Special thanks to venue sponsor Credit Suisse, co-organisers Greenpeace and WWF, and our many speakers from the environmental organisation and investment communities for well received presentations on the investment risks and opportunities in the paper and forest products industry.
Erik Floyd, Joint Executive Director of ASrIA, opened the investment forum by describing ASrIA's role in transforming Asia through sustainable investments. He then introduced David St. Maur Sheil, Joint Executive Director of ASrIA, who provided an overview of potential risks and opportunities with the Asian Forestry Sector and suggested the key to responsible investment policies in the challenging forestry sectors was adopting a high level of due-dillegence and combining that with active engagement policies.
Ben Ridley, Asia / Pacific Regional Head of Sustainability Affairs, Credit Suisse Group AG, warmly welcomed participants and briefly described how Credit Suisse manages the risks involved in the sector. He stressed that the careful evaluation of transactions is a crucial prerequisite to identify and control risks at an early stage. Consequently, the appropriate consideration of social and ecological aspects is an integral part of the bank's internal risk assessment. This assessment is vitally relevant in the paper and forest product industry.
In Session 1, Dr. Bambang Setiono, Director of the Institute for Environmental and Natural Resource Economics (ELSDA Institute) focused on the range of investment risks involved in the sector. He argued that in Indonesia, for example, what underlies default and legal risk for banks financing paper and forest product companies is money laundering risk. There are four main sources of money laundering risk: revenues, raw material, income, and expansion.
Next Suzanne Kröger, Forest Campaigner of Greenpeace, detailed the risks of investing in the palm oil industry in Indonesia and Malaysia. She noted that over 80% of Indonesian greenhouse gas emissions are from deforestation, making it the third largest emitter in the world. Suzanne then detailed the case of Sinar Mas, Indonesia's largest palm oil and pulp and paper producer, as a study in unsustainable business practices. She highlighted the fact that major customers of Sinar Mas have reacted negatively to past practices: Unilever suspended a € 30 million contract and Kraft and Nestle stopped direct purchases from the company.
Richard Caines, Principal Specialist, Environmental and Social Development, East Asia and Pacific, of the International Finance Corporation (IFC), an ASrIA member, provided a development institution's perspective on sustainable forest investment in Asia. He described how out of the IFC's US$1.13 billion portfolio in the forest sector, almost 90% is invested in downstream operations (industrial processing), while only about 10% is invested in plantations. Richard offered ways to analyse and mitigate risks in a holistic way including support for a robust certification system.
He noted that one of the most critical challenges Indonesia faces is peat swamp forest conversion, as conversion unleashes tremendous amounts of GHG. He stressed how use of degraded lands presented an opportunity to facilitate new investment in fiber/tree crop plantations. He concluded by informing participants that the World Bank is currently having multi-stakeholder consultations on a Palm Oil Strategy and that the IFC is reviewing and updating its Sustainability Framework.
In Session 2, Aditya Bayunanda, of WWF Indonesia, delved deeper into the forestry sector in Indonesia by highlighting the case of Riau, Sumatra. He described WWF's efforts to engage with companies operating in Riau province. Aditya stressed that one of the highest priorities was to get companies not to use or purchase fiber from the conversion of High Conservation Value Forests (HCVF) across the Group’s global operations. He then described WWF's Global Forest and Trade Network to help companies achieve certification that ensure its paper and forest products are sourced and produced in a sustainable way.
Next David Walker, Managing Director of Macquarie Capital Advisers, did a good job summarising the interplay of the various stakeholders involved in the sector. He noted, for example, that despite improving levels of environmental consciousness by industry participants the industry is often too focused on facility size economics rather than environmental balance with its plant operations. He acknowledged that the environmental movement has increased its credibility as an industry commentator. Yet he also emphasised that environmental messaging is sometimes based on “rumour and emotion” rather than “research and fact,” and the movement's focus needs to be broader than the pulp and paper industry.He commented that the environmental movement also needed to also positively recognise the efforts of companies making an effort to improve, not just critisise.
For certifiers, David argued that the definition and monitoring of sustainable harvesting is still blurry and available technology not applied, while certification cost, in his opinion, is still too high. Governments and consumers also have a key role to play: emerging market governments place a premium on social issues rather than the environment and consumers shift a focus to "paying for quality" with less emphasis on "consuming less." For investors, a key issue is that environmental differences between sustainable and not sustainable paper and forest products companies is fundamentally not reflected in cost of capital and this issue should be a focus in investment by sustainable companies is to be encouraged.
A lively Q&A panel session followed David's presentation, which was then followed by a relaxed atmosphere of networking.
Sincere thanks to Credit Suisse for their venue support, and to all our speakers for their presentations as well as the valuable networking and contacts exchanged.
[Editor's note: In the June 26-July 2 edition of "The Economist" the issues discussed at our forestry event were again highlighted. The article "Briefing: The campaign against palm oil: The other oil spill" highlights the growing importance for companies to pay closer attention to their supply chains, and environmental and social policies, in order to protect their reputations. The article is at: http://www.economist.com/node/16423833 ] |
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