Indonesia: Asia Pulp & Paper Co. Sows Greener Image

Eric Bellman The Wall Street Journal 4 Sep 12;

JAKARTA, Indonesia—Asia Pulp & Paper Co. is trying to improve its image as it attempts to become the industry's biggest player.

But environmental activists are skeptical, saying they have been burned by the company's promises before.

Environmental groups such as Greenpeace say APP is one of the most pernicious forest clear-cutters on the planet, leading companies such as Mattel Inc. MAT -0.48% and office-supplies chain Staples Inc. SPLS -0.55% to stop buying the Indonesian company's products. Greenpeace supporters dressed in tiger outfits recently stalked KFC restaurants that use APP packaging.

While APP's Paperline printer paper and Paseo toilet tissue appear on shelves in Asia, the company supplies primarily private-label paper and packaging in the West, where the company's name and products are less recognizable.

APP has unveiled measures recently that it says will enable the company to become a bigger, greener paper-and-pulp powerhouse.

The company says its initiatives go beyond what is required by law, including supporting a third-party survey of the forest under its control. Once the survey is done, APP says, it will commit not to cut any forest classified as crucial to sustaining the surrounding ecosystem. APP also has pledged to clean up its supply chain so that only wood from managed plantations—as opposed to virgin forest—will be used to feed its mills.

"We have realized that we are no longer just an Asian company. We are a global company, and it is our duty to adopt global standards," says Aida Greenbury, APP's managing director of sustainability. "We are not conservationists—we are a pulp company—but it's good to sustainably grow our business."

Environmental activists are crying green wash. They say there are too many loopholes in how APP monitors the mountains of wood needed for its mills and that the company historically has looked the other way so it can pad earnings, even when it meant destroying the habitats of endangered tigers and orangutans.

"There are a lot of things they say, but it has not convinced us yet," says Bustar Maitar, head of Greenpeace's forest campaign. "What will convince us is when they say, 'We will no longer touch any natural forest.' " The company's pledge to buy wood only from managed plantations doesn't kick in for another three years, during which time a fair amount of damage can be done, critics say.

APP rivals, particularly those in Southeast Asia, such as Indonesia's Asia Pacific Resources International Ltd., have encountered criticism as well, but APP has borne the brunt of the opposition.

Whether APP can make its operations more sustainable while earning enough to pay off more than $5 billion in debt, will help determine whether it realizes its ambition of becoming the world's biggest paper company. APP became notorious a decade ago when it failed to meet obligations on more than $13 billion in debt, at the time the biggest default in emerging-market history.

The company generated total company revenue of nearly $6 billion. And its production of 8.5 million tons made APP the world's third-largest paper producer by volume, behind No. 1 UPM-Kymmene UPM1V.HE -1.52% Oyj and Stora Enso STERV.HE -0.86% Oyj, both of Finland. APP is in a tropical zone, where it is easy to grow pulp trees and close to a source of rising demand: China.

The company's success or failure could also reverberate across other businesses in emerging markets, such as Indonesia, where many of the biggest export industries, including mining, fishing and palm oil, are struggling with the sustainability challenges as well.

"In the past, we have done some bad things, but we are cleaning up now and we are more and more committed" to protecting the environment, says Tony Wenas, Indonesia president commissioner for Asia Pacific Resources. "There is significant international scrutiny because we export."

International pressure is helping to push companies toward sustainability. France-based supermarket chain Carrefour SA CA.FR -2.64% in July unveiled a brand of cooking oil in Indonesia called Carrefour Eco Planet, made of palm oil from sustainably managed plantations. The U.S. Environmental Protection Agency this year said Indonesian palm oil shouldn't be approved for use in biofuels because cutting forests offsets the lower emissions from the fuel.

"Indonesian companies are increasingly recognizing that any association with deforestation, biodiversity loss and [greenhouse-gas] emissions, whether legal or not, can be harmful to reputation and business," says Moray McLeish, a technical adviser to PricewaterhouseCoopers, which provides environmental consulting to Indonesian companies.

APP says it can have growth and create jobs without destroying the environment. The company and its suppliers have rights to cut trees on more than 2.5 million hectares in Indonesia, including areas that are managed as plantations and others that are considered natural, or undeveloped, forest.

Scientists at APP's research-and-development complex on Sumatra have developed heartier, faster-growing eucalyptus and acacia trees that eventually should more than double plantation productivity, ending the need to cut natural forest, the company says. APP also is altering its product portfolio to require less wood pulp, expanding into specialized paper products like sticky notes and the thin, sturdy paper used to print the Quran.

In addition to pledging to restrict its logging to managed plantations by 2015, APP plans to bring them in line with some of the most strict international standards five years later. The company temporarily halted clearing natural forests to feed its mills in June to assess which forestry concessions should be protected on a more permanent basis as high-conservation-value forest, a global classification of areas that experts say should be left alone to protect ecosystems.

The company also says it is tightening monitoring to ensure that its suppliers aren't selling wood to APP from endangered forests and that it plans eventually to better trace each tree back to its source to assure customers that the company isn't destroying pristine jungle.

Environmentalists say that they see evidence that APP is improving its techniques but remain skeptical. They have been disappointed with the company in the past and say other companies that supply wood to APP still are among the world's most flagrant violators of environmental standards and will continue to clear natural forest on APP's behalf.

"This is not a road map to sustainability but a road map to pulp more of Indonesia's forests," says Rod Taylor, director of the World Wildlife Fund's international forest program.

APP says it welcomes scrutiny from green groups and is inviting auditors onto its forestland.

"This will change the industry in Indonesia," Ms. Greenbury says.