor quantitatively. TFT introduced tools to monitor forest concessions by satellite images - which APP embraced - and we are now discussing how to better integrate the feedback from local NGOs. The third learning is that none of the above is possible without strong partnerships and a genuine stakeholder engagement, keeping ears wide open to criticism, even if it sometimes appears unjustified. We have been challenging and will continue to challenge APP on that front because we believe they can do more to share their learnings, as well as their challenges, with a wider audience. I am a strong believer that doing so is also a way to call for more support. The challenge of fighting climate change and supplying the material needs of a growing population worldwide has never been so daunting, and nobody can face it alone. Yet, thanks to an increased transparency, APP s customers, investors, governments and NGOs can make their own assessment and eventually support APP towards achieving the full implementation of its FCP. Conscious of the great challenges ahead, we remain committed to supporting APP in solving the problems and the issues that we are facing and which we will meet together as we continue on this journey of change.

6 A WORD FROM OUR IMPLEMENTATION PARTNER DELTARES Deltares has been engaged in helping improving APP s water and peatland management practices in coastal lowlands since 2014, after their FCP

Considering the challenges faced, we can confidently say that much has already been achieved in the last four years. However it is also clear that much more still needs to be done.

development and, subsequently, management improvement. A major obstacle to management improvement in the past has been a lack of data and understanding of peatland functioning and condition.

8 6 A WORD FROM OUR IMPLEMENTATION PARTNER DELTARES Deltares has been engaged in helping improving APP s water and peatland management practices in coastal lowlands since 2014, after their FCP announcement in The scale of APP s operations is huge, maybe even unprecedented for any private company in the world. Considering the challenges faced, we can confidently say that much has already been achieved in the last four years. However it is also clear that much more still needs to be done. In terms of peatland management, the massive fires in drained peatlands of 2014 and 2015 have been a wake up call to APP, that it has responded to with very substantial investments in knowledge development and, subsequently, management improvement. A major obstacle to management improvement in the past has been a lack of data and understanding of peatland functioning and condition. In fact, even the presence and thickness of peat was in many areas not clear from existing maps. Over we have therefore focused on measuring conditions and creating maps and models. A key tool in this has been airborne LiDAR that was collected from 2015 to 2017, over an area exceeding 5 million hectares. Combined with field surveys, LiDAR data was used in creating elevation models, peat thickness maps, water depth assessments, flood maps and more. A field monitoring system and database system for water levels was set up that now allow APP to better understand conditions in many thousands of locations. In parallel to improving data availability, we have worked with APP on defining pilot activities that will provide the basis for larger scale management improvements. This includes retiring 7,000 hectares of productive plantation in South Sumatra and Riau to let forest return, constructing over 5,000 compacted peat dams in plantation boundary canals to start bringing up water levels to better protect neighbouring peat swamp forest and reduce fire risk, developing a trial site with raised water levels in Siak for alternative production species that are tolerant of such wet conditions, and detailed assessments offlooded areas to help find out how these can be made more productive.

7 Now that data availability has much improved and the first results of pilots and assessments are becoming clear, we are committed to help APP start applying this knowledge to management

Work is ongoing on a full rezoning plan for all APP supplier concessions that contain peatland.

9 7 Now that data availability has much improved and the first results of pilots and assessments are becoming clear, we are committed to help APP start applying this knowledge to management improvements at a much larger scale. Difficulties and opportunities in raising water levels in peatlands are better understood now, allowing targeted interventions. Work is ongoing on a full rezoning plan for all APP supplier concessions that contain peatland. The objectives of the zoning are to create large water storage areas with natural or near natural high water levels on top of all peat domes, which is necessary toimprove control of water levels on lower slopes, and to better protect remaining forest applying buffer zones within the concessions. This includes additional retirement of plantations to forest in most sensitive areas. These changes aim to substantially improve sustainability in APPs supplier concessions, in terms of reduction of fire risk, carbon emissions, health of natural forest and eventually also production if losses to fire and floods are prevented. Working with a large company like APP is complex but we remain impressed by the will to push forward with improvements despite internal and external challenges. While the pace of change may seem slow sometimes, the targets are worthwhile and deserving of our support in implementation. APP will need partners in achieving these targets, and this requires openness from all sides about expectations andchallenges, plans and achievements.

8 FCP 5 YEARS PROGRESS TIMELINE 2013 2014 1. 2. 3. 4. 5. 6. 7. 8.

assessment start Conflict Mapping Growth and Yield study Senyerang Conflict resolved (1 st Pilot) Independent

Rainforest Alliance Assessment on FCP implementation progress Deltares (Peat Expert) engaged, work started on

10 8 FCP 5 YEARS PROGRESS TIMELINE Launch APP Forest Conservation Policy APP mills stopped receiving natural forest woods HCV, HCS, Social assessment start Conflict Mapping Growth and Yield study Senyerang Conflict resolved (1 st Pilot) Independent Observer Moratorium formed and started FCP Monitoring Dashboard launch Rainforest Alliance Assessment on FCP implementation progress Deltares (Peat Expert) engaged, work started on developing peat management plan APP released Procedure for Association for its existing and potential suppliers Launched commitment to support forest protection and restoration outside concessions

9 2015 2016 2017 1. 2. 3. 4. 5. 6. 7. 8.

11 HCV and HCS assessment completed in all suppliers Updated FCP Implementation Plan 2015 based on RA assessment 1 st LiDAR Mapping completed Retirement of 7,000 ha of productive plantation on peat Integrated Forestry & Farming System (IFFS) program launched in COP21 Landscape masterplan completed Stakeholder Advisory Forum for FCP progress update Belantara Foundation launched in COP21 PSPI / Datuk Rajo Melayu conflict resolved (2 nd Pilot) ISFMP completed for all suppliers Rolled out of Integrated Fire Management strategy Research for alternative species for peatland started IFFS program implemented in 80 villages Jurisdictional approach with South Sumatra and West Kalimantan province Utilizing high technology to monitor forest cover (MDA) 2 nd LiDAR mapping completed Riding conflict resolved Regional Social Working Group (SWGR) established IFFS implemented in 146 villages

10 FCP ACHIEVEMENTS - SUMMARY IN NUMBERS 100% 100% APP APP Products Sourced from Plantation Fibres APP Suppliers Plantation Area Certified under the Wood Legality Verification System 86% Suppliers

12 10 FCP ACHIEVEMENTS - SUMMARY IN NUMBERS 100% 100% APP APP Products Sourced from Plantation Fibres APP Suppliers Plantation Area Certified under the Wood Legality Verification System 86% Suppliers Plantation Area IFCC PEFC Sustainable Forest Management Certified OVER 600,000HA Protected Areas in APP s Suppliers Concessions after HCV and HCS Assessments 0.1% Natural Forest Loss Rate in APP s Suppliers Protected Areas by 3rd Party Deforestation (Mar 2017 Jan 2018) ZERO ZERO casualty from human-wildlife conflict within APP s suppliers concession areas since % Areas Impacted by Forest Fire in 2017 out of the Total Gross Area 7,000HA Commercial Plantation in Peat land Retired for Conservation Purposes OVER 5,000 Perimeter Canal Dams Built to Raise and Maintain Water Levels 12 Alternative Peat Tree Species Identified for Rewetted Peat Areas 46% 191 Households Social Conflicts Resolved Villages Participating in the IFFS Program (as of March 2018) 13,800 are Beneficiaries of the IFFS Program (as of March 2018)

13 11 FCP INVESTMENTS IN NUMBERS DEVELOPMENT OF THE INTEGRATED FIRE MANAGEMENT SYSTEM 100 MIL LANDSCAPE APPROACH FOREST CONSERVATION IMPLEMENTATION OF THE IFFS PROGRAM 50 MIL * *over a 5 year period 10 MIL * *over a 5 year period

14 12 FCP PROGRESS REPORT: FEBRUARY FEBRUARY 2018

13 COMMITMENT 1: NATURAL FOREST PROTECTION APP and its suppliers will only develop areas that are not forested, as identified through independent High Conservation Value (HCV) and High Carbon Stock

100% 100% APP APP Products Sourced from Plantation Fibres APP Suppliers Plantation Area Certified under the Wood Legality Verification System 86% Suppliers Plantation Area IFCC PEFC Sustainable

15 13 COMMITMENT 1: NATURAL FOREST PROTECTION APP and its suppliers will only develop areas that are not forested, as identified through independent High Conservation Value (HCV) and High Carbon Stock (HCS) assessments. 100% 100% APP APP Products Sourced from Plantation Fibres APP Suppliers Plantation Area Certified under the Wood Legality Verification System 86% Suppliers Plantation Area IFCC PEFC Sustainable Forest Management Certified OVER 600,000HA Protected Areas in APP s Suppliers Concessions after HCV and HCS Assessments 0.1% Natural Forest Loss Rate in APP s Suppliers Protected Areas by 3rd Party Deforestation (Mar 2017 Jan 2018) ZERO ZERO casualty from human-wildlife conflict within APP s suppliers concession areas since % Areas Impacted by Forest Fire in 2017 out of the Total Gross Area

14 Launched commitment to support forest protection and restoration outside concessions ISFMP completed for ALL 38 concessions Rolled out of Integrated Fire Management strategy IFFS program

HCV, HCS, Social assessment start IO Moratorium formed and started HCV and HCS assessment completed in all suppliers Integrated Forestry & Farming System (IFFS) Program Launched in COP21 Landscape

2018) Since February 2013, APP and our suppliers stopped converting natural forest for the purpose of pulpwood plantation development.

16 14 Launched commitment to support forest protection and restoration outside concessions ISFMP completed for ALL 38 concessions Rolled out of Integrated Fire Management strategy IFFS program implemented in 80 villages Jurisdictional approach with South Sumatra and West Kalimantan province APP mills stopped receiving Mixed Hardwood (MHW), relying only to plantation fiber HCV, HCS, Social assessment start IO Moratorium formed and started HCV and HCS assessment completed in all suppliers Integrated Forestry & Farming System (IFFS) Program Launched in COP21 Landscape Master Plan completed Utilizing high technology to monitor forest cover (MDA) 0,01% of total gross area were impacted by forest fire IFFS implemented in 146 villages ( 191 as per March 2018) Since February 2013, APP and our suppliers stopped converting natural forest for the purpose of pulpwood plantation development. As of September 2013, APP s mills stopped accepting Mixed Hardwood (MHW), and only relies 100 percent on plantation wood and certified material. Integrated Sustainable Forest Management Plans (ISFMP) APP designed and completed the Integrated Sustainable Forest Management Plans (ISFMP) for all suppliers concessions with the support and assistance of our implementation partners and key stakeholders that we engage with. The ISFMP is a consolidation of recommendations as well as data that was gathered through various assessments High Conservation Value (HCV), High Carbon Stock (HCS), Social Impact, Peat Mapping, Growth and Yield that serves as the foundation in developing management plans for each of our suppliers concessions. The process included an extensive stakeholder consultation process to ensure that their concerns were taken into account in the ISFMP.

17 15 ISFMP PROCESS Recommendation analysis Map of recommendation synergies and conflicts List of redundant recommendation if no conflicts between all recommendation Landscape region multi stakeholder workshop Key stakeholder awareness raised Working group (4-people) for the development of management plan priorities (hierarchy) Integrated management plan hierarchy development Agreed upon hierarchy for reconciling conflicting recommendation Guideline Development Map or guideline detailing where recommendation need to be inserted into Dissemonation to key stakeholders Final priorities for nonspatial recommendations agreed upon Most acceptable spatial scenario chosen Spatial and non-spatial analyses Final priorities for non-spatial recommendations Best spatial scenario produced Management plan and SOP development 7. Management plan document SOPs The ISFMP for all suppliers were completed in 2016, with several of them subsequently being approved by the Government of Indonesia. These plans were then developed into manuals to serve as guidelines for its implementation. The protected areas within APP and its third party suppliers concessions, according to the initial version of the ISFMP, increased to more than 20 percent (over 600,000 hectares) from the gross area, which is twice the minimum amount required by the Government of Indonesia. The ISFMP is currently undergoing further revision and updating to align itself to the new Peat Regulation and the process set forth by the Government of Indonesia.

16 1 Protecting Forests: 3rd Party Deforestation & Fires security vendors, whereby community members will patrol the forest area surrounding their villages.

2013. We have been working tirelessly to address this through various efforts, including engaging communities as well as harnessing technology to further enhance our forest security and monitoring

18 16 1 Protecting Forests: 3rd Party Deforestation & Fires security vendors, whereby community members will patrol the forest area surrounding their villages. Among the concerns and challenges that APP still faces is third party deforestation despite the fact that APP s suppliers no longer convert natural forests into pulpwood plantation since February We have been working tirelessly to address this through various efforts, including engaging communities as well as harnessing technology to further enhance our forest security and monitoring measures. APP started using the Forest Alert Service provided by MacDonald, Dettwiler and Associates (MDA) in March 2017 to monitor APP s and its suppliers concession areas, with special focus in the protected areas. The MDA feeds alerts directly to our operations team on a 24-day cycle. These alerts will enable us to detect of forest cover changes and follow by specific field verification to identify the causes such as illegal logging, encroachment, and other sources of forest loss while the data captured by MDA will form as a basis to develop our strategy in addressing these issues. The involvement of community is also a critical factor in protecting forests. Strengthening the existing forest security patrol by the suppliers and their security vendors, we developed a communitybased forest security program, complementing the forest patrols conducted by APP s security vendors, whereby community members will patrol the forest area surrounding their villages. This program is being piloted in South Sumatra, with a view to be rolled out to all regions. These various efforts resulted in a significant decrease of forest cover loss in APP s suppliers protected area. An assessment taken from MDA data analysis in the period March 2017 till January 2018 indicates only 0.1 percent third party deforestation rate, significant reduction in natural forest cover change from total protected area compared with the 2014 and 2015 where the average rate was more than 5%. The involvement of community is also a critical factor in protecting forests. Hence, we developed a community-based forest security program, complementing the forest patrols conducted by APP s

17 2 Integrated Forestry & Farming Systam (IFFS) The Integrated Forestry & Farming System (IFFS) plays a critical role in protecting natural forests as it aims to reduce the threats of fire,

The program supports communities to improve their livelihoods through training on agro-ecological practices and climatesmart agriculture, thus reducing pressure on forests from agricultural expansion

APP partnered with the Center for International Forestry Research (CIFOR) and the World Agroforestry Centre (ICRAF) to better understand the impacts and to further improve our ability to attribute

Integrated Fire Management (IFM) Strategy In 2016 APP rolled out the Integrated Fire Management to tackle the issue of forest fire across APP s and its suppliers concession areas.

19 17 2 Integrated Forestry & Farming Systam (IFFS) The Integrated Forestry & Farming System (IFFS) plays a critical role in protecting natural forests as it aims to reduce the threats of fire, encroachment and social conflict. Also known as Desa Makmur Peduli Api (DMPA), the IFFS program was rolled out in 2016 and targets 500 villages. The program supports communities to improve their livelihoods through training on agro-ecological practices and climatesmart agriculture, thus reducing pressure on forests from agricultural expansion and one of the driving forces behind uncontrolled fires and land clearance. As of March 2018, the program has been implemented in 191 villages, benefitting more than 13,800 households. APP partnered with the Center for International Forestry Research (CIFOR) and the World Agroforestry Centre (ICRAF) to better understand the impacts and to further improve our ability to attribute impacts to specific components of the programme, with the aim of developing a feasible business model that can be adapted and scaled up with smallholders across forest landscapes in Indonesia. Integrated Fire Management (IFM) Strategy In 2016 APP rolled out the Integrated Fire Management to tackle the issue of forest fire across APP s and its suppliers concession areas. Developed in consultation with fire experts from Canada and South Africa, the IFM consist of four main pillars: Prevention, Preparedness, Early Detection and Rapid Response. In prevention, APP mainly engaged with the communities through the IFFS program, providing training and assistance on agro-ecology, maximizing the yield of the available land to reduce the risk of opening forest area for agricultural purpose. On preparedness, APP continues to improve the personnel s capacity by providing routine training to the fire marshals as well as the firefighting teams. APP also continues to research technologies that can provide quicker and reliable alerts to hotspot and firespot. In ensuring rapid response, APP has invested to deploy

20 18 6 helicopters 3 of them large capacity Superpumas, as well as helitack teams and implementing a more cohesive strategies in fire suppression. Since 2016, APP has invested more than USD 100 million on the IFM. In 2017, only 0,01% of the total APP s and its suppliers concession areas were impacted by forest fire. PREVENTION PREVENTION INTEGRATED FIRE MANAGEMENT PREPARATION PREPARATION Integrated Forestry & Farming System (IFFS) MPA Incentives Prevention Planning Water Management : Built more than 5,000 perimeter canal blocks Training Situation room Patrol routes 2,700 Fire-fighters standby EARLY DETECTIO N RAPID RESPONSE EARLY DETECTION RAPID RESPONSE Infra-red detection cameras Satellite trial Increased ground patrol Integrated Fire Information IT System Suppression strategy Online fire reporting Incident room 6 Helicopters standby Landscape Approach to Restoration and Conservation APP quickly realized when we started implementing the FCP that forest protection cannot be done in silo. Rather, it needs a landscape approach with multi-stakeholder involvement to succeed. With that in mind, in 2014, APP provided the seed funding to set up the Belantara Foundation, a grant-making institution with the goal of delivering wide- ranging community and conservation results in 10 landscapes in Indonesia. Formally established in 2016, the Foundation primarily focuses on allocating grants to support restoration, protection and conservation of endangered species, institutional development and community empowerment initiatives. Belantara Foundation has signed MoUs with stakeholders in the landscapes, such as the Provincial Government of South Sumatra, Provincial Government of West Kalimantan, the Man and Biosphere Program, IDH Sustainable Trade Initiative, YAPEKA, and KPHP Meranti, to name a few. The Foundation has also developed catalogues on five main commodities amongst the communities in the regions: cacao, coffee, rubber, coconut, and palm oil, in order to enable potential donors and partners to identify potential areas for the projects suitable with their respective objectives. More information on Belantara Foundation projects can be found at :

21 19 COMMITMENT 2: PEATLAND BEST MANAGEMENT PRACTICES APP will support the Government of Indonesia s low emission development goals and its target to reduce the emission of greenhouse gases. 7,000HA Commercial Plantation in Peat land Retired for Conservation Purposes OVER 5,000 Perimeter Canal Dams Built to Raise and Maintain Water Levels 12 Alternative Peat Tree Species Identified for Rewetted Peat Areas st LiDAR Mapping Completed Retirement of 7,000 Ha of Productive Plantation on Peat 2nd LiDAR Mapping Completed Deltares (Peat Experts) engaged and started work on developing Peat Best Management Practices Research on Alternative Species for Peatland Started Develop over 5000 Perimeter canal Dams APP committed to employing its resources to explore and test approaches in a means to identify the best practices to manage peatland. This includes identifying methodology to rehabilitate the natural function of peatlands, which is to store carbon and contribute towards biodiversity. APP has given top priority to this, having invested heavily to improve the management of peatlands in APP s and its suppliers areas, including, but not limited to, fire prevention and suppression efforts, peat mapping, peat rehabilitation strategy as well as research into alternative species.

20 Peat Mapping APP, together with Deltares, in 2015 undertook a LiDAR (Light Detection and Ranging) mapping exercise over approximately 5 million hectares of coastal lowland across Riau, Jambi,

22 20 Peat Mapping APP, together with Deltares, in 2015 undertook a LiDAR (Light Detection and Ranging) mapping exercise over approximately 5 million hectares of coastal lowland across Riau, Jambi, South Sumatra and West Kalimantan. The primary purpose of the first LiDAR initiative was to map the distribution and topography of peat in the landscapes where APP s suppliers operate. A second LiDAR mapping exercise followed in 2017 for more assessments and products. The LiDAR data have yielded an elevation model that is accurate enough (within 0.5m) for improved water management zoning and design, and for peat thickness mapping. A new technique was developed to determine canal water depth (CWD) below the surface, and CWD maps were produced. The LiDAR data are now also used to better determine vegetation types from canopy height, with a focus on retirement areas. Retirement APP decided to retire 7,000 hectares of commercial plantations on peatlands located near the Berbak Sembilang National Park in South Sumatra and near the Kerumutan Wildlife Reserve in Riau to protect the natural forest in these landscape based on the data analysis from the first LiDAR mapping. The retired areas are now used to develop knowledge on strategies to rehabilitate peat, both on natural regeneration as well as assisted restoration. APP is working with academics and researchers in finding suitable methods to restore peat forests on a large scale. Water Management APP is exploring the possibility of using LiDAR as a monitoring tool, working with experts to assess whether it can be used to help measure canal water levels in the future, alongside ground monitoring; results look promising. A system of dipwells was implemented across all plantations on peatland to monitor groundwater depth and land surface subsidence; to this the PROPER monitoring system designed by the Ministry of Environment and Forestry is now being added. A central database system (Operational Water Management System / OWMS) allowing water managers to enter and analyze relevant information such as water levels and rainfall is being implemented. We have also built 5,076 perimeter canals dams to raise water levels along the boundaries of our suppliers production areas, with a focus on natural forest. Alternative Species Research In collaboration with Gadjah Mada University (UGM), APP has identified 12 species able to grow in peatlands with higher water tables for alternative species to be used of commercial, restoration and community production purposes. Eleven of the species are already planted and monitored in trial sites in Riau and South Sumatra. Helped by the Research & Development Agency of the Ministry of Environment & Forestry, APP also conducts research into peatland mychorrhiza, which are various types of fungi that have symbiotic relationships with plants, and can help them better absorb nutrients. APP will continue to implement the trial and research, and will involve the wider Peat Experts to be part of the process.

21 COMMITMENT 3: SOCIAL ENGAGEMENT To avoid and resolve social conflicts across its supply chain, APP actively seeks input and feedback from a wide range of stakeholders, including civil society, to

23 21 COMMITMENT 3: SOCIAL ENGAGEMENT To avoid and resolve social conflicts across its supply chain, APP actively seeks input and feedback from a wide range of stakeholders, including civil society, to implement a set of principles including the FPIC, responsible resolution of conflicts and community empowerment. 46% 191 Households Social Conflicts Resolved Villages Participating in the IFFS Program (as of March 2018) 13,800 are Beneficiaries of the IFFS Program (as of March 2018) IFFS Program Launched in COP21 2nd Pilot Datuk Rajo Melayu Conflict Resolved Conflict Resolved by end of 2015: 34% rd Pilot Riding Conflict Resolved Regional Social Working Group Established IFFS Implemented in 146 Villages Conflict Resolved by end of 2017: 46% Conflict Mapping Conducted Conflict Resolution Guideline developed 1st Pilot Senyerang Conflict Resolved IFFS Program Implemented in 80 Villages Conflict Resolved by end of 2016: 40% APP recognizes that communities must be engaged as we grow our business. We also recognize that the survival of our business depends on being able to balance the interests of the company with that of local communities and the environment, therefore finding a solution that works for everyone. Thus, we dedicated significant resources towards tackling social challenges and to also find ways of providing support to local communities living in and around our suppliers concessions to improve their livelihoods and thus reduce the pressure of the natural forest deforestation.

24 22 Social Conflict Resolution Soon after launching the FCP, APP and our suppliers began the process of mapping land disputes, grouping them by the eight typologies identified, which are: 1OLD VILLAGE 2NEW VILLAGE 3 CUSTOMARY LAND (ADAT) 4 5 EIGHT LIVELIHOOD PURPOSE LAND SPECULATOR TYPOLOGIES NON PROCEDURAL LAND USE ILLEGAL LAND TRADING OVERLAPPING LICENSES We developed stages in the Conflict Resolution Process for monitoring and evaluation purposes. These are the four phases: PHASE 1 PHASE 2 PHASE 3 COMPLETION OF CONFLICT MAPPING, ANALYSIS AND ACTION PLANS ENGAGEMENT, EXPLORING OPTIONS, NEGOTIATION PROCESS, ACHIEVEMENT OF INITIAL AGREEMENT MOU/AGREEMENT SIGNED APP considers a conflict as resolved when it has reached Phase 3. As of February 2018, 46 percent of social conflicts mapped at the beginning of the FCP are in phase 3 and phase 4. We subsequently developed guidelines for responsible conflict resolution that emphasised on the need for multi-stakeholder engagement. We piloted this guidance while rolling it out across all conflicts to ensure that it was effective and for continues improvement. The three pilots that were determined at the beginning of the FCP implementation have now been concluded and have shown that this type of methodology can work. PHASE 4 MOU/AGREEMENT IMPLEMENTATION

25 23 Pilot Project: Senyerang Highlighting the complexities of reaching conflict resolution, this particular case dated back to Following numerous meetings, agreements for community development programme investments, external verification, government endorsements and multi stakeholder working groups a resolution was finally agreed by all parties in Regular monitoring & evaluation of the implementation is now in place. Pilot Project: Datuk Rajo Melayu A local tribe claimed that the land managed by an APP supplier for pulpwood plantation was in fact their land to develop rubber and palm oil. An resolution agreement was signed in June 2015 implementation of the agreed actions has begun and the schedule for monitoring is currently being discussed by the parties. Pilot Project: Riding Village In 2005, the community of Riding Village in South Sumatra claim a portion of land located in an APP s supplier s concession area. By involving the local government, village leaders, 2 local social NGOs, and the Ministry of Environment and Forestry, in April 2017 the conflict was resolved through a community forestry partnership agreement.

24 Regional Social Working Groups (RSWG) Based on recommendations from the biannual Stakeholder Advisory Forum (SAF), in 2017, APP established Regional Social Working Groups (RSWG) for social

Ad hoc teams were set up from within the groups to verify, monitor, resolve conflicts and to reach agreements.

26 24 Regional Social Working Groups (RSWG) Based on recommendations from the biannual Stakeholder Advisory Forum (SAF), in 2017, APP established Regional Social Working Groups (RSWG) for social conflict resolution at the provincial levels. The RSWG gathers NGOs, academicians, local government and community representatives to discuss social conflicts at the regional level. Ad hoc teams were set up from within the groups to verify, monitor, resolve conflicts and to reach agreements. These regional platforms are formed to speed up the conflict resolution process and identify mechanisms for establishing better cooperation between APP and the communities living in and around concessions. While the dynamics between these three regions differs from one another, the RSWG in Jambi has shown encouraging results with one conflict already resolved through MOU signing, and two more in the pipeline. From the experiences since mid-2017, key lessons learnt in multi-stakeholder conflict resolution process is the importance of all parties sharing the same spirit to resolve conflict as soon as possible. It is also critical that companies act in proactive way during the resolution process and for the community to receive assistance and support from NGOs. Free, Prior and Informed Consent (FPIC) All of APP s suppliers have begun to use the Standard Operating Procedures (SOPs) for FPIC and land tenure issues in preparing their Annual Work Plans. APP continues to monitor the effectiveness of our approach. In 2017, we conducted a pilot to assess FPIC implementation in South Sumatra. Integrated Forestry and Farming Systems (IFFS) The IFFS program rolled out by APP not only contributes to Commitment 1 in terms of protecting natural forest but is also aimed at improving APP s engagement with communities and building a more reciprocal and respectful relationship through support for livelihood development. APP provides direct financial support for each community to implement the programs they choose, participatory mapping, capacity building, technology transfer as well as providing facilitator in the village to assist the program implementation. As the programme is rolled out, APP will also work with communities to improve market access for the products they produce by facilitating relationships and agreements with offtakers. As well as lending technical and financial support, we believe in the importance of building capacity at the cooperative or either BUMDES. In 2017, APP also signed an MoU with the Ministry of Village, Underdeveloped Region and Transmigration on collaborating to strengthen villagebased institutions. APP adopted the UN Guiding Principles on Business and Human Rights, ensuring that FPIC procedures are performed before proceeding with any proposed new developments (conservation and plantation).

27 25 COMMITMENT 4: SUSTAINABLE FIBRE SUPPLY & SOURCING APP and its suppliers will only develop areas that are not forested, as identified through independent High Conservation Value (HCV) and High Carbon Stock (HCS) assessments. 100% 100% APP APP Products Sourced from Plantation Fibres APP Suppliers Plantation Area Certified under the Wood Legality Verification System 86% Suppliers Plantation Area IFCC PEFC Sustainable Forest Management Certified APP released the Procedures for Association for its existing as well as potential suppliers suppliers are IFCC-PEFC SFM certified APP mills stopped receiving natural forest woods Established the Responsible Fiber Procurement & Processing Policy Strengthening Supplier Evaluation Risk Assessment (SERA) comply to FCP Implementation of SERA to potential suppliers 3 suppliers are IFCC- PEFC SFM certified suppliers are IFCC-PEFC SFM certified (as of March 2018, 30 suppliers are IFCC-PEFC SFM certified) APP commits to only sourcing fibre from sustainable sources. All existing and potential APP suppliers must comply with the FCP, the Responsible Fibre Procurement & Processing Policy (RFPPP) and Supplier Evaluation & Risk Assessment (SERA), the last being a tool APP uses to continuously ensure compliance and to monitor risks associated with potential suppliers entering our supply chain. One key parameter in SERA is that the potential suppliers should not be involved in deforestation or natural forest conversion as of February If the potential suppliers are unable to show proof of this, they will be automatically rejected. This pass-fail mechanism help to ensure the integrity of APP supply chain in complying with the FCP. In conducting the SERA assessment, APP is assisted by The Forest Trust (TFT). The result of risk assessment, which may consist of a field assessment, is then submitted to the Joint Steering Committee (JSC), which includes

26 representatives from APP, APP Forestry Division, and The Forest Trust (TFT). The JSC then takes the decision on whether or not to accept the potential supplier into our supply chain.

Outside of these six suppliers, APP terminated contract with two one-time suppliers as they are proven to have affiliated companies that are still involved in forest conversion practice.

also focused in the last year on supporting communities to supply pulpwood to our operations. In May 2017, the JSC approved the acceptance of four community forests as APP pulpwood supplier.

28 26 representatives from APP, APP Forestry Division, and The Forest Trust (TFT). The JSC then takes the decision on whether or not to accept the potential supplier into our supply chain. Details of existing and potential suppliers are listed on the FCP Monitoring Dashboard. In 2017, APP approved six new one-time suppliers through the SERA process. Outside of these six suppliers, APP terminated contract with two one-time suppliers as they are proven to have affiliated companies that are still involved in forest conversion practice. As part of our effort to integrate local communities into our supply chain, and in line with the Government of Indonesia s ambition to boost social forestry and empower forest communities, APP has also focused in the last year on supporting communities to supply pulpwood to our operations. In May 2017, the JSC approved the acceptance of four community forests as APP pulpwood supplier. These are consolidations from the farmers that previously supplied to APP mills individually. These community forests will supply pulpwood to APP mills as a long term suppliers, bringing in additional income for the communities managing these forests and become entrepreneur under cooperative.

29 27 ADDRESSING CONCERNS REGARDING FUTURE FIBER SUPPLY Despite the progress made by APP in fulfilling its FCP commitments, especially with regards to ending natural forest clearance, concerns were raised pertaining to our ability to fulfill the increasing demand following the OKI mill commencing operations. These concerns were based on APP s past performance, referencing our previous Growth and Yield Assessments. Fortunately, over the last five years, we have made many improvements in yield and efficiency, such as addressing wood loss and leakages, none of which reflected when stakeholders raised their concerns. Using a methodology which was verified by Rainforest Alliance, and working closely with TFT and Ata Marie, APP conducted its own growth and yield projections that take into account, among others, the area burnt in 2015 as well as potential development on existing land banks in APP s suppliers concessions. The result of this indicates that APP will be able to supply all of our mills, including OKI, through to However, between now and 2025, APP will be reviewing potential new suppliers while also exploring ways to further improve yield and efficiency. We are working with research facilities to explore how to maximise yields sustainably on these soils. APP has existing undeveloped areas in its concession on mineral soils in Kalimantan (PT Finnantara Intiga) which could also be developed through the implementation of ISFMP with the partnership with the local communities inside the concession. In addition, APP is working with communities and smallholders to source for additional wood, having approved four community forests as new suppliers in All new suppliers are required to meet APP s FCP and SERA process prior to acceptance to supply chain.

30 28 REFLECTING ON THE IMPLEMENTATION OF THE FCP AS WE LOOK AHEAD TO VISION 2030 APP has started the process to develop the next sustainability roadmap Sustainability Roadmap Vision 2030 by taking stock of our achievements in meeting and even exceeding many of the goals set in APP s Vision The aim is for the new Vision 2030 to be a more cohesive strategy, which targets forests, peatlands, people, and products under the overarching frame of contributing to addressing climate change and the Sustainable Development Goals. The Sustainability Vision 2020 is the integral foundation for our ability to achieve the targets we will identify for It is thus important that we reflect on our implementation of the FCP over the last five years to identify how to overcome key obstacles. Transparency is fundamental in building trust and we have aimed to build trust with our stakeholders in part by regularly reporting on FCP progress and organising bi-annual multi-stakeholders consultations to discuss progress with stakeholders. We have been using this platform to take opportunity to share the challenges we have faced and our plans to overcoming them. We are conscious that progress in some areas has been time-consuming, particularly in areas where we are breaking new ground with research and restoration, which take considerable time to produce results. This in no way means that we are reducing our ambitions. We hope that the challenges outlined in this report can inspire further conversations and partnerships, leading to solutions that spur our efforts to accelerate the progress within the FCP implementation.

31 29 CHALLENGES AND PROPOSED STRATEGIES TO RESOLVE Challenge: Third Party Forest Clearance Challenge: Culture Change Approach over 5 years: We continue to face challenges in eradicating third party forest clearance and encroachment into protected forests. Over the last five years, we have deployed a number of strategies and initiatives e.g. IFFS programme and increased monitoring. We ve strengthened our monitoring of forest change through the use of forest cover alert technology and on the ground monitoring networks of communities in order to be able to respond more quickly to changes we see and quickly address any clearing activities before they expand. Through our landscape approach to forest protection we have also aimed to work with all stakeholders across the landscape including other private sector actors addressing the same issue 2018 Strategy: APP will continue to strengthen its forest protection efforts, particularly by involving communities. APP is also looking into new ways to improve the effectiveness of its patrol, such as improving & prioritising the patrol routes based on the data received through MDA, as well as integrating SMART patrol concept to its suppliers forest security patrol. Further, APP will continue to pursue collaboration with other stakeholders on forest protection and community development. A key focus going forward will be to engage with neutral, independent organisations that can take up a role as facilitator and/or mediator in order to bring stakeholders with diverse interests together. We will also increase our support for jurisdictional approaches to forest protection. Approach over 5 years: When we undertook the endeavour to decouple our business from deforestation, we knew that we were also taking on the responsibility for achieving a shift in culture. A shift in culture not only in our business, but the culture of our suppliers, the culture of the communities within and around our concessions, and with the stakeholders all around us. One of the gifts of Indonesia is its incredible cultural diversity, but this also means that a strategy that works in shifting practices in one village will not necessarily work in another. This means that we need to target our initiatives and engagements to the specific cultural context of each area across 5 provinces. In some instances, we have tried to make progress with one approach and have had to improve and re-plan when we have come up against cultural differences Strategy: As part of the IFFS programme, we will train change agents, in an effort to train the trainers in each community on climate smart agricultural practices and agro-forestry techniques who can then adapt them to their own context and with APP s support facilitate training for the larger community. We will also continue to work with NGO partners on raising awareness related to issues around human-animal interactions and the negative impacts of fires, among other issues.

32 30 Challenge: Measuring Impact Challenge: Social conflict resolution Approach over 5 years: The initiatives APP is embarking on, whether environment or social, need to be measured in terms of impacts so that we can identify what works and what needs to be improved. This is where the challenge lies there is no globally acknowledged method to measure impacts of conservation and restoration efforts particularly over the short-term. While success stories can be found in some places, they have usually been conducted in small areas. Measuring impacts in large areas such as APP s concession and its third party suppliers concessions is a relatively new endeavour Strategy: APP will increase engagement with academics and research organisations to define and develop a science-based methodology to measure the impact of its protection, conservation and restoration efforts economically, environmentally and socially. Collaboration has already commenced with CIFOR ICRAF in the IFFS project in 2017 and expanding with University of Indonesia in Approach over 5 years: We have been very careful in addressing the very complex issue of managing conflicts we inherited from the moment the company was granted concessions by the Government of Indonesia. We conducted a detailed mapping of these conflicts to adapt the resolution process to each case. As mentioned previously in this report, each situation is a specific one and there is no one solution to address these different types of conflicts. We are learning a lot from our collaboration with local stakeholders and hope to be able to develop more partnerships with local groups that would be ready to support our efforts to solve all conflicts as soon as possible Strategy: APP will continue working closely with stakeholders joining the regional platforms. We will also analyse through case studies how the different components of our FCP fire prevention, IFFS, community forestry can be better integrated with our conflict resolution efforts to hopefully help reinforce these efforts. In addition, we will continue training our staff to improve their capacity to prevent and address disputes. These efforts, among many others, will take time to produce results. We recognise the urgency of halting deforestation, and we remain committed to doing our part to stamp out illegal logging and encroachment in addition to upholding our commitment to no natural forest clearance in our concessions or those of our suppliers. At the same time, we are keen on investing resources where we can be proactive and bring sustained improvement. APP will continue to engage in longer-term projects, such as restoration, research on alternative species, social conflict resolution and changing mindsets. As we take on more complex challenges, which take longer time to deliver results, we will remain accountable to our commitments. To this end, we will work with relevant experts and organisations to develop more science-based targets with measurable defined metrics to facilitate tracking and assessment of our progress in overcoming these challenges. We will also improve our data collection, reporting, and transparency to make it easier to follow our progress. Through all of this we will maintain in dialogue with all our stakeholders hearing their criticisms but also welcoming their proposals to help us to achieve our ambitions to improve forest landscapes and transform our business successfully.