Old Industry, New Tech: Domtar’s Focus on Sustainability 10-17

Old Industry, New Tech: Domtar’s Focus on Sustainability

Reproduced from MIT Sloan Management Review

Montréal-based Domtar Corporation brands itself “The Sustainable Paper Company” and is fast becoming a wood fiber innovation engine using sustainability as the foundation of its business transformation. David Struhs, the company’s vice president of sustainability, explains how co-generation, new manufacturing and attention to market niches are some of the ways that vision plays out.

“If you view what sustainability means in an ecosystem, it is ultimately being as efficient as possible with resources and being able to adapt,” says David Struhs, vice president, sustainability for Domtar Corporation  , a Montréal-based pulp, paper and absorbent hygiene products manufacturer. “Our idea is that innovation has to occur within the different, unique ecosystems and economies in which our facilities operate.”

The idea of adapting sustainability goals at each company factory — that is, having ideas adapted to rather than adopted by — is just one part of Domtar’s journey toward broader sustainability practices.

The company is the largest integrated marketer and manufacturer of uncoated freesheet paper in North America. In 2012, it had revenues of $5.5 billion in 2012, and a workforce of 9,500 in North America, Northern Europe and China. Domtar produces 4.3 million metric tons of hardwood, softwood and fluff pulp, the majority of which is consumed internally to manufacture paper and consumer products such as store-brand infant diapers and a full line of branded adult incontinence products.

Struhs helps oversee Domtar’s sustainability efforts, which include setting targets for reductions in greenhouse gas, water and waste. Domtar has also been working to increase its supply of certified fiber through a chain-of-custody certification to recognized third-party standards, including the Forest Stewardship Council and the Programme for the Endorsement of Forest Certification.

Struhs has been at Domtar for about a year and a half. He has had a variety of previous lives, mostly within government: He was an environmental regulator working for the U.S. Environmental Protection Agency; of the Chief of Staff to the Council on Environmental Quality in the Executive Office of the President of the United States; and the environmental commissioner for the state of Massachusetts and then the environmental secretary for the state of Florida. He then moved to International Paper, the Memphis, Tennessee, company “which is, to this day, the largest forest products company in the world,” he says. “During the course of my career in global manufacturing,” Struhs says, “I became convinced that, as important as government is in driving change, ultimately, the most effective solutions are invented and executed in the private sector.”

In a conversation with David Kiron, MIT Sloan Management Review’s executive editor of the Big Ideas Initiative, and Nina Kruschwitz, MIT SMR’s managing editor and special projects manager, Struhs talks about the new manufacturing technologies that are changing the paper industry, the role that co-generation plays in the company’s operation and the market niches that are becoming bigger pieces of the North American paper-manufacturing mix.

What does sustainability look like in Domtar?

Many corporations view sustainability as a special project, an initiative that responds to pressure from the market or NGOs, or a risk-management effort. That’s not to say these cases aren’t legitimate efforts to improve efficiency. Unfortunately, even really, really good companies often view sustainability as an emerging area, apart from the company’s core business.

Domtar’s early sustainability efforts focused on the transparency of its fiber supply chain. The company worked with NGOs and customers to establish a high level of confidence and credibility. Since then, we’ve expanded our view of sustainability to focus on manufacturing excellence and optimizing efficiency. We now think of our company in terms of industrial ecology

Would you say that sustainability is changing your business model?

Absolutely, it is. Sustainability is redefining our business model; it is redefining the way we view and think of ourselves.

I’ll give you an example. I get to deal with young, bright people who are starting careers in our industry. Who would have thought? The very brightest students can write their own ticket and choose what industry they wanted to be a part of — so how do you convince them to come into pulp and paper? These are people in their upper 20s. They have a couple of Masters degrees under their belt. And they’re coming to us, seeking us out, because this is a way to differentiate themselves in the marketplace. They get excited about things like lignin separation technology, which we call BioChoiceTM lignin  . They get excited about things like nanocrystalline technology — something that unlocks the natural strength and characteristics of cellulose at a nanoparticle level.

So, what’s fascinating is that the focus on sustainability, in terms of what we can do to improve our relationship to the environment, makes us more sustainable in the war for talent. It becomes this virtuous circle of sustainability at every compass point.

Can you give us a snapshot of what lignin separation technology is?

Start by thinking about a tree as its basic chemical components. It’s cellulose; it’s hemicellulose, which is a family of different sugars; and it’s lignin, which is the remarkable material that binds the cellulose and hemicellulose together and gives the tree its strength and its stress test. The fourth major component is the volatiles, the turpentines and the tall oils.

If you think about wood as a rich collection of chemicals that can be repurposed and redesigned to create new products, it becomes pretty exciting. Actually, we had an event where we started a new process to remove lignin from wood at our mill in Plymouth, North Carolina. The U.S. Secretary of Agriculture, Tom Vilsack, was scheduled to participate in a ribbon-cutting ceremony at the facility. Unfortunately, the date of the event fell on the day of a tropical storm. Airports were shut down and he couldn’t arrive. But he called us and said he was sorry he missed it and that it’s the kind of thing that he hopes to see more of, and he asked if he could get a private tour and briefing.

I think it’s consistent with where the Administration is trying to go, which is to say if you believe that there’s a manufacturing economy future for the United States, it likely won’t compete in world commodity markets. Now, that doesn’t mean we won’t continue to be a very important supplier of pulp and paper. We will. But our future has to look beyond that. We have to ask, “What’s advanced manufacturing? What are the innovative things that we can do with the same basic material and building blocks to produce new products?”

You used the phrase “virtuous circle of sustainability” in talking about your strategy. That’s a good phrase. Do you see giving younger workers something interesting to do as contributing to their wellbeing?

I think so. I know it’s the case with me. I’m 53 and I’ve done lots of different things in my life, and I still love going to work in the morning. I think one of the reasons is that, at the end of the day, I feel like I’ve actually done something that might make a real positive difference, whether it’s something as simple as collaborating with NGOs and customers to coming up with a way of getting more landowners to certify their fiber supply and adhere to certain good practices for forest management. It can be something even bolder, like reimagining what value we might extract out of something like a tree. I think lots of folks feel the same way.

One of the things that might be unique to our industry — because it’s such an old industry — is we’re able to overcome some of the sins of the past. Let’s be honest, in our lifetime the pulp and paper industry was not a good environmental actor. It did not have the ethos of manufacturing efficiency, and if you look at what they did to rivers and streams, and in some cases forests, it was reprehensible.

But if you look at how the industry has been transformed and the transparency it now exhibits, there’s a positive story to tell. I think people who have spent a long time in this industry feel like they have a new lease on life. Almost as important, they have a new reputation.

So, let’s talk about this new lease on life and how long this life is going to go for. Domtar has a sustainability strategy that goes out to 2020, which is a substantial amount of time.

Well, any number that you put out there as a planning horizon is by definition arbitrary, and we recognize that. There is a certain ring to 2020. But at a more practical level, we felt that it was a reasonable timeframe, given the capital intensity of our industry. We have harvest cycles that extend 40 or more years in some cases. Because of the investments required to build and the operating costs to maintain this very capital-intensive industry, there’s no room for decisions that lack a view of the long horizon.

That doesn’t mean that we aren’t going to hold ourselves accountable on a routine annual basis, reporting progress where it’s good and where it’s bad, but we think it’s important to view it in that longer-term context.

In some ways, what sustainability is serving as a counterweight to the quarterly nature of American capitalism, where everything’s about what’s happened this quarter or what’s going to happen next quarter. If you believe sustainability is a natural counterweight to that phenomenon, then I think it’s actually appropriate to have a 2020 horizon out there.

Give us an idea of some of the big goals of this 2020 strategy.

It starts with the fiber, in our case. When people think about our industry, most often they think first about the responsible utilization of fiber resources. This is also where Domtar began as it started along its sustainability path. So, that’s almost foundational.

Beyond that, it’s looking at the environmental footprint of our operations. This includes the efficiency with which we use energy, water, chemicals and wood. It also includes recovering and recycling what once was considered waste and putting those materials to productive use. And when we’ve run out of those options, the goal is to minimize our footprint as much as we possibly can, and to do it in a way that is somewhat aspirational. It’s more than a lot of lay-ups; we set markers that require us to actually rethink our progress.

Beyond the environmental footprint, it’s the products. I mentioned lignin as one example, but we need to ask whether we can really integrate sustainability into the development of new fiber-based solutions that take advantage of a renewable resource. Can we make products that are lighter, cheaper, faster, better and ultimately renewable — whether they’re fuels, whether they’re plastics, whether they’re substitutes for carbon fiber?

And then finally — and equally as important — we need to consider the communities in which we find ourselves. Ultimately, sustainability is about fitting in, and doing so in a way that creates a net positive benefit in the community in which we operate, whether it’s water, air, employment, taxes, health, or safety. And it’s really just the basics of good corporate citizenship and recognizing that part of what we have to maintain for our sustainability is our license to operate.

You mentioned renewable resources. Is green power — like green steam and green electricity — one of the central pieces?

Yes. If you think about sustainability in the context of energy and climate, I think it’s useful — and this is something we’re doing with some new corporate dashboards that we’re developing — to ask, “what is the economic value that you’re creating per unit of carbon dioxide that you’ve produced?”

It’s kind of a rephrasing of the question. But if, for the foreseeable future, there is going to be some CO2 loading from our operation into the atmosphere, the question becomes, how do you ensure that you’re extracting every possible economic value out of that ton of carbon?

I don’t want to cast aspersions on the utility industry because they’ve got their own set of issues and complicating factors, but if you look at what they do, in most cases they take a fuel and they burn it, and they create steam, they spin the turbine and they sell electrons. The utility typically gets one economic value from that combustion, and that’s the electrons they sell.

That’s not what we do. What we’re providing is really three layers of economic value for that same unit of energy, for the same unit of carbon.

The first thing that we’re getting out of it is the steam. We’re getting the BTU, and we’re using that as a thermal process for our pulp and paper making. But then, we’re recapturing that steam through co-generation, and we’re producing electrons that we either use to power our mills or sell to the grid, so now we’re getting the electricity value out of it in addition to the thermal benefit. The other thing we’re producing is a product that people need and want, pulp and paper, which kind of make modern life possible.

If we can demonstrate the fact that we’re creating a useful product, a green electron and thermal heat that’s being used to create economic value for shareholders, that’s a positive story to tell, especially compared to just burning it once, spinning the turbine and selling the electrons. We think the whole co-gen story, the value creation story, is one that needs to be part of the way people think about carbon utilization and fuel utilization.

The co-generation of fuel, and the way you talk about thermal electron and the products that come out of it, is especially exciting. Do you have any stats on all this?

Of the energy we used last year, 76.3% came from renewable resources. There’s another 3% or 4% on top of that that we actually generated and sold to the grid, creating a greater profit for our shareholders and, probably just as important, green power options for helping utilities meet their renewable portfolio standards.

I can give you another example. I won’t get into the gory details of it, but obviously we’ve got a lot of CO2 emissions. At many of our mills now, we have other companies, private companies, setting up operations on property that we lease to them, tapping into our CO2 emissions and using that CO2 to create carbonic acid, which they use to create what they call precipitated calcium carbonate, or PCC. They then sell that PCC back to us, which we use as a raw material in our pulping process.

This stuff is not rocket science, that’s for sure. Folks at MIT do a lot more interesting things than this. But for us, it’s a pretty great story to tell, that you can take something that is clearly an environmental externality — CO2 — and at least on a limited basis, on site and without having to cart stuff around in trucks, make it better.

I also think these kinds of stories, even if they’re simple ones, encourage people to take more risks and become more innovative and look for the next thing that they can do.

How many mills does Domtar have?

We have 13, nine in the U.S. and four in Canada.

You are, as you put it, an old industry. How old is your newest facility? And how do you go about siting a new facility? Obviously you’d want to be close to your product, your raw material, but how else do you go about choosing a new site?

We probably are operating the newest pulp and paper mill in North America right now, although it depends on how you define “new.” We have the newest greenfield site, for sure. But we also have mills that were essentially rebuilt, and that to us would be new.

I think in North America, it would be hard to imagine anybody going out and building a new greenfield site for pulp and paper. So the question is, where are you going to build the facilities to pursue some of these innovation agendas? I think the answer is found on the sites where these mills already exist. They’re in the wood basket — “the wood basket” is our term —

Like a “watershed”?

Yes. It’s the same idea. There is obviously both an environmental and an economic benefit to moving fiber the shortest possible distance, so if you’re in the wood basket, even if you’re making something other than paper with it, you still want to have those efficiencies. There’s an infrastructure that’s already been established that can handle it.

The other thing, you’ve got communities that are already familiar with and accustomed to this industry, and a lot of these communities are smaller and rural — and in some cases, these communities would be shadows of themselves but for the fact that these industrial facilities actually exist. Unfortunately, a number of these communities have suffered greatly when some of these mills ultimately are shuttered. It’s a community that already knows us and trusts us, and we also, frankly, owe them something, too, which is to reinvest where we’ve been a part of that community.

So you’re bringing this innovative new technology to the old sites — the old mills and the communities that supported them.

Yes. I mentioned that the lignin plant, for example, is in our Plymouth, North Carolina, mill. Our nanocrystalline technology project is at the Windsor mill, which is in Quebec, and there again it’s an old-line commodity mill doing some really exciting things in terms of looking at the molecular structure of crystalline cellulose. Those investments are occurring in the context of the existing old-school environmental footprint.

There are some other things that aren’t quite as futuristic, but I think are just as important. We have a major investment in our Marlboro, South Carolina, mill where we’re focused on making lightweight papers and lightweight papers that are designed for coatings. Even though the overall demand for paper in North America declines annually, there are certain segments where it’s actually growing, and one of them is the need for thermal papers, or very thin-coated papers. That’s actually a good, solid, growing market, and being able to make investments there to make those new grades of paper is pretty important for those communities.

Reproduced from MIT Sloan Management Review