Task Force on Climate-Related Financial Disclosure (TCFD)
Task Force on Climate-Related Financial Disclosure (TCFD)
The management of aspects related to climate change is part of Klabin’s business strategy and is one of the priority themes of the Klabin 2030 Agenda, the KSDGs – Klabin Goals for Sustainable Development. We took the lead in discussions on the topic and were the first Brazilian company to commit to scientific based targets for the reduction and neutralization of greenhouse gas (GHG) emissions validated by science.
Supervision of the Board of Directors
The main bodies that make up Klabin’s governance system are: General Meeting, Board of Directors and Executive Board. The Board of Directors is responsible for monitoring the results and defining strategies that guide the organization. This occurs every two months, or on extraordinary basis for other strategic deliberations, such as market communication.
The Board is advised by three bodies to assess specific topics: Audit and Related Parties Committee, People Committee and Sustainability Committee. The Committees are responsible for evaluating and expressing opinions on matters assigned to them, in accordance with their respective Regulations, approved by the Board of Directors. The Audit and Related Parties Committee follows up and monitors, among other matters, the risks and opportunities related to the company. The Sustainability Committee is the body responsible for monitoring and making recommendations to the Board of Directors on Sustainability topics, such as those related to climate change, sustainability and environmental, social and governance (ESG) issues in general.
Management role
Relevant climate risk factors and mitigation and resilience strategies were included in the company’s risk matrix, allowing the Board to oversee information related to climate risks and opportunities, according to roles and responsibilities described in internal policies.
Strategic issues and risks related to climate change are introduced on the agendas of the Board of Directors through the Board and/or Committees, with information systematized by the company’s advisory bodies, such as the Commission, the Risk Committee and the Permanent Sustainability Committee, composed of Klabin’s directors.
The Committees’ function is to evaluate and monitor the information passed on by the Sustainability and Environment and the Risk Management and Internal Control Management Departments, which aims to identify, assess, treat, and frequently monitor the risks and opportunities arising from climate changes that may infer in the company’s activities and strategy, in addition to proposing measures to mitigate these risks and leverage opportunities, linked to the creation of action plans and budgets.
Further reinforcing the importance of the topic by the company, CEO Cristiano Teixeira is the current Ambassador of SDG 13 (Action against Global Climate Change) of the UN Global Compact Brazil Network, working on private sector engagement with the reduction of GHG emissions from the establishment of Science Based Target Initiatives (SBTi) as well as the Race to Zero and Race to Resilience campaigns.
In 2022, 100% of executive directors adopted Climate Change targets linked to an ESG Index, which prioritizes issues according to risk and relevance in the year. A 50% increase in the adoption of those targets was observed in relation to the 2021, demonstrating that the incorporation of the Recommendations by the Task Force and other climate commitments are present in the daily lives of top management and employees.
One of the most important aspects of a company’s success is the establishment of a robust strategy. The TCFD recommendations establish guidelines so that companies’ future performance is evaluated based not only on current conditions, but also on climate changes, taking into account their future impacts and changes resulting from this scenario. We consider both the current physical conditions and possible scenarios of evolution as well as the transition to a context of a more strict market and regulations concerning the impacts of production systems and their consequences for the climate.
Following the TCFD recommendations related to the climate strategy area, Klabin discloses potential and current risks and climate opportunities in the company’s business, presenting how this is being incorporated into its strategy and financial planning.
As a result, the company was able to learn not only how to identify such risks, but also the magnitude of financial impact and the time frame projected for incorporation, defined according to the criteria adopted by the company.
Based on selection criteria and mapped risk factors, Klabin ascertained the climatic risk factors for the company, considering chronic risks to be those related to long-term consequences; acute risks to be those triggered by extreme weather events; and transition risks to be those arise on the path of change to a low-carbon economy.
Klabin has been gradually implementing risks and opportunities in its financial and strategic planning. Starting in 2020, Klabin began mapping risks and climate opportunities, resulting in the prioritization of the risks included in the Company’s risk management matrix, being reviewed on a regular basis.
Scenarios
The identification of physical risks used future climatic scenarios, particularly RCP 2.6 and RCP 8.5 – Representative Concentration Pathways, that simulate levels of carbon concentration in the atmosphere over the years, which allows identifying potential consequences of climate change (physical risks).
To identify regulatory risks, Klabin uses the “Sustainability Development Scenario” (SDS) scenario, a regulatory scenario that maps a path consistent with the Paris Agreement’s “well below 2 °C” target, while achieving universal access and improves air quality. Furthermore, it is an integrated scenario that specifies a path towards ensuring universal access to affordable, reliable, sustainable and modern energy services by 2030 (SDG 7), substantially reducing air pollution (SDG 3. SDG 9) and taking effective measures to combat climate change (SDG 13).
In addition, scenarios such as Nationally Determined Contributions (NDCs), macroeconomic studies and internal market projections were also adopted to identify risks and climate opportunities related to market, regulation and technologies, among others (transition risks).
Transition Risk
The Regulatory changes that produce greater demands for efficiency, emission control and land use monitoring, can promote national and international pressure on the company’s operations, representing a risk of transition to Klabin. In this context, the main risks identified for Klabin were:
- Creation of a Brazilian carbon pricing market;
- Taxing of Brazilian products abroad due to risk of carbon leakage;
- Transfer of the cost of carbon on inputs by creating the carbon pricing market in Brazil.
- The risks associated with the Regulatory Changes factor have an average financial impact and may occur over medium to long term.
| Impact | Description of impacts | Time frame | Amount of Financial Impact | EBITDA Percentage (2021) |
|---|---|---|---|---|
| Carbon pricing market in Brazil | An external factor of possible impact on national organizations is the establishment of carbon pricing - a cap and trade system - by regulatory means in Brazil, as a way to boost the transition to a low-carbon economy and promote the efficiency, competitiveness and sustainability of organizations. In this market, greenhouse gas emissions would be taxed, which would increase the costs of Klabin's operation. Studies of carbon pricing markets in economies similar to Brazil indicate Klabin's potential exposure to rates of USD 5 to USD 13/tCO2. In the medium term, this rate would impact emissions of scope 1 of the main industrial units (Puma and Monte Alegre), given their scales. The company's impact analyses consider a minimum cost of BRL 40 per ton of carbon equivalent. | Medium term | Low | 0.52% |
| Transfer of the cost of carbon on inputs by the carbon pricing market in Brazil | The establishment of a carbon pricing market impacts the entire chain of production of inputs consumed by Klabin, probably in order to increase its costs, especially for key inputs consumed by the company such as energy and fuel. This increase can be added to the purchase and sale price of these inputs, increasing Klabin's operating expenses. According to CNI studies, the increase in the price of electricity due to the establishment of a carbon pricing market is around 3.0%, while the increase in the price of fossil fuels is around 8.0%. | Medium term | Low | 0.56% |
| Overseas taxing due to risk of carbon leakage | With the implementation of carbon tax policies in European countries, it became evident that possible regulatory requirements would be implemented for taxing products from markets without carbon pricing policies, in order to balance competitiveness in the foreign market. Recently, the European Union introduced the Carbon Border Adjustment Mechanism, which proposes the implication of carbon tax by negotiating exported products. Although the initial proposal does not include the pulp and paper sector, there is a risk of the sector being included in future adjustments. Studies related to the European carbon market indicate that the value of allowances in the EU ETS - and consequently CBAM Certificates - may vary, in future scenarios, from EUR 50 to EUR 70. This rate would impact the company's emissions derived from the process of producing pulp and paper exported to the European Union. | Long term | Low | 0.3% |
Investment in the Resilience Strategy: USD 627,877,364.00
Between 2003 and 2021, Klabin reduced more than 66.5% of its specific GHG emissions (scope 1 and 2) by replacing non-renewable fuel consumption with renewable fuels, contributing to the transition to a low-carbon economy.
Klabin has already invested USD 627,877,364 in low-carbon equipment, aiming to increase the energy matrix from renewable sources and reduce GHG emissions.
Since 2020 Klabin has adopted an internal carbon price and included this price in the feasibility analyses of internal projects. In the analyses, a shadow price of BRL 40/tCO2eq is adopted. Additionally, Klabin developed the Marginal Abatement Cost Curve (MACC), where we forecast, for all projects evaluated, the project cost/revenue, in BRL/tCO2eq, and the potential for reducing GHG emissions from the project, in tCO2eq. In parallel, three major projects were carried out between 2020 and 2021, the biomass boiler at the Piracicaba plant and the tall oil and biomass gasification plants at the Puma unit. These three projects combined reduced more than 150,000 tCO2eq per year.
Resilience strategy investments
Since 2020 Klabin has adopted an internal carbon price and included this price in the feasibility analyses of internal projects. In the analyses, a shadow price of BRL 40/tCO2eq is adopted. Additionally, Klabin developed the Marginal Abatement Cost Curve (MACC), where we forecast, for all projects evaluated, the project cost/revenue, in BRL/tCO2eq, and the potential for reducing GHG emissions from the project, in tCO2eq. In parallel, three major projects were carried out between 2020 and 2021, the biomass boiler at the Piracicaba plant and the tall oil and biomass gasification plants at the Puma unit. These three projects combined reduced more than 150,000 tCO2eq per year. Internal carbon pricing is part of Klabin’s resilience strategy, anticipating a possible carbon regulation in Brazil.
Reduction of industrial activity by changing water availability
MACC - Marginal Abatement Cost Curve
Goal setting
In 2019, Klabin signed the agreement with Science Based Targets initiative, undertaking to submit science-aligned GHG reduction targets. In May 2021, the two targets submitted by Klabin were approved by SBTi. These targets seek to reduce scope 1 and 2 emissions by 25% per ton of pulp, paper and packaging by 2025 and 49% by 2035, compared to 2019. Below are the planned reduction scenarios in order to achieve the targets considering the projects that were analyzed and included in Klabin’s MACC.
Foresight 2035
These GHG reduction scenarios contribute to the transition to a low-carbon economy and generate a lower financial impact from possible regulations such as the regulated carbon market in Brazil and the European Union (EU) Carbon Border Adjustment Mechanism. The latter aims to add a carbon tax on imports from less ambitious countries on the climate agenda. The mechanism is being considered due to the EU’s ambition to achieve climate neutrality by 2050 and the relatively high carbon price needed to achieve this target (due to the European regulated market). The goal is to prevent carbon leakage or close local production and transfer it to countries with less strict climate policies. CBAM does not cover pulp and paper products, but as a precaution, Klabin adopts impact analyses considering the purchase of CBAM certificates for products exported to Europe. In addition, products with lower GHG emissions tend to have a lower financial impact due to carbon taxing by the mechanism.
Scope 3
In scope 3, the Company already accounts for emissions from the categories of purchased goods and services (category 1), from activities related to fuel and energy not included in scopes 1 and 2 (category 3), from transport and distribution paid by Klabin (category 4), generated waste (category 5), business travel (category 6) and employee travel (category 7). The Company’s objective for the coming years is to expand the accounting of emissions from the categories of processing products sold (category 10) and end-of-life treatment of products sold (category 12) and continue expanding the accounting of emissions from goods and services provided, seeking to measure at least 90% of the total spent by the Company with its commercial partners. An internal Klabin team, with the support of an external consultancy, has been developing strategies for accounting for GHG emissions that cover the entire value chain of the company through a systematic assessment of the suppliers’ carbon management maturity.
In addition to carbon management and expansion of scope 3 measurement, Klabin has a supply chain sustainability management program that aims to ensure that suppliers implement and follow social and environmental best practices, and ensure good management of potential risks present in the activities carried out, as established by Klabin’s General Supply Terms and Conditions and the Suppliers’ Code of Conduct.
The management of the supply chain is carried out using the EcoVadis methodology, which evaluates suppliers in the areas of Environment, Labor Practices and Human Rights, Ethics and Sustainable Purchasing. Through this collaborative platform, it is possible to measure the quality of the suppliers’ Corporate Social Responsibility management system through their policies, actions and results.
For more information about this Program, access the ESG Panel – Social and Environmental Performance of Suppliers.
Klabin also participates in the Climate Change Committee of Instituto Brasileiro de Árvores [Brazilian Tree Institute], together with other large companies in the sector, working strategically on issues related to climate change, risks and opportunities and engagement of the entire value chain.
Other initiatives
Finally, Klabin has developed and submitted a number of projects on carbon credit generation related to forest restoration and the generation and consumption of biofuels, in partnership with Brazilian consulting firms such as Future Carbon and Plantar Carbon. Today, Klabin has two projects submitted (one to the Mecanismo de Desenvolvimento Limpo – MDL and one to Gold Standard) and two projects under development that will be submitted to Global Carbon Council (GCC).
Chronic Physical Risk
The reduction in water availability and quality in almost all regions of the country is a chronic risk that can lead to a drastic decrease or even interruption of water supply. In this context, the main risks identified for Klabin were:
- Possibility of reducing industrial activity due to lack or reduction of available water and energy;
- Pressure on water supply, translated as increased rates for use or catchment;
- Pressure on the supply of power, in view of the relevance of the water matrix in Brazil, translated as increased usage tariff;
- Postponement of the planting of forest areas.
- The risks associated with the Water Scarcity factor have an average financial impact and may occur over short to long term.
Increase in energy tariff
| Description | Time frame | Amount of Financial Impact | EBITDA Percentage (2021) | Investment in the Resilience Strategy |
|---|---|---|---|---|
| Water scarcity can lead to pressure in energy management, due to the Brazilian energy matrix having considerable generation from hydroelectric plants. Energy is an important resource in Klabin's operations and, whether in its use for industrial processes or by employees, increasing its acquisition tariff may represent an increase in operating costs for the company. Simulations were conducted with Klabin's internal data, considering scenarios of water scarcity and historical variations in the price of contracts in periods of drought and regular periods, considering an increase of 4% to 40% in the value of the company's energy purchase contracts. |
Short term | Low | 1.02% | USD 479,365,618.23 |
Increase in water purchase tariff and Incidence of new water catchment and usage tariffs
| Description | Time frame | Amount of Financial Impact | EBITDA Percentage (2021) | Investment in Resilience Strategy |
|---|---|---|---|---|
| Water scarcity scenarios can lead to pressure on resource management, causing tariff increases. Water is an important resource in Klabin's operations and, whether in its use for irrigation, individual consumption or in industrial processes, the increase in water acquisition tariff may represent an increase in operating costs for the company. Market studies related to the application of contingency tariffs in Brazil in periods of water scarcity indicate that the increase in the tariff for industrial establishments can reach from 20-40%. This increase would impact Klabin's industrial units with water supplied from utility companies. |
Medium term | Low | 0.02% | The investment is being calculated. |
| Water scarcity scenarios can lead to pressure on resource management, causing the incidence of new tariffs for water catchment and use. Water is an important resource in Klabin's operations and, whether in its use for irrigation, individual consumption or in industrial processes, the increase in the cost of that resource may represent an increase in operating costs for the company. Market studies related to the application of water catchment and usage tariffs in Brazil indicate an average rate of BRL 0.1291. The application of this kind of tariffs would impact Klabin's industrial units with water supplied from the catchment. |
Medium term | Low | 0.2% | The investment is being calculated. |
Reduction of industrial activity by changing water availability
| Description | Time frame | Amount of Financial Impact | EBITDA Percentage (2021) | Investment in Resilience Strategy |
|---|---|---|---|---|
| The lack or reduction of water of adequate quality available may make industrial operation impossible, either due to the need for its use in a process or by not meeting proper working conditions for employees. Based on the tool called Aqueduct, the company mapped the industrial units that are currently under water stress area. Internal studies with historical data on the flow of the rivers that supply these units indicate that the reduction of flow lasts on average one month, time considered to simulate the impacts in production volume. |
Medium term | Medium | 2.25% | BRL 2,600,000.00 |
Reduction of industrial activity by changing energy availability
| Description | Time frame | Amount of Financial Impact | EBITDA Percentage (2021) | Investment in Resilience Strategy |
|---|---|---|---|---|
| Water scarcity can impact the energy supply to Klabin's plants, as a considerable amount of energy in the Brazilian matrix is generated in hydroelectric plants. The lack or reduction of the supply of energy may make industrial operation impossible, either due to the need for its use in a process or by not meeting proper working conditions for employees. Internal studies mapped the percentage of energy consumption not met by the volume generated by Klabin (given the predominance of self-production from biomass, this energy would not be affected by the risk of water scarcity). To understand the magnitude of the financial impact, hypotheses of production reduction were simulated. |
Medium term |
Medium | 2.25% | US$ 479,365,618.23 |
Delayed planting of seedlings due to changes in water regime
| Description | Time frame | Amount of Financial Impact | EBITDA Percentage (2021) | Investment in Resilience Strategy |
|---|---|---|---|---|
| Water scarcity, and other impacts of climate change such as the risk of frost, can hinder the development of forest plantations, decreasing their productivity and impacting Klabin's productive capacity. Thus, the risk of delaying the planting of seedlings is associated with the possibility of losing cultivation areas if they were no longer irrigated. Simulations using Klabin's internal data, considering the risk studies and insurance coverage aspects, result in impacts on the forest planting strategy, in order to concentrate about 80% of the planned planting of Eucalyptus species in the second half of the year, avoiding planting seedlings from June to August. The change in strategy would generate an increase in costs related to employee demobilization, due to the lack of predictability of planting continuity at the same levels in the first half of the following year, and to extra forestry activities, due to the need for special cultural treatments for this period of the year. |
Long term | Low | 0.15% | BRL 11,000,000.00 |
Klabin generates more than 88% (2021) of the energy needed to meet its consumption demand at all of its units, which makes Klabin unsusceptible to short-term changes in energy rates. In addition, Klabin has long-term contracts with institutions that generate and sell energy, which further minimizes this impact of increased energy tariff on the company’s operations.
Still seeking to minimize the impacts of this risk, on a monthly basis, Klabin monitors the level of reservoirs and volumes of thermal generation in the country, making it possible to assess potential impacts in the medium term. Klabin made an investment of USD 479 million for the installation of the liquor and biomass recovery boilers of the Puma unit (considering Puma I and Puma II), which allows the unit to be self-sufficient regarding its power and to sell the surplus to the Brazilian market. New projects are being evaluated to expand Klabin’s generation, as well as replace the generation with low-carbon technologies.
Water use reduction
As a way of reducing the impacts related to the increase in the water tariff, Klabin has been working to reduce the need for water in all its industrial units. In addition, they have been working on possible alternatives for units that have only one source of water abstraction, thus avoiding the possibility of impacts on the units’ production. Currently, less than 0.1% of the total water used by Klabin comes from the concessionaire, where the main impact would be due to the increase in the water tariff. Some units that use surface water already have a budget for this purpose, however, this still has a small representation when compared to the total collected by the company.
In addition, Klabin has been increasing the internal pricing of water within the units, passing on the costs of capture and treatment, mainly, to the areas that actually use this water, strengthening the idea of working to reduce water capture in all its units.
Since 2004, Klabin has reduced its specific water use (m³/t) by more than 51.5%, as shown in the chart below.
Especific water use
Currently, the Sustainability area monitors units located in water stress regions, updating these areas based on the tool called Aqueduct Water Risk Atlas from the World Resources Institute (WRI), monitoring:
a) Percentage of water collected and discarded (after treatment) in areas of water stress by the total of Klabin S.A (%)
b) Percentage of units located in water stress areas (%)
c) Percentage of total revenue corresponding to plants located in water stress areas (%)
d) Revenue from units located in water stress areas (R$ MM).
In its forest areas, Klabin operates with the concept of Solidary Hydro Management, that is, a management strategy based on the balance between forest production and water production. In this way, it is possible to integrate the different needs of the input, including neighboring communities and ecological processes. This activity begins in the forestry planning stage, which takes into account the watersheds and neighboring water catchment points.
Effluent Disposal
Minimum standards for effluent disposal are based on municipal, state and federal legislation for each unit. Klabin also compares its results with the indicators of the International Finance Corporate (IFC), which has benchmarks for the pulp and paper sector. To determine the maximum release limits, Klabin carries out studies of water dispersion and self-purification of the water body to assess and determine the limits that do not change the water quality and volume of the water body.
In 2021, the volume of reused/recycled water at Klabin represented around 2.1 times the volume of raw water collected, around 245.6 billion liters of water.
Sustainable finance
Klabin priced the issuance of US$500 million in senior debt securities with full guarantee (Senior Unsecured Notes), linked to sustainability performance targets with a final term for 2030, with 2025 as the trigger for pricing the interest rate. interest next.
The Key Performance Indicators (KPIs) are aligned with three of the Klabin Sustainable Development Goals (KODS), which, in turn, are linked to the Company’s growth plan. The securities related to this issue are subject to coupon readjustments (interest) in the event of reaching or not the goals established by the Company in 2025, as defined by the Sustainability Performance Trigger (SPT).
The goals selected by Klabin in this operation – in the areas of water, waste and biodiversity – are indicators of the Company’s ambition to increase the resilience and rationality of its extraction, transformation, reuse and regeneration of resources model. Klabin’s influence on these three topics has a direct impact on its cost-efficiency, its ability to maintain constructive relationships with society and, ultimately, the very capacity of the ecosystem in which the Company operates to respond positively to the stimuli of greater productivity, both for both forest and industrial operations.
For more information, please visit the ESG Dashboard – Sustainable Finance link.
Mitigating measures
In addition, it performs daily monitoring of the flow of rivers that supply all Klabin units and the rainfall volumes of these sites through an internal report directly linked to the National Water and Basic Sanitation Agency (ANA) database.
In 2021, the units prepared action plans for scenarios involving 10, 20 and 30% reduction in water catchment, predicting a possible request by environmental agencies due to the country’s ongoing water crisis. Thus, the units developed actions to temporarily reduce catchment, impacting or not the plants’ production, as well as long-term reduction actions, prioritizing obtaining alternative sources for water catchment.
The Forestry business area has implemented specific actions to control and monitor forest fires:
– Increase areas with irrigated planting of seedlings;
– Forest planning integrated to the watershed, which implies the adoption of best forest management practices to reduce impacts on watersheds;
– Forest conservation, ensuring ecosystem services of regulation and quality of water and local microclimate;
– Investments on structuring of equipment for irrigated planting, including motor pumps, water trucks, and forestry equipment for irrigation and/or semi-mechanized planting with irrigation.
Chronic Physical Risk
With the chronic risk of variation of the average temperature, heat waves will become more intense in almost all regions of the country, resulting in numerous impacts on forest and industrial activities. In this context, the main risks identified for Klabin were:
- Faster pace of forest pests;
- Increase in frequency and severity of forest fires and frosts;
- Pressure on the growth rate of the planted forest.
The risks associated with the Temperature Variation factor have an average financial impact and may occur over the long-term.
Faster pace of forest pests and drop in forest productivity
Description |
Time frame | Amount of Financial Impact | EBITDA Percentage (2021) | Investment in Resilience Strategy |
|---|---|---|---|---|
| The distribution and frequency of pests depends on a set of ecological and agroclimatic factors. The rise in the region's average temperature and other associated climate changes can accelerate pest proliferation cycles. PESTS:Attack rate: 50%Volume of infested eucalyptus: 3,756,845 tons.Volume of infested pine: 5,461,349 tons.DISEASES:Infestation risk rate: 15% (eucalyptus) and 10% (pine)Volume of infested eucalyptus: 1,502,738 tons.Volume of infested pine: 1,456,360 tons |
Medium term | Medium | 1.61% | BRL 3,669,666.00 |
| Amount and frequency of intense drought, minimum temperature, average temperature, potential evapotranspiration and water deficit are factors that affect the growth of the planted pine and eucalyptus forest. Thus, the rise in temperature, all the more constant, can imply an increase in evapotranspiration, and consequent reduction of forest productivity for both pine and eucalyptus. This effect can be intensified by increased periods of drought or reduction of average precipitation. Kablin has developed specific studies that pointed to an overall trend of rising temperatures in the Paraná region, with an average rise of 0.32°C per decade. For 2020-2035, these studies estimate a loss of forest productivity of 3% for eucalyptus and 5% for pine. |
Long term | Low | 0.41% |
Increase in the frequency and severity of fires
| Description | Time frame | Amount of Financial Impact | EBITDA Percentage (2021) | Investment in Resilience Strategy |
|---|---|---|---|---|
| The rise in the average temperature and changes in the precipitation regime can cause sufficient hot and dry conditions to favor the occurrence and proliferation of forest fires, which would put Klabin's forest areas at risk. Specific studies developed by Klabin from the projection of historical data on humidity, temperature and precipitation, following the trend of temperature increase, showed that, in 2035, there would be a high or very high risk of fire on 51% of the days of the year, according to the standardization of risk classes of the Monte Alegre Formula. |
Long term | Low | 0.4% | BRL 5,300,000.00 |
Increase in the frequency and severity of frosts
| Description | Time frame | Amount of Financial Impact | EBITDA Percentage (2021) | Investment in Resilience Strategy |
|---|---|---|---|---|
| The variation in the average temperature and changes in the precipitation regime may cause favorable conditions for increased frequency and severity of frosts, which would put Klabin's forest areas at risk. Klabin's internal data suggests that young forests are more vulnerable to frost damage. In addition to causing a loss of investment made in the respective forest areas, this event causes additional expenses with the purchase of wood for replacement and maintenance of industrial production. |
Short term | Low | 0.62% | The investment with the Climate Resilience Strategy for the above impacts is being calculated. |
Klabin has a Forest Research Department responsible for research and development of forest solutions to mitigate the impacts of climate change. The work involves different lines such as biotechnology, genetic improvement, phytosanitary and forest management, which develops clones of pine and eucalyptus in order to increase forest productivity and resistance of species to the impacts of climate change. The department is also responsible for developing and assessing Climate Scenarios. To this end, the department works with a data model related to exposure to climatic parameters, assessing the impact of changes in planted forests, and recommends the necessary measures in case of adverse effects.
In 2021, projects related to the fluctuation of pest population were implemented throughout the different seasons and forest regions, in order to create indicators for each occurrence of forest pests, their preference for genetic materials, the impact of forest mosaics, and the impact of climate related to their dynamics of dispersion and infestation in the plantations. For the coming years, Klabin aims to expand the development of natural enemies in the laboratory aiming at large-scale dispersion in strategic points of the company, in addition to constant research projects aimed at identifying other potential means of control, such as: microbiological agents, macrobiological agents, chemical components, and even genetic resistance.
For this, there are plans to expand forest monitoring aimed at the possibility of conducting the above study in the entire forest base, and hiring more field personnel for on-site monitoring. Resources are being invested in a system of centralization of field surveys, aiming to create a single base of occurrence records and possibility of implementing faster actions upon the occurrence of sporadic pests. Currently, indicators from field surveys associated with the occurrence of forest pests are monitored through different bases. As well as different researches are carried out to ensure the protection of plants from pest attacks and diseases that can reduce forest productivity.
Klabin’s Forest Business Area also has the Forest Fire Structuring Program, providing training to firefighters; investments in expansion of fire fighting equipment – water truck and helicopter; and investments in improvements in the monitoring tower system, with the inclusion of automatic fire outbreak detection system and the inclusion of warnings of outbreaks via satellite.
Also in the Forest Business Area, Klabin works with a tactical forestry planning process (S&OP) responsible for conducting the Planting Plan (PP), indicating, through availability, limiting elements and restrictions, which is the ideal species to be planted in each field and in what period (month) of the year. In view of the possible frost damage, based on mappings carried out by the research team, a restriction was developed to limit the species able to be planted in higher risk areas, which are more resistant to the impacts of frost. Additionally, as a form of prevention, we do not plant eucalyptus in cold areas in the most critical period of the year (April to August).
Climate change also can promote financial gains opportunities for Klabin. Emerging weather conditions and greater control aimed at transitioning to an economy established in production systems dependent on a lower volume of greenhouse gas (GHG) emissions will create opportunities for companies holding more sustainable portfolios, encouraging the use of clean energy and greater efficiency in resource use.
Resource efficiency
The development of technologies can promote significant efficiency gains in resource use, production and distribution. In this context, the main opportunity identified for Klabin was:
- Cost reduction by adopting new technologies.
Market
With the increase of national and international regulations, there will be an inclusion and increment in the pricing of GHG emissions, making carbon credits and the sale of permits more attractive and profitable. In this context, the main opportunities identified for Klabin were:
- Reduce or avoid the need to obtain permits;
The reduction in the need to acquire permits will be achieved through investment in low-carbon technologies, which has already been demonstrated.
- Reduction in the need to purchase carbon credits to offset emissions to meet NetZero;
From the projects to generate carbon credits, Klabin will be able to issue and use these carbon credits to offset its own scope 1, 2 and 3 emissions during the decarbonization process and meeting the NetZero target.
- Commercialization of carbon credits from commercial production areas;
In 2019, the PoA Multipurpose Reforestation as a Means of Sustainable Development was registered with the UNFCCC. the project is subject to validation and will generate carbon credits for pine and eucalyptus reforestation in areas with a history of agriculture and/or pasture.
The project contemplates the modalities of commercial partnership in Paraná and Santa Catarina.
In the industrial sphere, in 2020, we established a partnership with Combio to generate carbon credits for the operation of the biomass boilers installed at the Angatuba and Piracicaba units. The initiative avoids GHG emissions by replacing fossil fuels with biomass (waste from agricultural and reforestation activities).
- Commercialization of the surplus of the company’s positive balance sheet.
The sustainability team has been studying the feasibility of carbon credit projects as an alternative to recognizing the company’s positive carbon balance, which accounts for the contribution of reforestation and conservation areas to carbon sequestration and storage.
So far, it is understood that the opportunities are in projects aligned with biodiversity services in conservation areas under the company’s management, with emphasis on the Monte Alegre and Serra da Farofa RPPNs and the Klabin Ecological Park.
Products/Services
The increase in demand for lower carbon footprint products increases the demand for the use of paper as a substitute for more carbon-intensive materials and of recycled products, and encourages the option of using more sustainable inputs. In this context, the main opportunities identified for Klabin were:
- Use of wood, replacing concrete and steel in civil construction;
- Development of new products that replace materials with a higher carbon footprint;
In 2021, Klabin launched a sackraft packaging with a sustainable resin barrier, which eliminates the use of plastic film in its composition. The product was developed by the Technology Center, in partnership with the Commercial area and the Product Development management, and will initially serve the civil construction, fertilizers and seeds segments.
The EcoLayer is an advance over the packaging previously made available by the company, as it has improved performance. The efficiency of the new barrier prevents the entry of moisture, extending the shelf life of the bottled product, in addition to preserving its characteristics and maintaining quality. In addition, it is a resistant and recyclable solution, which significantly reduces waste generation and contributes to the circular economy.
The novelty is produced at the Correia Pinto Unit (SC) and converted into Klabin’s three Industrial Bags units – Lages (SC), Goiana (PE) and Pilar, in Argentina.
- Increased potential for the production of recycled products.
Klabin’s Research and Development + Innovation (R&D+I) works to improve practices and processes aimed at improving the performance of its forests and production processes, developing forest-based products for multiple uses, which are renewable, recyclable and biodegradable, and in the management of interference throughout the production chain.
Energy sources
The optimization of energy consumption of industrial plants, as well as the generation of energy in industries have great potential on the road to self-sufficiency and renewable energy production. In this context, the main opportunities identified for Klabin were:
- Sale of energy to the National Interconnected System (SIN);
The sale of energy to the SIN began in 2016 with the start of the Puma Project. The chart below shows the history and prospects until 2030.
Energy exported to the Grid
- Reduction in energy consumption by increasing energy efficiency.
The following chart shows the history of energy consumption by our units and a prospect until 2030.
Energy consumed from the Grid
Resilience
The pressure to comply with international agreements, such as the Paris Agreement, corroborates the importance of the forestry sector, favoring the expansion of commercial forests. In this context, the main opportunities identified for Klabin were:
- Reforestation targets determined by the Brazilian NDC for the Paris Agreement;
The Brazilian NDC has established a commitment to restore 12 million hectares of forests by 2030. In this sense, Klabin presents as a KSDG goal the donation and/or planting of 1 million seedlings of native species for the recovery of degraded areas.
To follow the evolution of the goal, access the link: Biodiversity – ESG Panel (klabin.com.br)
| 2020 | 2021 | 2022 (preview) |
2030 Goal |
|---|---|---|---|
| 66,071 | 115,78 | 384,523 | 1,000,000 |
- Availability of more affordable credit lines and financing for more sustainable businesses.
Financing based on the ESG line can be consulted on our panel:
Sustainable Finance – ESG Panel
- Availability of more affordable lines of credit and financing for more sustainable companies.
Financing based on the ESG line can be consulted on our panel: Sustainable Finance – ESG Panel (klabin.com.br)
In order to identify the factors most aligned with Klabin’s core business, a comprehensive study was conducted in the literature, covering the guidelines of the TCFD, in addition to other internal studies conducted by the company.
Main studies used in the identification and assessment of risks:
- Studies available in the literature:
- WBCSD: Food, Agriculture and Forest products TCFD Preparer Forum
- TCFD: Implementing the Recommendations of the Task Force on Climate related Financial Disclosures
- Klabin-specific studies:
- 2018. Brazilian Foundation for Sustainable Development: Study on the Management of Eucalyptus and Climate Change
- 2016. PANGEA: Klabin’s Climate Risks
Based on the information gathered in the studies, the identification of risks and opportunities was carried out based on the recommendations made by the TCFD and composed of 4 stages: risk prioritization, modeling of financial impact, integration with Klabin’s risk management, and setting of metrics and indicators.
Prioritization of risks and opportunities: a critical assessment was carried out relating to the risks already monitored by Klabin and the identification of the most relevant impacts for the sector, applying the following criteria: recurrence of the factor identified in the reviewed studies and materials, potential impacts, behavior and climatic and market perspectives, frequency of impacts in the short, medium and long term, severity of impacts in the short, medium and long term, and adherence of impacts to Klabin’s business and operations.
In addition, the scope of the climate risk assessment includes the company’s upstream activities. The physical climatic risks are evaluated in the suppliers of wood, Klabin’s main raw material. Transition risks are evaluated in our suppliers of chemicals and fuels, identifying a possible financial impact due to border adjustments or the regulated market. In 2021, Klabin began identifying projects of emission reduction in its value chain, especially supply.
Modeling of financial impact: an impact assessment methodology was constructed of the 5 risk factors considered to be priorities, in addition to the assessment of climatic scenarios capable of directly impacting the company’s operations.
Integration of risk factors to Klabin’s risk management: the modeled impacts were used to define inputs in Klabin’s risk management tool, being possible to identify the main monitoring metrics and possible goals related to mitigating the more significant impacts.
Definition of targets and metrics: risk factors were classified according to Klabin’s management methodology for selecting appropriate targets and metrics, recounting recurrent validation meetings with the GT for alignment.
Given the complexity of translating the impacts of risk factors into monetary values, resulting from the amount of factors and uncertainties about the markets involved, simplifications were adopted in the impact assessment methodology. Thus, the mitigation measures adopted by Klabin, which are responsible for softening the financial impacts of the risk factors analyzed, were not considered. In addition, the combined effects between different risk factors were not considered.
In the study, internal and external sources were used to determine indicators and parameters, and impacts were considered over a one-year time frame. Moreover, although an impact is subject to more than one risk factor, it was attributed to only one factor for the purpose of simplifying its monitoring and evaluation.
The financial estimates were supported by a comprehensive survey of the literature, analyzing historical data, future projections and primarily updated market data. It also included information and internal knowledge shared by Klabin.
Processes for climate risk management
The principle of the Risk Management Policy, approved by the Board of Directors, is to align the Company’s strategic objectives and its structure with the best practices in the market. According to this policy, the process for risk management consists of four stages: identifying, assessing, treating and monitoring governance.
In the first stage, risks are identified based on analysis of data, transactions and systems, evaluation of business scenarios and/or operational and market conditions, among other conditions that imply an impact that is relevant to the company.
Once identified, risks are assessed according to their level of criticality, which is defined based on two aspects: impact and vulnerability. The levels of each risk are defined according to objective criteria, standardized and validated internally. The results of this assessment are included in Klabin’s Risk Matrix, classified qualitatively into low, medium, high or critical degrees of impact and vulnerability.
After this step, it is moved to the treatment of risks, which can be done in order to reduce, transfer and/ or share, retain or accept or exploit. The treatment of Risks may also involve the creation and implementation of Action Plans by the respective Business Areas and Boards involved.
In the final stage, risks are monitored by Klabin’s Governance Bodies according to the roles and responsibilities listed in the Risk Management Policy.
The risk monitoring matrix is an internal tool used for Klabin’s risk management, and is based on two main factors to determine its relevance: quantitative impact and the organization’s vulnerability in relation to risk. Based on these criteria, scores from 1 to 4 are attributed to risks, determining their criticality level for Klabin and assisting in prioritizing risk management.
The matrix of the criticality of the top risks factors related to climate change was developed based on this tool by the Risk and Internal Controls Department. This is the basis for incorporating risk factors into Klabin’s risk management methodology in order to integrate climate risks into the organization’s overall risk management, evaluating not only financial impact factors, but also exposure to risks and other qualitative criteria.
In line with TCFD recommendations, Klabin mapped and identified indicators, metrics and targets related to climate change. These targets are aligned with the company’s long-term objectives, Klabin’s Sustainable Development Goals (KSDG).
In line with the UN Sustainable Development Goals (SDGs), Klabin’s set of short, medium and long-term commitments organize and guide the priority environmental, social and governance (ESG) frameworks that observe the strategic growth plan for the company. The progression of the set of public targets and various other indicators are available on Klabin’s ESG Panel website. Indicators are tools that allow verifying the performance of the company’s strategy through concrete data. In relation to climate change, certain indicators can be used as proxies for risk assessment in order to establish clearly identifiable targets through which it is possible to monitor the climatic conditions applicable to Klabin.
Included in KSDG is the commitment to achieve greenhouse gas emission reduction targets approved by the Science Based Targets initiative (SBTi). This means that Klabin’s goals are in line with climate science, sustainable economic development, and the global challenge of limiting the average rise in temperature to 2°C. Besides KSDG, additional elements were identified to monitor potential impacts of risks and opportunities relevant to the company that should be monitored given the TCFD recommendations and in accordance with the company’s strategy and Risk Management.
For the risks of Regulatory Changes, Temperature Change, and Water Scarcity, the mapped and monitored goals and metrics are as follows:
| Impact | Metrics | Indicators | Goals | Performance |
|---|---|---|---|---|
| Carbon pricing market in Brazil | Absolute emission (scope 1) Absolute emission (scope 2)Absolute emission (scope 3)Renewable energy generatedNon-renewable energy generated |
1. Total absolute emissions (scope 1+2+3) 2. Emission intensity (scope 1+2+3)3. Emission intensity (scope 1+2)4. Number of units with absolute emissions (scope 1+2) above 200,000 tCO2e5. Renewable source energy matrix |
SBTi: Reduce GHG emissions (scope 1 and 2) by 25% per ton of pulp, cardboard and packaging by 2025 and 49% by 2035, from base year 2019 Achieve 92% share of renewable sources in the energy matrixCapture 45 million tons of tCO₂e from the atmosphere |
Climate Change |
| Transfer of the cost of carbon on inputs by the carbon pricing market in Brazil | ||||
| Overseas taxing due to risk of carbon leakage | ||||
| Increase in energy tariff in the water regime | Volume of water captured Volume of water discardedNumber of hours workedPower consumptionTotal irrigated areaTotal non-irrigated areaTotal forest area with hydrosolidary managementOwn generation of energy |
1. Specific water consumption 2. Specific energy consumption3. Percentage of locations with water security initiatives4. Percentage of energy self-sufficiency |
Have 100% forest harvesting operations with hydrosolidary management One hundred percent of locations where we operate have initiatives to increase territorial water securityReduce specific industrial water consumption by 20%100% of certified electricity purchased from renewable sources |
Water Use Energy Use |
| Increase in water purchase tariff | ||||
| Incidence of new water catchment and use tariffs | ||||
| Reduction of industrial activity by changing water availability | ||||
| Reduction of industrial activity by changing energy availability | ||||
| Delayed planting of seedlings due to changes in water regime |
To refer to the Klabin's Climate Action Plan, access the link.
04/07/24