Robert McKellar
Part 1 of this series on political risk management and the Canadian forest products sector speaks to the problem with assuming political risk only applies to multinationals with operations in volatile and dangerous places. If we are aware of political risk, we can still use a tacit approach where it works, but we will know when and how political risk is a significant factor and will have the option of ramping up political risk management capabilities accordingly. With that preamble, two broad political dynamics affecting the Canadian forest products sector are discussed—the ‘China-West rivalry’ and ‘climate change confusion’—in preparation for the question—is it time for Canadian forest products companies to develop an explicit sense of political risk and how to manage it? Part 2 of this series continues with the political dynamics of ‘Canada-US trade friction’ and ‘emerging market challenges’ and concludes with what a political risk management capability could mean in practice.
…If the answer is Yes, what then? A political risk management capability generally includes: senior management and board buy-in; a strong concept of political risk in the company’s context; a corporate intelligence process that identifies relevant trends and dynamics and derived potential implications (or risks); straightforward but practical guidelines for how managers could apply political risk intelligence; and a seat of coordination and institutional learnings. These elements could manifest in a number of different organisational forms… but there are four things that probably would not work in most cases: treating political risk management as something different from what managers already do; creating a political risk department and expecting it to somehow lead to effective political risk management; managing political risk only within enterprise risk management functions and processes; and creating a few policy documents and then ticking a box beside “political risk managed”.
GERMANY — The State of Baden-Württemberg faces potential liability of up to Euro 500 million following a precedent-setting ruling by the Stuttgart Court of Appeals. On August 15, 2024, the court held the state liable for violating EU competition laws through its centralized sale of timber, in a decision that marks the first time a German court has established civil liability in a major cartel case without a prior decision from an antitrust authority. The case centers on Baden-Württemberg’s decades-long practice of bundling and jointly selling timber from state, municipal, and private forests. The court found that this arrangement restricted competition and led to inflated timber prices, ultimately harming sawmills that depended on the state as a dominant supplier. The next phase of the legal battle will focus on determining the exact compensation owed to the sawmills. The ruling is open to appeal. …Its broader implications, however, may ripple across the European Union.
NEW YORK — Mercer International reported second quarter 2024 results. …Highlights include: second quarter sales of $499 million, down from $553 million in Q1, 2024; Operating EBITDA of $30.4 million, an increase from negative Operating EBITDA of $68.7 million in the same quarter of 2023; Net loss was $67.6 million, which included a non-cash impairment of $34.3 million against goodwill related to the Torgau facility, compared to a net loss of $98.3 million in the second quarter of 2023, which included a non-cash loss on disposal of $23.6 million related to the dissolution of the Cariboo Pulp and Paper joint venture. …Mr. Juan Carlos Bueno, CEO, stated: “The second quarter was another improved quarter for our pulp segment as we continued to benefit from strengthening markets. In the second quarter, pulp prices continued to improve in all key markets due to strengthening demand and supply-side disruption. 
Europe is the world’s largest wood pellet market, producing just slightly more than it consumes. According to Bioenergy Europe’s Statistical Report 2024, released in June, the EU alone produced 20.7 million metric tons in 2023 and consumed 21.9 million MT. That equates to producing 44% and consuming 50% of the world’s pellets. But while production and consumption has steadily climbed in the EU and United Kingdom without interruption for nearly the past decade, last year saw a deviation from that trend. Wood pellet consumption actually declined by a collective 2 million tons from 2022 to 2023, from 32.1 million MT to 30.1 million MT, the culmination of a number of market forces. …Bioenergy Europe highlights the challenges the European pellet industry has faced as being threefold: higher input prices, falling industrial demand and a record warm winter. 
NEW ZEALAND — The wood vs concrete debate elicits lots of huffing and puffing, but the three little pigs didn’t have to worry about hitting carbon emission targets. Red Stag chief Marty Verry says the use of engineered wood has reached “significant” scale in New Zealand, as more developers and designers specify mass timber products across residential and commercial builds. …Mass timber might be grabbing market share from steel and concrete, largely on the back of its carbon zero credentials, but its competing products say it’s not playing by the same rules. …Timber framing is the most common home construction system in New Zealand, but there’s also been a surge in large-scale use of mass timber in the commercial space, with its proponents touting its inherent benefits, in the form of sustainability and speed. Steel fabricators, in particular, suggest the sector should still be using product declarations. [to access the full story a NBR subscription is required]
FSC celebrates the entry into force of the European Union’s Nature Restoration Law, a major step forward in the effort to restore and protect Europe’s forests and natural ecosystems. Effective from 18 August 2024, the Nature Restoration Law sets forth ambitious goals to restore degraded ecosystems throughout Europe. “The implementation of the Nature Restoration Law marks a significant development in Europe’s commitment to environmental stewardship. It represents a significant move towards addressing habitat loss, strengthening ecosystems, and fostering long-term environmental resilience,” says Anand Punja, Chief Engagement and Partnerships Officer at FSC International. This landmark legislation is designed to enhance biodiversity, mitigate climate change, and ensure the preservation of Europe’s natural landscapes for future generations. The legislation aligns closely with FSC’s mission to uphold responsible forest management, and balances ecological integrity with social and economic benefits.
Queensland has an opportunity to secure a sustainable and stable source of timber through a full plantation-based industry, but the government must build from the state’s Stakeholder Timber Advisory Group (STAG), which met for the first time today. On Thursday, the Australian Climate and Biodiversity Foundation and Queensland Conservation Council advocated for the transition to a full plantation-based timber industry that will chart a new future for Queensland’s forests, construction industry and forestry jobs while protecting Queensland’s natural assets. Softwood plantations provide more than 90 per cent of all wood used for construction in Queensland, with the state producing 3.6 million m3 of timber from 180,000 hectares of softwood plantations, according to ABARES. The STAG meeting was a landmark moment for Queensland by bringing together leaders from the forestry, environment, construction and political sectors, as well as First Nations leaders in what is a collective response to the state’s timber and environmental needs.
Australia’s forestry industry raised eyebrows this month when it 
BRAZIL — Extreme weather has made 2023 virtually certain to be the warmest year on record, signaling unprecedented climate and biodiversity crises. Brazil, the world’s most biodiverse country, with two hotspots and complex social and economic layers, has experienced escalating environmental degradation over the past years. Alarming rates of native vegetation loss, wildfires, severe and prolonged droughts, and heatwaves have adversely impacted several Brazilian ecosystems and societies. Despite the country’s decisive role in global carbon neutrality, bridging the gap between Brazil’s discourse on the international stage and its concrete actions at home remains a significant challenge. This correspondence underscores the urgent imperative for national engagement and commitment to halt and mitigate these crises.
The German Government is preparing to introduce a CO2 fee on energy derived from wood, including biomass. This is according to the latest yet unpublished draft of the “National Biomass Strategy” from February 2024, as reported by “Welt am Sonntag”. …This document pays particular attention to developing a strategy that includes applying a CO2 factor for woody biomass. Germany plans to develop a concept by 2025 that will adequately reflect the impact of the energetic use of woody biomass on the climate, especially at the European level. As part of this strategy, the introduction of a realistic and appropriate CO2 factor for the combustion of woody biomass is being considered. …Until now, wood was considered a climate-neutral, renewable fuel. Martin Bentele, the managing director of the German Association for Wood Energy and Pellets, has announced that he will consider taking legal action, arguing that “whoever made this decision must reckon with legal consequences.”
