102-15 (GRI )

  • Key impacts, risks, and opportunities

    Related Material Themes:

    Context:

    Suzano has in place an Integrated Risk Management Policy, published on the Investor Relations website. The company’s Integrated Risk Management is carried out by the Risk Management area in conjunction with the other business areas and aims to identify, evaluate, prioritize, treat, monitor and report the main risks associated with the company’s business in line with the corporate strategy, enabling the perpetuity and continuity of our operations.

    The Risk Management area conducts workshops and interviews with the main executives of the company in order to identify the main risks. Subsequently, the risks are consolidated into a matrix and presented to all Directors, CEO and Board of Directors to define the priority risks, for which at least one action plan must be prepared. Action plans for priority risks are monitored and measured through a critical analysis. The status of the action plans is reported to the Executive Board, to the Statutory Audit Committee, and to the Board of Directors.

    The Integrated Risk Management process undergoes certification and customer audits, considering the results obtained for the bonuses of the employees involved.

    Throughout 2019, the Risk Management area consolidated Fibria’s and Suzano’s risk matrices and redefined the priority risks together with the Executive Board, the Statutory Audit Committee and the Board of Directors. In addition, regional and corporate risk and business continuity committees were created for continuous risk mapping and action plans.

    Some of the risks identified are:

     

    Market

    The pulp market is cyclical and follows the global price trend, which is determined by pulp supply and demand, global capacity to produce market pulp and conditions for economic growth. The price may also be affected by the exchange rate variation of the currencies of the main countries that produce and consume pulp, by the change in inventories of producers and buyers, given the expected future prices, and by strategies adopted by pulp producers who could introduce more competitive products in the market.

    In addition, paper prices are more stable than those in the pulp market, determined by supply and demand conditions in the markets where they are sold. Also, the price of paper may vary due to a number of factors that are beyond our control, including fluctuation in the price of pulp and specific characteristics of the market where we operate. We cannot guarantee that pulp prices will remain at current levels, but the proper management of our production plants allows us to have a competitive advantage in the cost of production, in addition to greater resilience in times of falling prices.

    In the market risk management process, in order to mitigate the points mentioned above, strategies are identified, evaluated and implemented, and financial instruments are secured to protect against risks. To manage the impacts on results in adverse scenarios, the company has in place processes for monitoring exposures and policies for implementing risk management. The policies establish the limits and instruments to be implemented in order to: (i) protect cash flow due to currency mismatches, (ii) mitigate interest rate exposures, (iii) reduce the impact of fluctuations in commodity prices, and (iv) exchange debt indexation.

     

    Operations

    The company is subject to operational risks that may result in the interruption of its activities, even if partial or temporary. These interruptions can be caused by factors associated with equipment failure, accidents, fires, weather, exposure to natural disasters, among other risks. These events can result in serious damage to our property, significant decrease in production, increased production costs, even bodily or fatal injuries to our employees or service providers, in addition to adverse effects on our financial and operating results. Additionally, in our business, we depend on the continuous availability of logistics and transportation networks, such as roads, railways, terminals and ports, which can be blocked due to factors beyond our control, such as social movements, natural disasters and stoppages. Disruption in the supply of inputs to our industrial and forestry units or in the delivery of our finished products to customers may affect our financial and operating results.

     

    Climatic factors

    Climate change, such as in cases of increase in average temperature or water scarcity, can lead to significant losses in forest productivity. For this reason, Suzano implements in different initiatives in order to reduce and mitigate climate risks, such as:

     

    • actions to reduce greenhouse gas emissions: projects to increase efficiency in the use of fossil fuels (when use is necessary); reduction of average radius (distance between forest operations and production plants), which reduces the distance needed for transporting wood and, consequently, reduces fuel consumption; and specific procedures and action plans in case of fires, among other actions;
    • initiatives to adapt to climate change: specific studies of the specificities of each region where we operate and identification of trends in climatic, meteorological and soil conditions, so we can make recommendations for operations and, even, guide analyses for possible expansions; studies focused on the production of clones and seedlings that are more resistant to climate variations and extremes; and development of contingency plans for more critical scenarios (such as a scenario of possible water scarcity in the river basins in which we operate).

     

    Also, in terms of opportunities arising from this scenario, through approximately 1.3 million hectares of eucalyptus plantations and almost 900,000 hectares of native forests (in addition to areas in different stages of restoration), we remove a significant amount of carbon from the atmosphere every year, making our contribution to solving the climate crisis go beyond reducing emissions In addition, today, 88,35% of our energy mix is supported by renewable sources, and the surplus energy produced is sold to the national public energy grid, which contributes to expanding the degree of renewability of the Brazilian energy mix and, consequently, to changing this scenario of crisis.

     

    Management of risks and social impacts

    Following the Procedure for the Identification and Assessment of Social Aspects and Impacts, Suzano’s social impact management model seeks to eliminate, reduce or compensate for negative impacts through management practices, social and environmental investments and continuous control and mitigation actions, which must be included in the operating procedures of the company’s management system. The Social Development team is responsible for coordinating and identifying social aspects and impacts, and analyses are approved by the managers of the processes involved, with final validation by Risc Local – the forum responsible for analyzing and monitoring the relationship processes with stakeholders in the region.

    For identification and analysis of social aspects and impacts, demands of relevant stakeholders from the Sispart software, whose data source is Engagement and Operational Dialogue, among others, are considered. Annually, Risc Local assesses the need to review the matrix of social impacts, considering the results from monitoring and from the critical evaluation of the processes related to the Annual Stakeholder Relationship Plan, and of the demands from stakeholders determined by Sispart.