Response to Bond Vigilantes’ article on the Suzano Sustainability-Linked Bond (SLB)

By Cedric RIMAUD, Co-Founder of Earth Wake

Dear Charles de Quinsonas

Thank you for your excellent “Look beneath the surface” analysis of Suzano’s $750 million Jan-2031 bonds, whose coupon of 3.75% is subject to an increase of 25bps per annum from July 2026, should the issuer fail to meet its greenhouse gas (GHG) emission target in 2025. It is clearly a huge sigh of relief that sophisticated investors like yourselves act as the “vigilantes” and make sure that the company’s green credentials are indeed scrutinised and monitored.

We agree with you that there are some key areas that must be closely inspected, like: i. the proceeds will go to general corporate purposes, rather than specific green projects, which is excluded, for instance, by the Climate Bond Initiative in its screening of “climate-aligned” green bonds; ii. the issuer could have included water management and industrial waste as part of its key performance indicators, part of its sustainability-linked bond framework; iii. GHG emissions are calculated in terms of carbon intensity, rather than outright GHG emissions, leading to increased production resulting in more carbon emissions.

Now, you chose not to invest in this bond due to its unattractive pricing, which, you say, may be a result from the strong demand from ESG funds. As you rightly point out, the bond received $7 billion of orders for a $750 million bonds. Only in the last sentence of your review do you give credit to Suzano for having a gas emission target in the EM bond world. While I understand your skepticism, there are some positive signs, nevertheless.

Suzano, in their SLB framework, announce that “sustainability is an integral part of their strategy”, that it is “a global reference in the development of products made from renewable eucalyptus forests”. Given that it is a vertically integrated business, it is in the best position to control all steps of manufacturing and ensure that the whole production chain becomes greener. To point i. above, the counterargument to the general corporate purpose’s argument is that the company has announced a corporate strategy resolutely embarked on becoming a more sustainable business. To the point ii. above, the company’s priorities do include a reduction of industrial waste sent to landfills by 70% and reduce water withdrawal intensity by 15%. We fully agree with point iii., as carbon intensity is not a good measure of a business’ contribution to global warming: total carbon emissions are. However, Suzano itself has stated, again in its SLB framework, that it intends on becoming “even more climate positive” and removing “an additional 40 million tons of net carbon (carbon capture minus emissions scopes 1, 2 and 3) by 2030.’, the company is “committed to zero deforestation in their operations and supply chain”. They have policies in place to monitor their supply chain, with a “designated department with a rigorous and regular due diligence process that is responsible for ensuring that certified wood purchases follow the necessary guidelines”. We are far from “greenwashing”, something that we hear investors raise as a potential risk, when it comes to green.

We want to be slightly more optimistic than you are, however. The KPI is simple, measurable, attainable, relevant and time-bound (so called “SMART”), or, in SLB definitions, “measurable, quantifiable, externally verifiable and benchmarkable”. The starting point, 2015, was chosen in reference to the date of the Paris Agreement, which triggered the start of the move to market standards in the bond market. ISS ESG has provided a second party opinion on the transaction[1]. Rightly, ISS recognizes that “Suzano is one of the only eight companies in its industry to have concrete targets of GHG emissions reduction in line with the Paris Agreement”. Suzano also has got to improve: ISS indicates that “the company shows a moderate sustainability performance and has been given a rating of ‘C’, which classifies it as ‘Not Prime’ by the methodology of the ISS ESG Corporate Rating”. The population of firms to derive this assessment included 40 listed companies from the Paper & Forestry sector, in which Suzano ranks 16th, according to ISS.

To conclude, we agree that more ambitious targets would have been welcome. However, this is clearly a step in the right direction. The starting point is that Suzano is “average” in terms of emissions. It is signalling that it wants to do better. It has set factual targets, which it can refine in future bond issuances. It is a business that is a high contributor to the problems affecting our world: carbon emissions, water depletion and the creation of industrial waste. As such, we expect that the long-term prospects of Suzano as a better business are set on the right path. Other ESG funds seem to agree, as you rightly point out. The independent party opinion, which constitutes the core of the why investors feel they can trust the whole process, is a fair assessment. Overall, the foundations for a greener bond market are solid. As reported by the Climate Bonds Initiative[2], Suzano is the largest issuer of green bonds in Latin America, with $1.2 billion of green bonds outstanding as of 2019, with the first green bond issued in September 2016, only one year after the Paris Agreement, and Latin America’s first ABS green deal in 2019, while its competitor Klabin has issued $468 million. As such, we would like to welcome this SLB issue and congratulate Suzano on their SLB issuance. They set the stage for more similar companies to follow suit. The targets and ambitions will become more refined, higher and better calibrated, as the company understands the value of reducing energy intensity, waste and forest depletion.

Thank you for your analysis, it is great to see that global investors, like yourselves, do care about the fine print.

Earth Wake 


[1] https://www.isscorporatesolutions.com/file/documents/spo/spo-suzano-20200901.pdf?elqTrackId=37b45d505b89430b88acbfcad67edd4b&elq=a005e536daa14b32a0f4931e8ba170d3&elqaid=1335&elqat=1&elqCampaignId=&elqcst=272&elqcsid=253

[2] https://www.climatebonds.net/files/reports/cbi_lac_sotm_19_web_02.pdf

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