Tolko Industries Ltd. 1998/99 Sustainability Report

FOREST MANAGEMENT

The security of Tolko's future depends on the health and sustainability of the 6.8 million hectares of productive forest land under its stewardship. The need to balance environmental, social and economic values guides Tolko in every step of the forest management process, including planning, road development, harvesting, reforestation and forest protection.

Although regulations vary in British Columbia, Alberta and Manitoba, Tolko's Forest Management Principles guide all forestry operations. The importance of maintaining forest ecosystem health, ensuring public participation and complying with government regulations extends across regional and provincial boundaries. Tolko is committed to continuously improving its forest management performance.

ENVIRONMENTAL
The connection between forests and the environment is obvious: forests moderate the carbon cycle, provide habitat for an abundance of plants, animals and other life forms and conserve soil and water quality. A healthy forest ensures a sustainable timber supply.

Carbon Cycle:
Trees pull carbon from the air and store it in their wood in a process called carbon sequestering. Young, growing trees store carbon at a faster rate than over-mature, diseased or dying trees. Through quickly regenerating harvested sites, Tolko improves the forest's ability to sequester carbon.

Biodiversity:
Forests provide habitat for a vast range of plants, fish and wildlife, and the conservation of biological diversity is critical to forest sustainability. Tolko's harvesting activities replicate natural disturbances and provide habitat conditions for many species. Tolko also participates in biodiversity research programs.

Soil and Water Conservation:
Tolko takes great care in protecting soil and water conditions in its forest operations. Special attention is given to areas adjacent to streams and lakes that are known as riparian areas. In these areas, a buffer of vegetation is left to protect water courses from erosion, sedimentation and temperature increases. Additional precautions are taken when harvesting near fish-bearing streams and constructing watercourse crossings. When logging, Tolko uses suitable equipment for soil conditions. Coarse, woody debris from logging is left in cutblocks as organic material to maintain soil quality. Soil compaction is minimized by the use of low impact logging methods, winter logging and, in some cases, horse logging.

Forest Health:
Forest fires, insects and disease challenge forest health. Tolko takes an involved and proactive approach to protecting the forests by adjusting harvesting plans to mitigate damage, prevent loss of valuable timber and salvage damaged fibre.

Silviculture:
A prescription for forest renewal, including the most suitable harvesting system, is developed before logging begins. After harvesting, Tolko commences silvicultural activities to renew the forest and supplement natural regeneration. Inspections and surveys of tree regrowth ensure government standards are met or exceeded.

TREES PLANTED BY TOLKO: MILLIONS OF TREES - CUMULATIVE

Tree growth, survival and quality are enhanced through intensive silviculture activities, including pruning, brushing and thinning. Herbicides are occasionally applied under stringent environmental regulations to reduce competing vegetation and ensure provincial reforestation standards are met.

SOCIAL
In managing public forest lands, Tolko must balance commercial forestry values with the needs, interests and values of the public, stakeholders and employees.

Public Involvement:
Tolko prepares long-term and annual forestry plans that outline proposed access development, harvesting and forest renewal activities and address community interests and concerns. These plans are available for public review.

Tolko conducts open houses, public meetings, field trips and tours to explain forest development plans, facilitate active participation and establish cooperative land use arrangements. In Manitoba, Tolko established a public Forest Resource Advisory Committee (FRAC), which consists of representatives from local businesses, interest groups and municipalities. Tolko will expand the use of public advisory committees to more proactively communicate the Company's stewardship role to local stakeholders.

EXAMPLES OF INITIATIVES WITH ABORIGINAL COMMUNITIES Thompson Woodlands: Archaeological Protocol Agreement with North Thompson Indian Band & Kamloops Indian Band Manitoba Woodlands: Created First Nations Liason position Lavington: Archaeological Impact Assessments conducted by Okanagan Indian band & Spallumcheen Indian Band members, funded by Tolko Nicola: Monitoring of water quality on Coldwater Indian Band's reservation Quest Wood: Business partnership with Lhtako Indian Band High Prairie: Extensive contracts with local Bands for log replacement after log yard fire in 1998

Public education programs are an important part of Tolko's commitment to open communication. The Company employs an Education Liaison teacher in BC and a Liaison Forester in Manitoba to provide resources to educators and coordinate tours. Throughout the Company, employees donate considerable personal time to community projects, such as speaking at local business associations and the "Adopt-a-Forester" program associated with public schools in BC.

Aboriginal Relations:
Tolko is enriched by its growing relationships with Aboriginal communities and values the mutual learning that takes place through collaboration. These relationships are strengthened by a number of initiatives, including business and employment opportunities, communication meetings, archaeological studies, cooperative committees and education programs.

Employees and Contractors:
The well-being of Tolko's employees and contractors is important to the Company and is supported by a variety of programs. Employee safety committees, regular health and safety training and the recent development of an internal safety audit system have enhanced safety performance. Tolko will continue to evaluate itself against industry results and focus on safety.

In addition to safety training, Tolko employees receive regular training on regulations, standards and forest management issues. In Manitoba, workshops have been initiated to train equipment operators on the Company's operating ground rules for logging activities.

ECONOMIC
Tolko considers the economic impact of its forest management operations against a variety of measures, including employment, financial contribution, community support and resource efficiency.

1998 WOODLANDS PAYMENTS TO PROVINCIAL GOVERNMENTS ($000)

Consistent employment leads to stability in the communities in which Tolko operates. Approximately 300 people are employed in Tolko's Woodlands operations, with many others employed indirectly by forest industry contractors and suppliers.

In addition to employment, taxes and other forms of economic contribution, Tolko provides financial support and wood products to community fundraisers, programs and events.

Tolko works to achieve resource efficiency, or the greatest possible value from each tree harvested. To ensure each log is put to the best-suited use - such as boards, engineered products or visual quality J-grade - the logs are sometimes pre-sorted in the cutblocks, and many are traded between mills. Improvements in fibre recovery, both in the field and in the log yard, will continue to be important to Tolko.

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