(Yicai) Sept. 16 -- Brazilian pulp and paper titan Suzano is strengthening its partnerships in China to transform green initiatives into competitive advantages, turning sustainability from a cost center into a profit driver, according to Global Executive Vice President Pablo Machado.

“It starts with stakeholder engagement and collaboration with several different Chinese partners,”Machado told Yicai regarding the São Paulo-based company’s sustainability strategy and practices in China.

China takes sustainability very seriously, Machado noted, adding that it is the country investing the most in advancing the approach. It is also Suzano's largest pulp market, with about 40 percent of the company's exports flowing into the world's second-largest economy.

At the Value Chain Decarbonization and Sustainable Consumption Workshop recently held in Shanghai, Suzano presented the first ISO 14068-1 certified carbon-neutral product of the pulp and paper industry in China, developed in collaboration with the firm's local clients Sun Paper and M&G.

“That was only possible due to the high level of engagement of the three partners," Machado told Yicai in a Sept. 12 interview on the sidelines of the workshop.  

Moreover, Suzano jointly launched a white paper on decarbonization in the pulp and paper industry with China's Fudan University and UK accountants Deloitte in July. It is the first guide on how to decarbonize the industry’s value chain in China, according to Machado.

"We debuted that a couple of months ago, and it contains a comprehensive set of guidelines on how upstream and downstream partners can enhance their practices to decarbonize the whole value chain," he explained.

Suzano formed a partnership with Shanghai Jiao Tong University's China-United Kingdom Low Carbon College last year as part of the company's celebration of its 100th anniversary. The alliance focuses on guiding the decarbonization of Suzano's value chain and offering scholarships to highly talented postgraduate students who can become the new business leaders driving sustainability.

"We believe that cost-competitiveness is one key lever to speed up implementation," Machado said. “If decarbonization efforts are not economical, it's going to be very, very difficult to implement them.”

Chinese policies support profitability when it comes to decarbonization. What is possible in terms of decarbonization “needs to deliver the sustainability results we aim for, while at the same time, it also needs to be profitable," Machado noted.

China's Unique Ecosystem

China's unique ecosystem, driven by government-led collaboration, has been instrumental in Suzano's success.

"The first thing that is unique to China is that the innovation cycle is much shorter than in any other region," Machado said, adding that the two main reasons are the entrepreneurship and innovative thinking of Chinese businesses and the incentives that policies provide to enterprises willing to innovate and develop new technologies.

Suzano's Fiber to Fiber strategy is also taking root in China. It addresses the use of renewable, plant-based fibers as a substitute for traditional materials, meeting growing demand in the tissue, hygiene, packaging, paper, and fiber cement industries.

The Suzano Asia Innovability Hub, which opened in March 2023 as the company's first technology and innovation center in Asia, jointly developed China's 100 percent bleached eucalyptus kraft pulp recipe with Suzano's Chinese customers.

"The government here actively connects private companies, be they Chinese or foreign companies, with universities, with customers, with suppliers, startups, and so on," Machado noted. “So this forms a unique collaborative ecosystem.”

The two major government initiatives creating favorable conditions for deploying sustainable materials and technologies are the high-quality productive forces policy and the 2030-2060 dual-carbon policy, according to Machado.

For companies considering expanding into China's green economy, Machado offered specific guidance based on Suzano's experience. "First, I think it's crucially important to start building roots in China," he said. “You need to be here to understand the logic of the market and to understand how the country works.”

Understanding and aligning with China's policy framework is also equally important. "If a company can understand China's policies and align its strategy to support China in achieving its own objectives, the business will thrive here," Machado pointed out. “If you are working together with the country to further develop and thrive, you will have all the support you need for your business to be successful.”

Green Finance, AI Innovation

Another crucial factor in Suzano's global sustainability strategy is green finance. "Forty-six percent of the company's overall debt is related to sustainability targets," Machado said.

"Some examples of those are loans or bonds that we issued, where interest rates are directly related to achieving sustainability goals," he explained. "This means if we achieve the goals, we pay lower interest rates. If we don't achieve the goals, we pay a penalty to the market.”

When making investment decisions, Suzano assigns a 25 percent weighting to sustainability considerations, giving green projects structural approval advantages. "We put skin in the game to ensure we meet our goals," Machado noted.

Last year, Suzano became the first non-financial American enterprise to issue green panda bonds -- Chinese yuan-denominated bonds issued in the Chinese mainland market, with the funds raised specifically designated for green projects. The CNY1.2 billion (USD168.6 million) it raised went to financing certified eucalyptus plantation projects in Brazil. 

When asked about artificial intelligence, Machado said that it is a huge topic and it is just at the beginning stage. "AI has been a key tool that we use across our entire value chain,” he said.

Suzano developed an AI algorithm to determine the best tree species to be planted in each location where the company operates. "By collecting data over the past decades, this algorithm that we call Tetrys at Suzano delivers to us the best recommendation for a specific clone to be planted in each specific plot in our eucalyptus farms," Machado said.

In industrial operations, AI tools process historical data from manufacturing sites to help operators implement the most efficient production processes. "That ensures that this particular operator is deploying the best production process across our operations," Machado explained. “With that, we also reduce energy consumption, reduce inputs, reduce chemical consumption, and avoid problems in the operations.”

Editor: Futura Costaglione