Investors warned on pulp mill risk

This is a timely report in view of the widespread concerns over the Botnia paper mills. This report provides useful guidelines for financial institutions to enable them to assess the implication of investing in a new Paper Mill, and either provide the impetuous to raise the standard of a mediocre project or avoid the reputation risk of being associated with a poor project.

Investment is pouring into emerging market pulp mills based on false assumptions about the origins and the cost of wood,according to a report from the Center for International Forestry Research – “setting up investors, forest-dependent communities, and the environment for a precipitous fall,” it says. The report, financed by the European Commission and the UK’s Department for International Development, says that some $40 billion has been invested in the sector over the past decade,and analysts project a further $54 billion in investments by 2015. The study found:

  • Financial institutions and investors often have very limited information about a pulp mill’s wood supply.
  • Detailed data on wood supply often is not reported in sufficient detail by project sponsors, or is not publicly available.
  • Financial institutions and investors do not have sufficient information to properly assess the socio-enviro impacts and sustainability of planned pulp mill projects.

The report will:

  • Encourage responsible investment by promoting a legal, transparent, and sustainable pulp and paper industry.
  • Ensure projects provide income for business, tax revenues for governments, and benefits and jobs for local communities.
  • Allow financial institutions to better assess whether proposed pulp mill projects have a secure and sustainable supply of wood fiber.
  • The report provides a number of specific recommendations that will enable them to do so.

The report “Financing Pulp Mills – An Appraisal of Risk Assessment and Safeguard Procedures”, analyzes the type of information institutions such as banks and export credit agencies examine when they decide whether or not to finance pulp mill projects.

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