Smurfit Kappa, a leader in paper-based packaging, is dealing with increased demand for its products while also steering the business towards net-zero by 2050. Here, chief sustainability officer Garrett Quinn and assistant group treasurer Emer Murnane discuss the changing demands on the industry, the push to embed sustainable finance, and how the company is helping its clients reach their net-zero goals.
What has been the impact of consumer-driven demand for more sustainable packaging on your business?
Garrett Quinn We’ve seen a groundswell of consumer-driven sentiment against less sustainable packaging materials since 2017. So, we're four years on from a ground-up, consumer-driven move towards ‘We don't want plastic anymore,’ and we expect to see a strong upside from it.
We are delivering significant growth levels in our business now and people assume that's because of a move away from less sustainable packaging but we still haven’t fully implemented that yet. However, we are definitely interacting with our customers on this. If you go into any of our box plants across Europe or the Americas, they are all working on requests from customers for more sustainable solutions. The demand is intense. The opportunity for us is to show that we already have solutions.
What we've been saying is, plastic isn’t necessarily the enemy here. It's just too much plastic and waste that is the enemy. When we examine our customer supply chains, we often find that, if they used a slightly heavier grade of material, they could get an extra two or three boxes on a pallet, and 26 pallets on a container. So, by suggesting and helping them implement this small change, we are helping them reduce the costs and CO2 emissions of their logistics process.
What do you think will be the most transformative alternative to plastics?
Garrett: We can offer companies alternatives if they’re currently using a plastic tub, a plastic lid, and their primary product is wrapped in plastic. Perhaps the primary product still needs to be wrapped in plastic, because it’s food or contains chemicals. But they could consider using biodegradable bioplastics. The plastic tub could also be changed to corrugated cardboard. We're not saying ‘no’ to all plastic but we want to look at less harmful choices within the spectrum of plastic and consider changing elements to paper-based where possible.
A lot of brands are struggling to prove that they've heard the consumer. They see where legislation is going and they're acting, for example moving from virgin to recyclable plastic, which is positive. But is it the solution? No. It doesn't change the fact that, unless you're recycling 100%, something is falling out of the loop and can still do harm if entering waterways and oceans.
Plastic isn’t necessarily the enemy here. It's just too much plastic and waste that is the enemy.
Smurfit Kappa has set the goal of reaching net-zero emissions by 2050. What steps are you taking to achieve this?
Garrett: We have a clear line of sight on how we can deliver on our interim target of 55% by 2030, through specific projects. It comes down to three things: reducing the energy we use; generating the energy efficiently ourselves through combined heat and power plants; and, finally, moving towards renewable-energy generation.
We have over 350 facilities around the world, and many of them are in sunny countries, so it makes sense to put solar panels on the roofs. It's not going to be right for every plant, but there is plenty of scope to use solar energy. In our French facility in Saillat-sur-Vienne, we’re also experimenting with hydrogen as a fuel. This is important, because it allows us, in a very controlled project, to understand how hydrogen might be part of the solution in 2030 and beyond.
We are also focusing on ensuring that our paper mills have a decreasing carbon footprint. The goal for us is to get, as quickly as possible, to producing net-zero boxes.
So, we hope that the combination of a great product, which is helping to solve many of the challenges the world has in terms of materials, and a significantly reduced manufacturing footprint, will put us in a strong position to make a difference to our customers and to wider society.
We have a clear line of sight on how we can deliver on our interim target of 55% by 2030, through specific projects.
How difficult was it for you to link sustainability targets to corporate financing?
Emer Murnane: We have incorporated sustainability-linked targets into our revolving credit facility [RCF], with mandatory annual targets and also issued a use-of-proceeds green bond.
All of this was made much easier for us in treasury because the company had been reporting on sustainability for over 13 years. We were embedding into our financing something that was already being done. Senior management was also already committed to challenging targets and understood the significance of these from both reputational and business perspectives.
Companies can finance their business in a better way and also feel good about what they are doing.
You recently launched the Green Finance Framework to support green issuance. Could you tell us more about the journey to set this up?
Emer: We chose ING and Rabobank as joint sustainability advisors. Finding the right partner was always going to be a challenge, but we were extremely lucky. We found partners who know our industry very well and understood the challenges and opportunities and where we would have an advantage in terms of products and process.
ING and Rabobank supported us by looking across the whole organisation: to ascertain in what way our products and processes impact on the UN SDGs. They really got under the skin of our company right from the beginning and understood what we stand for. This has resulted in a Green Finance Framework which reflects the sustainable and circular nature of our business model. It takes into account our efforts to produce circular products using certified sustainable raw materials, and to implement circular production processes which we continuously improve.
We found partners who know our industry very well and understood the challenges and opportunities.
What is the biggest change you’ve witnessed in your careers at Smurfit Kappa?
Garrett: One of the challenges for me is that, as a company, we are quite hard-nosed on financial returns. One of the bedrocks of our success has been the mantra of ‘Give me a euro and I'll give you back a euro and 20 cents.’ If the business case shows a return, the company backs the project. If someone comes along and says ‘Give me a euro and you may get a euro or two in a year; maybe not, but it’s a great idea,’ they would find it tough to secure backing.
But, because of where the world is going now and where regulation is bringing us, returns keep changing. For example, the price of carbon changes in the space of six months. So, now it’s about trying to marry that hard-nosed financial approach which has made us the successful company that we are, with an even more sustainable approach. As part of our equity raise in 2020 we have said publicly that we are investing in lower-return projects because it's part of our sustainability strategy. The encouraging part is that the returns have improved already in the short-term since we raised the capital.
Emer: I agree. When we look at financing and corporate planning, it also feeds through into operations because they’re getting a lower cost of financing from us. They can finance their business in a better way and also feel good about what they are doing.