Responsible Business Actions in a Globalized Supply Chain

1
Responsible Business Actions in a Globalized
Supply Chain
Jouko Virta President, Global Fiber Supply
Asia Pacific Resources International Holdings
Limited
3 May 2006
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My Presentation

• Background
• Paper and Pulp Industry trends
• About APRIL
• Six Key Challenges
• 1. Sustainable Forest Management
• 2. Conservation and Biodiversity
• 3. Fiber supply chain of custody
• 4. Procurement and outsourcing
• 5. Socio-economic challenges
• 6. Transparency, good governance and stakeholder
  communications
• Conclusions

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Background Significant change in the industry
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World Paper Board Consumption
Asia, including Japan, will be as big as US and
Europe combined
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Where does the fiber come from?

• In 2020 Asia is estimated to consume
• 16.3m tons more hardwood pulp than in 2005
• 6.3m tons more softwood pulp than in 2005

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Cost Competitiveness of Potential Fiber
Suppliers to China
Differences in stumpage returns and shipping
costs drive the competitiveness of the suppliers
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Shifting Competitive Landscape - BHKP
Asian and Latin American hardwood pulp producers
have a distinct advantage in low manufacturing
cost
Indonesia main player
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Paper Board Capacity Expansion 06-10 (excludes
Closure)
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China A Changing Industry Environment

• Inefficient and polluting mills, including the
  SOEs are closing
• The Triple Bottom Line is now important
• Uncontrolled development is over
• Health safety cannot be ignored
• Environmental standards are improving
• New laws are stricter than USA/Europe
• Enforcement done without fear or favour
• APRIL is working to transfer mill know-how and
  CSR programmes in Indonesia

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Background Where APRIL fits?
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About APRIL

• One of the worlds leading developers of fiber
  plantations and manufacturers of pulp and paper
• Main operations in Riau Province, Sumatra
  started in 1993
• Offices around the world recently acquired a
  mill in Shandong Province, China

APRIL
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About APRIL

• Fiber supply comes primarily from
  government-granted concessions that are being
  developed into sustainable industrial fiber
  plantations
• Developed 285,000 ha of fiber plantations in
  Indonesia and China by end-2005
• 2005 1.93 million tonnes of hardwood pulp
  
  380,000 tonnes of paper in Indonesia
  170,000
  tonnes of paper board

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APRIL Sustainability Commitment

• APRIL believes in creating sustainable value for
  our shareholders while
• Making real and lasting contribution to
  communities in which we operate and
• Managing the natural resources in our control to
  meet the needs of the society today without
  compromising the opportunity of the future
  generation to do the same
• We manage
• the resources in our control to the
  internationally recognized BEST PRACTICE
  standards
• the environment, community relations, worker
  safety and contractor relations to the publicly
  available ENVIRONMENTAL, SOCIAL, HEALTH AND
  SAFETY (ESHS) policy
• the supply chain reach the FSCs non-FSC
  certified controlled wood standard

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Six Key Challenges APRILs Response
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CHALLENGE
?
Sustainable Forest Management
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Sustainable Forest Management

• Leaving the forests alone is not an option
• Socio-economic pressures will drive their
  continued destruction
• Illegal logging is of the main causes of forest
  destruction and biggest threat to biodiversity
• Sustainable forest management is the only way to
• Protect the remaining forest resources
• Ensure renewable, SUSTAINABLE fiber
• Generate economic wealth social growth
  opportunities

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Mosaic Plantation Concept

• Sustainable forest management creates win-win
  solutions for
• People,
• Environment and
• Economy

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Forest Management Certification

• APRIL is first to achieve certification under the
  Indonesian LEI Sustainable Plantation Forest
  Management Certification standard
• Certification Support Program with SGS on
  applicable FSC standards
• An assurance to customers other stakeholders
  that when you buy APRIL products you are
  contributing to social development and
  conservation

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CHALLENGE
?
Environmental / Biodiversity Conservation
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Total Commitment to HCVF protection

• HCVF delineation on every concession
• No fiber sourced, no HCVF converted
• Every estate manager incentivised to meet
  conservation targets
• All HCVFs in our area are actively protected

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Conservation Initiatives with WWF

• Forest with one of the highest plant diversity
  indices in the world
• Advanced discussions with stakeholders on
  expanding Tesso Nilo National Park to serve as
  elephant sanctuary
• Restrict elephants from attacking farms,
  agricultural plantations
• Mitigate illegal logging and encroachment to the
  conservation area

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CHALLENGE
?
Fiber Supply Chain Management
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Combating Illegal Logging

• APRIL is totally opposed to illegal logging
• Strict enforcement of Wood Purchase Policy
• Annual third-party audit of Wood Tracking System
  with WWF / local NGOs as observers
• No spot purchase from third parties

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Illegal Logging

• Adverse reactions from local loggers
• Road blockades
• 9 logging trucks burnt
• Forest rangers murdered
• Parliamentary hearings for not accepting
  questionable wood
• Some local problems persist

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Partnership to Combat Illegal Logging
We recognize that we cannot prevent illegal
logging on our own.

• Formed a multi-stakeholder Task Force with WWF
  to combat illegal logging (since November 2003)
• Aim to further strengthen our collaboration with
  WWF
• Get more support from law enforcement authorities

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Assurance to Customers

• Increasing product value by moving from
  Chain-of-Custody verification to FSCs
  Chain-of-Custody certification under Non FSC
  certified Controlled Wood Standard

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CHALLENGE
?
Procurement Outsourcing Challenges
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Responsible Supplier Criteria

• Supplier Pre-qualification Rating System
  Evaluation Criteria that ensure APRILs
  Environmental, Social, Health and Safety Policy
  is upheld
• Creating a resident labour force by providing
  housing, water and sanitary services for contract
  labour
• Safety training provided for all contractors
• Enforcing fiber plantation management practices
  by monitoring techniques used by fiber
  contractors
• APRIL has obtained OHSAS certification

It is a part of our responsibility to educate our
contractors/ suppliers
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Socio-economic Challenges
CHALLENGE
?
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Driving Socio-economic Development

• APRIL is a leading economic force and major
  employer in Riau, Indonesia
• About 100,000 people depend on APRILs operations
  for livelihood
• There are 35 permanent jobs for every 100
  hectares planted
• Local labour has a priority
• Employment over mechanisation takes priority
• Community Empowerment Program develops skills,
  provides livelihood opportunities and an
  alternative to illegal logging

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Community Empowerment

• Integrated Farming System
• Benefits 2500 trainees in 85 villages helps
  villagers move from shifting cultivation to
  sustainable agriculture
• Community Fiber Farms
• Small and Medium Enterprise Program
• Vocational training, scholarships, social
  infrastructure support

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Transparency Good Governance and Stakeholder
Communications
CHALLENGE
?
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Stakeholder Communications

• Communications is just as much about listening to
  our critics as to explaining our actions
• We produce a bi-annual Sustainability Report
  which features stakeholder concerns
• We have an Open Door policy
• Effective communication of our social and
  environmental commitments are achieved through
• ESHS Policy
• Chain of Custody monitoring
• Sensitivity to local community needs
• Visits to mills
• Certification!

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Stakeholder Engagement

• We respect the role of NGOs and acknowledge their
  influence
• We regularly engage with local, national and
  international NGOs
• We have developed some successful collaborations
  and partnerships with environmental and social
  groups
• We recognise the value of listening to what the
  NGOs have to say
• NGO engagement is undertaken at the highest level
  within APRIL

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Conclusion Increased fiber demand in Asia can
enhance (not destroy) the remaining HCV forests
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Conclusion

• Asian PP makers can be competitive in developed
  markets if they adhere to global standards
• Sustainable forest management is the only way to
• Protect the remaining forest resources
• Ensure renewable, legitimate fiber sources
• Generate economic wealth social growth
  opportunities
• APRILs operations serve as a positive example of
  how Asian PP makers can be
• Sustainable
• Internationally competitive
• Socially and economically

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www.aprilasia.com
Thank you!