Task Force on Climate Related Financial Disclosure (TCFD)

The TCFD was created by the Financial Stability Board (FSB), which established a set of recommendations for companies to disclose their information on managing risks and opportunities related to the climate. The Company applies a series of measures to identify and mitigate climate risks and explore opportunities related to four elements: governance, strategy, risk management, goals and metrics.

Governance

a. Describe how the Board of Directors supervises the risks and opportunities related to climate change.

b. Describe the role of the Board in the evaluation and management of risks and opportunities relating to climate change. 

Environmental, social and governance aspects are addressed as a priority by the Company and Board members have historically been involved with the biodiversity and climate agenda in Brazil. The Company’s decision-making and strategies are based on the principle and values of sustainable development and have registered long-term actions and true results through its commitment and business strategy guided by the climate change agenda. Klabin was the first Brazilian company in the industry, across the Americas, to commit to the Science Based Target for the development of carbon reduction goals based on global climate science.

Due to the Company’s vision and strategy, CEO Cristiano Teixeira was invited to participate in the COP26 Business Leader, representing the only Brazilian company in the group that gathers global leaders to help prepare for the Climate Conference, to be held in November 2021.

Sustainability Commission

Comprised of members of the Executive Board, the Commission assists in the assessment and decision-making of several topics related to sustainability, such as social and environmental and climatic risks, in its duty to frequently analyze and discuss the risks that may interfere in the Company’s strategy, as well as the measures applied to mitigate risk and enhance opportunities; and inform and raise awareness among the members of the Board of Directors and the Sustainability Advisory Board (Sustainability Committee) on the matter.

Risk Commission

Climate risks are integrated into the Company’s risk management and a Risk Commission, comprised of Board members and managers, is responsible for monitoring, assessing and communicating risks and corresponding action plans, together with Risk and Internal Controls Management.

Strategy

a. Describe the risks and opportunities with respect to climate change that the organization identified in the short, medium, and long terms. 

b. Describe the impacts of climate change-related risks and opportunities on the businesses, strategy, and the financial planning of the company. 

c. Describe the resilience and strategy of the organization considering different scenarios of climate change including a scenario of 2°C or less. 

Klabin has been gradually implementing risks and opportunities in its financial and strategic planning. In 2020, a study to map risks and opportunities was conducted and resulted in a prioritization of the risks included in the Company’s risk matrix and management, subject to periodic revisions (quarterly).

To identify the physical risks future climatic scenarios were used, more particularly the RCP 2.6 and RCP 8.5 scenarios – Representative Concentration Pathways, which simulate levels of carbon concentration in the atmosphere over the year, thus allowing the identification of potential consequences of climate change (physical risks).

Additionally, scenarios such as nationally determined contributions, macroeconomic studies and internal market projections were also used to identify the risks  and opportunities of the climate with respect to the market, regulations and technologies, and others (transition  risks).

As part of this study, a model of the financial impact of risks and opportunities was tailored. Examples of priority risks and opportunities are listed below. The size of impact and time horizon of the risks were defined according to the criteria adopted by the company. The following are examples of time horizons: short – ongoing, in the current year; medium – from 2 to 3 years; and long – 4 years and more.

Below are some examples of prioritized risks and opportunities as well as steps taken to mitigate the risks and maximize the opportunities.  

Physical risks

Hydric stress

Reduction in the availability and quality of water in some of the regions where the Company has industrial and forestry operations. The Aqueduct tool enabled mapping which units are located in regions with the potential for hydric stress. In addition, the company has developed its own studies on climate change and forestry activity.

Potential impacts:

1.Interference in industrial production;
2. Interference in the planting of pine and eucalyptus seedlings in the Paraná region;

Time frame: short term

Likelihood: likely

Impact extent: low

Mitigation measures:

1. Water monitoring in regions at risk of scarcity; projects to reduce water consumption and increase reuse; study on sustainable water supply alternatives; monitoring of water quality and the disposal of effluents.

2. Paraná forestry unit: deployment and increase of irrigated areas in the planting of seedlings; micro-basin forestry planning, which implies the application of best forest management practices to reduce impacts on river basins; and forest conservation, ensuring ecosystem services for water regulation and quality, and local microclimate.

Increase in average temperature

Amount and frequency of intense drought, minimum temperature, average temperature, potential evapotranspiration and water deficit are factors that influence the growth of the planted pine and eucalyptus forest. The Company has developed specific studies that pointed to an overall trend of increasing temperatures in the Paraná region, with an average rise of 0.32°C per decade. The temperature, therefore, increases with a low change in the rainfall distribution regime, which may lead to a spread in evapotranspiration, that is, a risk of water deficit.

Potential impacts:

Reduced forest productivity for both pine and eucalyptus.

Time frame: long term

Likelihood: likely

Mitigation measures:

Investment in forestry research and testing different pine and eucalyptus materials, which are more resistant to water deficit or pests. Klabin has a Forest Efficiency and Ecophysiology Department responsible for carrying out forest research. This department develops forestry solutions to tackle the impacts of climate change.

This work involves different lines of action, such as phytosanitary approach, which considers the spread of pests and diseases due to climate change and other factors in its research. Another example is the biotechnology and genetic improvement line, which develops pine and eucalyptus clones intended to generate higher forest productivity, but also clones more resistant to climate change. Forest development incorporates climate change in decision-making and research.

The department is also responsible for Climate Scenarios, developing data modeling related to exposure to climatic parameters and assessing the impact of changes in planted forests, and recommends the necessary measures in case of adverse effects.

Transition/Regulation risks

Carbon pricing

The adoption of economic instruments, such as fees or “cap and trade”, to regulate carbon emissions is growing around the world, especially in the industry and power generation sectors. In Brazil, the Ministry of Economy, in partnership with the World Bank, developed a technical study to analyze the impact of employing such instruments – the Partnership for Market Readiness (PMR) project. Thus, the possibility of implementing a cap and trade system in the regulated carbon market is under consideration in Brazil.

Potential impacts:

Two Klabin industrial units have direct emissions above 200,000 tCO2e/year, which implies the possibility of regulation. In practice, each ton of carbon equivalent emitted may be priced through the purchase of an emission permit on a (regulated) carbon market, which can have a financial impact.

Time frame: medium term

Likelihood: likely

Impact extent: low

Mitigation measures

Klabin has a robust carbon reduction target (based on global climate science) and a set of technologies that will be implemented in the short and medium term in order to achieve such target. The greater the Company’s investment in reducing carbon emissions, the lower its exposure to the cost of carbon pricing regulation. In addition, the Company develops internal pricing studies to identify the cost of the impact of the country’s possible carbon regulation; economic and environmental analysis of low carbon technologies through the Marginal Abatement Cost Curve methodology. . A shadow price of R$ 40 is adopted in the analysis.

Opportunities

Adoption of low-carbon technologies

Committed to a low carbon economy, the Company studies and deploys technologies that enable reducing emissions in addition to resource efficiency. Innovation, research and development are key to the Company’s business strategies and also to act on the climate agenda.

Strategy

To identify and prioritize technologies, the Company developed a Marginal Abatement Cost Curve (MACC) that enables assessing the most cost effective technologies. MACC demonstrates the cost (in monetary units per ton of CO2e) for the deployment of technologies to mitigate greenhouse gas (GHG) emissions and its associated emission reduction potential (in tons of CO2e).

The technologies have a negative marginal cost per ton of carbon avoided (avoided cost), because they generate resource use efficiency, especially for allowing the replacement of fossil fuel for renewable sources, such as forest biomass.

An example of the technology to be employed is biomass gasification, and Klabin is a pioneer in the adoption of such technology (at the Puma industrial unit), which transforms wood waste into gas, avoiding fossil consumption in the lime kilns of the company’s pulp production process.

Impact:

Time frame: short and medium term

Likelihood: likely

Impact extent: medium-high

With the increase in consumer perception of more sustainable products and also with a low carbon footprint, a market trend is that the Company’s customers prioritize products from renewable sources rather than fossil sources – not only due to waste, but also to a greater awareness of the climate agenda.

Increased market demand

With the increase in consumer perception of more sustainable products and also with a low carbon footprint, a market trend is that the Company’s customers prioritize products from renewable sources rather than fossil sources – not only due to waste, but also to a greater awareness of the climate agenda.  

Strategy

Researchers in the product development area of the Technology Center work on projects to eliminate, for example, the use of fossil-based barriers in packaging lining. One of Klabin S.A’s main research fronts is precisely the development of barriers of renewable origin, which ensures the storage and transport of several products, not requiring materials related to the extraction and oil refining oil.

The integrated work of the Sustainability, Commercial and Product Development areas positively explores the competitive advantage of offering low-carbon and biodegradable alternatives to the market, which are renewable and recyclable, given the growing movement towards “carbon and water responsible packaging.

Impact:

Time frame: medium and long term

Likelihood: likely

Impact extent: medium-high

Risk management

a.Describe the processes used for identifying and evaluating  the risks and opportunities related to climate change. 

b. Describe the processes used by the organization for managing these risks/opportunities.   

c. Describe how the processes used for identifying, evaluating, and managing the risks of climate change are built into the general management of the company’s risks. 

To identify and map climate risks and opportunities, the Company: developed specific studies considering future climate scenarios for the regions where it operates; from studies available in literature and the Company’s history and records of previously experienced climate events.

The identified risks were prioritized according to the Company’s risk management criteria and metrics (criticality analysis tool), which assesses impact analysis aspects (financial, reputational, environment and health and safety) and vulnerability analysis (occurrence, internal controls and occurrence perspective). After identifying the risks and carrying out the criticality analysis, the risks are evaluated and a decision taken as to the way they should be handled.

The Risks Commission, made up of members of the Management Board and Units, is responsible for monitoring, evaluating and communicating the risks and respective action plans in conjunction with the Risks and Internal Controls Unit. Thus, the analysis of climate risks and their adaptation plans takes into account 100% of Klabin’s operations.

Goals and metrics

a. Inform the metrics which the organization uses for evaluating the risks and opportunities related to climate change according to its strategy and risk management. 

b. Inform Scope 1, Scope 2 and Scope 3 emissions of greenhouse gases and the related risks. 

c. Describe the goals used by the organization to manage the risks and opportunities related to climate change and performance with respect to the goals. 

Klabin S.A. has a public agenda of short-, medium- and long- term commitments and goals – Klabin Objectives for Sustainable Development (KODS) – which prioritize the company’s key environmental, social and governance needs and the global urgencies of society and the planet. One of the material topics considered on the agenda is climate change, whose goals are integrated into the Company’s strategy and climate risks and opportunities:

• Science-Based Carbon Reduction Goals – Science Based Target Initiative (SBTi)

Reduce GHG emissions – scopes 1 and 2:

by 25% per ton of pulp, paperboard and packaging by 2025, starting in base-year 2019. 

by 49% per ton of pulp, paperboard and packaging by 2035, starting in base-year 2019. 

• Reduce the share of fossil fuels to guarantee an energy matrix consisting of at least 92% renewable sources.
• Net capture of 45 million tons of carbon from the atmosphere between 2020 and 2030.
• 100% of certified electricity purchased from renewable sources.
• Water Use: 20% reduction in specific consumption (per ton of product) for industrial operations.

Between 2003 and 2020, Klabin recorded a 64%* reduction in Scope 1 and 2 emissions per ton of product. In 2020, the Company reached 703,830 tCO2e in Scope 1 and 30.141,95 tCO2e in Scope 2. And 456,910 tCO2e in Scope 3.

*Since 2020, Klabin has considered Scope 2 emissions based on the purchase choice methodology.