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North American paper industry merger sets off environmental alarms

A woodland caribou in the forests of Canada. Image via Wikimedia Commons/ThartmannWiki. 

  • Canadian firm Paper Excellence plans to acquire U.S. pulp and paper giant Domtar, with shareholders overwhelmingly approving the proposed merger.
  • The acquisition signals Paper Excellence’s expansion in North America, something that environmentalists say will threaten Canada’s boreal forest.
  • This is because Paper Excellence is reportedly controlled by the owners of Indonesia’s Asia Pulp & Paper, which has a long track record of deforestation, forest and peat fires, and human rights violations.

JAKARTA — The planned expansion of one of the largest pulp and paper producers in North America will threaten Canada’s boreal forest, the most carbon dense woodland in the world, environmentalists warn.

Earlier this year, Canadian paper and packaging company Paper Excellence announced its plan to acquire U.S. competitor Domtar, which is one of the largest pulp producers in the world.

Domtar is one of North America’s top producers of so-called freesheet paper, which is used for everything from business memos to copy paper.

On July 29, more than 81% of Domtar’s stakeholders voted in favor of the merger, paving the way for Paper Excellence to enter the U.S. market.

By purchasing Domtar, Paper Excellence will gain control over eight pulp and paper mills in the U.S and nine “manufacturing and converting facilities” in 15 U.S. states.

Commenting on the planned merger, expected to be completed before the end of 2021, Paper Excellence said it’s “enthusiastic about entering the American market.”

If the plan goes through, Paper Excellence will also become the largest pulp producer in Canada.

This has raised concerns among environmentalists, who fear that the acquisition will result in the clearing of boreal forest in Canada, home to more than 600 Indigenous communities and threatened species like the boreal caribou.

For one, they are worried that the merger would reduce Domtar’s environmental safeguards, transparency and accountability. This is because Paper Excellence is reportedly affiliated with Indonesian conglomerate Sinar Mas group and its subsidiary, Asia Pulp & Paper (APP).

APP has a long history of deforestation, destruction of wildlife habitat, fires and greenhouse gas emissions from peat development, and conflicts with local communities related to land grabbing, forest clearance, and pulpwood plantation development in Indonesia.

Responding to the merger plan, APP said it “has no legal affiliation with Paper Excellence and is unable to comment on activities of any third party.”

While Paper Excellence falls outside the Sinar Mas corporate empire, it’s controlled by the same family that owns the group, the billionaire Widjaja family of Indonesia, and there are indications that the two groups operate as a deeply integrated production-marketing conglomerate.

Paper Excellence itself also has a track record of environmental degradation. Its Northern Pulp mill has been polluting the air and water of the Canadian province of Nova Scotia for more than five decades.

Banff National Forest in Canada, home to montane forests. Image by Rhett A. Butler.

In light of this, 68 organizations urged Domtar’s key stakeholders to reject the acquisition in a letter before the shareholder vote.

“If the acquisition becomes effective, Domtar will be intertwined with companies associated with controversial and unacceptable practices,” the organizations said in the letter. “This also means that funds raised by Paper Excellence to facilitate the purchase are associated with unacceptable business comprising a legacy of deforestation, the reported human rights violations, and significant CO2 emissions. Domtar shareholders would be bought out with this tainted money.”

The planned merger also prompted WWF to issue a statement, saying it has “major concerns about the proposed acquisition of Domtar by Paper Excellence, given the affiliation of Paper Excellence with Sinar Mas Group’s (SMG) Asia Pulp & Paper (SMG/APP).”

The civil society groups also pointed out that the merger would reportedly make Domtar privately held and part of a conglomerate with an opaque corporate structure and no accountability to stakeholders.

Domtar holds Forest Stewardship Council (FSC) certificates, but a recent report by U.S. nonprofit the Natural Resources Defense Council (NRDC) shows the company has been sourcing high volumes of wood from non-FSC-certified forest units, which are vulnerable to destructive logging practices.

The report estimated Domtar to be sourcing as much as 684,600 cubic meters (24 million cubic feet) of wood annually from non-FSC-certified areas in Ontario and Quebec provinces.

The signatories of the joint letter said Domtar’s already insufficient commitments to FSC-certified wood could be weakened further through the merger. They also pointed out that FSC has already disassociated itself from Sinar Mas subsidiary Asia Pulp & Paper, which means no affiliates of APP can be certified by the FSC.

The environmental risks posed by the merger are compounded by weak safeguards in Canada’s laws and regulations, according to Courtenay Lewis of the NRDC.

“Paper Excellence’s expansion is particularly concerning given the lack of meaningful safeguards overseeing Canada’s logging industry,” she said. “Canada’s federal and provincial governments have created a regulatory vacuum which allows industrial logging to run rampant, conceals its impacts, and stymies efforts to make it more sustainable.”

For instance, Canadian policy has a “logging loophole” as the country’s carbon reporting doesn’t account for logging scars, which are formed by heavy machinery to haul trees to the roadside. These scars suppress regrowth, and remain barren and essentially deforested decades after logging.

The NRDC says this loophole undermines Canada’s climate commitments by exempting the logging industry from scrutiny for its toll on the boreal forest.

Some provinces, like Ontario, Quebec, and British Columbia, have also incentivized the clearing of intact and old-growth forests. Ontario, for instance, plans to double logging volumes by 2030 to create more jobs in the sector, while Quebec plans to give logging companies access to larger territories.

“Without strong and permanent protections for Canada’s intact forests, the management of these forests will be vulnerable to any future merger and acquisitions and the whims of corporate leadership,”Lewis said.

With the acquisition of Domtar looming, she said the Canadian government should strengthen its forest protection policies to reduce the risks posed by the merger.

“Rather than turning a blind eye to corporations with problematic histories whose operations span from Canada to Indonesia, Canada could be part of the solution,” Lewis said. “Stronger policies could benefit communities and the global climate by respecting the wishes of Indigenous peoples, requiring logging to be more sustainable, reporting logging’s climate emissions, and disincentivizing the turning of much of these forests into throwaway products.”

Joshua Martin, director of the Environmental Paper Network, an international coalition of more than 150 conservation organizations, called on the public to keep an eye on Domtar and Paper Excellence.

“If the sale goes through, it’s going to be critical that civil society and regulators scrutinize everything, hold the company accountable and drive reform, in order to protect communities from pollution, and conserve critical habitats,” he said.


Banner image: A woodland caribou in the forests of Canada. Image via Wikimedia Commons/ThartmannWiki. 


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