Submitted by: Phil Riebel 10/17/2012
Matching other global forest products companies, UPM has completed the transformation of its business to include a stronger emphasis on renewable and recyclable products.
October 16 2012
by Ken Norris - RISI
Bio to the fore
Speaking at the conference, Thomas Ehrnrooth with UPM's Paper Group, described the company's decision to place a stronger emphasis on biofuels, in addition to its commitment to paper. Called the "Biofore vision," this direction is not an add-on, but is expected to increase both UPM's earnings and valuation. Started in 2009, UPM is taking a company strategic direction to expand in a number of bio-based businesses. The world is changing, explained Ehrnrooth, as resource scarcity, climate change and digitalization have placed forestry resources at the tip of a public debate. In response, UPM sees growth opportunities in better materials and energy efficiency, renewable and recyclable products, and new innovations. The strategy calls for using the cash flow from UPM's mature paper business to become more competitive in the global forest products markets.
"Biofore is building the new business on top of the old business," said Ehrnrooth, "not getting out of the old business." Using UPM's solid paper business as a foundation, the new business model would create increased value for wood and biomass. This includes second-generation biofuels and bioenergy, biocomposites, biofibrils and biochemicals, as well as engineered wood products. Pulp is another growth area for UPM.
The company is still heavily committed to paper and will continue to be the "biggest graphic papers company in the world," said Ehrnrooth. Completion of the Myllykoski acquisition and the divestment of UPM's packaging business have helped consolidate operations in Europe. On the other side, UPM is planning for its new paper machine in Changshu to meet growing demand in China and Asia. "Growth will come in layers," said Ehrnrooth.
More with less impact
Growth for forest products on a global scale in continuing, but there are challenges ahead on how to best manage the world's forests for everyone's interest. George White, head of the World Wildlife Federation's Global Forest and Trade Network, spoke on the need "to mainstream responsible forest management and trade so it is standard practice by 2020." This vision for GFTN is to assist companies in overcoming "management and purchasing challenges" while progressing toward credible certification, through a proven "stepwise" approach.
By engaging with companies, and with an understanding of the growing demand for forest products, GTFN hopes to eliminate illegal logging and drive forest improvements. Deforestation continues to be the biggest concern, said White. With 60% of the world's forests in the hands of industry, improving efficiency through higher yields and recovery are paramount.
The Zero Net Deforestation and Degradation (ZNDD) initiative is part of the WWF's Living Forests Model and by the 2020, said White, GFTN hopes to reach a balance where the existing world's resources can supply more wood products with less impact on the forests. Industry will take a role in achieving this balance, either through self-policing in responsible procurement and credible certification programs or through increased market-based legislation. But the "do nothing" approach to deforestation, said White, is no longer a responsible option.
There is another balance to consider, said Ian Lifshitz, director of sustainability of North America with Asian Pulp and Paper Group (APP). In his remarks to the conference, Lifshitz said there is a "delicate balance that must occur within the Indonesian paper industry," where community, economic and environmental considerations all require attention. Any one of these areas is a potential tipping point for the entire resource chain and cannot be ignored.
Citing a United Nations report that illegal logging stems from poverty, not plantations, Lifshitz said the economic development of the country was a better hedge than legislation or market pressure. According to APP, 60% of Indonesia's population lives where forest and/or agriculture are the main source of economic livelihood. And 5.5% of Indonesia's current GDP is contributed by forestry and related manufacturing interests.
A key component for APP involves the notion of forest plantations as the future of the industry. "The pulp and paper industry harvest a 100% renewable, recyclable resource," said Lifshitz, " and it's important to view the industry through that lens." The majority of APP's fiber is derived from rapidly renewable pulpwood, he explained, that is harvested six years after being planted. "We believe our industry's future will be characterized by this rapidly renewable fiber, which is more cost-effective for production and produces a higher-quality product for our customers."
APP also announced two new commitments to high conservation value forests (HCVF), which currently makes up 27% of Indonesia's total land mass. As of June 1, 2012, APP has suspended natural forest clearance while making HCVF assessments on APP concessions. And APP has asked its independent pulpwood suppliers to conduct their own HCVF assessments, to be completed by December 31, 2014.
The expectation is that APP will be completely reliant on planation forests by 2015. This is part of APP's "Beyond Compliance" goal, said Lifshitz, and is part of APP's recently launched "Sustainability Roadmap for 2020". Through these efforts and others, Lifshitz said APP's focus is to assure the international business community that the wood products it imports from Indonesia are legal and sustainable.