Pulp and Paper

ECA-backed pulp and paper projects have contributed to environmental and social damage including massive deforestation illegal logging, pollution and human rights abuses.

The problem with Pulp and Paper

The pulp and paper industry relies on deforestation, which is often unsustainable, sometimes illegal, and even ‘sustainable’ forests sometimes have negative environmental and social impacts on surrounding communities.

The Indonesian government promotes the establishment of tree plantations to supply a 'sustainable' source of fiber for the country’s pulp industry, despite the social and environmental problems these create. Nonetheless, the development of plantations has lagged far behind the increase in processing capacity of the industry, rendering pulp producers dependent on a mix of tropical hard woods. A World Bank study estimates that deforestation in Indonesia is equivalent to 2 million ha/year, or roughly the size of Belgium.

In addition to the large volumes of legal but unsustainably harvested wood, a substantial volume of fiber consumed by the industry comes from undocumented sources. It is estimated that as much as 40% of the wood servicing Indonesia’s pulp and paper industry comes from illegal sources, depriving government of valuable revenue.

ECAs and Pulp and Paper

ECAs have played a major role in financing the pulp and paper industry by backing plantations and pulp and paper firms as well as financing equipment and machinery. ECA backed projects have contributed to environmental and social damage including massive deforestation, illegal logging, pollution and human rights abuses.

During the mid-1990s the value of total trade in forest products was US$ 152 billion a year, while the illegal timber trade was valued at US$15 billion per year, meaning national governments were being robbed of considerable revenue. ECAs backed many projects that contribute directly or indirectly to illegal logging.

Dodgy deals involving ECAs and pulp and paper

ECA financing of the pulp and paper industry in Indonesia during the mid-1990’s greatly harmed Indonesian forests and the local communities that depend on them for subsistence. Indonesia’s two largest pulp producers, Asia Pulp and Paper (APP) and Asia Pacific Resources Interational Ltd (April), increased their output between 1988 and 1999 by nine-fold. As a result, pulpwood consumption increased dramatically, exceeding the available legal timber supply. This in turn led to a massive rise in illegal deforestation. Illegal forest activities are clearly linked to the lack of due diligence on the part of ECAs.

The Finnish ECA Finnvera was involved in financing a controvertial pulp and paper mill on the Uruguay/Argentina border, which has reportedly breached OECD Guidelines and violated international law. In 2005/6 Argentina brought a case before the International Court of Justice at the Hague, over the existence of this and other mills in the same area.

More information

Human rights and ECAs: the Uruguayan paper mills case