Consumer Advocacy in the 21st Century
Gunns Ltd a case study in what not to do
Logging and wood chipping behemoth, Gunns Ltd has long been a contentious company for its clear felling of old growth native forests (also known as high conservation value forests) in Tasmania.. The controversy surrounding Gunns intensified in 2007 with the fast tracking of the approval process for the development of one of the world’s largest pulp mills in Tasmania’s north eastern Tamar Valley, under the aggressive stewardship of Chairman John Gay.
Three years on Gunns Ltd has not been able to secure finance for the $2 billion plus pulp mill.
Its 2009/10 half yearly results showed a severe decline in its woodchip sales to Japan, its major customer. Although a few factors resulted in a 98% collapse in first half profits to $0.4million, including a stronger Australian dollar and the lack of credit from the GFC contributed to problems financing the pulp mill project; there is one overriding issue which continues to dog Gunns and affect its ability to operate- the use of old growth forests as feedstock.
The intense lobbying and consumer awareness campaigns which have been spearheaded by NGO’s like The Wilderness Society, local groups like Tasmania’s against the Pulp Mill (TAP), conservationists and The Greens Party have resulted in heightened knowledge and awareness of the forestry practices of Gunns.
The international trend to sustainable forestry as monitored and accredited through the Forestry Stewardship Council (FSC), alongside heightened consumer awareness has ensured a shift away from using old growth forests as feedstock for timber and pulp/paper products.
Gunns Ltd has been put in the position where its major customers will no longer buy its woodchips, unless FSC accreditation is secured and global financial institutions are not prepared to finance its pulp mill project, unless fully sourced from plantation stock only.
In February 2010, a report produced by CS Dev Associates for Environment Tasmania, the White Paper ‘Levelling the playing Field: Reforming forestry governance in Tasmania’ cites a former ANZ Bank employee who was interviewed and “reported that public opposition played a role in ANZ’s decision not to extend finance for the Gunns Ltd pulp mill project and continues to be a factor in Gunns Ltd’s difficulties in securing financing for the project, with potential investors concerned about the questions of social licence and the clearing of native forests.”
Potential pulp mill joint venture partner, Swedish company Sodra specified it would only consider a working relationship in the project if Gunns met environmental standards, such as FSC certification of its products which would signal an end to logging of high conservation value forests.
Many other issues have been called into question, including the transparency of the working agreement between Forestry Tasmania and its main customer Gunns; the long term supply of water for plantations and the proposed pulp mill; the effects of the effluent in Bass Strait from the pulp mill and the current inclusion of chlorine in the process. All have been fiercely debated and brought to the attention of financiers and the general public.
Gunns Ltd’s travails and reputational problems are an excellent example of a company who has failed to fully acknowledge and respect the significance of its corporate, environmental and social responsibility. The global trend to increased transparency and the supply chain of feedstock for all products can no longer be ignored, as the global consumer seeks to buy sustainably produced goods.
Note: At the time of writing this Gunns announced a full year EBIT downgrade to $30 to $40m from analyst estimates of $40million. Chairman John Gay announced he will resign as Chairman of Gunns and become Chairman of the soon to be created 51% owned subsidiary Southern Star Corporation, which is intended as the vehicle to develop the pulp mill. Mr Timo Piilonen has been appointed to the role of Pulp Mill Project Developer. He worked between 2004 and 2008 on the highly controversial Metsa Botnia Fray Bentos pulp mill in Uruguay. Mr Robin Gray, former Tasmanian Premier will resign from the Gunns Board and head up the plantation operations.
Gunns purchase of Great Southern Plantations will deliver sufficient plantation feedstock for the proposed pulp mill; however Gunns retains a 20 year agreement with Forestry Tasmania for at least 20 million tonnes of native forest wood according to the Wilderness Society, leaving old growth forests susceptible to ongoing destruction.
Despite major shareholder requests for John Gay to resign over the pulp mill debacle and the collapse of profits, not to mention his sale of stock prior to the half yearly profit announcement, Mr Gay has inflamed tensions further by embedding himself in the new pulp mill vehicle. Mr Piilonen’s appointment is no less controversial, signalling Mr Gay’s intent to engage with direct competitors of Sodra, once mooted pulp mill joint venture partner.
However with $661m in net debt, a market capitalisation of $440million, it is hard to envisage how Gunns’ subsidiary will attract sufficient finance for the Bell Bay pulp mill, even with a joint venture partner. The changed political landscape post Tasmania’s recent State election may further erode the potency of Gunns influence.
Whatever the outcome the twists and turns of the Gunns saga seem set to continue; whilst increasing awareness of the less than optimum practices of this company as forged by John Gay’s obsession to pursue an unsustainable pulp mill will no doubt continue to undermine Gunns potential to raise funds.
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