Interview: ‘You can’t hide eco slip-ups and we don’t want to’
Monday, November 10, 2014
It’s safe to say that for the past decade, Asia Pulp & Paper (APP) was regarded as one of the bogeymen of paper manufacturing, vilified by environmentalists and NGOs across the globe for its deforestation practices.
Nevertheless, this didn’t stop some of the world’s biggest brands from buying its products and reaping the benefits of the associated cost savings.
However, after a series of name and shame campaigns (predominantly led by Greenpeace) forced many of those global brands to end their commercial relationship with the company it was clear that what had started as a PR disaster for APP was rapidly becoming a business-defining calamity.
So in early 2013, Aida Greenbury, the company’s managing director, sustainability & stakeholder engagement, unveiled a zero-deforestation policy to a world that was, at the time, highly sceptical.
Now, a little over 18 months later, the company is apparently firmly on the road to redemption, with many of its former fiercest critics, including Greenpeace, actively engaging with the company and, in some cases, actually praising its progress.
But with sales of $15bn (£9.4bn), 79,000 staff worldwide, nine mills in Indonesia and 20, through its subsidiaries and joint ventures, in China – with a combined capability of producing 20m tonnes of pulp, paper and packaging – winning over the NGOs was just stage one. Now Greenbury needs to help APP begin to win back customers’ trust and, of course, their business.
Darryl Danielli Clearly, you’re a relatively new player in the UK; what’s your market share right now?
Aida Greenbury We’ve actually been here in the UK for more than 20 years, in some markets, since 1992; although, originally we were just a broker and agency. Currently our market share in Europe, including the UK, is 4%-5%, but our aim is to at least double or even triple that by 2020.
That sounds ambitious, especially against a backdrop of declining demand; what’s the strategy?
It depends on the market, we have offices in Italy, France, Spain, the UK and a new office in Germany. Our direct business is predominately indent, naturally, but traditional markets in those areas are through merchants, and that’s why we’ve invested heavily in warehousing and outsourcing warehousing.
Is the merchant side of the business where you see the big opportunity then?
Both to be honest. Indent and stock sales differ from country to country depending on the existing supply chains and the product mix, as well as tonnage. In the UK, it is predominantly indent with a large percentage going ex-mill, but we do have a build-up of merchant and stock sales, and we will continue to develop a sales strategy of both indent and stock throughout Europe as well as the UK.
What’s your USP though? Is it simply price?
Our USP is research and development. Not just on the forestry side, in how we work with our plantations, but also on the product development side for market-specific products, like specialising in food and drink or pharmaceuticals.
What’s the split between graphical and packaging then?
It depends on the market. But in the UK the graphical market is the bread and butter business, so the uncoated woodfree and coated woodfree grades Extraprint and Enova – we’re the largest manufacturer of coated woodfree in the world through our Chinese operation. But in terms of USP, we’re also unique in being an integrated forestry, pulp and paper group of companies. I don’t think that many pulp and paper companies still have forestry incorporated in their operations. We have great innovation in our products, but also this very good asset in our supply chain with our forestry. Everyone is talking about climate change and we have this great opportunity to be the leader in the zero-deforestation movement.
But then that only started a year and a half ago…
Two years ago…
Okay, two years ago, but that was as a direct result of pressure from NGOs and their campaigns against you?
It was a mixture of NGO campaigns, procurement policies of our customers and also an internal push from our shareholders and management, so it was internal as well as external pressures.
Which was the biggest driver though, internal or external?
They were both important. It’s hard work, especially in such sensitive countries as Indonesia and China to implement zero deforestation and protect and help restore forests. Zero deforestation is not as simple as just not cutting down natural forests, it’s beyond that, it’s about forest management, enhancing the value of the forests, protecting the landscape, protecting the peat – it’s about recreating the blueprint of sustainable forestry management.
But some would say that effectively you’re in the position now that you have cleared enough land to produce enough pulp for your needs anyway?
That’s not true; our pulpwood plantation stock has been verified independently by The Forest Trust, among others, and they calculated the growth and yield of our plantations. And, yes we do have enough, but it doesn’t give us enough buffer to factor in risks like flooding, disease or forest fires. So it’s not true that we only stopped because we had enough, and right now there are four other forest concessions knocking on our door because they want to be our suppliers, so we are still expanding. But we just make sure that they comply with our zero-deforestation policy, which can be tricky.
But surely that’s the chink in the armour, because you use external suppliers?
That’s true. But I just want to add that a lot of the European stakeholders in industry criticise us; they say it’s good that we have a zero-deforestation policy, but that they as European manufacturers don’t need to do that because they don’t carry out any deforestation and are already certified. That’s a very short-sighted view and doesn’t look at the big picture, because it’s not just about simply stopping the chainsaw – it’s about managing and identifying natural forests. Forest certification standards right now do not have the complete criteria to identify natural forests, they only have a criteria for high conservation value. We do though, and we manage and enhance forests and we are committed to helping protect and restore forests that were degraded in the past.
You mean degraded by APP?
We all need to look at past legacies and I don’t think that the European manufacturers have ever done that.
But then their argument would be that their transgressions were a long time before sustainability was an issue.
Perhaps. But the UK has been moving forward with forest restorations and there is a lot of talk about re-wilding the UK. And people should talk about it, and other European company’s need to look at it. What about the retailers and consumer brands? How do they address their past transgressions on deforestation? What about the merchants? They probably bought products that caused deforestation in past, sure they probably stopped when Greenpeace found out, but that doesn’t change the fact they did buy them.
But there has to be some sort of statute of limitations, because…
Exactly, that’s why we supported Unilever recently in signing the New York declaration on forests, the first public acknowledgement that restoring forests is everyone’s responsibility, not just the producers. Because everyone made profit from it in the past and perhaps some still are now, who knows.
So you’re saying that you’ve actually got a better track record than the European manufacturers?
What I’m saying is that the whole paper industry needs to play a role in tackling climate change.
But getting back to APP, have there been any breaches of the zero-deforestation policy since you implemented it?
Yes, three. Two were reported by a local NGO and one was self-disclosure. Of course there will be breaches in any new policy implementation, and as I said this is a big policy shift. But we are open, that’s the key.
So what NGOs are you engaged with now?
We work very closely with Greenpeace, and now we are tackling our landscape issues and trying to come up with landscape plan. We are working with many local NGOs to develop that plan.
And are there any NGOs that you still need to work with?
We’re very open now, so we’re happy to work with any NGO that wants to be part of finding solutions with us.
But are some NGOs still critical of APP?
Of course, but that is good because if they’re critical then they care and if they care then they want to find solutions and we want them to join us to find them.
But you’re still a business and you want to make money, and I should imagine that two years ago you were probably making a lot more money than you are now, because you weren’t going though all these processes?
Acting on climate change is expensive, but the cost of not acting on it is unimaginable. And it’s part of the business, not just PR or greenwashing, we’re protecting our business and our investment.
And also protecting yourselves against losing business, because in the past a lot of the big brands disengaged with you because of your environmental record?
That’s correct, but that said, the market needs to be pushed harder to provide better incentives for good companies that are implementing zero deforestation.
How do you benchmark your performance then, because you seem to be drawing a lot of comparisons with your European rivals?
We don’t benchmark ourselves against European or North American producers because, to be honest, we’re much more technology savvy. We have brand new machines that are more environmentally friendly.
What about your ethics though?
We just benchmark against out stakeholder requirements.
You’re still on a fairly long road to redemption though. You only implemented this policy two years ago after all. I know that some of the brands are coming back on board now, but do you see an end to this journey?
Protecting forests and making sustainable paper is a never-ending journey; we have plans for five years, 10 years and beyond.
What about rebuilding trust in the market, presumably you still have a long way to go there?
No, I think we’ve already moved a long way forward. The market acceptance has been excellent. Yes, we do need more support from big brands and those that aren’t familiar with our deforestation policy. Ban Ki-moon [UN secretary general] invited our chairman to the New York declarations; were the chairmen of any other paper companies invited? That’s recognition of what we’re trying to achieve.
In terms of past misdemeanours the reputational damage takes time to rebuild; how do you plan to do that?
Transparency. As long as you have full transparency you can rebuild trust. People might criticise you or not trust you, but if you demonstrate full transparency then slowly you can regain trust. If you look at the dashboard on our website we’re probably the only pulp and paper company in the world that discloses so much. When people buy paper from us they know exactly where the fibres are coming from.
Something else I wanted to ask about was the EU’s anti-subsidy and anti-dumping tariffs introduced against Chinese paper manufacturers in 2011, what’s been the impact on your business and also your customers in terms of prices?
The anti-dumping tariffs are being reviewed in December and there will be a decision in the summer. But the anti-dumping and subsidies duties did have an impact on Chinese paper imports coming into the EU. From an APP perspective, we had a small percentage of our coated paper business coming from China. We also produce coated fine paper at our Indonesian mills, which were exempt from those duties, but in real terms, yes, it had an impact in a number of ways, including price, but we worked with our customers to overcome those.
Have the tariffs restricted the amount of paper you have shipped to the EU from your Chinese mills?
Commodity coated is one of the many product groups we produce, and dependent on the country, we are predominantly focused on selling into the folding box board market, particularly with GC1 and GC2 graphical boards, which are exempt.
So in terms of the APP output that currently comes to Europe, what is the rough split between products manufactured in Indonesia and products manufactured in China?
It is split roughly 50/50.
So of that, roughly what percentage of your tonnage coming from China is covered by the EU tariff?
As the tariff covers only coated woodfree, the simplistic answer is a very small percentage of woodfree coated coming into the European Union is subject to the tariffs in our business. In fact, it could be classed as negligible in overall business terms, as we concentrate on other product groups such as specialities, boards and photocopier.
Are there any other obstacles to your growth ambitions in Europe?
Well, I wouldn’t says it’s a barrier, but the EUTR [EU Timber Regulation] that came into force last March created a little bit of confusion in Europe about importing paper products, so that was a bit of challenge. But hopefully Indonesia will have the voluntary partnership agreement done by next year, so will not be subject to the due diligence process imposed by EUTR after that. That will fall under the Forest Law Enforcement, Governance and Trade licensing, we have a licence currently that goes with every shipment that shows the origins of the fibres at the point of origin are legal.
So basically you can supply Europe with as much paper as you can sell?
Absolutely. The due diligence process has helped us immensely, because we have total transparency so looking at point of origin is something we already did. One challenge has been that the European market is used to European producers having access to material that is PEFC certified, so it was a problem in the past that Indonesia didn’t have those sort of schemes. But a month ago the Indonesian Forestry Certification Corporation was endorsed by PEFC, so pretty soon we will be able to flood the European market with our PEFC certified paper.
But isn’t FSC the gold standard in terms of consumer recognition?
Well, right now FSC is developing an Indonesian national standard with the Indonesian Ecolabeling Institute, so hopefully that will be finalised soon. And in the recent FSC general assembly they passed a motion to review the principle that forests converted after 1994 will not be eligible for full certification and as Indonesia only really started to develop its forests properly in the 1990s, by default the majority of Indonesian forests will not be eligible. But if the principle is changed, then that would open up Indonesian forests to full certification and I’m very excited about that.
If that goes through the only big challenge left is convincing the customers that you’ve changed. It must be frustrating having the same conversations over and over again?
No, it’s a good thing because people are listening. Zero deforestation is not a game, it’s for the longevity of our business and combatting climate change and recognising the importance that forestry management has to play.
You mentioned earlier that you’re targeting growth, where do you see the big opportunities?
North America and Europe in particular. We want to promote our products as much as we can, because we have the right products, the runability, the printability, the quality control.
Yes, and the right pricing structures.
Because that’s what people expect from Asian producers, isn’t it? Lower prices?
It’s longer-term partnerships that we want, though. We’re not here today and gone tomorrow, we’re here to stay in Europe.
Well, all the environmental initiatives are great, but paper is a commodity market, surely, and price is the overarching purchasing driver.
Maybe, but quality, performance and policy also play important roles and customers are increasingly aware of that. Pricing is always a key consideration, but governance is becoming increasingly important too, especially in public procurement. We can’t sacrifice the environment for price.
No, because you will get caught because everybody is waiting for you to slip up.
Exactly, you can’t hide and we don’t want to.
Getting back to the sustainability point. If the European mills manufacture locally, whereas you guys have to ship your products from Indonesia or China, surely you’re already losing in terms of your carbon footprint?
Actually, if you look at the carbon footprint then shipping is just a tiny part. In a life-cycle analysis it’s not significant compared with, say, the energy required to make the paper and if you have old machinery in Europe that could be 25 years old, and compare that to the latest technology that we use, then the opposite is true.
Final question then. Clearly looking to take 10%-15% of the European market in the next five years is going to be a major concern for the European manufacturers, especially against a backdrop of them already significantly reducing their capacity to boost profits, what’s your endgame? Wipe out the European paper manufacturers?
[Laughs] I don’t know; I always believe in healthy competition. I don’t like sick competition because then they might do dodgy things, but if we compete on sustainability and performance then that’s healthy – and we can all let the market decide. Isn’t that way it should be?