Financing pulp mills: an appraisal of risk assessment and safeguard procedures

This study analyses the risk assessment and socio-environmental safeguard procedures associated with the financing of pulp mill projects. The type and cost of the fibre source is clearly key to the economic competitiveness of any pulp mill. Nevertheless, investment institutions often carry out only limited assessment of the fibre source of the proposed mill. Although a growing number of financial institutions have adopted policies to employ social and environmental safeguard screening for investments in developing countries and transitioning economies, the scope of such screenings is in fact quite limited and they are often implemented ineffectively. In this way, investment institutions often underestimate both the financial risks associated with pulp mills, as well as their social and environmental impacts. Most greenfield pulp mill projects developed by new sponsors are subject to safeguard screening. The primary focus of these screenings is on the manufacturing aspects of the mill, and not on fibre supply which in many cases is still years from being realised. This is an inherent weakness. Projections and reports provided by project sponsors are often insufficiently detailed to allow investment institutions to identify weaknesses and omissions. Better results can also be obtained by looking beyond the project at hand to review the project sponsor's track record in existing and previous ventures.

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DOI:

https://doi.org/10.17528/cifor/001982

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