Ladies and gentlemen, good afternoon.
Let me begin by thanking the Empire Club for the opportunity to talk to you about an industry that has been so much a part of this country’s history and economy; about a company whose roots run almost as deep as the industry itself; and about the challenges of the recent past and our hopes for a long-term corporate future.
Transformation of an Industry
The past decade has taken a significant toll on our industry. Mills closed and companies disappeared, often with dramatic consequences for the communities in which they operated. Over the past seven years, close to 90,000 jobs were lost across the country, with most of those in northern and rural areas where the loss of good jobs can be particularly tough and where the likelihood of equivalent economic opportunities is low.
A large part of this is because we as an industry have gone from our historic position as the supplier to the world to simply being a supplier in the world – a shift that shocked employees from the shop floors right up to the executive suites.
Today, however, the industry has turned a corner, and while we’re not yet out of the woods (so to speak), things are looking better. And – despite the naysayers – the forest products industry remains important to Canada’s economy. Forestry is a $57 billion industry, representing 12% of the manufacturing GDP, and directly and indirectly employing almost 600,000 Canadians. And while it may not be the job creator it once was, it can remain a significant employer, a wealth creator, and a source of regional stability.
We know that the forest industry provides livelihoods for thousands of families and a viable economic future for communities across the boreal. In many of these communities, Resolute’s operations are the anchor for the local economy. According to the Canadian Forest Service, some 200 Canadian boreal communities rely on the forest sector for at least 50% of their income, with another 222 communities depending on the boreal for at least 20% of their income. This proves that there is, after all, life north of the 401.
As an industry, we’ve aggressively worked to expand our export markets, in part due to the emergence of a sharper edged and more protectionist stance on lumber by our historic major trading partner, the U.S., and in part to the falloff in demand for our products in this market during the economic downturn and technological changes in society.
Where the U.S. used to account for over 80% of our total exports – I’m talking now about pulp and paper as well as lumber – our efforts at selling into Asia, in particular, mean that the U.S. today accounts for just over 60% of exports. This is also partly due to declining markets there, including a decline in housing starts. Indeed, the forest sector is now Canada’s number one exporter to China.
In 2013, and again contrary to popular belief, we are also an industry with strong productivity. According to data from the Forest Products Association of Canada, we have consistently outperformed the Canadian general economy and other sectors here in Canada in terms of labor, capital and multi-factor productivity growth.
We are now an industry that sees innovation as a key part of our future, seeing the forest as more than just trees. We’re investing in research and development that helps us stretch the value and benefit from the trees we harvest. We’re developing new products that allow wood to be used in additional and better ways. And, we’re partnering with other industries to pioneer entirely new and innovative uses for wood fiber; for everything from auto parts to cosmetics.
But perhaps the most important factor in ensuring our future is the industry’s overall commitment to sustainable development. Canada’s forest products industry is widely recognized as one of the most environmentally friendly in the world.
Canadian producers have become global leaders in producing sustainable forest products under strict environmental rules. And the industry has a strong commitment to sustainable forest management. Producers have most of the forestlands they manage independently certified to one of three internationally recognized sustainable forest management certification systems. In a world where only 10 percent of forests are certified, Canada accounts for over 40 percent of that total.
Since 1990, as an industry, we have invested $9 billion in becoming greener – not just green, but even greener. Today, roughly 75% of the paper being used in Canada is recovered. Since 2000, the industry has doubled the amount of recycled paper it uses. As well, integration between pulp and paper mills and sawmills allows us to optimize the use of the fiber that is harvested.
And in other areas, water use is dramatically down, energy efficiency is dramatically up, and as an industry, we are leaps and bounds ahead of the heavy industrial comparables in terms of improving our environmental footprint.
Transformation of a Company: Resolute Forest Products
So where does Resolute Forest Products fit in? First, it represents the coming together of some of the great names of Canadian industry – Abitibi, The Price Company, Donohue, Consolidated Bathurst, Great Lakes Paper, and CP Forest Products, to name just a few.
We are a key Canadian player and a global leader in the forest products industry – we produce commercial printing papers and newsprint for a wide range of printing needs including major publications the names of which you would immediately recognize; market pulp for use in products like tissue, paper towels and hygiene products, and lumber and wood products, for building materials and specialized structural and industrial applications. Our annual sales are over US$4.7 billion and our products are sold in about 90 countries around the world.
We own or operate over 40 pulp and paper mills and wood products facilities in Canada, the U.S. and South Korea, as well as power generation assets in Canada. We also have a waste fiber collection business and operate the last 100% recycled newsprint mill in Canada. And Resolute employs over 9,000 people in communities across Ontario, Quebec, the southeast U.S. and South Korea, with many of those facilities in towns and regions where our operations are the major economic force.
Like the rest of our industry, we have been through very challenging times over the last decade – with some of those conditions continuing to persist. This has led to the company having to make some difficult decisions. However, most of the mills that remain are now among the most competitive in the North American industry and, with active involvement and support from employees at all levels and from the communities and regions where we operate, we intend to be around long term.
Fortunately, we are seeing signs that the U.S. housing and construction market, which significantly impacts our sawmill business, is recovering. Still, we must recognize the secular decline of many paper products, particularly in North America, due to economic and market realities. Paper still has an important place, and we’re confident in its future. But the manufacturing industry behind it has gone through dramatic change, underscoring the importance of adapting and evolving to meet the reality of our changing times. Working in a spirit of partnership and collaboration, we are best able to provide for a sustainable future.
Despite the disruptions and challenges that have shaken our industry, we have confidence in its future. For Resolute, ensuring we are part of that future has meant changing the way we think about our business, changing how we do business and changing how we operate.
A Sustainable Future
In today’s world, the process of repositioning a company starts with a serious commitment to operating sustainably – something we believe directly contributes to building and enhancing not only Resolute’s reputation, but its competitiveness. We’re working hard to ensure it is at the core of all our business decisions. By carefully balancing environmental, social and economic priorities, we believe that we will ultimately become a more efficient company for our shareholders; a better employer for our colleagues in the workplace; a stronger partner for our customers; and a more stable force in the communities where we operate.
Over the last two years, there has been a major shift in the role environmental sustainability plays at Resolute. That’s not to say we weren’t doing the right things before. We were reducing our GHG emissions, putting sustainable forest management in place, working collaboratively with environmental groups and governments, and taking other steps in support of environmental stewardship and sustainable development. But we lacked some of the formal reporting tools and even structure embedded in our governance required to drive results.
One of the many significant changes we implemented was our decision in 2010 to begin producing an annual sustainability report using the Global Reporting Initiative (GRI) standard. GRI – which is endorsed by the United Nations Global Compact – is the world’s most broadly accepted reporting standard and represents an important advance in the way we share our sustainability story. It provides the framework we use to improve accountability, transparency and results across our environmental, social and economic sustainability objectives. Open and transparent communications are fundamental to our collective best interests.
In 2011, we made a further commitment by creating a working committee of senior Company managers with the responsibility for ensuring that sustainability is ingrained within our overall business objectives, and that it is fully integrated into our operating practices. This Sustainability Committee represents all of our major activities and business lines and is directly accountable to my Executive Team. Its mandate is to broaden our understanding of how sustainability aligns with our business strategies; to monitor and measure sustainability progress; and to make recommendations on how future sustainability performance can contribute to meeting all long-term corporate objectives – the multiple bottom lines.
Structured reporting and a formal company mechanism will help us assess progress and ultimately achieve our key sustainability commitments. Let me share a few highlights.
Managing our Forests for Future Generations
Our industry has faced some criticism regarding our forest management practices. As some of you may know, certain criticisms of our Company in particular have recently been shown to be unfounded; based on opinion and perception rather than fact. Actually, our Company, our industry, our governments and our society have a lot to be proud of when it comes to responsibly managing the forests in our care.
With its Crown Forest Sustainability Act, the Province of Ontario has among the best – if not the best – forest management frameworks in the world.
Canada has the largest area of managed forestlands certified under the standards of the Forest Stewardship Council, also known as FSC, in the world – and in Canada, Ontario is second only to Quebec. This, too, is a world-class system.
For Resolute, 100% of the timberlands we manage are third-party certified to one of three internationally-recognized sustainable forest management standards. And we’ve made a commitment to further increase the level of FSC certification from 18% in 2010, to 80% by 2015. Indeed, as of March 2013, we had already reached 65%. And in 2012, we achieved the distinction of becoming the largest FSC-certificate holder in the world.
Subject to regular and rigorous third-party audits, these certifications provide independent assurance that our forests are responsibly managed, according to standards developed specifically for local forest conditions – and they go beyond current regulatory requirements.
The fiber used in our Canadian products originates mainly from the boreal forest, which is among the most carefully managed working forests in the world. In fact, a Yale University study singled out Canada’s forestry laws and regulations as being among the most stringent in the world.
In application, sustainable forest management provides an exceptionally high level of protection to the boreal forest. You may be surprised to know, for example, that less than a quarter of one percent of the boreal is affected by harvesting each year. The reality is that more of the boreal forest is lost every year to insects or forest fires than to harvest by man. And by law, lands must be quickly regenerated after harvesting.
In July of last year, we celebrated the planting of the billionth tree in Ontario by Resolute and its predecessor companies. I want to be clear – that is billion with a “B” – you know, like the deficits. And this number doesn’t include the reforestation achieved by things like aerial seeding and natural regeneration. In short, we replace in multiples the trees that we harvest.
But responsibly managing the forests isn’t only about the fiber and the wood we use; it’s also about maintaining the delicate biodiversity in the areas in which we operate. We manage woodlands that are home to approximately 90 plant and animal species currently on species-at-risk or threatened or endangered lists. So providing protection for forest biodiversity is an important part of all sustainable forest management standards.
In this spirit, working with stakeholders, including communities, First Nations, ENGOs and governments, Resolute has expanded the network of restricted spaces in the boreal to protect specific habitat and provide a safe haven for woodland caribou and other species that call the forest home.
Indeed, we are bound by regulations set out by governments; by objectives set out by the various certification systems we have chosen to subscribe to; and by standards set out by our Board of Directors to ensure we protect flora and fauna, spaces and species.
In Ontario, the target for land set aside under the landmark collaborative process known as “Lands for Life” was 12%. From Thunder Bay to Manitoba, an area the size of the New England states and one where Resolute has a major presence, over 16% of the operable land base has already been withdrawn. This does not include the impact of areas covered by regulation – greenbelts around lakes, river reserves and waterway corridors, and other similar preservation areas. When those areas are taken into account, that withdrawal percentage goes up to over 30%.
As part of this overall effort, in cooperation with the provincial government, we’ve protected over 21,000 square kilometers of Ontario forestlands as regulated parks. That’s about three times the size of the GTA (Greater Toronto Area) or 33 times the city of Toronto. And this does not even begin to factor in the northern parks planned by former Premier McGuinty.
Environmental Sustainability: More than just the Forest
The environmental elements of our sustainability commitments are more than just the forests we manage, they’re also about accepting our share of responsibility for global warming. Growing public concern about greenhouse gas (GHG) emissions is leading more and more citizens, governments and organizations to change the way they live their lives, provide services, or do business.
Resolute is no different. In 2011, we joined the World Wildlife Fund’s Climate Savers program, through which we have committed to reduce absolute (scope 1 and 2) greenhouse gas emissions by 65% by 2015; compared to our 2000 emission levels. These are industry-leading emissions reduction targets; and the equivalent of taking almost 1.5 million cars off the road. Imagine almost no cars in Toronto. So far, we’ve succeeded in reducing our absolute emissions by over 62%, so we’re well on track to meet our target.
Our solid progress to date reflects a commitment at all levels of the Company on improved energy efficiency, the use of hydroelectricity, and switching from fossil fuels to cleaner renewable energy sources like carbon-neutral biomass. In fact, around 70% of our energy requirements come from renewable sources. While hydro is a primary source, we have seven sites that operate cogeneration facilities that produce “green energy” from carbon-neutral biomass. We also use alternative fuels like methane from landfills, used oil and tire-derived fuel.
Of course, part of reducing our greenhouse gas emissions is also related to reducing the carbon footprint of our products. This has led us to invest in and grow market share for innovative products, like our Align-branded family of eco-efficient, budget-friendly, high-performance papers. These papers are made using an innovative process that produces high brightness with about 50% less fiber and fewer chemicals than competing papers. A life cycle analysis showed that the Align paper grades had a 35%-86% smaller carbon footprint than competitive papers, depending on the grade. The result: we reduce our carbon footprint, and customers can feel good about purchasing a quality, environmentally friendly paper.
Sustainability: More than just the Environment
To be sure, our approach to sustainability places a premium on environmental initiatives, but we’re also sensitive to the important social and economic imperatives.
The health and safety of our employees is an absolute priority for the Company. Our safety record has improved dramatically over the last few years, and is approaching our goal of world-class performance.
We’re a company that embraces the natural partners in our regions – the leaders of the smaller centers that depend on our corporate stability, and our partners, including First Nations. These are the folks who have a knowledge of and a respect for the beauty and the power of nature. That’s why we encourage all of our partners to participate in our sustainable forest management planning process. Each operation also has its own ongoing stakeholder outreach program, where local General Managers, HR Managers and other staff meet formally and informally with local governments, First Nations, business partners, chambers of commerce, ENGOS, and others.
We work with community leaders to better understand local issues and concerns, and in turn, our operations and employees support and participate in local community life. Our aim is to ensure local stakeholder outreach is conducted regularly across our operations and we’re providing our managers with the training to help make it happen. I firmly believe we can expand this activity and build new and stronger links. Constructive engagement will continue to produce mutual benefits.
Partnering with First Nations
In some of our communities, First Nations peoples make up a large portion of the local population. We understand that our operating practices and decisions can have a direct impact on the First Nations communities that depend on healthy, productive, working forests. We also understand that it is important for these communities to find ways to create value and economic opportunity from the forests off which they have always lived.
That’s why we have partnerships with numerous First Nations groups near our operations that aim to ensure cooperative forest management and even business partnerships. In Thunder Bay, for example, we have had a partnership with the Fort William First Nation since 2003 related to a sawmill that employs over 170 people. Recently, we announced a new sawmill project in Atikokan, Ontario. This new $50 million facility will create approximately 90 jobs in the community, with additional employment associated with construction, as well as indirect positions for hauling lumber and residual wood chips when the project is completed. I am particularly pleased with the direct involvement of First Nations, and the opportunity for shared economic benefit that this represents.
I hope I have been able to give you a sense of how the forest products industry is evolving today and also how it remains an important Canadian industry. It has not only played a key role in this country’s past economic development, but it has a bright future and still much to contribute to our nation’s prosperity. I believe these examples I’ve shared with you represent what is possible when we work together on economic and sustainable initiatives. Simply put, we believe that a strong balance sheet is even stronger when it also benefits our employees and our communities.
At Resolute, we believe that only a true commitment to sustainability will secure that bright future. The equation for us is simple: strong sustainability performance means delivering on environmental, social and economic objectives that benefit and provide value to all our stakeholders – customers, shareholders, employees and especially the communities where we live and work.