Warning to financiers of the acquisition of pulp company Eldorado Brasil

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Investors should demand that the buyer of Eldorado Brasil, will commit to implementing strict ESG criteria that will improve the social, environmental governance performance of Eldorado. Failing to do so will expose financiers to both financial as well as reputational risk.

Eldorado’s performance on Social, Environmental and Governance issues has not been exemplar. The company that owns the world’s largest single line pulp mill (1.7 million tonnes a year (mty)), has been involved in corruption scandals and due to its sheer size and expansion plans (a second pulp line[1] with a 2.5 mty capacity), it has a large risk of getting involved in social and environmental conflicts.

According to recent media reports[2], J&F is now negotiating with APP and China Paper. Other reported bidders are Arauco, Fibria and APRIL. These companies have different levels of commitment to the implementation of sustainability policies, some of which are notoriously bad. Investors are therefore advised to evaluate the capacity of the potential buyer to improve Eldorado’s track record, to avoid ESG risk. Guidance for financiers on absolute minimum criteria can be found in the Green Paper, Red Lines document and on the Forests & Finance website.

1. An analysis of the ESG track record of Potential Buyers

1.1 APP

Asia Pulp and Paper (APP), a subsidiary of the Indonesian conglomerate Sinar Mas Group is one of the world’s largest fully integrated pulp & paper companies and it accounts for more than half of Indonesia’s total pulp capacity. It has reportedly made a bid of around USD 4.8 billion (BRL 15 billion)[3] for Eldorado Brasil.[4]

APP made a US$14 billion[5] default in 2001. It has also been involved in a large corruption case involving the illegal issuing of land permits, in Riau, a case which has earned Riau’s former governor 14 years in prison.[6] APP’s pulp and paper mills in Indonesia have fuelled massive deforestation,[7] peatland drainage and social conflicts across its 38 supplier concessions covering 2.6 million hectares, and hundreds of thousands of hectares of APP concessions burned in the massive fires of 2015. APP was disassociated by FSC in 2007.[8] It adopted a Forest Conservation Policy in 2013 but the Indonesian Ministry of Environment official has recently said that “APP’s Forest Conservation Policy is clearly just jargon”,[9] after the Ministry found once again that APP was replanting acacia’s in protected peat areas, which is both illegal and in contravention to APP’s Policy.

An independent evaluation in 2014-15 found hundreds of community land tenure disputes[10] and social conflicts across APP’s supplier concessions. The majority of these conflicts remain un-resolved[11] as of 2017, in contravention of its 2013 Forest Conservation Policy.[12]

BTG Pactual, Latin America’s largest investment bank, is reportedly advising APP on the potential deal. Since BTG Pactual does not have a strong sector policy[13] regarding investments in the forestry sector, we urge it to apply extra due diligence to avoid exposure to ESG and reputation risk. A similar warning also applies to other top financiers of APP (see Forests&Finance.org), which are likely to also be involved in an Eldorado acquisition, and lack strong policies.

1.2 China Paper Corporation[14]

The Chinese company reportedly offered USD 5.06 billion (BRL 16 billion) for a 100 percent stake in Eldorado Brasil.[15] It is an investment holding company which engages in the manufacture and distribution of paper and paper chemical products.[16] Its parent company – China Chengtong – is owned directly by the Chinese State-owned Assets Supervision and Administration Commission of the State Council (SASAC).[17]

China Paper Corporation has three stock listed subsidiaries: Foshan Huaxin Packaging, Guangdong Guanhao High-Tech and Yueyang Paper. All three are listed on Chinese stock exchanges.[18] China Paper Corporation closed a deal earlier this year with the Russian Forest Products Group to invest US$1 billion in constructing a 700,000 ton per year capacity pulp mill in Russia. [19]

China Paper Corporation is embroiled in a number of breach of contract cases with suppliers in China.[20]

1.3 Fibria

Fibria has reportedly also made a bid for Eldorado.[21] The company already owns a 1.2 mty mill in Três Lagoas and will soon open a second pulp line. It could potentially gain significant savings in costs from an acquisition but it could face tough antitrust scrutiny in Brazil.[22]

Fibria is the world’s largest producer of eucalyptus pulp. Its mills in Bahia and Espírito Santo have been involved in several long standing social conflicts, involving indigenous groups, landless workers movements and afro-descendant communities.[23] At its mill in Três Lagoas, the company has been accused by its employees, of serious labour irregularities.[24]

Fibria does have FSC for most of its plantations, but has been accused of being among the main contributors to desertification problems in Espírito Santo.[25]


Copec, which controls the Chilean pulp company Arauco, is one of the world’s largest pulp producers. Copec made a deal with Eldorado for exclusive talks about a takeover, but the time for these talks expired in early August without a deal being reached.[26]

Arauco, as are other Chilean plantation companies, is involved in disputes with indigenous people over land in Chile.[27] It has also been linked to water scarcity, caused by the large consumption of water of its plantations[28], and to large fires that raged through Chile earlier this year. Arauco does have FSC certification, but this has been criticised by several civil society organizations.[29]

In 2004, a spill at its Valdivia mill caused thousands of black-necked swans to die in the Rio Cruces sanctuary, an internationally protected Ramsar site.[30] Plans to build a pipeline to discharge effluent directly into the sea have faced massive protest by local communities.[31]


APRIL, controlled by the Indonesian RGE Group, is Indonesia’s second largest pulp and paper company.  APRIL has reportedly[32] made a bid on Eldorado Brasil.

APRIL has a track record of large scale deforestation, the drainage and destruction of peat lands and social conflicts over land. The company is excluded from FSC. It adopted a Sustainable Forest Management Policy in 2014, but has since been accused numerous times of breaking it.[33]

2. Environmental, Social and Governance issues of Eldorado

Eldorado Brasil is up for sale because its owner, J&F Holdings, needs to raise funds to pay a USD 3.2 billion (BRL 10.3 billion) fine for its role in corruption scandals[34] that threatened to topple President Michel Temer. Among others, prosecutors are investigating potential crimes involving the approval and disbursement of loans worth billions of Reais[35] from state development bank BNDES to J&F. Eldorado is also being investigated over fraud in obtaining funding from pension schemes[36], and it is being sued by Fibria for misusing clones[37] owned by its competitor.

The Eldorado mill is located just to the east of the Pantanal wetlands, which is a Ramsar site of International importance[38] and a UNESCO world heritage site.[39] Due to the large area that is required for the plantations that feed the mill, there is a risk that land use change will lead to the encroachment of the Pantanal. There is also a risk that if the plantations are not managed according to best practices, they will strongly impact local biodiversity, deplete water sources and constitute a fire hazard.

The Eldorado mill discharges its effluents into the Paraná river. This river, which crosses the National Park of Ilha Grande and in which the famous Iguaçu waterfalls are located, also receives the effluents of the Fibria mill. If the expansion plans of both mills are implemented, the river will receive effluents from 4 paper mills, totalling around 7 mty of pulp capacity. Pulp mill effluents contain chlorine and other toxic chemicals that can have a detrimental impact on aquatic organisms.

There is a heightened risk for these environmental impacts as the Environmental Impact Assessment did not assess the impacts of the plantations, nor did it assess the cumulative impact of 2 (let alone 4) big paper mills next to each other.[40] Furthermore, according to the Public Prosecutor’s Office,[41] the Environmental Impact Assessment of the Eldorado mill was approved by an incompetent authority – the state environmental agency Imasul – instead of the Federal agency Ibama.

Eldorado Brasil does have FSC certification for most of its plantations, but a 2016 Special FSC audit[42]  found that it had failed so far to properly identify High Conservation Value Areas and to consult on them with relevant stakeholders. Eldorado does also not provide the maps from the area it sources from. The FSC certificate will expire in November this year and its renewal will probably depend on the new owner. This might be challenging if the new owner is a company that is currently excluded from FSC, like APP and APRIL. Lack of FSC certification will cause some buyers to switch to other suppliers, potentially reducing revenues significantly. Moreover, lack of FSC certification limits the market that Eldorado or APP could supply to, again potentially impacting the financial performance of the companies.

Eldorado has also been involved in labour conflicts, with workers striking[43] over poor working conditions and for being denied the right to form a union, in contravention of the ILO core labour standards.[44]

Labour conflicts can impact the company’s financial performance. Work stoppages incur significant costs through loss of production and revenues while fixed costs remain. Moreover, resolution of conflicts can also incur costs, and where resolution is only found in the courts, may also result in fines for contravention of labour standards or laws.

In short, Eldorado is afflicted by numerous environmental, social and governance issues that could severely impact the financial viability of the company if the new owner does not address them properly.


The acquisition of Eldorado by a party with a poor record in protecting the environment, considering human rights, or adhering to fundamental governance standards, could be a recipe for disaster.

Potential financiers are urged to demand that the buyer will implement best practice management and uphold a high level of ESG standards and practices.

We urge the Brazilian Central Bank, Brazil’s Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica – CADE), the Brazilian Securities and Exchange Commission (Comissão de Valores Mobilíarios – CVM) and other competent authorities to engage with the financial stakeholders involved to demand that ESG criteria are applied.


[1]    http://www.eldoradobrasil.com.br/Institucional/Quem-Somos/vanguarda20

[2]    http://www.valor.com.br/international/news/5078116/asia-pulp-paper-poised-buy-eldorado-brasil;




[3]    http://www.valor.com.br/empresas/5078318/jf-negocia-eldorado-com-asiatica-app

[4]    RAN 2017, Every investor has a responsibility. Available at:


[5]    http://www.scmp.com/business/companies/article/1780979/us14b-default-forgotten-indonesia-billionaire-widjaja-sells-debt

[6]    http://wwf.panda.org/wwf_news/?159162/APPs-forest-clearing-linked-to-12-years-of-human-and-tiger-deaths-in-Sumatra

[7] https://d3n8a8pro7vhmx.cloudfront.net/rainforestactionnetwork/pages/17702/attachments/original/ 1497287352/RAN_Every_Investor_Has_A_Responsibility_June_2017.pdf?1497287352

[8]    https://ic.fsc.org/en/what-is-fsc/what-we-do/dispute-resolution/current-cases/asia-pulp-and-paper-app

[9]    http://www.foresthints.news/app-business-transformation-not-substantial-monitoring-finds

[10]   http://www.rainforest-alliance.org/sites/default/files/uploads/4/150205-Rainforest-Alliance-APP-Evaluation-Report-en.pdf

[11]   https://www.asiapulppaper.com/system/files/170313_fcp_progress_updates_-_march2017v2_0.pdf

[12]   https://www.asiapulppaper.com/sustainability/vision-2020/forest-conservation-policy

[13]   http://www.environmentalpaper.eu/in-the-red/

[14]   Not to be confused with China Paper Holdings as many media reports have done. China Paper Holdings is an investment holding company incorporated in Bermuda. It was previously traded on the Singapore Stock Exchange. However, following a fire at its operations in China, financial records were lost. It was thus no longer able to meet its obligations to the stock exchange and it was suspended. Its only subsidiary with any business activities was its Chinese subsidiary. This subsidiary is now also suspended in China. The holding company is apparently still operational, though it is not clear where these operations could be.

[15]   https://www.reuters.com/article/us-eldorado-m-a-china-paper-idUSKCN1B31P0

[16]   https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=10945484

[17]   Qi Xin Bao (2017, August), China Chengtong, p. 1.

[18]   http://www.zwt.com.cn/contents/2/1.html

[19]   China Pulp & Paper (2017, January 12), “Investments exceed US$ 1 billion, China Paper plans to build 700,000 ton per annum capacity pulp mill in Russia”, online: http://www.chinapulp.cn/news/201701/12/zx11426.html, viewed in August 2017.

[20]   Qi Xin Bao (2017, August), China Paper Investment – Risks, p. 1.

[21]   http://markets.businessinsider.com/news/stocks/r-china-paper-mulls-5-bln-bid-for-brazils-eldorado–media-2017-8-1002279006; http://economia.estadao.com.br/noticias/geral,fibria-quer-se-unir-a-arauco-na-eldorado,70001869890

[22]   https://www.reuters.com/article/us-eldorado-brasil-m-a-empresas-copec-idUSKBN1AK2EN

[23]   http://awsassets.panda.org/downloads/brazilpulppapercasestudy_pdf.pdf;



[24]   http://wrm.org.uy/articles-from-the-wrm-bulletin/section2/brazil-rising-profits-do-not-prevent-layoffs-fibria-celulosa-in-mato-grosso-do-sul/

[25]   https://news.mongabay.com/2017/03/pressure-over-water-in-brazil-puts-pulp-industry-in-the-spotlight/?n3wsletter&utm_source=Mongabay+Newsletter&utm_campaign=70c741f76a-newsletter_2017_03_02&utm_medium=email&utm_term=0_940652e1f4-70c741f76a-67232023

[26]   https://www.reuters.com/article/us-eldorado-brasil-m-a-empresas-copec-idUSKBN1AK2EN

[27]   http://wrm.org.uy/articles-from-the-wrm-bulletin/section1/chile-discredited-fsc-label-continues-to-legitimize-industrial-tree-plantations/

[28]   http://resumen.cl/2015/05/agua-para-quien-escasez-hidrica-y-plantaciones-forestales-en-la-provincia-de-arauco-un-informe-develador-y-por-eso-indignante/

[29]   http://wrm.org.uy/articles-from-the-wrm-bulletin/section1/chile-discredited-fsc-label-continues-to-legitimize-industrial-tree-plantations/

[30]   http://wrm.org.uy/articles-from-the-wrm-bulletin/section2/uruguay-the-ence-arauco-and-stora-ensos-eucalyptus-and-pulp-fairytales/

[31]   http://www.noalducto.com/

[32]   http://www.valor.com.br/empresas/5078318/jf-negocia-eldorado-com-asiatica-app

[33]   https://www.banktrack.org/company/april#popover=issues

[34]   http://www.bbc.com/news/world-latin-america-40109232

[35]   http://www.reuters.com/article/us-brazil-corruption-jbs-fine-idUSKBN1910MW

[36]   http://www.reuters.com/article/us-brazil-corruption-idUSKBN16F25W

[37]   http://www.fibria.com.br/r2015/en/multas-acoes-judiciais.html

[38]   http://www.ramsar.org/sites/default/files/documents/library/sitelist.pdf

[39]   http://whc.unesco.org/en/list/999

[40]   http://www.environmentalpaper.eu/wp-content/uploads/2017/03/170314-Pulp-Mill-Expansion-in-Brazil-discussion-document.pdf

[41]   http://www.prms.mpf.mp.br/servicos/sala-de-imprensa/noticias/2015/08/mpf-ms-ibama-deve-averiguar-impactos-cumulativos-de-empreendimentos-no-rio-parana

[42]   http://fsc.force.com/servlet/servlet.FileDownload?file=00P3300000hq2VJEAY

[43]   https://www.jpnews.com.br/tres-lagoas/terceirizados-da-eldorado-decretam-greve-mais-uma-vez/45191/

[44]   https://www.jpnews.com.br/tres-lagoas/justica-manda-eldorado-reintegrar-funcionario-demitido-ha-3-meses/89756/

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