Owners of Indonesian paper giant APP takes over North American Domtar, putting the company’s credibility at risk

By Sergio Baffoni, Environmental Paper Network

For the pulp and paper industry, it is the take-over of the decade. Domtar shareholders decided today to sell their shares to Paper Excellence and delivered the major North American uncoated freesheet paper producer (with 21 manufacturing facilities around the world, 6,400 employees, and customers in 50 countries) to one of the most controversial paper companies of the world, the notorious Indonesian Asia Pulp & Paper (APP).

Paper Excellence is a relatively unknown company that recently built a global empire by acquiring pulp and paper mills in Canada, Europe, and Brazil. The money used for these purchases came from the conglomerate behind Asia Pulp & Paper (APP): in fact Paper Excellence is the outfit used by the notorious Indonesian giant APP – which is owned by Sinar Mas Group (SMG) –  to expand its business and corporate model all over the word. 

APP is a company that has been boycotted by most major brands, as the conglomerate is connected to 30 years of deforestation, forest and peat fires, and the destruction of wildlife habitat in the 2 million hectares of land under their control in Indonesia. 

Such peat fires, and the company’s peat development, have caused extensive greenhouse gas emissions. There are also many reports of conflicts with local communities related to land grabbing, forest clearance, and pulpwood plantation development in Sumatra and Kalimantan, Indonesia (more details on these severe impacts can be found in this ‘backgrounder’ .)

Just three months ago, APP’s security in Sumatra assaulted a group of indigenous Sakai women in Sumatra because they were trying to protect their ancestral land. Two weeks ago, the Indonesian NGO AILinst reported yet another case of deforestation by an APP supplier, in a forest that serves as a crossing route for endangered Sumatran elephants.

Will these environmental misbehaviours have an impact on North-American forests? Yes, they will. APP, Paper Excellence, and the large conglomerate called “Sinar Mas Group” (SMG), as well as hundreds of other associated companies – many of them incorporated in tax haven countries – are tied by a complicated and opaque corporate structure, with different companies often being managed by members of the same family. Domtar risks losing their Forest Stewardship Council certification (FSC) as FSC has already disassociated itself from APP/SMG, meaning that no APP/SMG tenures can be certified by FSC. 

Today, Domtar shareholders – such as Blackrock, Vanguard, and Dimensional Fund Advisors –  sold their responsibility to Domtar and the forests it manages, in exchange for tainted money. They allowed this untransparent and unaccountable conglomerate – led by a single family –  to become the key player in the North American pulp and paper industry. 

But they are not alone in the corner of shame. A number of banks, including Credit Suisse and Bank of Montreal, coordinated by Barclays, already committed an aggregate of USD 1.95 billion of financing to support the acquisition. Through this, they are marrying the business of APP and the environmental, social, and climate impacts it has caused and is still is causing – which is something we cannot imagine is in line with the so-called social and environmental policies of these banks.

Unlike Domtar shareholders, banks such as Barclays, Credit Suisse, and Bank of Montreal, can still acknowledge the high environmental, social, financial, and reputational risks of this deal, and rescind the commitment to finance it. EPN, together with BankTrack, has notified the banks about these risks and demanded immediate withdraw from the debt commitments.

By supporting Paper Excellence in this takeover, financial institutions will be connected to APP and SMG, and therefore with a company that is infamous for its role in deforestation, peat fires, social conflicts, and broken promises, and which does not comply with the financial institutions’ own policies.

This acquisition represents a serious reputational and financial risk for Domtar, for any company currently doing business with Domtar, and for financial institutions supporting Paper Excellence in taking over Domtar. If the acquisition becomes effective, Domtar will be heavily intertwined with APP and SMG, which are linked to controversial, extremely harmful, and unacceptable practices. The acquisition would arguably make Paper Excellence – and with that APP and SMG – the most powerful company manufacturing pulp and paper in Canada, and strengthen the conglomerate’s control over activities in Canada, Indonesia, and Brazil.