FSC’s New Corporate Group Methodology: A Step Forward, But Caution Required

FSC’s new procedure (SOP) on determining corporate group control is, on paper, a welcome step forward. It finally recognises that control isn’t just about owning 51% of shares, it can mean directing strategy, influencing operations, or shaping decisions through less visible arrangements. This tells companies: if you can steer it, you control it.

The SOP adopts the Accountability Framework initiative’s (AFi) definition of a corporate group, framing control as the power to direct, restrict or administer another company’s operations “through ownership, rights, contracts, or other means.”

The FSC translates this into eight practical indicators - ranging from shareholding and financial control to management, family ties, shared resources, and value-chain dependence.

Establishing any one of these indicators is enough to deem two entities part of the same group. That breadth is welcome. The only weak spot is “shared resources,” where FSC allows contextual interpretation that could soften its application.

The definitions of “control” and related indicators are broad enough to capture most of the shadow-company arrangements civil society has exposed for years, echoing much of the logic in the Shining Light on the Shadows report.

Yet the real test lies in how FSC applies it.

Since the final decision remains at FSC’s discretion whenever evidence is ambiguous, the question is whether this discretion will finally bring hidden companies into scope, or continue to favour the powerful.

A major gap concerns evidence and transparency. The SOP doesn’t require FSC to proactively investigate hidden subsidiaries or affiliates, leaving that work to NGOs, journalists, and communities. Yet these sources, often dismissed as “not peer-reviewed”, are not explicitly recognised in the list of “acceptable” information, which privileges academic or commercial data providers that rarely uncover opaque structures in practice.

FSC should fix this by screening for red flags that would trigger its own investigation, such as repeated allegations by credible media or civil-society reports, and by broadening what counts as “verifiable research.”

Published investigations with compelling evidence, like Under the Eagle’s Shadow, should prompt FSC scrutiny, and where FSC commissions consultants to follow up, their reports should be public or independently reviewed.

Another structural concern is how the SOP divides the eight indicators into three “stages”: formal links first; then shared management, family or resource control; and finally, value-chain relationships.

In reality, these overlap—operational control can signal both common and value-chain control, and financial leverage can occur through ownership or dependence. The rigid staging could prevent relevant evidence from being considered, echoing RSPO’s recent failure to address First Resources’ shadow companies, where narrow interpretation of the Membership Rules allowed loopholes to persist.

A clearer approach would define each indicator once, then list how it can apply across stages.

The SOP’s narrow scope is equally troubling. It limits its’ application to companies in forestry and forest-products sectors, even though activities such as plantation expansion and mining can also result in rights violations and other unacceptable impacts.

If FSC is serious about preventing deforestation and rights abuses, the same rules must apply to any sector capable of causing them.

One of the most promising aspects of the SOP is the “rebuttable presumption” mechanism, which shifts the burden of proof to companies to explain potentially hidden links. FSC is, in effect, saying: if we see a company that looks like part of your group, you must prove it isn’t. That’s essential for tackling shadow companies.

However, the SOP gives little guidance on how FSC should decide whether to accept a company’s denial. Self-declarations from firms that face no legal risk for false statements cannot be treated as reliable evidence.

FSC must explicitly recognise that concealing group companies to keep certificates is a known risk. The default should be precautionary, and self-declarations should be treated as weak evidence unless backed by documentation. Without this, FSC risks repeating the mistakes of other schemes whose loopholes allowed powerful actors to escape accountability.

Finally, while many individual definitions - such as beneficial ownership, family control, and shared resources - are based on AFi’s logic, they would be stronger if grounded in the same precautionary mindset. Family-run conglomerates, recurring management personnel, and shared office addresses are all red flags that should trigger deeper scrutiny, not dismissal.

Overall, the new SOP gives FSC a much stronger toolbox. But its impact will depend on whether FSC uses it boldly: applying a precautionary lens, embracing transparency, and recognising the value of civil-society evidence. Without that, even the best definitions of “control” will fall short of preventing corporate evasion.