Apollo Investment Management

Deficiencies in the sustainability reports of APRIL and APP
‘In God we trust, all others bring data...’

Pulp producer APRIL, which last June joined APP in pledging to end all deforestation, just released its Sustainability Report for 2013-14. The company failed to address the most important question many investors would have, namely how much pulp it produced and whether its plantations could meet the group’s fibre demand. While providing detailed five year comparative data on a plethora of indicators relating to the use of imported materials, mill efficiency, and effluent, no such information was provided about its plantations. In its 2012 operations, APRIL still used 35% of mixed hardwood, obtained from land clearing (source SR2012, p.58), so stakeholder concerns about land clearance remain valid. Remarkably, the 2013-14 report omitted to report explicit data on fire incidences in the estates that supply its mills, after having consistently done so in past sustainability reports dating back to 2004. The omission is glaring: 2013 was a year of severe forest fires.

APRIL’s report was audited by Ernst & Young who as for the previous report gave a ‘limited level of assurance’, carefully distinguished from 'a reasonable level of assurance'. The aspects reviewed are listed, and did not include any aspect of plantation activity, one of the most sensitive aspects of its operations. Plantation-grown fibre should have been included in the section on materials, and land usage analysed. Site visits were limited to the mill and community engagement projects. Areas for improvement were not publicly disclosed.

Asia Pulp & Paper's latest sustainability report is for 2013. Like APRIL, APP no longer provides a tally of plantations affected by fires, and it is similarly silent on the total size and status of plantations supplying its mills.

For APP, the sustainability report would have been a good place to publish relevant data about its fibre supply and the implementation of its forest conservation policy announced in February 2013. The report, which did not even mention the new 2m tons/pa OKI mill announced in July of that year, was signed off by SGS Indonesia. The auditor’s suggestions for improved reporting, including activities affecting the natural forest, were included in the report.

APP’s website now includes a listing of its plantations, which when tallied show a planted area of 916.6k ha on 1.9m ha of concessions on Sumatra. The company cites research commissioned from TFT-Ata Marie to show this is sufficient to support 5.9m tons of pulp production capacity, when as recently as 2008 the company claimed to need 640k ha to grow the 11.6m green tons of fibre required for its 2.7m tons of pulp capacity. The 50% improvement in production efficiency and plantation yields is unexplained, although apparently a Great Leap Forward.

In 2013 we published our recommended disclosures for plantation and pulp wood companies. (Deficiencies of Indonesia's timber certification schemes were also discussed in our 2014 suggestions for plantation groups and responsible investors therein.) We call on both companies, once again, to back their statements about sustainability with hard data and relevant disclosures.

Masya Spek, 21 September 2015

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