Environmental and Social Report

2004

This report is printed on paper partially made from forest thinnings (10% pulp from thinnings; 90% recycled paper)

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The business of Sumitomo Forestry is based on forestry management. Ourapproach towards environmental preservation, which has been developed throughour practices of sustainable forestry for many years, is best expressed through ourCorporate Philosophy. This philosophy has been maintained up to the present asthe foundation of all Sumitomo Forestry Group housing-related businesses,including timber building materials, building material manufacturing, housingconstruction, environmental businesses, and others.

Recently, it is pointed out that corporations in Japan and abroad attach toomuch importance to the economic aspects of their activities, and corporateresponsibilities in regard to the environment and society are the subject ofincreased focus. Over the past three centuries since its foundation, SumitomoForestry has contributed to the natural environment of the earth. Today, as wecontinue to expand our corporate activities in a variety of fields, we are not onlyinvolved in maintaining and enhancing society and the environment, but alsocontribute to the formation of a sustainable society.

In the business of housing construction, Sumitomo Forestry promotes the use ofdomestic timber. The active use of domestic timber is important, not only insecuring the sustainability and health of forests, but also in functioning as a sinkfor absorbing CO2. For our GODAI housing series, we have developed our ownSuper Cypress engineered wood and lattice wall panels. Super Cypress wood is alaminated building material of Japanese cypress, produced by effective use ofthinned wood and previously unused timber materials. Lattice wall panels are pro-duced from domestic cedar. Last year, we succeeded in developing a laminatebuilding material of Japanese larch, which was previously very difficult to produce.This is used in structural timber products, which are released only in the Sapporoarea of northern Japan.

While developing corporate activities that utilize wood, a renewable naturalmaterial, we are also engaged in new forms of regeneration in the R&D field,which use the latest biotechnologies.

The feudal warlord Hideyoshi Toyotomi favored the “Togyu cherry” (Prunuspendula Maxim f. ascendens) at the well-known Daigoji Temple in Kyoto, for cher-ry blossom viewing. Sumitomo Forestry has succeeded in the large-scale tissue cul-ture propagation of clone seedlings of this tree. The seedlings have subsequentlymultiplied and thrived, and they finally began flowering in March 2004. Thisweeping cherry tree was thought to be over 150 years old and approaching the endof its life. People historically wished to preserve the tree for its high cultural value.In the future, we hope to adopt and utilize this technology in preserving preciousweeping cherry trees in other regions and other trees in danger of extinction.

Sumitomo Forestry recognizes anew the role and responsibility, expected by soci-ety in all areas of business at home and abroad, with its Corporate Philosophy andEnvironmental Policy. We will remain actively engaged in business activities thatcontribute to the formation of a sustainable society in the days to come.

This is the fourth edition of our environmental report. I hope it will provide youwith the opportunity to observe our efforts and results in protecting the environ-ment. Your feedback and comments are most welcome.

Ryu Yano, PresidentJune 2004

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A Message from the President

Principal Activities in FY2003

Toward Sustainable Development

Corporate Philosophy and Sustainability

Compliance and Risk Management

Customer First

Environmental and Social Report

Environmental Vision

Sumitomo Forestry Group and the Environment

Our Environmental Management System

Green Procurement

Environmental Accounting

Domestic Forestry

Overseas Afforestation Projects

Using Timber Resources Effectively

Developing Environmental Technologies

Working to Prevent Global Warming

Reducing Wastes

Toward Green Office Management

Environmental Communication

Community and Social Contributions

Highlights of our Community and Social Activities

Activities Planned for 2004

Corporate Data

Contents■ Editorial policy● Sumitomo Forestry has acquired corporate-wide general ISO 14001

certification, the international standard for environmental managementsystems, and pursues sound environmental practices across the entire company. Toward a wider understanding of our efforts, we havepublished an annual environmental report since September 2001.

● Our editorial policy, carried on from last year, is as follows:(1) Environmental activities described in relation to core

business segmentsFor clearer understanding of the particular features of our environmental activities, each is described in relation to the relevant core business segment —timber and building materialsdistribution, building materials manufacturing business, and housing services - and specific data is provided whenever possible.

(2) Reporting guidelinesThis environmental report was prepared with reference to theMinistry of the Environment’s Environmental Reporting Guidelines,2003. However, as the nature of our business makes it difficult tofollow the style prescribed by those Guidelines, this report focusesmainly on our current efforts, including our philosophical and practical approaches to environmental issues.

● With a view to enhanced clarity, this year’s report has been revised as follows:(1) Our philosophy and activities surrounding sustainability

are introduced at the beginning of the report. (2) We have made an effort to make the report more readable,

based on feedback from readers obtained through questionnaires. ● We will work to continuously improve our environmental practices

and environmental reporting, taking comments and feedback from our readers into consideration.

■ Reporting period and scope● Reporting period: April 2003 to March 2004

(Includes some activities in or after April 2004 and future expectations.)

● Enterprise targeted: Sumitomo Forestry Co., Ltd.● Parts of this report also cover the activities of the following

Group companies:Sumitomo Forestry Crest Co., Ltd.; Sumitomo Forestry Two-by-FourHomes Co., Ltd.; Sumitomo Forestry Component House Co., Ltd.;Sumitomo Forestry Home Tech Co., Ltd.; Sumitomo Forestry HomeService Co., Ltd.; Sumitomo Forestry Landscaping Co., Ltd.; SumitomoForest Service Co., Ltd.; Sumirin Agro-Products Co., Ltd.; SumirinEnterprises, Ltd.; Nelson Pine Industries Ltd. (NPIL); P.T. Kutai TimberIndonesia (KTI); Alpine MDF Industries Pty Limited; P.T. Rimba PartikelIndonesia (RPI); P.T. AST Indonesia (ASTI)

● Understanding the environmental impact of Group companies andreporting in detail on their environmental activities are issues we are in the process of addressing.

■ Publication of next report● Next year’s environmental report is scheduled for publication

in June 2005.

■ Inquiries to:Environmental Management Division, Sumitomo Forestry Co., Ltd.

Ph. 81-3-5322-6669 Fax 81-3-5322-6774Corporate Communications Group, General Administrative Division

Ph. 81-3-5322-6666 Fax 81-3-5322-6766http://www.sfc.co.jp/e-sumi.html

A Message from the President

Principal Activities in FY2003

Integration of environmental management

In the past, we have used a different management system forenvironmental activities than for our everyday business. Toreinforce the foundation of our environmental management,we decided to integrate the system we use for managing every-

day business with the systemfor environmental activities.Our new integrated systemwas devised in FY2003 andstarted operating fromFY2004.

See page 14

Forestry Agency Director-General’s award

The “twinned post” jointly developed by Sumitomo Forestry,Sumitomo Forest Service Co., Ltd., and Sankei Co., Ltd. ofHyuga City, Miyazaki Prefecture won the Forestry AgencyDirector-General’s award. Our twinned post, whose commer-

cialization began two years ago, is a two-piece laminated pillar created by longitu-dinally slicing the square cores producedfrom Japanese cedar logs, drying the tworesulting halves, then gluing themtogether. This new method will enablebent logs, which could not previously beused as pillars, to be used effectively.

See page 21

Three Group companies acquire ISO 14001 certification

We are extending the scope of ISO 14001 certification tomore Group companies whose management systems meetISO 14001 criteria. In FY2003, two new Sumitomo ForestryGroup companies obtained ISO 14001 certification:Sumitomo Forestry Crest Co., Ltd. and Sumitomo ForestryTwo-by-Four Homes Co., Ltd. Overseas, Nelson PineIndustries Ltd. (NPIL) of New Zealand became our secondforeign subsidiary after P.T. Kutai Timber Indonesia (KTI) tomeet the ISO 14001 environmental standards.

See page 14

First weeping cherries flower in Kyoto

The “Togyu cherry” of the well-known Daigoji Temple inKyoto, representing the Shingon sect of Buddhism, was favoredby feudal warlord Hideyoshi Toyotomi for cherry blossomviewing. Sumitomo Forestry set itself the challenge of large-

scale propagation of this venerable weep-ing cherry by tissue culture technology.Now we have produced over 1,000 thriv-ing seedlings, the largest of which is nowaround five meters tall. The color andform of the first blossoms, whichappeared in the spring of 2004, matchthose of the original Togyu cherry.

See page 24

Our own larch used in framings and interior fittings

In May 2003, our Sapporo branch began selling homes usinglarch from Sumitomo Forestry forests in Hokkaido. The larchis processed as a laminate and used in poles, beams, and interi-or fittings. Larch makes up roughly one third of Hokkaido’sforested area. The timber is strong and durable, but because it

is frequently twisted and not easy to process,new applications needed to be developed.Sumitomo Forestry met this challenge,selecting mature larch with stable properties.By using improvements in our drying tech-nology to control twisting, we succeeded inmaking larch a viable housing material.

See page 21

CO2 absorbed by our forests in 2003

The amount of carbon dioxide (CO2) absorbed by the 40,497hectares of Sumitomo Forestry Group-owned forests in Japanwas 275,525 tons in FY2002 and 248,639 tons in FY2003.

This is about 2.9 times the amount ofcarbon dioxide emitted by the entireSumitomo Forestry Group in the courseof its business activities. In the future,the Sumitomo Forestry Group will con-tinue forestry management activities inJapan and promote activities to preventglobal warming.

See page 26

CO2 emissions caused by housing construction confirmed

From fiscal 2002, Sumitomo Forestry has been monitoringthe amount of CO2 generated by its timber house construc-tion activities.

To confirm the tentative results for FY2002, in FY2003 wecarried out surveys at 23 construction sites from Hokkaido toKyushu. These revealed an average emission for the 23 sitessurveyed of 1.65 tons of CO2 per house. The average floorarea of the houses surveyed was 155.25m2. Converting this tothe floor area used for the FY2002 calculations (147.39m2)returns a figure of 1.56 tons of CO2 per house, thus confirm-ing the validity of the results for the previous year.

See page 26

Sumitomo forest ecosystems

Aiming to develop new forms of forest management that reflectthe total forest ecosystem, including flora and fauna, air, water,soil and scenery, we are developing forests with an Ecosystemstheme. In 1993, we built Forester House in Besshiyama in cen-tral Ehime Prefecture, and opened 1,890 hectares of company-

owned forest to the public to allow hands-oncontact with forests and forestry to elemen-tary school children and others. In 2003, weencouraged children to participate in char-coal-making and collaborated in generaleducational activities associated with Ehime’sforests.

See page 33

CDM survey

On behalf of the Japanese Ministry of the Environment, since1999 we have been carrying out a Clean DevelopmentMechanism (CDM) feasibility study into the amount of CO2

absorbed by an afforestation project inIndonesia and the project’s commercialfeasibility. In FY2003, the study focusedon the quantity of CO2 absorbed by theafforestation activities of P.T. KutaiTimber Indonesia (KTI) and P.T. RimbaPartikel Indonesia (RPI), and theamount of CO2 emissions prevented bythe use of biomass energy.

See page 27

Tropical forest regeneration project completed

The tropical forest regeneration project begun by SumitomoForestry in 1991 in Sebulu, East Kalimantan, Indonesia,reached completion in March 2004. The main tree species is

the lauan. To date, 277 hectares of foresthave been restored (aggregate area plant-ed: 503 hectares, total number of treesplanted: 738,000). As the forest hasrecovered, wild animals such as orang-utans, deer, and wild pigs have begun toreturn.

See page 33

Mt. Fuji Manabi no Mori natural reforestation project

Every year we carry out volunteer afforestation and silvicul-ture activities at the Mt. Fuji Manabi no Mori forest. To makesure our afforestation efforts preserve the types of native trees

growing on Mt. Fuji, we use species thatseed themselves naturally on the slopesof the mountain. These include beech,oak, dogwood, zelkova, stewartia, maple,magnolia, cork tree, hinoki, and Fujicherry. Thousands of people have partic-ipated in the program and a total of36,369 trees have been planted.

See page 32

Report on KTI’s educational foundation

To mark its 30th anniversary, P.T. Kutai Timber Indonesia(KTI) established an educational foundation to provide schol-arships for elementary and junior high school students. As of

the end of 2003, it had awarded scholar-ships to 21 children in the Probolinggoarea, 10 in the Sebulu region, and 10 inKrucil. In FY2004, KTI plans toincrease the number of recipients alongwith the start of the new July semester.A fixed proportion of KTI’s profits willbe set aside for the educational founda-tion every year from now on.

See page 33

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Founded in 1691, Sumitomo Forestryhas consistently managed forests for morethan three centuries. Over that time, ithas built up forests covering one thou-sandth of Japan’s total land area. Theseforests are eventually harvested, their tim-ber used, and their revenues returned tore-invest in creating new forests. Thiscycle of sustainable forestry has beenmaintained up to the present day.

Sumitomo Forestry’s CorporatePhilosophy is manifested domesticallyand abroad in the fusion of economicsustainability with the environmentalsustainability developed through itsmanagement of forests. SumitomoForestry maintains this fusion as thebasis of all its activities.

Sumitomo Forestry’s business and sustainability

Sumitomo Forestry’s areas of businesshave diversified to timber and buildingmaterials distribution, building materialsmanufacturing, and housing construction,while the scope of its activities has broad-ened to include overseas as well as domes-tic operations. Guided by the followingthemes, we are also seeking to apply oursustainability policy to all areas of businessand re-examine the responsibilitiesrequired to fulfill our expected role. • Conducting environmental protection

activities • Co-existing harmoniously with the

regions in which we operate• Providing quality products that

enhance people’s lives• Returning profits to society• Complying with laws and regulations • Maintaining fair labor practices• Other related themes

We are maintaining sincere efforts to sat-isfy the needs of the times and the com-munities in which we operate. As a resultof these efforts, we are able to carry outsustainable business in relation to theenvironment, society, and the economy,and meet our social obligations.

Some recent examples

Mt. Fuji volunteer reforestation project

As part of our social contribution activi-ties, we took the lease of a typhoon-dam-aged state forest on the slopes of Mt.Fuji and organized ongoing volunteeractivities to restore it to its original con-dition. (See page 32)

Call center established

In our housing business, we reviewedour after-sales service system to enable usto promptly respond to customer com-plaints and requests. As a result, weestablished the industry’s first 24-hour-a-day, 365-day-a-year call center so we canreply directly to customer inquiries. Weare continuing to work hard to realizethe customer-first approach emphasizedin our Action Guidelines. (See page 9)

Reinforcing compliance

To strengthen self-regulatory functions,in December 2002 we established aCompliance Counter to offer advice oncompliance infringements. The Counteris staffed by the general manager of ourGeneral Administrative Division and aconsulting lawyer. (See page 8)

Personnel system revamped

In April 2003, we revamped our person-nel system to introduce a performance-oriented approach. This reflects a com-mitment to move away from a fixed sen-iority-based personnel system to one thatis fairer and more inclusive.

Educational foundation established in Indonesia

P.T. Kutai Timber Indonesia (KTI),which produces plywood and timberbuilding materials in east Java,Indonesia, established an educationalfoundation to provide funding assistanceto the region’s poorer children so theycan attend school. KTI also providesactive recovery support when natural dis-asters strike, and works hard to live inharmony with the local community. (Seepage 33)

Corporate Philosophy and Sustainability

Based on a philosophy nurtured and maintained over long decades, Sumitomo Forestry contributes to a sustainable society and carries out activities aimed at furthering sustainability.

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Toward Sustainable Development

Sumitomo Forestry’s origins Working toward sustainability

Toward Sustainable Development

For three centuries, Sumitomo Forestry has planted trees and cultivated forests as part of its ideal of sustainable forestry.

Even though times change and the needs of society alter, the Sumitomo Forestry Groupvoluntarily acts in accordance with its corporate social responsibilities based on its Corporate Philosophy of sustainable endeavors, which it has consistently maintained from its inception.

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The Sumitomo Forestry Group utilizes timber as a renewable, healthy and environmentally friendly natural resource, and contributes to a prosperous society through all types of housing-related services.

Sumitomo Spirit We conduct business based on principles of integrity and sound management.

Respect for Humanity We create an open and inclusive corporate culture that instills a strong sense of pride and motivation in employees.

Environmental Protection We contribute to the protection of the environment and our fellow beings through responsible business practices.

Putting Customers First We act with customer satisfaction first and foremost in mind.

Action Guidelines

Corporate philosophy

Corporate Philosophy and Action Guidelines

We recognize that all the businessesthroughout the whole Group are society-based. To contribute to society throughour businesses, it is vital that each indi-vidual staff member takes the needs ofcustomers to heart and always puts thecustomer first. In our housing and otherbusinesses, we are working on develop-ing specific ways to keep the focus firmlyon the customer.

24-hour, 365-day technician response system

In our housing business, in addition toproduct quality our customers rely on usfor support after their homes are built.We provide specialized CustomerCenters for after-sales support at all 50offices nationwide. These Centers arestaffed by full-time technicians who arealways ready to respond promptly andreliably. In combination with our newCall Center, we can now offer a 24-hour-a-day, 365-day system able torespond to telephone requests for repairwork and provide advice.

After-sales follow-up system

So that we can respond promptly to cus-tomer queries and complete repair work,we established an after-sales follow-up sys-tem based on the following detailed data:• Overviews of completed buildings• Chronology of project• Computerized building plans• Post-construction inspection data

Because the Customer Center andCall Center staff can refer to this andother data when responding to inquiriesfrom customers, they can make prepara-tions for repairs and provide on-the-spotemergency repair advice if necessary.

“Putting the customer first” is more thanjust an abstract ideal. Sumitomo Forestryensures all its staff take the “customerfirst” approach seriously in the perform-ance of their daily duties. To realize this,we introduced customer service manage-ment companywide to ensure ourCorporate Philosophy of customer first isreflected in day-to-day customer service.

We have set specific goals for everypart of our organization to improve cus-tomer service. We use a PDCA (Plan,Do, Check, Action) cycle to carry outcontinuous customer service improve-ment in an effort to achieve still higherlevels of customer satisfaction. • Draw up plan (Plan)• Execute plan (Do)• Check and evaluate results (Check)• Review (Action)

‘Customer first’ training

We are determined to maintain andintensify the customer-first corporatespirit throughout the Sumitomo ForestryGroup. The tools used to build andentrench this spirit include pamphletsdescribing the basis of our customer firstphilosophy, newsletters, email, mobilephone cards, and other communicationtools and media.

‘Customer first’ video

Featuring real Sumitomo Forestryemployees, this in-house training videodemonstrates how sales discussions can gowrong, gives tips, and shows examples ofparticularly successful customer relation-ships. The video is used to train new staffand is shown at in-house training sessions.

Long-term support system

The short lifecycle of Japan’s housing is severely inhibiting the emergence of a recycling mentality in Japan.Lengthening the lifecycle of the nation’shousing has become an urgent social pri-ority, as highlighted in September 2002by a Ministry of Land, Infrastructureand Transport report entitled “Establish-ment of Guidelines for the Developmentof Long-Life Housing.”

To address this social need, in April2002 we launched our Long-TermSupport System to provide a 60-yearback-up for our homes. The main pointsof the system are:• To ensure the principal structural parts

of the house have a durability of 60years.

• To determine a design life for eachmaterial, and design the home to facili-tate inspections, repairs, and replace-ment.

• To implement regular inspections overthe 60 years of the home.

• To implement proposals from thedesign stage that will accomodatechanges in the life stages of the occu-pants.

• To propose maintenance programs thatinclude maintenance management andrenovation proposals over the 60 yearlife-cycle.

• Use materials with a low environmen-tal impact and recycle.

Customer First

We were the first in the housing industry to offer a 24-hour-a-day, 365-day-a-year technician response service. Customer satisfaction is our main priority in all business areas.

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Toward Sustainable Development

Putting customer satisfaction first Customer service management

Compliance and Risk Management

What is compliance?

We view compliance as far more thanjust observing laws and regulations. Truecompliance means wholeheartedly andsincerely meeting the expectations of allour stakeholders, including customers,shareholders, employees, clients, and thelocal community. We believe that this isthe basis for gaining the trust of societyand is the true meaning of compliance.

Sumitomo Forestry Ethical Charter

In 1998 we prepared the SumitomoForestry Ethical Charter to enable everyemployee to understand the concept ofcompliance and implement proper deci-sions and behavior as “good citizens” and“good employees,” guided by a strongcommitment to compliance and ethicalprinciples. We also prepared EthicalAction Guidelines as a concrete guide forthe promotion of compliance. Alongwith our Corporate Philosophy andEnvironmental Philosophy, we alsoincluded the Sumitomo Forestry EthicalCharter in our Employee Handbook,which is distributed to all staff members.

“Compliance Corner” in Group newsletter

Every month we publish a “ComplianceCorner” in the monthly SumitomoForestry Group Newsletter. This clearlyexplains to employees the meaning ofcompliance, its importance, and its rolein everyday business. The aim is to raisestaff awareness of compliance. FromApril 2004, we began circulating theGroup Newsletter on an Intranet andplan to place it on a special compliancewebsite.

Compliance Counter

To promptly identify and correct behav-ior difficult to rectify by ordinary busi-ness processes or actions that contravenecorporate ethics, we established the advi-sory Compliance Counter staffed by thegeneral manager of our GeneralAdministrative Division and a consultinglawyer. To ensure that all employeesthoroughly understand compliance

issues, details of the ComplianceCounter are also made available throughan in-house Intranet. Measures are takento protect individual privacy so that noemployee is penalized in his or her workas a result of information releasedthrough the Compliance Counter.

Strengthening risk management

To address risk management issuesthroughout the Group, we established aRisk Management Committee headed bythe general manager of our GeneralAdministrative Division. In FY2003, theCommittee produced an Information

Security Handbook. This was distrib-uted to all company employees to makethem more aware of the demands of theinformation society.

Emergency hotline established

To provide a prompt and appropriateresponse in case of an emergency, a dedi-cated telephone hotline was establishedfor staff throughout the entireSumitomo Forestry Group. The hotlineensures that emergency informationreaches the Risk ManagementCommittee day or night, 365 days ayear.

We have created a Sumitomo Forestry Ethical Charter and are reinforcing compliance practices while focusing on risk management.

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Toward Sustainable Development

Our Ethical Charter and compliance

Acknowledging the necessity for a corporate ethical position from an international perspective,aware of our growing corporate responsibility, and resolved to achieve further development as a member of society and to contribute to society,we proclaim the Sumitomo Forestry EthicalCharter and will aim to create a new corporate culture.

1. We will act as good citizens.Sumitomo Forestry’s employees and executiveswill, as good citizens first and members of thecorporation second, comply with ethical princi-ples by obeying the law and respecting thehuman rights of others.

2. We will act as good Sumitomo people.Sumitomo Forestry’s employees and executiveswill maintain the spirit of Sumitomo that valuesimpartiality and trust and whose principle is posi-tive and trustworthy management, and will act asgood Sumitomo people who enhance this trust.

3. We will act as good employees.Sumitomo Forestry’s employees will act as goodemployees as they strive to increase the satisfac-tion of our customers, perform fair transactions,and create safe workplace environments whileobeying company regulations and abstainingfrom unlawful and anti-company actions.

4. We will act as good executives.Sumitomo Forestry’s executives will, consciousof their responsibilities as managers, provide agood example to improve the ethical conscious-ness within the company, and act as good man-agers by improving company systems andpreparing for unexpected circumstances.

5. Sumitomo Forestry will act as a good corporate citizen.Sumitomo Forestry will act as a good corporatecitizen by contributing to society as a member of that society through its business activities,responding to internationalization by deepeningmutual understanding as a good neighbor toother countries, and contributing to the conser-vation of the global environment.

(1) Information provided. (2) Confirm authenticity of information and

consider need for response.(3) Interview information source and investigate

the office concerned.Ask the manager of office concerned for remedial instructions and a report on results.

(4) Report results back to information source.

(1) Information provided. (2) Report content to General Administrative Division

Manager.(3) Confirm authenticity of information and consider

need for response.(4) Notify consulting lawyer on whether a response

is necessary or not.(5) Interview information source and investigate the

office concerned.Ask the manager of office concerned for remedial instructions and a report on results.

(6) Report results back to information source.

In-house liaison (General Administrative Division Manager)

External liaison (Consulting lawyer)

User (Information

source)

In-house liaison (General

Administrative Division Manager)

User (Information

source)

External liaison(Consulting

lawyer)

In-house liaison(General

Administrative Division Manager)

(3) (5)

(1)

(1)

(2)

(2) (3)

(4)

(6)

(4)

Plan

Action

Do

Check

‘Customer first’ tools

Scene from ‘customer first’ video

Sumitomo Forestry Ethical Charter

Compliance Counter system

Customer service management

Call Center

During the high-growth period thatmarked Japan’s postwar recovery, Japanchose a development path that priori-tized economic prosperity. However, thesustainability of a socio-economic systembased on mass production, mass con-sumption, and disposal of massiveamounts of waste eventually began to bequestioned and calls emerged for aswitch to a sustainable developmentmodel. Environmentally friendly effi-ciencies were promoted, and societyincreasingly indicated a preference for astyle of environmental management thatprotects the environment without sacri-ficing the economy.

This stance is closely mirrored inSumitomo Forestry’s own approach,learned from nature through sustainableforestry based on a continuously repeat-ing cycle of planting seedlings, nurturingthem, harvesting, and replanting againto maintain the functions of the forestand the ecosystem.

While lessening environmental impacts inour own businesses, we are seeking tocontribute to the development of a sus-tainable society through the following ini-tiatives that will help reduce environmen-tal impact throughout society in general:• Providing low-energy consumption

housing.• Operating a wood chip distribution

business to recycle chips from lumbermills, joinery factories, and scrappingplants.

• Producing compost based on the effec-

tive use of sludge from water purifica-tion plants and bark.

As consumers become increasingly envi-ronmentally aware and the spread of theInternet makes them better informed,they are tending to communicate withcompanies directly and select their owncompanies and products.

In this era, we believe companies havea responsibility to clearly show their phi-losophy and stance on the environmentso that they can retain the trust of con-sumers and society.

Environmental VisionEnvironmental and Social Report

300 years of forestry management has taught us the importance of sustainable resources and maintaining the ecosystem.This realization is reflected and furthered in our Environmental Philosophy and Environmental Policy.

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Harmonizing the environment and the economy

Reducing environmental impacts

Our responsibilities as good corporate citizens

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Founded on our corporate philosophy and environmental philosophy, Sumitomo Forestry Co., Ltd. seeks to make a positive contribution through all its business operations to maintaining and improving the natural environment and the communities in which we live and work. To help create a sustainable society, we will conduct our operations with the following principles in mind:

Environmental policy

Engage constructively in business activities that are beneficial to creating a sustainable society.1) Promote forest cultivation at home and abroad,

maintain and enhance the multifunctional roles that forests play in conserving forest resources and in preventing global warming, and pursue business activities consistent with environmental conservation.

2) Aim for product handling and procurement that takes account of the entire life cycle, from resource utilization through manufacture, consumption and disposal.

3) Focus on recycling and reuse in the development, design and production of housing and products. Endeavor to use resources and materials that provide excellent conservation value, resource protection and renewability, while also employing resource utilization technology with excellent energy efficiency and conservation value.

Accurately assess the direct and indirect effects of our housing, products and business activities on the environment, and strive to prevent pollution and to minimize environmental impacts by implementing the necessary control measures.1) Strive to minimize the environmental impacts of

our housing, products and business activities at all stages.

2) Strive to reduce waste, carry out appropriate waste treatment, and increase the ratio of product recycling and reuse.

3) Recognize that reducing environmental impacts and promoting environmental responsibility also translates into greater productivity and reduced production costs, which in turn enhance competitiveness.

Be thoroughly familiar with the laws and regulations applicable to our products and business activities, and strictly comply with requirements. Where necessary, draft voluntary standards and ensure compliance.

Establish objectives and targets to achieve continual improvement of environmental management systems, and review those targets at least once a year.

With many years of practical experience in silviculture, Sumitomo Forestry has an appreciation of the wonderful renewable resource that forests represent and the benefits that nature provides. Environmental protection is imperative in the 21st century. As a company with a close affinity with nature, we are aware of potential impact of our activities on the environment, and we contribute to society through the vigorous pursuit of business operations in harmony with conservation principles.

Environmental philosophy

This policy is publicly disclosed and communicated to all employees.

Environmental Philosophy and Policy

Environmental & Social Report 2004

Inspired by the ideal of sustainable forestry, Sumitomo Forestry Group established our Environmental Philosophy and Environmental Policy.

We promote an environmental management style that aims to harmonize the interests of the environment with the needs of business.

Taking seriously our commitment to be a good corporate citizen, we work to maintain the confidence of society, live in harmony with our local communities, and contribute to society wherever we can.

The weeping cherry tree at Kyoto’s Daigoji Temple

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A company-owned forest in Shikoku

Overseas operations

We established overseas affiliates in NewZealand, Australia, and Indonesia tomanufacture and sell medium-densityfiberboard (MDF), plywood, and parti-cleboard.

The sustainable management prac-tices promoted by these companiesinclude a silviculture project inIndonesia using the fast-growing tropicaltimber Paraserianthes falcataria.

Direct impacts

■ Impact of forestry management Through the process of photosynthesis,trees absorb and sequester CO2, a majorcause of global warming, and releaseoxygen. The timberlands owned bySumitomo Forestry cover approximatelyone-thousandth of Japan’s landmass andhelp absorb CO2 from the atmosphere. ■ Impact of timber and building materials The production of timber and buildingmaterials results in environmentalimpacts in the form of wastes and efflu-ents input into the atmosphere andwater system. The distribution of timberand building materials also results inenvironmental impacts from the vehiclesused in their transportation. ■ Impact of housing business Energy consumption and constructionwastes in housing construction haveenvironmental impacts.

Group companies

Each company implements its own poli-cy-based environmental practices toidentify and reduce direct environmentalimpacts.

Impact of office activities

In maintaining and running our headoffice, branches, and other offices, weuse energy and consumables, and theseresult in general wastes.

Indirect impacts

As well as direct impacts, we are alsoconscious of the indirect, or potentialdownstream, effects of our activities. Forexample, the extent to which energy andresource efficiencies are incorporatedinto our housing development conceptsaffects the environmental impact whenthe housing is actually built and occu-pied.

To reduce such indirect effects, weformulate eco-friendly policies and cir-culate environmental information as partof our day-to-day operations.

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Environmental impacts of our businessactivities

Sumitomo Forestry Group and the Environment Environmental and Social Report

Founded in1691, Sumitomo Forestrytraces its roots to the management ofwoodlands that supplied timber to theBesshi Copper Mine on the island ofShikoku. To remedy the degradationcaused by the mine development, themine manager, Teigo Iba, an entrepre-neur of the Sumitomo merchant family,prepared a forestation plan in a spirit ofrepaying what had been reaped from the

land. This initiative was the origin ofSumitomo Forestry’s stewardship.

Today, with 40,497 hectares of forestland holdings in Hokkaido, Wakayama,Shikoku, and Kyushu, SumitomoForestry still practices sustainable forestmanagement founded on ecologicalprinciples. In addition, we provide serv-ices across all aspects of the housing sec-tor, including manufacturing and distri-bution of timber and building materials,construction and sales of custom-builtwooden homes, and environmental proj-ects such as overseas afforestationschemes.

Sumitomo Forestry Group operations

Domestic operations

With long experience in growing forests,Sumitomo Forestry is well aware of theamazing potential and value of wood as anatural product and building material.Our wealth of knowledge and experi-ence, passed on to the Group companiesworking alongside us, has borne fruit in

the manufacture and sales of housingmaterials, furnishings and fittings, andthe provision of eco-friendly housing.

12

We seek to identify environmental impact factors in every area of our business and work as a Group to minimize the impact.

Sumitomo Forestry’s business operations

Forestry & Environmental Businesses

• Sustainable forest management• Overseas plantations• Construction waste recycling

Energy, water, raw materials, subsidiary materials

Timber resources, CO2 uptake, release to atmosphere, release to water systems and soil, waste

Timber & Building Materials

• Stable supplies of lumber, wood products, building materials, etc. • Factory precutting• Manufacture of house timbers, building materials, furnishings, etc.

Energy, water, raw materials, subsidiary materials

Products, release to atmosphere, release to water systems and soil, waste, noise

Housing • Wooden housing construction• House renovation and refurbishment

Energy, water, raw materials, subsidiary materials

Products, release to atmosphere, release to water systems and soil, waste, noise

Other Operations• Greening of residential and urban spaces• Plant potting media and other agribusiness• Other lifestyle-related business

Energy, water, raw materials, subsidiary materials

Products, release to atmosphere, release to water systems and soil, waste, noise

Office Administration

• Policy decision-making and implementation• Business planning and implementation• Other support tasks

Energy, water, office products and consumables

Printed matter and waste

Resources Raw materials Processing Manufacturing Use Reuse, Recycle, Discard

Appropriate Disposal

Reuse/Recycle

INPUTS OUTPUTSINPUTS OUTPUTS

INPUTS OUTPUTS

INPUTS OUTPUTS

INPUTS OUTPUTS

Teigo Iba (1847 - 1926)

Business activities of the Sumitomo Forestry Group and their effects on the environment

■ Principal domestic Group companies

■ Principal overseas Group companies

• Nelson Pine Industries Ltd. (NPIL):Manufacture and sale of MDF and otherproducts (New Zealand)

• Alpine MDF Industries Pty Limited:Manufacture and sale of MDF and otherproducts (Australia)

• P.T. Kutai Timber Indonesia (KTI):Manufacture and sale of plywood, etc.

• P.T. Rimba Partikel Indonesia (RPI):Manufacture and sale of particleboard

• P.T. AST Indonesia (ASTI): Manufacture of wooden audio speaker cabinets, etc.

• Sumitomo Forestry Crest Co., Ltd:Manufacture and sale of plywood and building materials

• Sumitomo Forestry Two-by-Four Homes Co., Ltd: Design, construction, and sale of two-by-four homes

• Sumitomo Forestry Component House Co., Ltd: Manufacture, construction, and sale of component homes

• Sumitomo Forestry Home Tech Co., Ltd:Renovation of stand-alone homes and apartments

• Sumitomo Forestry Home Service Co., Ltd:Brokering sale and purchase of housing and land

• Sumitomo Forestry Landscaping Co., Ltd:Urban greening, residential exterior work and landscaping

• Sumitomo Forest Service Co., Ltd: Sale ofdomestic timber, consigned forestry services

• Sumirin Agro-Products Co., Ltd: Productionand sale of soils for seedling cultivation, soil conditioning materials, and compost

• Sumirin Enterprises, Ltd: Insurance agencyand other general services

The administration of environmentalprotection activities is verified by:• Internal environmental audits• Audits by an external certification body

Internal environmental auditing

To make environmental activities stillmore efficient, Sumitomo Forestry con-ducts internal environmental audits.These internal audits, in which differentparts of the company audit each other,focus on the following two key points:• Implementation of the EMS and• Progress toward achieving environmen-

tal aims and objectives.These audits are carried out by inter-

nal environmental auditors.■ Collection of audit findingsThe Green Environmental R&DDivision*, which oversees our environ-mental preservation activities, collects andreports all internal audit results to man-agement. On the basis of the findings,management determines if improvementsare required, and where necessary, issuesimprovement instructions to the sectionconcerned. Information is shared withother sections wherever possible.*As a result of reforms implemented in April 2004,the Environmental Management Division hasinherited the role of the Green EnvironmentalR&D Division.

■ Training of internal environmental auditorsInternal environmental auditor trainingcourses are held twice a year. Employeeswho have completed the course areappointed as internal environmentalauditors. As of the end of March 2004, atotal of 544 staff had qualified.

Auditing by external certification bodies

In addition to internal environmentalaudits, annual ISO 14001 interim audits(surveillance visits) and three-yearly re-assessment audits are conducted by

external certification bodies. In FY2003,we received an interim external auditbetween August 6 and 8, and were alsoaudited at that time in regard to anextension of ISO 14001 certification toSumitomo Forestry Crest and SumitomoForestry Two-by-Four Homes.

The regular audit carried out assessedus as: “No major (A) or minor (B) indi-cations; proper systems respondingappropriately.” The audit for the exten-sion of certification found: “No majorindications (A). While the extension isjudged to be reasonable, one minor indi-cation (B) was found.” We took remedialmeasures to address that indication.

Environmental education

To ensure that every employee is awareof environmental procedures and carriesthem out in their daily work, all employ-ees must clearly understand their rolesand be able to act responsibly. To thisend, we conduct education programsaimed at all employees.

Types of environmental education

■ General environmental educationTo fully convey the company’s environ-mental policy, we display posters andissue policy cards to employees. Alloffices nationwide prepare an annualtimetable, with training providedthrough seminars conducted by GreenEnvironmental R&D Division person-nel. The aim is to raise environmentalawareness among all company members.■ Education of employees engaged

in designated tasksCompany members engaged in designat-ed tasks (with potentially significant envi-ronmental impacts) receive training in: • Necessary procedures and • Environment-related legislation. ■ Education system for new recruitsAll new recruits attend induction train-ing at Forester House, located atBesshiyama in Niihama City, EhimePrefecture, Shikoku. The new recruitsstudy the plantation’s history andforestry skills, and learn conservationconcepts through practical work. Theyalso take part in the Manabi no Morivolunteer tree-planting program on Mt.Fuji.

The types of emergencies anticipated atSumitomo Forestry include fire outbreaksand major disasters. To prevent accidentsand disasters, employees in all areasreceive regular training to prepare themto respond to emergency situations. ■ Fire trainingCompounding the loss of valuableresources, fire releases CO2 in the com-bustion process and causes damage tosurrounding areas. Measures are devisedto prevent fires occurring and reducedamage if a fire does break out. Regulardrills are held on fire prevention anddamage control procedures.■ Earthquake training We prepared an Earthquake Manual,distributed to all company members, toprotect their safety and that of their fam-ilies in the event of a major earthquake.The manual also sets out a company sys-tem, including customer support, forresponding to earthquakes. The manualincludes:• Standards for action in emergencies• Methods of communication in emer-

gencies • Leadership systems, crisis management

systems• Emergency contact networks.

15

Environmental audits

Preparedness and training for emergency situations

Environmental Management SystemEnvironmental and Social Report

Sumitomo Forestry regards the environ-ment as one of the most vital aspects ofmanaging our business. To effectivelypromote environmental managementwithin the company, from 1995 webegan constructing an EMS based onISO 14001 standards. In August 1997,we became the first company in Japan’shousing industry to obtain ISO 14001certification. Subsequently, we steadilyexpanded certification to our forestryand timber and building materials divi-sions. In August 2002, the divisional cer-tifications were upgraded to a generalcertification for the whole company.

Integrating environmental management with day-to-day business management

In FY2003, six years after we firstobtained ISO 14001 certification, weimplemented a wide-ranging review ofour EMS, which had generally realizedits initial goals.

Up until that time, we had employeddifferent types of management systemsfor environmental management and forour day-to-day business management.However, to further assimilate our envi-ronmental preservation activities, wedecided to integrate our business man-agement and environmental manage-ment systems. In FY2003, environmen-tal management was brought under ourbudget control systems and we will beginapplying this approach from fiscal 2004.

Group environmental management

We expanded the scope of our ISO14001 certification for Group companieswith management systems that meet cer-tification criteria.

In FY2002, ISO 14001 certificationwas extended to Sumitomo ForestryLandscaping Co., Ltd., SumitomoForestry Home Service Co., Ltd., andSumitomo Forestry Component HouseCo., Ltd., and in September 2003,Sumitomo Forestry Crest Co., Ltd. andSumitomo Forestry Two-by-Four HomesCo., Ltd. were also recognized as beingISO 14001 compliant.

Overseas, Nelson Pine Industries Ltd.(NPIL) of New Zealand received ISO14001 certification.

Sumitomo Forestry Crest Co., Ltd.

Sumitomo Forestry Crest had alreadyobtained ISO 9001 quality certificationfor its five business premises. Now, how-ever, with its ISO 14001 certification, itcan claim reliable management systemsin the environmental area as well.Currently, Sumitomo Forestry Crest usesconiferous forest products from planta-tion radiata pine and Russian larchforests. In the future, it will aim at ply-wood production using Japanese timberin an effort to promote sustainableforestry.

From March 2003, SumitomoForestry Crest began shipping JAS stan-dard F ✩✩✩✩ products with low-formaldehyde emissions.

Sumitomo Forestry Two-by-Four Homes Co., Ltd.

Sumitomo Forestry Two-by-Four HomesCo., Ltd., which designs, builds, andsells two-by-four houses, uses externalthermal insulation, which enhances theheating and cooling effect, in all itsproducts. This construction methodhelps lower the environmental impact atthe use stage; Sumitomo Forestry Two-by-Four Homes use less energy and emitless CO2.

NPIL

New Zealand’s Nelson Pine IndustriesLtd. (NPIL), which produces and sellsMDF and other products, gained ISO14001 certification in July 2003. Thiswas our second overseas subsidiary to beISO 14001 certified after P.T. KutaiTimber Indonesia (KTI).

NPIL has used only plantation tim-ber in the manufacture of its productsfor a long time. Its ISO 14001 certifica-tion will spur an even stronger commit-ment to green activities.

14

We have succeeded in constructing an environmental management system (EMS), designed to ISO 14001 standards, to cover the entire Sumitomo Forestry Group, including our landscaping, housing, and housing materials production businesses.

Environmental management system Some examples of Group environmentalmanagement

Environmental management integrated with day-to-day business management

In accordance with our Environmental Policy, which seeks the formation of a sustainable society, we promote environmentally friendly business based on the activities of each division.

In accordance with our Environmental Policy, which seeks the formation of a sustainable society, we establish a strategy for each division and promote environmentally friendly business.

Board of Directors

President

Management MeetingBoard of Executives

General Administrative Division

Personnel Division

Finance and Accounting Division

Credit Administration Division

Information Systems Division

Affiliates Division Environmental Management Division

Customer Service Division Audit Division

Intellectual Property Division

Forestry Headquarters

Tsukuba Research Institute

Business Headquarters

International Business Headquarters

Housing Headquarters

Collective Housing Headquarters

Corporate Planning Division

Indirect business divisions

Direct business divisions

Products undergo inspection at a SumitomoForestry Crest plant.

Audit by external certification body

New recruits at a training session.

The Earthquake Manual

Environmental management system (implemented from FY2004)

Environmental costs were first publishedin our Environmental Report 2001. Werecognized that to further promote envi-ronmental protection activities withinour management framework, it was nec-essary to quantitatively assess the costsincurred and benefits derived from envi-ronmental protection, and to disclosethis information to the numerous organ-izations and individuals involved withour company.

Assessment of environmental costs

Environmental costs are assessed accord-ing to the following conceptual frame-work:

■ Business area costs (cost of environmental protection)

Expenditure on environmental manage-ment of company-owned forests for sus-tainable forestry development, expendi-ture in Japan and overseas relating to theIndonesian reforestation project. ■ Business area costs (cost of resource

recycling)Expenditure on the operation of ourwaste wood recycling distribution busi-ness, and sorting, recycling, appropriatetreatment, transportation, and manage-ment of construction wastes. ■ Management activity costsOffice expenses and auditing costs relat-ing to ISO 14001 certification andongoing compliance; expenditure onpublishing environmental information,including advertising and reporting.

■ Research and development costsExpenditure on environmental-relatedresearch conducted at Tsukuba ResearchInstitute. ■ Social contribution costsOur social contribution expenditure wasspread over the following four areas:• Expenditure on running the Mt. Fuji

Manabi no Mori natural forest regen-eration project

• Expenditure on maintaining and man-aging Forester House

• Expenditure in Japan and overseasrelating to the Sebulu ExperimentalForest project in Indonesia

• Grant to Keidanren NatureConservation Fund and other contri-butions

Environmental AccountingEnvironmental and Social Report

In the interests of promoting environmentally sound management, we monitor and publish our environmental conservation costs.

17

Sumitomo Forestry’s environmentalaccounting

Green ProcurementEnvironmental and Social Report

At Sumitomo Forestry, we recognize theimpact of housing construction on theenvironment. To fulfill our socialresponsibility in trying to reduce thatimpact, we have prepared original GreenProcurement Guidelines and fromFY2003 began applying them to materi-als sourcing.

Selection of suppliers

When selecting suppliers, we aim toassess them on the following criteria:• Preventing environmental pollution• Reducing environmental impacts• Building a recycling-oriented economy

and societyEssentially, our Green Procurement

Guidelines assess potential suppliersfrom two angles: their activities and theirproducts.• Assessing corporate activities: The

company’s stance toward the environ-ment

• Assessing products: The product’simpact on the environment through-out its life-cycle. In assessing a company’s activities, we

look at its stance on protecting the envi-ronment, regardless of whether it hasISO 14001 or other environmental man-agement certification.

Certifying green products

In product assessment, we classify prod-ucts into 11 groups and evaluate them inregard to the following seven points.Products meeting our standards in thisseven-point assessment are certified asgreen products, and we actively sourcethese items. The seven points are:

Results and issues in FY2003

Since April 2003, we have been basingprocurement on the Green ProcurementGuidelines, and with the support of sup-pliers, we achieved the following resultsas of March 2004.• 82% of our suppliers meet corporate

activity assessment standards.• 93% of our products meet product

assessment standards.Because JIS standards and green pur-

chasing procurement standards havebeen revised, we will review our ownGreen Procurement Guidelines during2004.

Creating safe housing environments

We are promoting the purchase of rawmaterials and components with lowerenvironmental impacts in an effort topreserve the safety of the customers whobuy our houses and the tradespeoplewho construct them.

Measures to prevent “sick house” syndrome

“Sick house” syndrome, caused byformaldehyde emitted from construction

materials and wallpaper glue, hasbecome a social problem. As a way oftackling “sick house” syndrome, whenpurchasing such items as constructionmaterials and wallpaper glues, we alwaysuse materials rated F✩✩✩✩ and F✩✩✩ ,ensuring low emissions of formaldehyde.

Other preventive measures

■ Vinyl chlorideWe no longer use vinyl chloride in inte-rior decoration materials such as wallpa-per and panels used to dress fittingsbecause it can release harmful dioxinswhen incinerated and is suspected ofcontaining endocrine disruptors. ■ AsbestosWe have also replaced all light-weight(slate) roofing materials with asbestos-free products. Roofing materials thatcontain asbestos are carcinogenic if theasbestos particulates are inhaled duringconstruction. We have therefore stoppedusing asbestos to improve safety duringconstruction.

Educating suppliers

We actively educate our suppliers onenvironmental issues, and hold seminarsand training sessions for them.

16

We have developed our own green procurement standards, which we follow in an effort to reduce environmental impacts in our housing construction activities.

Our approach to green procurement

* Compared to the previous fiscal year, costs relating to the treatment of industrial wastes increased by approximately ¥390,000,000. Costs in other areas decreased.Costs relating to our waste wood recycling distribution operations reflected an increase in staff dealing with wood chips and the inclusion of some costs not included last year. All chip-related Group costs will be monitored from the current period.

Category Main activities Costs

(1) Business area costs Costs of environmental protection Sustainable forestry 525

ODA afforestation 45

Costs of resource recycling Construction waste reduction and recycling 3,768

Waste wood recycling distribution operations 95

(2) Management activity costs ISO 14001 compliance and operation 44

Disclosure and administration of environmental information 58

(3) Research and development costs R&D related to environmental protection 305

(4) Social contribution costs Mt. Fuji Manabi no Mori administration 27

Forester House administration 25

Sebulu Experimental Forest regeneration project administration 41

Grants to the Keidanren Nature Conservation Fund, etc. 2

Total 4,935

Environmental costs (Unit: Yen millions)

Environmental benefits

Category Description Benefit

(1) Business area benefits CO2 sequestered by company-owned forests 248,639 (t-CO2/yr.)

Seedlings planted in Way Kambas (Indonesia) 130,000

Waste wood recycled (volume of chips) 644,487 (t)

(2) Management activity benefits Reduced copy paper usage (Tokyo Head Office only) Reduced 5.1 % from FY2002 (annual reduction of 900 sheets/person)

(3) Social contribution benefits Mt. Fuji (Manabi no Mori) tree-pruning volunteers Held 4 times

Number of visitors to Forester House 6,131

FY2003 environmental accounting

(1) Reduction of the use of substances oremissions that affect the environment orhuman health

(2) Reduced consumption of energy resources

(3) Sustainable use of recyclable naturalresources

(4) Usability over the long term

(5) Suitability for recycling

(6) Use of recyclable materials and reusablecomponents

(7) Ease of proper treatment or disposal at endof life cycle

Conformance to corporate activity assessment standards 82%

Conformance to product assessment standards 93%

A “Healthy house,” down to the last detail

● Bathroom cabinet/basin: F✩✩✩✩

● Fittings: F✩✩✩✩

● Box storage:F✩✩✩✩

● System kitchen: F✩✩✩✩

● Walls of Japanese-style room:Formaldehyde-free new Juraku coating

● Wall cloth: Vinylchloride-free Glue: F✩✩✩✩

● Closet shelves: F✩✩✩✩

Inside walls: Dressed gypsumboard or F✩✩✩✩ plywood

● Tatami mats: Tatami flooring with no polystyrenefoam

● Vestibule cabinet: F✩✩✩✩

● Storage unit: F✩✩✩✩

● Soil treatment: Non-organophosphorous insecticide● Wood treatment: Non-organophosphorus anti-rot and insecticide

● Flooring materials: F✩✩✩✩

Flooring glue: F✩✩✩✩

Subflooring: F✩✩✩✩

To streamline the management of ourforests in different parts of the country,we have established an IT-based manage-ment system using a GeographicInformation System (GIS) and a GlobalPositioning System (GPS).

GIS supports sophisticated analysisand speedy decision-making by compre-hensively managing and processing datareflecting information related to positionand space (spatial data), and visually dis-playing the result. Using spatial analysisbased on topographic maps and forestrysurvey records, GIS can be a useful toolfor preparing forestry managementplans.

By building a database using GPSdata added to the GIS data, we can nowmanage such information as location,area, tree species, and density of standingtrees, and control our huge area of com-pany-owned woodlands in units of“stands.”

We have constructed an ISO 14001-based EMS for the environmental man-agement of our forests and were the firstin the forestry industry in Japan to obtainISO 14001 environmental certification.Every year, we evaluate the impact of ourforests on the environment, producegoals for the reduction of environmentalimpacts, and implement these as we con-tinuously manage our forests in an envi-ronmentally sensitive way.

For example, when building forestryroads, which have a significant impacton surrounding ecosystems, we evaluatethe potential environment impacts fromthe planning stage and carry out regularsite checks during construction to mini-mize the effect of each road on the watersystem and environment.

When harvesting timber, we checkfor legal restrictions concerning, forexample, conservation forests, and makeany necessary submissions.

Timber is one of the few renewableresources. Based on the ideal of sustain-able forestry, we ensure that felling andplanting remain in balance. We also usethe thinnings that are an unavoidablepart of forestry management as construc-tion materials, such as lattice wall panelsand Super Cypress engineered wood. Wemake every effort to use valuable timberresources carefully and practice environ-mentally friendly forest management.

Thinnings used for environmental report paper

As part of our policy of promoting theuse of thinnings, we have developedprinting paper based on a mixture of10% thinnings pulp and 90% pulpmade from recycled paper. This “thin-nings paper” has received both Eco-

mark certification and theThinnings mark. We beganusing this thinnings paper forour environmental reportsfrom 2004 (this report).

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Computerized forestry management Forestry management based on ISO standards

Using thinnings effectively

Domestic ForestryEnvironmental and Social Report

Sumitomo Forestry began cultivatingcedar and cypress seedlings and plantingforests in Shikoku in the mid 19th centu-ry, and in 1894 devised and implementeda large-scale afforestation plan. In1904 wedrew up the first private-sector forestationmanagement plan in Japan. This planestablished our sustainable forestry philos-ophy: successive planting and wood pro-duction, repeated in perpetuity. Today, weensure the amounts of timber we harveststay within the annual incremental vol-ume of timber our forests produce. Ourforestry management activities reflect theneeds of the environment and aredesigned to prevent flooding and erosion.

Sumitomo Forestry-owned forests arelocated in Hokkaido, Shikoku, Kyushu,and Wakayama. They cover 40,497hectares in total, representing about onethousandth of Japan’s land area. Ourtimberlands comprise 49% plantationsand 42% natural forest.

Out of consideration for regionalecosystems, we allow no clear felling inany company-owned forests. Instead, wepractice block-based selective logging,taking only the volume needed withinreplacement growth capability. Weremain thoroughly committed to pre-serving the entire forest ecosystem.

Forests are not just sources of timber, butprovide vital functions that benefit us all.These include:• Sequestering of CO2

• Prevention of soil erosion• Conditioning of water resources (miti-

gating floods, purifying water)• Provision of recreational spaces

If our forests were assigned a mone-tary value for these public functions, thatfigure would be around ¥110 billion*.Of this, the total amount of CO2, acause of global warming, absorbed byour forests was estimated at around250,000 tons. Our forests make a signifi-cant contribution to protecting the envi-ronment. *From the Forestry Agency’s FY2001White Paper on Forests and Forestry

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Based on an ideal of sustainable forestry developed over the years, we work to maintain and develop sound forests, and practice sustainable forestry management.

Environmental strategies for forestry management

How do you calculate the amount of CO2 absorbed by forests?

In block-based selective logging, the forest is divided into small areas (blocks) of 0.05 to 0.1 hectareseach, and planting, tending, and felling operations are based on these discrete areas. This allows timberproduction to be staggered in successive generations while maintaining the public benefits of a healthyforest. This also increases the amounts of CO2 absorbed and helps prevent global warming.

PlantationNatural forestOther

Total area: 40,497 ha

Plantation 49%

Natural forest 42%

Other 9%

22%

71%

7%

61%

35%

4%

62%23%

15%

Hokkaido 15,314 ha

Wakayama 2,260 ha

Shikoku 14,710 ha

70%

21%

9%

Kyushu 8,214 ha

Logging road

Block25 years

50 years

75 years

100 years

Planting

Tending

Harvest-ing

Mature trees

When we surveyed readers of last year’s environmental report, this was one of the things they most wanted to know. Well, here is the answer.

The CO2 absorbed by forests is calculated from the volume of trunk, branches, roots, and leavesproduced by forests (trees) from sunlight, CO2, and water.

After a specified number of years (set by us) have elapsed from planting, we calculate the vol-ume of the trunks of the planted trees. Specifically, we measure the diameter at breast height(dbh) and height of the trunks and the number of trees, then apply a specified formula to calculate the total trunk volume (= volume of standing trees).

First we carry out a survey, then we apply a growth algorithm to the volume of standing treescalculated from the results of the survey to work out the volume of growth in a year. Thegrowth algorithm varies according to such factors as the tree species, the number of years of growth, the region, and whether the forest is natural or a plantation.

The published volume of CO2 absorbed in a year is derived by multiplying a coefficient by thevolume of trunk growth in a year to seek the amount of growth of the forest (trees), includingtrunks, branches, roots, and leaves. The amount of CO2 absorbed is calculated from this volume of growth.

Distribution of Sumitomo Forestry timberlands

Conceptual diagram of eco-friendly forestry (block-based selective logging)

Percentages of plantations and natural forests How we calculate the amount of CO2 forests absorb.

Company-owned forest in Kyushu

Identifying location using GPS

Tree species distribution map based on GIS

Q:

A:

Sumitomo Forestry-owned forests

The public benefits of our forests

In May 2003, our Sapporo office beganprocessing larch from our Hokkaidoforests into laminated wood and sellinghomes using larch poles, beams, andinterior fittings. Larch, which makes uproughly 30% of Hokkaido’s plantationforest area, is a strong and durable wood.However, its modulus of elasticity, whichindicates the difficulty of flexing in rela-tion to the load, is higher than for cedarand cypress.

Larch was once widely used for theprops needed in coal mines, but with thedecline of the coal mining industry,demand rapidly fell away. The develop-ment of uses for the younger plantationtrees, which were prone to twisting, wasparticularly slow, but government subsi-dies raised hopes that new uses would bediscovered.

Sumitomo Forestry focused on thefact that the properties of this strong butdifficult-to-process wood stabilize as thetree matures. From among our forests,we chose trees that had been plantedafter World War II and were approach-ing maturity. Taking advantage ofimprovements in drying technology tocontrol twisting, we succeeded in mak-ing larch a viable housing material.

Among the houses using this larch,the use rate of Hokkaido-grown trees inthe main framing is now 78%. Theproactive use of Hokkaido timber hasraised the hopes of the local people ofHokkaido for its timber industry.

MIZDAS drying system for structural timbers

Japanese cedar and cypress heartwoodfrequently cracks during the dryingprocess, resulting in around 20% of

framing timbers failing to meet qualitystandards. Cedar, in particular, takesconsiderable energy to dry because it iswetter than other tree species, and itsmoisture content varies greatly by pro-duction area and cultivar.

To address these problems, SumitomoForestry’s Tsukuba Research Institute hasdeveloped a proprietary drying techniquewith sensors attached to the wood, reduc-ing the incidence of surface cracking evenwith shorter drying times. This efficientnew system has achieved excellent pro-ductivity and energy-saving characteris-tics: approximately 1/4 the drying timeand 1/2 the energy requirements of con-ventional kilns, no discoloration or inter-nal cracking, and lower moisture content(15% or less) after drying. Tests indicatethat the rate of non-standard square tim-ber can be cut from 20% to 5%. Underthe Housing Quality Assurance Law,strict control of wood quality is a keyissue. With our state-of-the-art dryingsystem, we are able to supply dried woodwith excellent dimensional stability.Calculated in terms of 3-meter, 105-mmsquare posts, in FY2003 we shipped10,995 cubic meters of MIZDAS-driedwood, equivalent to 332,000 posts.

Next-generation eco-material Woody Fit®

Seeking to contribute to the emergence

of a sustainable recycling society, wedeveloped a molded composite woodmaterial known as “Woody Fit.” Thisnew environmentally friendly material isbased on wood scraps from constructionsites and timber processing plants towhich resin is added. In February 2004,Woody Fit qualified in Ehime Prefectureas an “Excellent Resource RecyclingModel,” an accolade awarded to superiorrecycling-based products. With a woodcontent of 80%, Woody Fit feels just likereal wood, is highly durable, and hasconsistent quality. Because of theseattributes, Woody Fit is being developedfor use in garden decks, balconies, andother exterior products.

“Twinned post” wins Forestry Agency Director-General’s award

The “twinned post” jointly developed bySumitomo Forestry, Sumitomo ForestService Co., Ltd., and Sankei Co., Ltd.of Hyuga City, Miyazaki Prefecturerecently won the Forestry AgencyDirector-General’s award. Our twinned post, whose commercial-ization began two years ago, is a two-piece laminated cedar post created bylongitudinally slicing the square coresproduced from Japanese cedar logs, dry-ing the two resulting halves, then gluingthem together by machine. This newprocess will enable bent logs, whichcould not previously be used as posts, tobe used effectively.

Using Timber Resources EffectivelyEnvironmental and Social Report

We have been involved in scrap wood chip distribution since the second half of the 1950’s. We have also pioneered and developed methods of effectively utilizing thinnings, small logs, and unused materials.

21

Promoting use of domestic timber

Overseas Afforestation ProjectsEnvironmental and Social Report

P.T. Kutai Timber Indonesia (KTI) rec-ognizes the benefits of forests and takesthe following steps to utilize afforesta-tion and plantation timber effectively: • Develop housing materials based on

species considered to have little valuein the past.

• Expand the scale of joint afforestationprojects with local people, corpora-tions, universities, and administrativebodies.

• Consider types of timber that will beneeded in the future and conductafforestation experiments into newfast-growing species.By FY2003, KTI has planted around

2,550,000 trees. KTI has also conductedconservation planting experiments withlong-lived species in an effort to protectthe environment by planting in suchplaces as the banks of rivers, mountainridges, and steep slopes, which were pre-viously rejected as unsuitable for treeplanting.

RPI afforestation project

P.T. Rimba Partikel Indonesia (RPI), aproducer of particleboard, began a jointafforestation project with local farmersin 2002 in an effort to further the eco-nomic development of the region and tosecure a stable supply of materials. RPIsupplies free seedlings of fast-growingspecies and guarantees to buy back the

grown trees when they are ready to har-vest. The aggregate number of treesplanted up to FY2003 was around430,000; RPI plans to eventually expandthe planted area to 1,000 hectares.

Because particleboard is made byreducing materials to small particles andsolidifying them with adhesive, branchespruned on city streets and scrap timberfrom other mills can be used. Trees canbe harvested for particleboard at any ageand as the bark and branches can beused as well, there is no waste.

NPIL sustainable forestry

Nelson Pine Industries Ltd. (NPIL) ofNew Zealand carries out sustainableforestry aimed at protecting the environ-ment and securing stable supplies of tim-ber. NPIL maintains around 3,500hectares of forest (around 0.2% of NewZealand’s planted forest area) within aradius of 60km from the mill. By system-atically planting the same area of forest asit fells, NPIL achieves sustainable forestry.

Around 130 hectares are harvestedand planted every year, and NPIL plants800 to 1,000 radiata pine seedlings per

hectare. NPIL’s forests currently supplyjust over 10% of its raw timber and thecompany plans to increase this ratio inthe future.

Completion of ODA afforestation support project

An Overseas Development Aid (ODA)grant aid project, started in November2000 to rehabilitate land devastated byforest fires in Indonesia’s Way KambasNational Park in Lampung Province,Sumatra, has been completed. An area of360 hectares were planted with 613,000native trees, and in March 2003, the for-est was handed back to Indonesia’sMinistry of Forestry.

This national park is well known forits elephants, rhinoceros, Sumatrantigers, and other wild animals. Duringthe period of the project, tiger trackswere spotted and wild elephants werefrequently seen. We therefore carried outthe afforestation in a way that would notdisturb this valuable wildlife.

Our know-how in such areas asseedling cultivation technology,afforestation methods, and post-plantingmaintenance was passed onto the morethan 150 park employees and other localpeople who worked on the project, andis being used in major greening projectsstarting from this year. This ODA proj-ect also included forest fire preventionfacilities, fire-fighting equipment andmaterials, and fire-fighting drills for parkemployees and local people.

20

We carry out afforestation activities in Indonesia and New Zealand. The Overseas Development Aid (ODA) afforestation program, which started in November 2000 in Indonesia, was completed successfully in March 2004.

KTI afforestation project

Kalimantan Island

SumatraWay Kambas National Park

Sebulu

Indonesia

RPI KTI

Australia

New Zealand

NPIL

Year Number of trees

To 2000 253,000

FY2001 833,000

FY2002 535,000

FY2003 931,000

Total 2,552,000

Year Number of trees

FY2002 188,300

FY2003 241,100

Total 429,400

KTI’s planting activities

RPI’s planting activities

Afforestation bases in Indonesia and New Zealand

Shipments of MIZDAS-dried timber

m3

0

5,000

10,000 9,80910,995

2002Fiscal year

2003Fiscal year

Larch forests of Monbetsu, Hokkaido

Japanese cedar dried to 15% or less moisturecontent in the timber drying system

Woody Fit

Twinned Post

Radiata pine seedlings

Total area planted by NPIL: 3,500 hectares

ODA area planted 360 hectares

ODA trees planted 613,000 trees

Rate of use of Hokkaido timber 78%Total number of trees planted by KTI: 2,552,000

Total number of trees planted by RPI: 429,000

Energy required for drying Reduced by 50%

Drying time Reduced by 75%

Virtually 100% of raw lumber utilized

Nelson Pine Industries Limited (NPIL)of New Zealand produces medium-densi-ty fiberboard (MDF), an industrial woodmaterial that utilizes the characteristics oftimber but offers greatly improvedprocessability, strength, and stability.

Normally when timber is producedfrom raw lumber, only 65 to 70% of theraw lumber is suitable for making intotimber product. But with MDF, slendertrees and crooked segments not fit fortimber can also be used so that virtually100% of the raw material can be madeinto product. In FY2003, NPIL pro-duced 306,086 cubic meters of MDF.■ NPIL’s eco-friendly approachNPIL makes effective use of timber andconserves resources. It uses radiata pinefrom planned plantation forests as itsraw material and does not throw awaybark and defective wood arising from theproduction process but uses them as fuel.And, through its active commitment to

producing MDF with low formaldehydeand other volatile organic compounds(VOCs) that can cause hypersensitivityto chemical substances, NPIL con-tributes to post-construction indoorenvironmental safety.

Because of this approach, NPIL’smedium-density fiberboard was awardedJapan’s Eco-mark certification and quali-fies as a green purchasing special pro-curement item.

LVL: All the advantages of natural timber plus ease of use

In addition to medium-density fiber-board, NPIL produces laminated veneerlumber (LVL) , also from radiata pine.The comparatively thick and straightparts of plantation radiata pine logs areselected as the raw material for LVL,while crooked, slender, and shorter partsare used for MDF. This means that themost effective use of timber resources ismade. To produce LVL, the log is firstsliced into sheets, 2 - 4mm thick. Theseare then dried, any flawed parts areremoved, and the slices are glued togeth-er in boards that maintain the samegrain direction. These boards are used intrims, posts, and beams.

While providing all the advantages ofa natural timber material, LVL providesstable strength and is not susceptible tosplitting or warping. We also beganusing LVL in the rafters of our mainstay“GODAI One’s Story II” house serieslaunched in February 2004. We plan torationalize the supply system for LVL inthe future and expand its use to otherproducts.

We have been involved in the wastewood chip distribution business since thelate 1950’s. In producing timber, themilling process results in offcuts that rep-resent 20 to 25% of the raw timber,while very bent logs cannot be used at all.The demolition of houses also produceslarge volumes of waste timber. In thisform, the waste can only be incinerated,but converting it into chips allows it tobe efficiently used in paper-making, tim-ber fiberboard production, or as a fuel.

Scrap wood recycling

Sumitomo Forestry uses the network ithas created in its timber distributionbusiness to promote a scrap wood recy-cling circle that links the timber industrywith other industries.

With the enactment of the Construc-tion Materials Recycling Law, in recentyears the volume of waste wood chipscreated from construction-related indus-try waste timber has been increasing, andthe importance of the waste wood chipdistribution business is growing.

We contribute to the efficient use oftimber resources through our chip distri-bution business. In FY2003, we handled545, 219 tons of chips for use as rawmaterials, and 99,268 tons for fuel. Ifthe heat produced by this volume of fuelchips was to be generated by gasoline,around 53,000 kiloliters would berequired.

23

Promoting use of plantation timber

Wood chip distribution

Using Timber Resources EffectivelyEnvironmental and Social Report

Lattice panels as wall linings

Sumitomo Forestry has developed latticepanels, made primarily from domesticcedar, for use as wall linings. Offeringexceptional strength and ventilation, thepanels are made from 55-mm wide stripsof wood glued diagonally at a 45° anglein a latticework pattern. These airy, load-bearing panels offer some outstandingfeatures compared with plywood:• Exceptional strength (1.3 times more

rigid than 7.5 mm plywood in load-bearing wall tests)

• Moisture resistance• Good airflow and less condensation

within the wall• Very manageable - lightweight, easy

to work with, and easy to run pipesthrough.Derived from milling offcuts, thinned

lumber, and other small wood not previ-

ously utilized to any significant extent,these lattice panels are helping to boostrates of domestic timber usage.

In FY2003, we used 643,572 latticepanels. Calculating the total areathinned, based on the amount of cedarused in the lattice panels and past resultsfrom company-owned forests, yields anarea of approximately 920 hectares,roughly equivalent to 196 Tokyo Domes.

Super Cypress Laminate

In FY2002 we led the industry in pro-duction of Super Cypress, an engineeredwood (glued laminated timber) madefrom Japanese cypress (hinoki), the stan-dard material used nationwide in theposts and ground sills of our mainstay“GODAI One’s Story” house series. InFY2003, we retained Super Cypress as astandard material in our “GODAI One’sStory II” series.

The 1,300-year-old Horyuji templewas built from hinoki, traditionally con-sidered a top-quality structural materialwith superior durability, strength, andresistance to decay and termites. In solidform, however, hinoki has a number ofdrawbacks: it varies in strength and quali-ty, tends to bend and warp, and is diffi-cult to dry uniformly. Super Cypress capi-talizes on hinoki’s excellent qualities byusing it as the base laminate material,while using lamination technology toachieve greater strength and dimensionalaccuracy than solid hinoki. To produceSuper Cypress, we have developed a high-ly innovative manufacturing process that

draws on the technical strengths of theSumitomo Forestry Group and enables usto utilize even relatively narrow or shortlogs effectively. Thinned logs and otherpreviously unusable lumber can nowbecome useful raw materials.

In FY2003, we used 28,457 cubicmeters of Super Cypress. In terms of105-mm, 3-meter square posts, thiscomes to about 860,000 posts.Calculating the total area thinned, basedon the cypress used in the Super Cypressengineered wood and past results fromcompany-owned forests, yields an area ofapproximately 1,820 hectares, roughlyequivalent to 389 Tokyo Domes.

Rubber tree wood solid flooring

Solid flooring of rubber wood is now instandard use in our mainstay “GODAIOne’s Story II” house series, which wenton sale from February 2004.

This flooring timber is from the rub-ber tree, which is widely cultivated intropical Asia and other regions. Becauserubber trees are grown in plantations toyield natural rubber, the use of this tim-ber is regarded as environmentally friend-ly. The material used for the flooring isan effective use of the scrap wood thatremains after the latex has been removed.

After the rubber tree has been felled,its wood tends to discolor and lose itsshape. For this reason, it has simply beenused as fuel in the past, but technologi-cal innovations now allow it to be usedas a laminate in furniture, plywoodcores, and building.

22

Effective use of thinnings and unusedtimber materials

Thinned area corresponding to Super Cypress, volume used

2,000

3,000 30,000

20,000

10,0001,000

0

1,800 1,820

0

28,45728,131

Area (ha) panels

FY2003FY2002

Thinned areaNumber of panels used

“GODAI One's Story II”

Wood chips to be used for MDF (NPIL)

Volume of wood chips handled

Chips for fuel99,268

Chips for raw materials545,219

100

50

Tons (000)

0

610,000 634,000 644,487

FY2002FY2001 FY2003

Thinned area corresponding to lattice panels, number of panels used

1,000

1,500 650,000

500,000

350,000500

Area (ha) panels

0

700

920

FY2003FY20020

643,572

492,000

Thinned areaNumber of panels used

Lattice panels

Super Cypress

Figures based on data from the BiomassHandbook of the Japan Energy Association

Number of lattice panels fitted 643,572

Thinned area 920 ha approx.

Amount of Super Cypress used 28,457 m3

MDF production in FY2003 306,086 m3

Thinned area (estimate) 1,820 ha approx.

Chips for raw materials 545,219 tons

Chips for fuel 99,268 tons

Sumitomo Forestry is the first housingmanufacturer to install an environmen-tally friendly termite control system inits new homes. Compared to conven-tional termite control, the Sentricon sys-tem is safe for humans and pets, and hasa minimal impact on the environment.

Features of Sentricon system

Conventional termite control systemshave generally relied on treating soil,foundations, or poles with insecticide.The Sentricon system, however, protectshomes from termites by regular monitor-ing and cleverly exploiting the biology ofthe termite colony. • Bait stations (wood) are placed around

the circumference of the house toreveal any termite activity. A Sentriconspecialist regularly checks the bait sta-tions and confirms whether termitesare present.

• If present, the bait stations are removedand replaced with very small amountsof pesticide (hexaflumuron). The ter-mites that have eaten this transmit it toother members of the colony, and sev-eral months later the entire colony isextinguished.

• The active ingredient, hexaflumuron,an insect growth regulator, works onlyon insects and other creatures that shedtheir exoskeletons, disrupting the shed-

ding that is essential to their growth(via a chitinous substance inhibitingeffect) and eventually wiping out theentire termite colony.

• Even if no termites are found, or afterthe colony has been extinguished, regu-lar checks are maintained to guardagainst re-infestation.

For safe and healthy living

Sumitomo Forestry and the TsukubaResearch Institute carried out perform-ance verification experiments in ninecompleted Sumitomo Forestry homes inKyushu and at the Institute to confirmthe efficacy of the Sentricon termite con-trol system. These experiments confirmedthat the Sentricon system is effective foreliminating and preventing the commonYamato and Formosan termite species.

Because the Sentricon system usesonly trace amounts of the active ingredi-ent hexaflumuron, it is guaranteed highlysafe for humans, pets, and the surround-ing environment. And because there is nolonger any need to get under the houseand spray pesticide, there is very littledanger to the pest control operator.

We hope to spread the use of theeffective Sentricon system nationwide.We will continue to develop a range ofenvironmental technologies that arebenign to humans and compatible withthe environment so that our customerscan enjoy peace of mind and a saferlifestyle.

The Sumitomo Forestry Group developsvarious environmentally friendly prod-ucts and contributes to the environmen-tal activities of its customers. ■ Weedy MatsDesigned to preserve Japan’s disappear-ing countryside, this is a wild grass matwith mainly native field grasses alreadygrowing on it.

■ Rooftop greening system We have developed and market a rooftopgreening system to effectively growrooftop lawns (Zoysia japonica grass) onthe tops of city buildings.

■ Flameproof board based on recycled materials

As part of our recycling business, we pro-duce a flameproof board using wastesfrom other industries and use it in suchapplications as home exteriors.■ Tsuchi Taro potting mixSumirin Agro-Products Co., Ltd. pro-duces Tsuchi Taro potting mix fromsawmilling bark and sediment fromwater purification plants. Developedjointly with Chiba, Aichi, and otherlocal authorities, this venture plays a sig-nificant role in recycling sediment gener-ated at water purifying plants.

25

Environmentally friendly termite control system

Environmentally friendly Group products

Developing Environmental TechnologiesEnvironmental and Social Report

The “Togyu cherry” of Daigoji Templein Kyoto was favored by feudal warlordHideyoshi Toyotomi for cherry blossomviewing. Sumitomo Forestry has nowsucceeded in the large-scale propagationof these venerable trees by tissue culture.

The weeping cherry of DaigojiTemple (Prunus pendula Maxim f.ascen-dens (Makino) Ohw) is a particularlylong-lived type, with many examplesmore than one hundred years old. Thesegrand old trees have the same culturalsignificance as historic buildings, andtheir preservation is highly desirable.However, the older a tree becomes, theharder it is to propagate by conventionaltechniques such as taking cuttings orgrafting, and the development of a prop-agation method using biotechnology wassorely needed.

Seedling clones

Sumitomo Forestry Tsukuba ResearchInstitute, and Sumitomo ForestryLandscaping applied seedling nurserytechnology developed throughSumitomo Forestry’s tropical rain forestregeneration project in Indonesia todirectly propagate shoots and producecloned seedlings.

In cloned seedlings, because the par-ent genes are passed on directly, thecharacteristics of the more than 150-year-old Togyu parent are preservedintact, and its cloned tissues are rejuve-nated. The development of this efficientweeping cherry propagation technologywas a world first.

First blossoms appear spring 2004

Today, four years after the first clonedseedling was planted in the ground,more than 1,000 clones of the Togyucherry are developing healthily, with thelargest now around 5 meters high. Andthis spring, the young trees flowered forthe first time. All the blossoms of theclones matched the original Togyu cher-ry in color and shape.

In the future, this technology will beapplied to help preserve valuable weep-ing cherry trees and other tree speciesthat are in danger of extinction every-where. We are also analyzing the genes ofthe weeping cherries in the grounds ofDaigoji Temple in the hope of discover-ing more about its lineage and origins.

In the past, there was no effectivemethod for treating water used for wash-ing up after concrete and mortar hadbeen poured on construction sites and incivil engineering projects, and disposingof this waste water caused considerableproblems.

Sumitomo Forestry Landscaping Co.,Ltd. developed Morblock, a simple washwater treatment system suitable forsmall-scale sites where mortar or con-crete is used, and began selling it fromDecember 2002. Morblock consists of aflocculent, a neutralizer, treatment con-tainer, and analysis kit. The mortar inthe waste water is coagulated by the floc-culent, precipitated out, separated fromthe water, and properly treated as anindustrial waste. A neutralizer is addedto the strongly alkaline waste water thatremains, neutralizing it to a safe level.When the analysis kit indicates that asafe level is reached, the water can beflushed into a sewer or drain.

24

Seedlings raised by culturing tissue from the famous weeping cherry tree of Kyoto’s Daigoji Temple began to flower in spring 2004. Among the many other environmental technologies we have developed is a mortar wash water treatment system.

Regenerating the famous weeping cherry trees of Kyoto

Morblock mortar wash water treatment system

A bait station (wood) is set to identify any termite activity.A special receptacle containing the bait station is buried in the ground.

The pesticide exterminates the termites by using their behavior against them. Part of the bait station is replaced by the bait containing the pesticide, which is consumed by the termites.

The site is regularly checked even after eradication to guard against new termite damage. The bait station is set in a special receptacle and rechecked regularly.

1

2

3

Monitoring

Baiting

Re-monitoring

Special receptacle

Bait containing the pesticide

Bait station

In soil

Formosan termite

Mortar component Treated as industrial waste

Flushed down drainsAlkaline waste water

Neutralizer

Flocculent

Neutralized to safe levelMortar wash water

Mortar wash water treatment system

Sentricon system

The “Togyu cherry” of Daigoji Temple in Kyoto

Weeping cherry tree seedlings

Example of Weedy Mats along a waterway inTsurumi, Osaka

Weeping cherry trees, cloned with biotechnology, flowered for the first time in spring 2004.

Ceramic glass oasis

Waterproof sheet

Water-holding mat

Zoysia japonica

Water storage/drainage layer

Permeable root barrier

Recycled soil

heavy machinery. Our assessmentrevealed that the amount of CO2

expended in actual production andbuilding was relatively small.

Based on this result, we are working toreduce the CO2 emitted at the construc-tion stage, as well as the amount expend-ed in the process of living in the house. *3: Estimation method was based on the

Construction Life-Cycle Energy CalculationProgram (Building Research Institute, Ministryof Construction, 1997)

Reducing CO2 emissions

Reducing CO2 emissions in house use

■ Next-generation energy-saving specificationsWe are vigorously promoting theimprovement of thermal insulation per-formance, not only to reduce CO2 emis-sions but because it also leads to lowerenergy consumption and a more com-fortable living environment.

■ Promoting sales of solar power systemsThe sun is capable of providing unlimit-ed energy to support our daily lives. Weare working to promote the use of solarpower generating systems so that thisenergy can be utilized as electricity. ■ Improving the thermal insulation performanceof windows and doorsApproximately 65% of the heat lost froma room escapes through the walls, and of

that, more than 50% disappears throughwindows and doors. Thus, the most effec-tive way of improving energy efficiency isto upgrade the insulation performance ofthe windows and doors. Accordingly, weare working to expand use of high-insula-tion-type Low-E double-paned glass*4

and sashes that provide excellent heatinsulation and prevent condensation, andhave begun making these a standard partof our mainstay housing product, the“GODAI One’s Story II” series launchedin FY2003. In the future, we will gradual-ly make Low-E double-paned glass a stan-dard feature of all our housing products. *4: Double-paned glass which uses a special metal

coating to achieve heat-blocking and thermalinsulation. During the day, this glass lets theheat and light of the direct sunlight through,but at night reflects the infrared that tries toescape from the warm room, preventing thehouse from cooling. In summer, this glassreflects back the sunlight so that the infraredrays cannot enter the room.

Reducing CO2 emissions in housing construction

While amounts of CO2 emitted at theconstruction stage are relatively minorcompared to the emissions over theentire life cycle of the house, this is theonly part of the life cycle where housingmanufacturers like us can be directlyinvolved. Working with our suppliers,we are trying to reform systems anddevelop construction methods designedto reduce the volume of CO2 emissions. ■ Promoting use of precut structural membersand unit technologyAs a way of reducing CO2 emissions onconstruction sites, we precut all structuralmembers. Precutting the members inbatches at highly mechanized factorieshelps cut down work on the constructionsite and reduces onsite CO2 emissions.

We have already successfully imple-mented precutting of main structuralmembers and are currently working toextend this approach to materials such aseaves, external wall sheathing and othermembers. ■ Streamlining distribution In many cases, the various kinds of build-ing materials used on the constructionsite arrive by truck in separate deliveries.To reduce the CO2 emissions that accom-pany these deliveries, we are working withsuppliers to streamline distribution.

On behalf of the Japanese Ministry ofthe Environment, since 1999 we havebeen carrying out a Clean DevelopmentMechanism (CDM) feasibility study intothe amount of CO2 absorbed byafforestation projects in Indonesia andthe projects’ commercial feasibility.

In FY2003, the study focused on thequantity of CO2 absorbed by theafforestation activities of P.T. KutaiTimber Indonesia (KTI) and P.T. RimbaPartikel Indonesia (RPI), and the amountof CO2 emissions prevented by the use ofbiomass energy. We also studied theregional socio-economic impact of CDMprojects and confirmed that the participa-tion of large numbers of people in jointafforestation projects is very positive.

Survey of RPI

We calculated the effects of P.T. RimbaPartikel Indonesia’s (RPI) activities in thefollowing two areas:

• The increase in the amount of scrapwood purchased for the production ofparticleboard and the saving in fuel oilused for power generation (reductionin CO2 emissions) as a result of usingbiomass energy• The CO2 absorbed by afforestation Our calculations revealed that RPI is

curbing its CO2 emissions by around21,000 tons a year; in the first ten years,the forests it planted should absorbaround 9 tons per hectare.

Survey of KTI

We calculated the effects of P.T. KutaiTimber Indonesia’s (KTI) activities inthe following two areas:• Conversion to boilers for biomass

power generation and the saving inpurchased electricity (reduction inCO2 emissions) as a result of usingscrap timber from own factory

• The CO2 absorbed by afforestationOur calculations revealed that KTI is

curbing its CO2 emissions by around43,000 tons a year; in the first ten years,the forests it planted should absorbaround 10 tons per hectare.

27

Mitigating Global WarmingEnvironmental and Social Report

The amount of carbon dioxide (CO2)absorbed by the 40,497 hectares ofSumitomo Forestry Group-owned forestsin Japan was 275,525 tons in FY2002and 248,639 tons in FY2003. This isabout 2.9 times the amount of CO2

emitted by the entire Sumitomo ForestryGroup in the course of its business activ-ities. In the future, the SumitomoForestry Group will continue sustainableforestry management activities in Japanand promote measures to prevent globalwarming.

CO2 emissions from business activities

To control emissions of CO2, whichcontribute to global warming, and lessenits impact on the environment, theSumitomo Forestry Group began moni-toring CO2 emissions from businessactivities since FY2002. While weassume the housing segment is theGroup’s biggest emitter of CO2, we havenot yet established an authorized calcula-tion method for identifying CO2 emis-sions relating to housing construction.

To calculate emissions relating to ourhousing construction activities, we there-fore referred to methods published bygovernment and industry bodies. To cal-culate emissions relating to other activi-ties, such as distribution and administra-

tion, we applied Ministry of theEnvironment guidelines. These effortsrevealed that Sumitomo Forestry itselfwas responsible for 39,929 tons of CO2

emissions in FY2003, while the activitiesof the entire Group within Japan generat-ed 84,606 tons.

CO2 emissions in the housing segment

We began monitoring CO2 emission atconstructuion sites for wooden framehouses in FY2002. Referring to methodspublished by government and industrybodies, we estimated emissions at anaverage 1.5 tons per house.

In FY2003, we carried out surveys at23 construction sites from Hokkaido toKyushu in an effort to verify the resultsof our FY2002 trial calculations. Thisrevealed an average emission for the 23sites surveyed of 1.65 tons of CO2 perhouse. The average floor area of thehouses surveyed was 155.25m2.Converting this to the floor area used forthe FY2002 calculations (147.39m2)returns a figure of 1.56 tons of CO2 perhouse, thus confirming the validity of thetentative results for the previous year.

The input data for our estimates werelimited to power used on the construc-tion site, the fuel for operating construc-tion machinery, and the transportationcosts incurred by workers in traveling tothe site*1. The CO2 expended in theproduction and transportation of thematerials used is part of the CO2 emis-sion calculations of other industries andwas not included in our estimate.

CO2 emissions in sales and administration

Referring to the FY2002 Ministry of theEnvironment Guidelines*2, these calcula-tions cover CO2 emissions relating tocity water and sewage for offices, use ofpower, and fuel expended in sales activi-ties. To increase accuracy, we repeatedthe calculations in FY2003.*1: Our own estimates based on Eco-Action 21

(Japan Prefabricated Construction Suppliersand Manufacturers Association, 2002)

*2: Our own estimates based on Guidelines forCalculating Total Emissions of GreenhouseGases Relating to the Affairs and Business ofLocal Government Bodies Based on LawsConcerning the Promotion of Measures toPrevent Global Warming (Environment Agency,1999)

Measuring total CO2 emissions in the housing life-cycle

To measure housing-related CO2 emis-sions, we have been conducting life-cycleassessments (LCA) on our houses sinceFY2002. In FY2003, we carried out a life-cycle assessment of CO2 emissions on our“GODAI One’s Story II” (standard newenergy-saving specifications) houselaunched in February 2004. Our LCArevealed that most of the volume of CO2

emitted by a standard household over aperiod of 30 years was emitted in the useof the house (70.8%), as against 0.6% inits construction*3. This confirmed theresults of the previous year’s LCA.

Most of the CO2 emitted during con-struction related to power used on theconstruction site and fuel needed totransport construction workers and run

26

The amount of carbon dioxide (CO2) absorbed by Sumitomo Forestry Group-owned forests is about 2.9 times the amount of carbon dioxide emitted by the Group’s business activities. As part of our efforts to mitigate global warming, we implementlife-cycle assessments (LCA) and work to reduce CO2 emissions.

CO2 absorption by Sumitomo ForestryGroup forests

Amount of CO2 absorbedAmount of CO2 emitted (reference values)

(39,929)Sumitomo Forestry alone

Sumitomo Forestry Group 84,606

By business segment (FY2003)

Housing production and construction

Housing use, maintenance, and improvement

Trading and services

Environmental businesses

Manufacture/processing of structural members and materials

Administration

Company-owned forests (FY2003)

42,775

1,323

3,110

5,724

30,888

786

100,000 300,000200,000100,0000 t-CO2 t-CO2

248,639

At time of construction

Structural members 19.5%

Construction 0.6%

Usage 70.8%

Repairing 8.5% Scrapping 0.6%

Power 12.9%

Fuel 87.1%

Home with improved energy performance

CO2 emissions by LCA (life of house = 30 years)CO2 uptake by company-owned forests vs. CO2 emissions by company businesses

CO2 absorbed by Sumitomo Forestry-owned forests 248,639 tons

CO2 emitted by housing construction 1.5 tons per house

CO2 emitted by our business activities 84,606 tons

Summer Winter

Sun rays(UV and

heat rays)

Cold air

Under-floor ventilation

Cooling

Cooling

Heating

Heating

Reflected from ground surfaceCool air from ground surface

CDM surveys

29

Waste ReductionEnvironmental and Social Report

As a means of preventing waste, we arecommitted to reducing, re-using, andrecycling construction wastes. • Reducing: To reduce wastes, we have

adopted the practice of factory precut-ting to avoid bringing potential wasteonto building sites.

• Re-using: We are reviewing the types ofmaterials that can be recovered and re-used.

• Recycling: We established aConstruction By-Products RecyclingProject and initiated a timber wasterecycling system.As a result of these efforts, we

achieved a wood scrap recycling rate of78% in FY2003. In the future, by estab-lishing a recycling route for our con-struction- and demolition-related wastes,we hope to achieve a recycling rate of95% by 2005, five years earlier than the2010 time frame mandated by the gov-ernment.

Building a wood-waste recycling system

Wood waste is a designated materialunder the Construction MaterialsRecycling Law, but as the law appliesonly to new construction projects with afloor area of at least 500m2, the majorityof Sumitomo Forestry building projectsare not subject to legal recycling controls.

Though there may be no legal obliga-tion to do so, we have voluntarily estab-lished recycling routes because we recog-nize the importance of wood waste recy-cling.

Recycling route for construction waste

For new construction projects, we haveestablished a highly transparent recyclingroute to ensure that offcuts are recycledappropriately. A waste removal contrac-tor collects the wood waste and trans-ports it to an intermediate treatmentplant to be chip-milled. We will alsorecycle offcuts from precut mills in thesame manner. In FY2003, we recycled91% of our construction waste througha designated recycling route.

Recycling route for demolition waste

For waste from demolition sites, thedemolition contractor transports thescrap lumber to an intermediate treat-ment plant we have nominated. Here,the waste is chipped, then delivered tothe proper recycling manufacturer. Bytaking an active part in the flow of wastematerials, we are able to control howthey are handled and maintain trans-parency. In FY2003, we recycled 78% ofour demolition waste through designatedrecycling routes.

Building sites: Promoting factory precutting and materials reuse

Sumitomo Forestry regards waste reduc-tion at building sites and appropriatetreatment of wood waste as importantconcerns. In particular, to limit theamount of waste, we have introducedfactory precutting of a variety of timbers.Framing, posts, trusses, and interior walltrims are now virtually 100% precut.

Precut timber (PC) is normally trans-ported with bolsters and packagingmaterials to raise the timber off theground, keeping it from getting soiledand the stack from collapsing. These

bolsters and packaging are now regularlyrecovered and re-used.

In FY2002, it was noticed that wastesfrom construction sites had increasedover the previous year. When we investi-gated the reason, we discovered that upuntil then, subcontractors had beenremoving a portion of the wastes gener-ated at construction sites, but fromFY2002 we began managing and dispos-ing of those wastes ourselves.

Demolition sites: Recycling roofingtiles, gypsum board, and mixed waste

Even before the enactment of theConstruction Materials Recycling Law,we have been promoting dismantlingand recycling to effectively reuseresources and reduce waste generated atdemolition sites. • We have generally finished putting in

place methods of recycling materialssuch as concrete rubble, scrap timber,and scrap metal.

• However, no effective method has yetbeen found to recycle roofing tiles(glass, ceramics, and pottery), gypsumboard, or other mixed waste. We regard the recycling of these types

of materials as an important future chal-lenge in reducing the amount of wastegoing to landfills.

28

In an attempt to reduce, re-use, and recycle construction wastes, we have built a waste timber recycling system and are promoting other waste reduction strategies such as using precut materials.

Appropriate treatment of construction wastes

5,023

4,846

3,247

10,193

9,824

10,210

2.8 32,943.8

3.75 36,815.8

3.69 37,675

36.2

33.5

41.3

Plastics Incinerated as heat source RDF*

Wood Plywood, paper; fuel

Metals Metal materials

Gypsum board Not used

Rubble Roadbed

Tiles Not used

Tatami flooring Not used

Mixed waste, etc. Not used

Plastics Incinerated as heat source RDF*

Wood Plywood, paper; fuel

Metals Metal materials

Glass & ceramics Not used

Gypsum board Recycled

Paper Recycled paper

Combustible mixed waste Incinerated as heat source

Non-combustible mixed waste Not used

■ Plastic ■ Wood ■ Metals ■ Glass/ceramic ■ Gypsum board ■ Concrete rubble■ Paper ■ Other mixed waste ■ Sludge (gypsum board)

■ Plastic ■ Wood ■ Metals ■ Glass/ceramic ■ Gypsum board ■ Concrete rubble■ Paper ■ Other mixed waste ■ Sludge (gypsum board)

● Volume generated per house ● Total

100,000 150,000 200,000 250,000 300,000 400,000350,00050,0000

5,500

6050403020

0 4,5003,5002,500

50,00040,00030,00020,00010,000 60,000050,00040,00030,00020,00010,000

108642 0 12,00010,0008,0006,0004,0002,000

2,000 5,0004,0003,000

4,564.6 9,436.9 6,344.0 7,302.5

1,118.4 507.8 1,534.2 2,135.4

5,882.7

3,477 9,783 6,590 5,420 3,880 5,425

9,679.2 6,015.3 4,476.0

559.6

5,501.6

1,513.7 3,187.7

822 2,278

35,776.7 121,497.2

5,760.5 7,294.3 10,305.31,039.5

180.0 193.2

42,057.5 91,888.6

26,029.6 75,261.3

5,789.7 6,923.2 11,456.8674.6

3,464.6

2,984.2

8,405.1

789.8

1,713.8

79.7

18,044.0

92.5 755.8

Volume of construction waste generated at new building sites

New building sites

Demolition sites

Volume of construction waste generated at demolition sites

Jan. 2001 Sumitomo Forestry survey

Japan Demolition Contractors Association survey

*RDF = Refuse Derived Fuel

*RDF = Refuse Derived Fuel

Recycling of construction waste from demolition sites

Recycling of construction waste from new building sites

Gross weight generated (t)Gross weight (t)

● # of units built

● Volume generated per house

● # of units dismantled

Gross weight (t)

# of houses built

# of houses dismantled

Volume generated per unit (t)

Volume generated per unit (t)

Sorting of construction waste

Sorting and dismantling

Gypsum board

Gypsum board waste

Empty cans of adhesive

Cladding materials

Plastics

Wood

Gross weight generated (t)

FY 2001

FY 2002

FY 2003

FY 2001

FY 2002

FY 2003

FY 200132,943.8

FY 200236,815.8

FY 200337,675

FY 2001182,046.8

FY 2002162,334.8

FY 2003134,076.1

Recycling manufacturers

Intermediate treatment plants (79)

Waste removal operators

Site

Site

Precut mill

Designated demolition firm

Reused lumber

Promoting use of recycled products: Green procurement

New construction

Demolition

Recycling flow for wood scraps

RPI Attuned to the Environment

P.T. Rimba Partikel Indonesia (RPI), a manu-facturer of particleboard, has a factory nearthe coast on the outskirts of Semarang Cityon the central Indonesian island of Java.

Waste discharged from this factory con-sists mainly of a urea-based adhesive clean-ing liquid mixed with wood powder. The fac-tory is surrounded by prawn-raising ponds,and of course none of this effluent is allowedto escape and pollute these ponds. As part ofmeasures to prevent pollution, from FY2001RPI has been working with the nationalDiponegoro University

in Semarang City to combine aerobic withanaerobic microorganisms in an effort to create a decomposition tank where microor-ganisms could efficiently break down theurea and wood powder. As a result of theseefforts, RPI has built a sedimentation tank forthe pretreatment of the effluent before itenters the decomposition tank. By keepingthe concentration of the effluent to enter thedecomposition tank constant, RPI succeededin improving the efficiency of the breakdownof the organic matter in the effluent

Waste wood recycling rate 82%

Demolition waste recycling rate 78%

Rate of factory precutting Almost 100%

Construction waste recycling rate 91%

reduced copy paper usage to 16,536sheets per person (94.8% of the figurefor the previous year).

Green purchasing

Green purchasing of stationery

In purchasing office equipment and sup-plies, Sumitomo Forestry practices “greenpurchasing,” prioritizing items that areless environmentally harmful. For copypaper, from 2002 our domestic officesthroughout Japan began purchasing onlyproducts that meet our green purchasingcriteria. For other office supplies, we givepriority to items that meet the green pur-chasing criteria; this produced a greenpurchasing rate of 84.1%. In the future,we will continue to promote green pur-chasing at all Group companies.

Reuse and recycling of personal computers

Sumitomo Forestry leases the PCs it usesfrom Sumirin Enterprises, Ltd. Everyyear, 800 to 1,000 of these are returnedto Sumirin Enterprises when their leasesexpire. Many of these machines, however,are re-usable if serviced. Instead of simplyscrapping these returned machines,Sumirin Enterprises seeks to effectivelyutilize them. In FY2003, SumirinEnterprises managed to give 30% of itsreturned computers a new lease on life assecond-hand machines (in FY2002 thefigure was 15%). Used PCs also containuseful metals, and PC’s that cannot be re-used can still be recycled for their materi-als. In FY2003 Sumirin Enterprises recy-cled 70% of returned computers (82% inFY2002).

Office work produces paper and otherwastes and uses energy, particularly forlighting and air-conditioning. We haveidentified the following priorities toencourage resource recycling and conser-vation of energy. Our goals are to:• Reduce paper usage• Promote green purchasing• Reduce electricity usage• Reduce water usage

At our Tokyo Head Office, wastepaper is sorted and the office has a cen-trally managed air-conditioning system.

Reducing paper usage

Paperless documentation

In February 2002, the Production &Building Materials ProcurementDivision of Housing Headquartersswitched to an online system for com-munications to its branches and affiliat-ed construction offices. These communi-cations are mainly essential messagesrelating to matters such as lumber to beused in Housing Headquarters products,changes in specifications, and price revi-sions. Putting these communicationsonline has sped up the transmission ofinformation, made information easier todisseminate, and considerably reducedthe amount of paper used. ■ Electronic ordering system introducedBecause numerous construction officesare involved in the construction of ourhouses, there is a huge amount of com-munications to be processed, generatinga vast amount of paper. To streamline

this, we created an electronic system fororders-related documentation, invoicing,and other information.

One important part of preserving theenvironment is educating the youngergeneration, who hold the future in theirhands. As part of this environmental edu-cation, Sumitomo Forestry’s tropical for-est regeneration project was mentionedin a high-school textbook approved byJapan’s Ministry of Education, Culture,Sports, Science and Technology.

Supporting Forest Culture Associationseminars

Every year, the Forest CultureAssociation holds outdoor seminars forthe general public. In FY2003, theAssociation held a series of five seminarsentitled “Visiting the Forest” based onthe theme of “walking in a typical beau-

tiful Japanese forest and exploring thebasic layers of culture created by the for-est.” Sumitomo Forestry assisted withthese seminars.

The last of the five seminars, entitled“Besshi: Sumitomo’s Forest,” was heldfrom November 7 through 9 in one ofour forests in the mountains of Shikoku.The seminar was attended by 13 people,mainly from the capital, Tokyo. Theinstructors were Sumitomo Forestrystaff, and the seminar covered such top-ics as the beautiful old cypress forests ofBesshi left by earlier employees ofSumitomo, the multi-level forests thatcame after those, and the natural regen-eration experimental cypress forest.

The responses to the questionnairedistributed after the seminar showed thatthe participants understood whatSumitomo Forestry and the SumitomoGroup was achieving with its forestry

efforts. Among the responses were: “Iwas very moved by the traditions ofSumitomo Forestry” and “it was great toexperience afforestation.”

Environmental advertising campaign

Based on the message: “We go for sus-tainability,” we are conducting a corpo-rate advertising campaign to inform thepublic about our efforts to protect theenvironment. This series of “green”advertisements is aimed at raising envi-ronmental consciousness and gainingwidespread public support. In FY2003,the ads ran three times in the NihonKeizai Shimbun newspaper.

Environmental CommunicationEnvironmental and Social Report

In FY2003 we focused on environmental communication aimed at sharing knowledge on how to protect forests and the environment with still larger numbers of people.

31

Mention in Ministry-approved highschool textbook

Green Office ManagementEnvironmental and Social Report

This new system was introduced inOctober 2003 and already nearly 1,000affiliated construction offices are usingit. From April 2004, around 200 interiorcontractors also switched to the newordering system.

In-house information goes online

To reduce the volume of printed materi-al, we set up an in-house intranet websitecalled Inforest. This promotes sharing ofinformation within the company, speedsup the communication of information,and reduces the use of paper resources.The site also enabled us to cut back onour in-house publications; we now pub-lish our company newsletter Jukai everythree months instead of monthly.

Using both sides of copy paper

Our Tokyo Head Office is actively pro-moting the use of both sides of copypaper and the sorting and recycling ofused paper in an effort to reduce the vol-ume of paper used and conserveresources. These efforts have successfully

30

Identifying areas of priority, Sumitomo Forestry promotes resource reduction and energy saving in its offices. We also practice green purchasing for stationery and re-use and recycle our computers.

Environmental conservation in the office

8,452,0007,816,000

7,626,0007,932,000

25,000

20,000

15,000

10,000

5,000

0

18,70817,436

16,536

20,964

8,500,000

7,500,000

6,500,000

5,500,000

4,500,000

0

Sheets per person per year Number of sheets consumed Sheets Sheets

FY2000 2002 20032001

Tokyo Head Office paper usage per person

Green purchasing (stationery)

Home page of Inforest intranet website

A screen shot of our new electronic ordering system

From a single seedling, the forest makes a comeback

Recycling old posts and beams while protectingthe forest’s growth

Seminar held from November 7 through 9 in themountains of Shikoku

The high school textbook describing our tropicalforest regeneration project

Feedback on our environmental activities

• “The 21st century is surely the age of the environment. I would likeyou to provide leadership and encouragement to raise awareness sothat everyone concerned, including suppliers, participates in theenvironmental projects of the Sumitomo Forestry Group.” (60s, male)

• “While other companies just reduce their CO2 output, you use theabsorption of CO2 to help prevent global warming as well. You standout among many companies in taking a leading role in environmentalactivities.” (40s, male)

• “I think it’s important for mankind and the recovery of the naturalenvironment of the planet that everyone on this Earth is aware of theenvironmental changes caused by the degradation of nature, and thatwe work harder to protect the environment. It would be good if youcould strengthen your PR so that your ideals could be developed ona worldwide scale.” (20s, male)

From our 2003 Questionnaire

The questionnaire distributed with the Environmental Performance Report 2003 elicited a range of ideas and opinions, and we aim to modify our environmental activities to reflect this feedback.Here is a sample of some of the views expressed by respondents.

Feedback on the content of the 2003 Environmental Report

• “There were many interesting environmentally friendly products. I’mhoping for future growth in the use of thinnings, Super Natural Oak,MIZDAS, flameproof board, Weedy Mat and others.” (50s, male)

• “The way you described promoting the use of domestic Japanese tim-bers and developing lattice panels was very clear and easy to under-stand. But I wish you would explain the prevention of global warmingin a way that is clearer to ordinary people.” (70s, male)

• “It would be good if you took the lead in the area of afforestation,using the specialized knowledge you have accumulated to work withcompanies in other industries to tackle environmental problems.”(20s, male)

• “I would have liked to have seen more detailed explanation of recy-cling methods other than waste wood recycling.” (50s, male)

PC re-use 30%

PC materials recycling 70%

Rate of green purchasing for stationery 84.1%

To develop new forms of forest manage-ment that reflect the entire ecosystem,including flora and fauna, air, water, soiland scenery, we are approaching ourforestry with an Ecosystem theme. In1993, we built Forester House inBesshiyama in central Ehime Prefecture,opening 1,890 hectares of company-owned forest to the public and providinga place for elementary school childrenand others to learn about forests andforestry activities.

Charcoal-making

In October 2003, we invited elementaryschool children from schools onOhshima Island in the Seto Inland Seato learn about charcoal-making. Thechildren placed wood in a coal-burningkiln, prepared mud to seal up the kiln’sentrance, and experienced the wholeprocess up to the emergence of the char-coal. For the children, the experiencewas an enjoyable opportunity to learnmany new things. The charcoal theyhelped make was later sent to theschools.

Integrated learning promotion activities

In November 2003, we organized inte-grated learning activities with a forestrytheme in Forester House under thesponsorship of the Forestry Section ofthe Trade and Industry Department of

the Imabari Local Affairs Bureau ofEhime Prefecture. Twenty-five fifth- andsixth-year pupils of Kitaura ElementarySchool in Hakata-cho visited ForesterHouse to learn about the history offorestry and how forests develop.

Tropical forest regeneration projectcompleted in Sebulu, Indonesia

We have now completed a 13-year rainforest regeneration project begun in 1991at Sebulu in East Kalimantan, Indonesia.The project is located in a huge 3,000-hectare experimental forest and has beenled by the Silviculture Laboratory of theUniversity of Tokyo’s Faculty ofAgriculture. With full support from P.T.

Kutai Timber Indonesia (KTI) and theForest Research and DevelopmentAgency of the Indonesian Ministry ofForestry, we took advantage of the proj-ect to carry out joint R&D into rain for-est regeneration techniques.

The main tree species planted wasDipterocarp (Lauan). To date, we havemanaged to restore 277 hectares of forest(aggregate area planted: 503 hectares,total number of trees planted: 738,000).As the forest has recovered, wild animalssuch as orangutans, deer, and wild pigshave begun to return.

Social forestry contributes to area

A further goal of the Sebulu project is tocontribute to the region by establishing“social forestry” in the area. By establish-ing a harmonious mix of farming andforestry, we aim to create a system that

allows the local people to earn a liveli-hood without excessive slash-and-burnfarming.

Sebulu project’s research results

The results of the Sebulu project, whichreached completion in FY2003, wereutilized in the Daigoji Temple weepingcherry tree regeneration project in Japanand in a grant aid ODA project. In thefuture, Sumitomo Forestry will continueto fully support tropical forest restora-tion projects.

Report on KTI Educational Foundation

To mark its 30th anniversary, P.T. KutaiTimber Indonesia (KTI) established theKTI Educational Foundation to providescholarships for elementary and middleschool students. In 2000, the first year ofthe foundation, scholarships were award-ed to children in the Sebulu area of EastKalimantan where KTI originated, andthe Probolinggo area of East Java whereKTI’s factory is located. From 2002, ele-mentary and middle school students ofthe Krucil area of East Java were alsoincluded.

As at the end of 2003, KTI hadawarded scholarships to 21 children inthe Probolinggo area, 10 in the Sebuluregion, and 10 in Krucil. In FY2004,KTI plans to increase the number ofrecipients. A fixed proportion of KTI’sprofits will be earmarked for the educa-tional foundation every year.

33

Sumitomo forest ecosystems

Community and Social ContributionsEnvironmental and Social Report

In September 1996, a typhoon sweptacross central Japan, devastating a swatheof 50- to 60-year-old Japanese cypress(hinoki) trees in a planted national foreston the southern slopes of Mt. Fuji. As partof our commitment to contribute to thelocal community, Sumitomo Forestry ini-tiated the Mt. Fuji Manabi no Mori natu-ral forest restoration project. To help gov-ern the restoration activities, we set up asteering committee composed of represen-tatives from local government (ShizuokaPrefecture and Fujinomiya City), environ-mental volunteer groups, universities,media representatives and others, andsought their input for the project. We alsoutilized the network we gained throughthis project to carry out a range of otherenvironmental activities as well.

Mt. Fuji natural forest restoration activities

Every year, volunteers plant seedlingsand nurture the young trees as part ofthe Mt. Fuji Manabi no Mori project.To make sure our afforestation effortspreserve the types of native trees growingon Mt. Fuji, we use species that seedthemselves naturally on the slopes of themountain. These include beech, oak,dogwood, zelkova, stewartia, maple,magnolia, cork tree, hinoki, and Fujicherry. Thousands of people have partic-ipated in the program and a total of36,369 trees have been planted.

Vegetation monitoring program

To watch over the Manabi no Mori proj-ect, we requested the Tokyo University ofAgriculture and Technology to run a veg-etation-monitoring program. One objec-tive was to monitor the growth of treesplanted in groups and study changes inrates in which trees formed stands. A sec-ond was to survey the process of recoveryby natural replacement (recovery by theforces of nature without human interven-tion). The project is helping manage theswift natural recovery of the forest and iscollecting data on how the eco-system isrecovering.

Wildlife habitat survey

We requested the Wild Bird Society ofJapan to monitor the fauna in the area byconducting ongoing surveys of bird

species and populations, territories ofindividual species, and types of mammals.

Forest Ark

In October 1999, we set up Forest Ark, avolunteer activities support center withinManabi no Mori based on the ideal ofco-existence with nature. In building thecenter, we recycled some demolitionmaterials from old houses, established abio-toilet (using microorganisms tobreak down excrement), a solar powergenerator, and a rainwater tank system.

We also created a biotope* in thevicinity, and use Forest Ark as an educa-tional center to raise awareness of theimportance of environmental conserva-tion among large numbers of people. Aspart of their induction training, new

Sumitomo Forestry staff members takepart in afforestation and silvicultureactivities here and learn much about thenatural flora and fauna of Mt. Fuji. * Biotope: A habitat in which all life forms in an

area live in inter-relationship.

Environmental education at elementary schools

New education curriculum guidelines,introduced in stages from FY2000 toFY2003, established “integrated learningtime” with the aim of instilling a robustreverence for life in children. Under thenew guidelines, schools have adopted newand creative approaches to education.

As part of this program, a researcherfrom our Tsukuba Research Institute wassent to Ozato-Higashi ElementarySchool in Shizuoka City to offer inte-grated education instruction in responseto a request received in November 2003from the school. Using slides and videos,the researcher gave a general talk aboutenvironmental problems and described

the relationship between plants and thesoil and how potting mix is made. At theend of the class, the children were pre-sented with a reminder of what they hadlearned in the form of packs of TsuchiTaro potting mix, made by SumirinAgro-Products Co., Ltd. for use inschools as educational materials.

Neighborhood cleanup campaigns

The head office factory of SumitomoForestry Component House Co., Ltd. issituated in an industrial park on thesouth side of the Watarase River. Thisindustrial park is now an attractive envi-ronment as a result of greening and pol-lution prevention arrangements withTatebayashi City.

In 2002, the factory shut down anddismantled its incinerator, which hadbeen fueled by waste wood, and is nowworking toward achieving zero emissions.

Every year since 1998, we have car-ried out social activities within thisindustrial park and held clean-up cam-paigns with staff volunteers. In FY2003,we organized clean-up days in June,October, and March. Honoring ourcommitment to maintain close ties tothe region, we also organize family facto-ry tours and tours for the elderly peopleof the region. These are sponsored byTatebayashi City.

32

Using our knowledge and experience as forestry professionals, we carry out activities that contribute to the regional community. Aiming to be a good corporate citizen, we implement projects at home and abroad.

Activities on Mt. Fuji

The Sebulu forest after restoration (2002)

Learning how forests grow

Sebulu “social forestry” (cultivating durians)

Children learning charcoal-making

The Sebulu forest, devastated by fire in 1992

A school supported by the KTI EducationalFoundation

Afforestation activities under the Manabi no Mori project

Clean-up campaign around factory by staff volunteers

An instructor teaches the children about the environment

3534

Highlights of Our Environmental and Social Activities

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

Aug.● ISO 14001 company-wide certification

obtained (excluding overseas affiliates)

Nov.● Group companies Sumitomo Forestry Landscaping Co., Ltd.

obtain ISO 14001 Sumitomo Forestry Home Service Co., Ltd.certification Sumitomo Forestry Component House Industry Co., Ltd.

Sumirin Component House Co., Ltd.

July● ISO 14001 certification obtained for Nelson

Pine Industries Ltd. (NPIL) in New Zealand

Sept.● ISO 14001 certification obtained for Sumitomo Forestry Crest Co., Ltd.

and Sumitomo Forestry Two-by-Four Homes Co., Ltd

March● Tropical forest regeneration project completed

(East Kalimantan, Indonesia)

April● Environmental Business Promotion Division established

July● ISO 14001 certification obtained for

P.T. Kutai Timber Indonesia (KTI)

Aug.● ISO 14001 certification completed for all divisions

of Sumitomo Forestry Co., Ltd. (excluding overseas affiliates)● Joint afforestation project initiated by KTI with city of Probolinggo, Indonesia

Oct.● Company-wide Environmental Policy instituted● EMS implemented at all divisions● Bisphenol A (endocrine disruptor)-degrading

bacterium discovered by Tsukuba Research Institute

Dec.● Reforestation project started in Way Kambas National Park, Indonesia

July● ISO 14001 certification obtained for the

Forest Management Division

Aug.● All Sumitomo Forestry houses certified

as environmentally sound● CDM feasibility study commissioned by the Japanese Ministry

of the Environment began in East Kalimantan, Indonesia

Oct.● "Forest Ark" volunteers'

activity center completed at the Mt. Fuji Manabi no Mori project

Oct.● ISO 14001 certification

obtained for the Housing Headquarters' Eastern Japan Housing Division

June● Environmental Business Division established

Aug.● Successful tissue culture of tropical timber

species by Tsukuba Research Institute

Aug.● ISO 14001 certification obtained for five Housing

Headquarters divisions and for the Northern Kanto Regional Division

Sept.● Mt. Fuji Manabi no Mori initiative began to restore state-owned forest

destroyed by a typhoon

April● Sumitomo Forestry EMS implemented company-wide

Jan.● Environmental Management Committee

established● Sumitomo Forestry's Environmental Guidelines

instituted

April● Sumitomo Forestry EMS implemented at all Headquarters divisions

Dec.● Sumitomo Forestry's Environmental Philosophy formulated

Oct.● Sumitomo Forest Ecosystems' Memorial Square and Forester House

opened to commemorate the centennial of the large-scale reforestation project in Shikoku

Jan.● MDF from Nelson Pine Industries Ltd. (NPIL) qualified for the "Eco Mark"

Jan.● Green Environmental R&D Division established

Dec. ● Tropical rain forest regeneration project began in East Kalimantan, Indonesia

● In Japan ● Overseas

Activities Planned for FY2004

Business activities

Priority Methodology

Prevention of global warming ･ Promote sustainable management of forests� ･ Expand sale and use of products using sustainable forest resources as raw materials� ･ Expand handling of fuel chips as a biomass energy source� ･ Contribute to the reduction of CO2 emissions of occupied houses by developing energy saving products� ･ Try to reduce number of delivery vehicle trips� ･ Promote planting of trees for exterior work (Sumitomo Forestry Landscaping Co., Ltd.)� ･ Reduce factory production-related CO2 emissions (Sumitomo Forestry Crest Co., Ltd.)

Reduction of wastes ･ Reduction of waste emissions�� Minimize by-products from new building sites (Housing Construction, Maintenance & Management Group)

Minimize by-products from demolition sites (Housing Construction, Maintenance & Management Group)� ･ Recycling of wastes

Recyling of water purification plant sediments (Sumirin Agro-Products Co., Ltd.)� ･ Improve rate of wood scrap recycling� ･ Extend life-cycle of houses

Reduction of harmful substances ･ Prevent pollution of inside air� ･ Prevent air pollution, soil contamination, and water pollution � ･ Prevent contamination by agro-chemicals (Sumitomo Forestry Landscaping Co., Ltd.)� ･ Prevent mixing of harmful substances with products (Sumirin Agro-Products Co., Ltd.)� ･ Reduce usage of designated chemical substances (Sumitomo Forestry Crest Co., Ltd.)

Green procurement ･ Promote green practices among our product manufacturers ･ Promote green procurement

Sumitomo Forestry Group activities

Priority Methodology

Better communication ･ Promote Group-wide and external environmental information activities (Manabi no Mori activities, use of Forester House, environmental advertising, environmental activities based on Sumitomo Forestry's Housing Fair)

･ Utilize Risk Management Committee and emergency hotline and manage information through emergency situation reports･ Improve communication with suppliers

Reduction of environmental impact ･ Alleviate environmental impacts by reducing lighting and heating costs, etc.caused by office activities ･ Promote green purchasing

Education activities ･ Raise environmental awareness

Corporate Data

200,000

400,000

600,000

800,000

565,201 564,487 571,275604,252

02001 2002 20032000

Yen millions

FY

Net sales (Sumitomo Forestry Co., Ltd: non-consolidated)

Sumitomo Forestry Co., Ltd.Head Office (Tokyo)Shinjuku Green Tower Bldg., 6-14-1, Nishi-Shinjuku,Shinjuku-ku, Tokyo 160-8360, Japan

Head Office (Osaka)Sumitomo Building No.2, 4-7-28 Kitahama, Chuo-ku,Osaka 541-0041, Japan

Paid-in capital: 27,672 millionIncorporated: February 20, 1948Founded: 1691Employees: 4,762 (as of March 31, 2004)Operations: Forest management; purchase and sale of productsincluding logs, timber, wood chips, plywood for general use,post-processed plywood, fiberboard, metal building materials,housing systems and fixtures, and concrete and ceramic buildingmaterials; construction and sale of custom-built housing; purchase and sale of developed housing and housing lots; purchase and sale of interior products; construction, purchase,sale, and rental of multi-unit residential and office buildings