RESOURCE WOOD

Wood is only sustainable if it comes from well-managed forests. This also means that it has to be deforestation free and legally harvested. At HS Timber Group, we use an advanced due diligence system that covers all wooden input materials and includes various steps. This system works at three levels: country, supplier, and delivery. We perform specific risk assessments for each scenario and apply targeted risk mitigation measures down to each delivery. These measures range from requiring extra documentation to conducting onsite audits, from engaging suppliers through programs to suspending those who don't comply. We manage this process with specialised staff based locally and steered from our headquarter in Vienna. This approach ensures the highest integrity in all our deliveries.

Physical traceability is essential for verifying the origin of wooden material. While it's not required by law, we go beyond the basics to ensure transparency. In Romania, alongside the state-run SUMAL system, HS Timber Group launched the Timflow system in 2017: Timflow collects and verifies GPS data, timestamps, and photographs the wood loading process in the forest. Most importantly, we publicly share the origin of each Romanian delivery on our website. We also regularly consult and collaborate with traceability companies to benchmark our methods and stay updated with the latest technologies for tracing wood, including throughout the production process.

Certification is a key tool for promoting good forest management practices worldwide. We hold a PEFC Chain of Custody certification at all our mills and a Sustainable Forestry Initiative® Label Recognizing Global Standards based on the PEFC Chain of Custody. Additionally, our operations in Comanesti (Romania) and Luvia (Finland) have an FSC Chain of Custody certification. For our biomass purchases, we are certified according to SURE.

We support certification not only by obtaining these credentials but also by actively participating in the dialogue with the certification organisations. Forest certification systems are a crucial part of our risk mitigation strategy, complementing our other measures. Believing firmly in the importance of sustainable forest management, our goal is to source all our materials from certified forests by 2030.

Auditing is an effective way to manage risk. Each year, our dedicated supply chain control staff conducts approximately 400 audits. These include both on-site audits, where we verify conditions back to the forest plots, and desk-based audits that involve an in-depth review of documents.

First, we have a clear timber sourcing policy that prohibits purchasing wood from strictly protected areas, such as the core areas of national parks or UNESCO heritage sites and all other virgin forest areas. Given that Romania's national parks do not yet meet the internationally recommended IUCN criteria for a proportion of 75% core areas and 25% buffer zones, we also commit not to source from these buffer zones. Our suppliers must contractually adhere to these rules.

We verify compliance by tracing deliveries back to their origin using Romania's state SUMAL system and our own Timflow system. When materials are processed through log yards, mixing of origins can occur. We usually require our suppliers to keep materials separated in stock, which is checked on-site. We investigate and verify on-site any credible reports of breaches of this policy. Material that evidently originates from such areas is rejected without exception.

To respect human rights requirements internally and within our supply chain, we have issued a policy that reflects our commitment. As a key player in the European and global timber industry, we are aware of our responsibility towards our employees and partners. We strive to promote a corporate culture that emphasizes the importance of complying with fundamental legal requirements in the workplace. To ensure compliance, we continuously monitor national legislation in all the countries where we operate to check if it aligns with the International Labour Organization (ILO) standards. Additionally, our PEFC Chain of Custody certification and FSC Chain of Custody certification at relevant locations ensure regular external reviews of these standards are upheld within our own operation and within our suppliers´ operation.

Like many other companies in Europe and around the world, we are getting ready for the main obligations of the EU Deforestation Regulation (EUDR). We are updating our internal systems to meet the new requirements, which particularly involve collecting geolocation data.

HS Timber Group's Code of Conduct forms the basis of our business operations, laying down clear behavioural standards that all employees are required to follow. We operate a state-of-the-art, group-wide compliance management system to manage compliance risks and maintain the highest level of integrity.