How a Paper Company is trying to write a new chapter on sustainability

The effects of the climate changes can impact virtually all kinds of business. What is a paper and pulp company in Brazil doing in order to adapt to the new reality imposed by these changes?

The tension between the limited availability of natural resources on Earth and the constant growth of human needs has been discussed for hundreds of years by people around the world. Back in the 18th century, Thomas Malthus had already raised concerns about the risks that a fast-growing population pose to the world in case the supply of goods was not able to meet such needs.[1]Although the limitations of Malthus’ theory were exposed by many scientists that came after him, the fundamental lesson that his legacy left to society is on the necessity of constantly discussing these issues in order to guarantee an equilibrium between human needs and world supply.

Within this context, humans have been putting a lot of effort in order to overcome such challenge and, on recent times, this whole discussion was amplified due to the realization that climate change is a serious problem which poses not only additional and unknown threats but also potential opportunities for business and organizations.

Some of the effects of the Climate Change may be traced back to the Industrial Revolution. Since those times, the Earth’s average temperature has been increasing substantially (more than 0.9 Celsius degrees from 1880 and 2015). Additionally, within this same period, the carbon dioxide concentration on atmosphere rose from 290 parts per million to 430 parts per million, a phenomenon that contributed to the faster pace of Arctic sea decline and global warming.[2]

Part of this impact is attributable to the deforestation, since according to scientists, “when forests are cut down, not only does carbon absorption cease, but also the carbon stored in the trees is released into the atmosphere as CO2 if the wood is burned or even if it is left to rot after the deforestation process”. Within this context, many paper and pulp companies have adjusted their missions to focus not only on adding value to its main shareholders but also to play an active role on contribute to the sustainability of the environment, since the growing demand for such materials adds pressure on the Earth’s remaining natural forests and endangered wildlife[3].For instance, that is what Suzano – Brazil’s second biggest paper pulp producer – has been trying to do.

By looking at the company’s environmental policy document, it is possible to observe that Suzano aims to closely integrate its economic objectives with environmental and social responsibility, and to sustainably develop its forestry resources and pulp production technologies. Also, the company focuses on preventing pollution, sustainably using water, acting to promote biodiversity and conservation and contributing to the reduction of Greenhouse Gases (GHG) emissions.

Among the concrete initiatives taken by the Company, there are two measures that deserve to be analyzed in detail.

First, in accordance with its environmental policy, Suzano maintains certifications for its forest areas from the Forest Stewardship Council (FSC) and Cerflor/PEFC. Cerflor is a Brazilian national certification scheme recognized by the Programme for the Endorsement of Forest Certification (PEFC). Currently 63% of Suzano’s total (owned and leased) forests are certified according to standards from both organizations. These areas follow strict planting and harvest procedures, focused on mitigating the impact of deforestation into the environment and adopting responsible practices that also contribute to reduce the emission of GHG.[4]

Furthermore, the company is adopting an innovative approach towards the funding of new projects. It is issuing a green bond to finance projects that are focused on environmental sustainability across its Brazilian business operations. Suzano will allocate an amount equal to the net proceeds from the sale of the green bond to investments in one or more projects that are eligible considering criteria such as development of technologies of water management, energy efficiency, restoration of native forest, etc. For example, if a new plant is about to be built, the managers will have plenty of incentives to follow all the standard procedures in order to respect the environment and get the necessary funds to make the project happen.

The effects of climate change have the potential to hurt Suzano’s business, since the increased variability on precipitation and temperature levels can reduce the predictability of wood yields and the productivity of lands destined to paper production.[5]

However, these effects can also bring advantages to Suzano’s business. The Brazilian legislation has been requiring that paper and pulp companies implement several actions to reduce the environmental impact of their business. In many cases, such measures are costly and, being a major player with better operational capabilities and healthier financial conditions can play a huge difference in the industry in the years to come.

Looking forward, Suzano could play a more active role on partnering with local governments, universities and organizations in order to build the awareness around the risks posed by climate change and contribute to new studies in this field.

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Student comments on How a Paper Company is trying to write a new chapter on sustainability

  1. Carlos, you provide a great overview of Suzano’s efforts to make its business more sustainable in Brazil, particularly as it relates to FSC certifications for its forests and the company’s use of green bonds. Given the heavy use of industrial equipment in cutting trees down and processing wood into finished products, I wonder to what extent Suzano has pursued improvements to its manufacturing process? Particularly in light of Brazil’s extremely high import tariffs, capital improvements to factories and machine purchases can be extraordinarily costly. I wonder if there is a way for Suzano and other leading companies to work with the Brazilian government to structure exemptions (full or partial) to import tariffs if the equipment imported will have a significant and measurable impact on the company’s environmental impact?

  2. Carlos, I think that your post raises an interesting point about the short-term vs. long-term effect of investing in climate change-mitigating initiatives for companies across different industries. As you imply, for Suzano, setting higher standards in terms of FSC certification and seeking for new funding structures could come at a cost in the short-term. However, I completely agree with you, that by doing so they are likely strengthening their long-term competitive position by pre-empting probable future regulatory changes in Brazil. Very much like what we saw IKEA was doing, by getting ahead in the sustainability game, companies like Suzano are much more likely to succeed in a high carbon price and more stringent environmental regulation scenario. Unfortunately a lot of companies are yet to come to that realization.

  3. Thanks for sharing the info on how Suzao has adapted its strategic goals and processes to address the impact of climate change. However, I was concerned about the fact that most of the info presented above as to what the company’s doing came almost entirely from the company documents of the firm. While it may be the case that the company is actually executing against what it has laid out in its company reports, I wonder how objective those statements are, and what the quantifiable impacts have been. I would have loved to see some more assessments of Suzao’s strategy done by an independent party to give more credence to the company’s words. I tried looking for some external research but most of the articles are in Portuguese [my Portuguese has gotten considerably worse over the years], but it would be great if you could share some third party research.

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