Tesco, Britain's largest retailer, has been expelled from a prestigious environmental group after its sale of illegal timber from Indonesia was exposed by The Independent on Sunday.
The supermarket chain was thrown out of the "95+ Group", an influential ethical trading initiative run by the conservation charity WWF UK, last week after refusing to give written assurances that it would stop using illegally felled wood from rainforests.
The IoS revealed three weeks ago that Tesco had sold millions of pounds' worth of hardwood garden furniture made from logs that were illegally exported from Indonesia - breaching a ban imposed by the Indonesian government in October 2001.
Tesco had repeatedly reassured environmental groups such as Friends of the Earth that it would buy timber only from reputable sources. It said last month that it would use only legally bought hardwoods in next year's garden furniture range.
But the supermarket's dramatic expulsion - the first time a big British company has been thrown out of any green accreditation scheme - has shocked City investment firms.
City sources suggested that Tesco could now be dropped from their ethical share-investment schemes - severely denting its reputation for upholding modern standards of corporate social responsibility.
Membership of the 95+ Group, which includes major firms such as Tesco's main competitor Sainsbury's as well as B&Q, Boots, Homebase and Magnet, as well as the BBC, is seen by share-investment firms as one of the most important criteria for giving companies a high green or ethical rating.
WWF took a hard line with Tesco after the supermarket chain refused to admit formally that it had used illegally sourced timber, declined to show WWF its paperwork for the timber and refused to sign up to stricter rules now used by the 95+ Group on buying legally sourced timber.
To WWF's annoyance, Tesco allegedly used its membership of the 95+ Group to reassure callers about its support for ethical forestry. "We felt there was a genuine lack of commitment to the 95+ Group's aims, and this was demonstrated by a long delay in taking our concerns seriously, along with using 95+ Group membership in an inappropriate manner," said Rachel Hembery, the group's manager. "When these concerns were raised with Tesco, they weren't acknowledged or acted upon, so there was a reputational risk for our group."
After news of Tesco's expulsion spread through the City last week, the company was inundated with demands for an explanation by investment brokers. One fund manager said: "If, on an extremely well-known subject like timber, a company's supply chain policy isn't working, then what does that say about its other supply-chain policies?"
Emma Howard Boyd, head of ethical investments at the City firm Jupiter, who manages ethical share funds worth around £250m, suggested this raised questions about Tesco's pledges to take corporate social responsibility seriously.
"I think it is important that if companies sign up to initiatives, they follow them through. Joining an initiative must mean some sort of commitment. Is this a symptom of the way Tesco takes its commitments with other non-governmental organisations?"
City sources said Tesco had already been unexpectedly slow in joining the Stock Exchange's "FTSE 4 Good" register of ethically and socially responsible companies.
Sources said it had also responded later than expected to a questionnaire from the Association of British Insurers about the company's exposure to social, environmental and ethical risks - issues seen as crucial to assessing a company's insurance standing.
Tesco retorted by insisting it was committed to using only legally sourced timber. Its Vietnamese furniture supplier had joined an ethical trading group called the Tropical Forest Trust. But it claimed that the WWF had turned down Tesco's offer to meet to discuss the latest controversy.
"We've satisfied ourselves that we have quite a stringent audit trail in place so we can track all the timber we use from sustainable sources," a spokesman said. "Our feeling is that for WWF to kick us out when we're doing an awful lot doesn't seem very sensible."Reuse content