Paper company Fibria on rethinking forest use
The following Q&A is an edited excerpt from a Sustainable Business Fridays conversation Nov. 20 by the Bard MBA in Sustainability program, based in New York City. This twice-monthly dial-in conversation features sustainability leaders from across the globe.
SustainAbility’s latest research Model Behavior II: Strategies to Rewire Business outlines key forces influencing business model innovation for sustainability, the pivotal role of company culture to foster innovation, and distinct actions that internal innovators can undertake to advance the development of more sustainable business models.
Featuring in-depth case studies about large, multinational companies, this report demonstrates how Fortune 500 companies can innovate their business models for sustainability. The first case study is that of Fibria, a multinational pulp and paper company that successfully has changed company mindsets about how to use its forest assets, and is diversifying to become a sustainable land and forest steward.
Cristiano Resende de Oliveira is a sustainability consultant at Fibria. Rochelle March is an analyst at SustainAbility and a graduate of the Bard MBA in Sustainability.
Bard MBA: Rochelle, why don’t you introduce the SustainAbility paper, Model Behavior II: Strategies to Rewire Business.
Rochelle March: Within the broader business community, there is a sense that implementing and integrating sustainability will take something away from the business — like resources or profits. While there are exceptions, that is often the assumption. Our research addressed the question: How can a company inherently generate its revenue in a way that is just most sustainable in general? Last year we released a report, Model Behavior, where we surveyed the landscape to find different business models. Some models you have heard of: crowdsourcing, crowdfunding, buy-one-give-one, closed loop or bottom of the pyramid.
We found that most of these business model innovations were happening at small and medium enterprises, not at large Fortune 500 firms. This is a problem for a number of reasons. For large companies, they are experiencing increasing competition and changing consumers preferences that are disrupting the marketplace. For society, we need entities with scale and impact to be involved in the transition to a more sustainable future.
Model Behavior II began with the intention to inspire these large firms to undergo business model innovation identified in the first report Model Behavior: 20 Business Model Innovations for Sustainability. We found that external conditions and internal business culture can influence this shift. External conditions might be constraints such as climate change, resource scarcity and fluctuations in commodity markets — or areas of momentum — like digitization and the sharing economy. In the context of external conditions, the business culture must also be open to innovate, to communicate, to collaborate. We found that there is often a need for senior leadership to push forward a sustainability agenda that advances innovation. Individuals also play a role in identifying changing landscapes and inspiring conversations about innovation at their company.
Bard MBA: Cristiano, Fibria is a featured case study in the Model Behavior II report. Tell us about Fibria’s external conditions that inspired your sustainability agenda. Who are your stakeholders and what are the environmental, social and financial factors that led to business model innovation?
Cristiano Oliveira: Fibria is part of a long value chain and produces pulp for tissue and paper for an international market. We manage 800,000 hectares of forest assets in approximately 250 Brazilian municipalities to produce short-fiber Eucalyptus pulp.
Due to our significant landholding, we have direct contact and impact on numerous communities in Brazil. Our customers are paper producers, and our customers’ customers are retailers and other distributors. We are quite sensitive to the sustainability pressures that are asserted at the beginning of this value chain, particularly from NGOs and consumer associations to retailers to our customers, and from those customers to us.
It’s important to talk about what happened in the '90s and early 2000s. It was quite clear to NGOs that an inroad to social and environmental issues was the concept of traceability. How does the item that is sold in Europe get there? How is it produced and under what sort of conditions?
There was significant concern amongst European and American NGOs about deforestation and human rights related to production of forest products. There was a rise of forest certifications, such as FSC and PEFC, that were intended to provide eco-labels for products sold in supermarkets. NGOs put pressure on retailers at the beginning of the value chain to offer products with eco-labels, which put pressure on paper producers, which then put pressure on the pulp producers.
Certifications asked pulp producers to demonstrate conformity with NGO and consumer association expectations about social and environmental management of forests. This was one of the biggest shifts for sustainability for our industry. It was not philanthropy, but instead went hand-in-hand with business strategy and business management.
Bard MBA: What conditions existed in your senior leadership that allowed for innovation in response to these external pressures?
Oliveira: Fibria’s story is interesting because it starts with the disruption of the business itself. Fibria was started in a time of crisis. One company bought the other in a complicated merger and integration of systems, financials and two disparate cultures in 2009. This creation of a new company led to an opportunity to rethink what the business would look like. The companies that formed Fibria, Aracruz Celulose and Votorantim Celulose e Papel, were both very focused on production. Their missions were to be the biggest, brightest, best pulp producers in the world.
At the birth of a new business, Fibria had a chance to rethink what it meant to be a pulp producer in Brazil. The conclusion at the highest levels of governance internally was that there was an opportunity to think of the company as more than a pulp producer and become a forest company with expertise, skillsets and the wealth of research from four decades of forest management. Fibria wants to be a forest company which produces pulp, but with an intelligence around the forest.
Thinking of a global transition, what are the megatrends? We are in an important year for climate change, and we see a shift in the economy towards bio-products, discussions of climate change. We had discussions internally about culture and company identify in these contexts. It led senior leadership to rethink the strategic mandate and go beyond pulp production. It is a huge shift for a pulp producer to think about other businesses. In terms of production we know forests, but for marketing, we know pulp. We had to bring in different partners, experts and stakeholders to discuss what a shift would look like.
Bard MBA: What steps has Fibria taken to shift how your business model manages natural, social and financial capital?
Oliveira: The decision to change the business to a forest producer from a pulp producer — without changing our assets — may seem like a subtle distinction. However, it is a huge change in terms of mindset for the business model. We see our assets in a different light. Land that was not ideal for Eucalyptus to produce pulp can now be considered for alternative uses that can add more value to our company and to society.
An innovation committee was created in alignment with our sustainability committee. The company is looking at new factors and opportunities that are relevant world wide to forest products and the positioning of the company. We have a target to shift our business model to increase production of non-pulp products, such as biofuels, bioplastics, sustainable land development or other forest products.
We also have to think differently about how to manage social capital, trust and relationships with neighboring communities. As a company that occupies a lot of space and a lot of landmass, we need to be attuned to the needs of communities and go beyond pure philanthropy. We shifted our posture away from a reactive and defensive one to one where we constantly seek feedback from our stakeholders. We become a better and more robust company when we have constructive conversations with our stakeholders. We have become a company with a social license to operate and face adversity with better tools.
Bard MBA: How is business model innovation fundamentally different than having a CSR or sustainability agenda, for Fibria and other businesses?
March: Innovation can sometimes be captured within the box of technological innovation. Technology is important, but we will have to innovate on business models to generate capital sustainably. One of the tools that Fibria used to look at risk and opportunity identification was extensively mapping stakeholders and the business model. They used these diagnostic tools to articulate where the company was, and was not, providing value for communities and customers. Fibria is evolving into a company of the future and providing a new possibility for the industry.
Oliveira: Previously, sustainability has been seen as a form of protection of values and as a risk mitigation strategy. The Model Behavior II research points at a very different direction. The company can look at sustainability beyond the realm of risk mitigation and into the realm of generating value and creating of opportunities. That is obviously much more exciting.
Bard MBA: What are the most important skillsets and qualities for those who want to make a big change to a company and drive a sustainability agenda?
Oliveira: You must have the capacity for empathy. We are talking about business and it always creates impact and our stakeholders have differing perceptions of those impacts. The capacity to understand our stakeholders’ arguments and how to engage in a constructive dialogue is good for both parties.
The second aspect is the capacity is to see things systemically. Sustainability is never just two aspects or two variables; it is always a more complex picture of interdependent sectors. It is quite rare to have that quality and is an important one to develop.