Submitted: The Two Sides Team October 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
forest products companies, UPM has completed the transformation of its
business to include a stronger emphasis on renewable and recyclable
products. But there is still widespread disagreement between NGOs and
industry and how best to utilize and preserve the world’s forest
resources to accommodate a growing demand for forest products. During
this year’s RISI’s North American Forest Products Conference, three
distinct viewpoints were presented.
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,
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