Suzano S.A. (SUZB3) Earnings Call Transcript & Summary

Hello. Welcome to everyone who has joined us from all the parts of the world. Today, we are pleased to hold -- promote our second ESG call. Forest is an extremely relevant topic, which we see as fully integrated and aligned to our business purpose. We are a company in the planted forest sector, which manufactures products from renewable sources, products that are part of the daily lives of billions of people. [Presentation]

We understand that it's essential for civil society, governments and companies to work together for the transition to a more sustainable model for people and planet. And for that, we need a sense of urgency. We are undergoing a climate crisis, a biodiversity crisis and a poverty crisis. And each day, each of this takes their toll. We must provide solutions, and we have to do it by working with everyone, not just those who are already advanced in their sustainability work, but also by working with those who are embarking to this journey for the first time. No one can do this alone. In a journey to become an increasingly regenerative company for a regenerative society, we actively seek to build bridges, networks and partnerships with others who can help us. Today, we will welcome some of the members of leadership team as well as other to close partners and stakeholders, including on the ground leaders and technical experts. It is important to have an external perspective. Therefore, we are honored to have here today as our host, someone who is very familiar with the role of both business and society. Joel Makower, Chairman and Co-Founder of GreenBiz. Joe is a writer, speaker and entrepreneur and has been a respected global voice for decades connecting business, technology and sustainability. Welcome, Joe.

So my takeaway from what you just said is 2 things. One, these 3 crises, the climate crisis, the poverty crisis and the biodiversity crisis, are interconnected, they're intertwined, and we have to deal with all of them at the same time. And two, that, as you said, no one can do this alone. It's going to take partnerships and collaboration among business, the public sector and civil society to address these at the scale, scope and speed that we need. So I'm wondering what do you see as the role for Suzano in addressing these 3 things together, both in terms of the changes that we all want to see in the world and as a business opportunity for the company.

Joe, we want to have a leading company to bring all the other parts of the society together to this journey. We believe that it's critical for the world that we do it right now. We need a call to action. We cannot postpone. We cannot procrastinate anymore the situation. And to do it, it's a running process that we have 8 million people together or everybody is going to win or everybody is going to lose. We need to be together on this journey.

Well, talk a little bit about what -- your own journey to this topic, what you bring to this, the solution set and how you see your own legacy as part of this.

Joe, I believe there is a generation issue that we have. A lot of companies and a lot of entities are telling that they want to be net zero in 2050. We cannot postpone that. We cannot wait for 2050. If we stay with the same level of carbon emissions or increasing level of carbon emissions that we are facing right now, we are not going to reach the 2050. We needed to do something right now. And to do it, I think Suzano is at the right side of the equation. We are absorbing carbon at this time. We have more carbon sequestration than emission. The net amount, it's very positive to the society. In addition to that, we can replace other materials with products coming from the tree. The combination of both could be part of the solution to the world.

I think a lot of companies, a lot of your fellow CEOs think that, well, we're just one company. We really can't make a big enough difference. What have you learned about Suzano's ability to make a difference?

First, Joe, I think we are in this process to be much more collaborative. We do not want to have a position that we are the only company doing that. And we cannot split the efforts that we have in the society. We need to work together. Then I would like to invite other companies to join us on this process on a very positive and constructive solutions. On the other hand, I believe there is -- it's very important that we do not have one company or one part of the civil society working alone. We need to work on this process in order to address the problems that we have in the society. And we do not believe that the government will have funds and resources, human resources to address the problems. We need companies to join, to embark on this transition immediately.

But you have shareholders, you have employees, you have a lot of stakeholders who depend, to some extent, on business as usual. And yet, you want to make a significant shift so that Suzano is, as you are already, becoming part of the solution and not part of the problem, how do you do both things at the same time?

We have 3 pillars on our culture. One of the pillars of our culture is create value and share value with all the stakeholders. There is the art of managing the company. We need to balance everything. We need to understand that we are not going to maximize results in the short term or the next quarter. We want to keep improving our efficiency, our productivity, but use this as a source, as a fund to share with all the stakeholders, with customers, with suppliers, with shareholders, with communities, with team members, with everyone. We believe that this is a process that we can create and share value with everyone.

Thanks for the insights, Walter. The platform is now open for your questions, so please submit them and we'll answer as many possible in a few minutes. We've heard a bit about the E and the S aspects of ESG. Let's now ask Bacci to share how Suzano has been advancing on the G, which has a different dynamic. Right, Bacci?

Sure, Joel. No doubt. Suzano has had a journey of continuous evolution in corporate governance, which I shared with you in the first edition of the ESG call last year. I would say that, currently, we have already achieved well-established structures of governance and we have a constant and active internal analysis of the opportunities to keep advancing on our policies and practices. We always value the opinion of our investors and the ESG rankings and indices, just to name a few sources. And I'm happy to say that we carefully analyze each of them, take it to the appropriate forums for discussion, sometimes managing to fully attend, sometimes partially and sometimes not attending to them either, but still keeping our minds open to constantly rethinking. As corporate governance is a topic of huge value to investors, I ask Camila to share with you our main progress since the first ESG call.

Thank you, Bacci. But before I jump into that topic, I would like to say that today, I'm proud to wear a garment made by Spinnova with 100% Suzano fiber. This T-shirt represents our confidence in expanding our addressable market to the immense market of textiles and helping to answer the paramount question of how the world will sustainably address its growing population. Now let me focus on corporate governance. In the last 12 months, we have acted internally in several fronts, but I would like to highlight 2 of other achievements. On the nomination policy for the Board of Directors and its composition and on the management's compensation policy. Within the scope of the Board of Directors, we formally established a clear commitment to a core topic to Suzano, diversity. The nomination policy now has a target of reaching 30% diversity with a minimum level of 20%. And this guideline is already in practice. Suzano's Board elected at the last general meeting in April has already reached the threshold of 30% of gender diversity, having 3 women within its 9 members. I'm still talking about our Board. It is worth mentioning that more than 50% of its members are independent. And one of these independent members is a newly appointed risk expert who has proven experience in risk management and compliance. About the second achievement now related to the management's compensation policy, which is equally relevant to our investors, it contains now the well-known malus and clawback clauses, which aims to protect the company in the event of a severe misconduct by any of its executives associated with the major negative impact on company's market cap or reputation. While malus prevent the payment of variable compensation from being granted partially or totally, the clawback clause recovers it if it has already been disbursed by the company. And when we discuss corporate governance, we cannot fail to address the fundamental pillars of transparency and accountability. Cristina, I invite you to bring your view on how we have advanced in these aspects.

Thank you, Camilla. When it comes to transparency, we continue improving mechanisms for accountability, ensuring these align with international frameworks and emerging regulations. In May, we published our annual report and launched the new Sustainability Center, which provides an overview of our sustainability performance and the evolution of our commitments to Renew Life. In today's event, you will, at moment, see some of these items. They will indicate the stages of our value chain, stakeholders and specific sustainable development goals related to each individual initiative or program. I arrived at Suzano less than a year ago. And I have already confirmed that here we take sustainability very seriously, and we have a systemic view initiatives related to business, people and planet. The commitments to Renew Life are an essential pillar of this practice. We present here 3 of them, which are tied to sustainability-linked bonds. As you can see, in 2021, we made significant progress in industrial water reduction. We had a slight setback in greenhouse gas emissions and a very important evolution in the commitment related to women in leadership. We aim to reach the targets in line with our 2025 and 2030 goals. However, it is important to recognize that progress is not necessarily linear. Fluctuations in the course of business such as variations in the level of production may have a significant influence on our results. Indeed, we have challenges ahead. Right, Chris?

That's correct, Cristina. We have a wide range of ambitious goals and objectives, don't we? And what guides us to prioritize and place our focus under the systemic view of sustainability is our materiality matrix. In it, we list 8 priority macro themes. And in today's event, we will focus on the top 3 of these: climate change, biodiversity and social territorial development. As Cristina mentioned, it is a complex scenario. So today, we will address not only our progress and achievements, but also some of the challenges that we are facing and, above all, where and how we can identify possibilities for partnerships and wider changes outside of Suzano. And to talk about the first topic of our materiality matrix, climate change, we invite Fernando Bertolucci and Yasmin Paiva to join us.

Thank you, Chris, and hello, everybody. As Walter and Joe have mentioned, the climate crisis is without any doubt a great challenge for the ecosystem and also for our business. However, Suzano has been working hard on strategies to adapt as well as in contribute to the global journey of mitigating climate change by seeking the reduction of carbon emissions throughout our value chain. Climate management and resilience are intertwined, understanding the climate to mitigate the effects of these changes are -- has been one of our major objectives. For over 30 years, Suzano has made significant investments to understand and monitor climate patterns, as Yasmin will present to us.

We currently have 83 monitoring stations and used 96 government ones. These databases are associated with models which help us to predict potential problems in our forest as well as establish strategic planning of plantations to mitigate climate risks. Through technical partnerships with universities, research institutes and NGOs, we have generated knowledge for our business in 44 sectors. One example is the understanding of environmental crisis in the region we operate in basing on climate and soil characteristics. According to published papers and on our accumulated knowledge about climate patterns, we have scientific evidence that climate change is a reality. We have generated knowledge for our business and for the forest sector. We have also used data from global climate change studies, included in UN's intergovernmental panel on climate change scenarios. These scenarios, combined with our local on-the-ground research, indicates how our forest productivity may be impacted over the next [ 4 or 8 ] years, as you can see in this slide. Red colors indicate a potential decrease in forest productivity due to climate change.

Considering what Yasmin has just presented, we should have. Are we ready for these new climate challenges? In this slide, we present a summary of the main actions we have developed in the last 3 decades. At the core of our forest strategy is the development of more resilient eucalyptus trees. For example, we have the largest private eucalyptus genetic base in the world. As a consequence, we have been able to continuously identify and select new eucalyptus clones resilient to climate adversity. We also use advanced tools such as artificial intelligence and analytics to identify the best match between plant and environment in a very precise way. With these improvements, we are better prepared to mitigate climate change. Thus, our ultimate goal is to balance forest productivity and sustainability. [Presentation]

A healthy forestry industry depends on healthy standing forest. And a standing forest means, among other countless benefits, drawing down greenhouse gases from the atmosphere. Joining me now are Sarita Severien and Julio Ramundo, who worked closely on decarbonization initiatives, including those related to removing carbon from the atmosphere and generating carbon credits. Sarita?

Thanks, Joe, and hello, everyone. Suzano growth has historically been fold by an increase in ecoefficiency in its operation. That leads to emissions intensity reduction. This is our results of several initiatives to intensify the use of biomass and replace the oilfield by natural gas in our plants. As part of the work on a robust climate strategy, we recently participate in the ACT pilot projects, the new and highly ambitious initiative led by CDP and the French government supported by the UN. The results show Suzano ahead of its peers in the Pulp and Paper segment, virtually every item measured, including carbon footprint.

For the future, Suzano will increase its total pulp production in 20% by 2025 with ahead of project start-up. Even so, the greenhouse gas emissions will not follow the same pace. New low-carbon technologies, such as the biomass gasification, will lead Suzano to eliminate fossil fuel consumption in the lime kiln also ahead of project. It's worth mentioning that we'll keep looking for innovation to go further on our journey in the future. We invite you to hear our partner, Luis Bodine, CEO of -- Brazil and his perspective on this pathway.

So -- since a long time, has put a lot of efforts to develop and create technology that bring our process of pulp production to the highest level of sustainability, starting since the woodyard where we developed the equipments and technology to give us, I can say, the most efficient of the equipment, reducing to a minimum the wood losses, increasing, of course, the yield and the other technologies in the recovery area, reducing as much as possible emissions in our recovery boiler that today the level that is achieved in terms of emission is one of the most restrictive in the world. So all these technologies being applied in the Cerrado project, other important technology that's being applied in the Cerrado project is the gasification of biomass to feed the energy to the lime kilns. So we can say that the use of fossil fuels in the pulp [indiscernible] days is reduced to a minimum, only for the start-up of some equipment. [indiscernible] operations, everything is being done with the biomass and the products that we have in the pulp and paper production technology.

Through the value chain, we recognize the challenge and the importance of networking with partners to achieve more ambitious goals. Through our climate change program in the value chain launched in 2021, we engaged around 80 suppliers, which accounted for more than 60% of our spending. Based on the results of the evaluation made in partnership with CDP, the second cycle of the program will offer support to companies seeking to evolve their climate practice. We invite you to hear Dexter Galvin, Global Director at CDP, and [ Daniel Andrade ] from [ Rumo Logistica ] arm of Cosan Group to share their views about the program.

Suzano has been a long partner of CDP. We're very proud to be able to support Suzano today. I'm particularly happy that Suzano have elected to engage their supply chain starting in 2021 on climate change. And that's a really exciting development, of course, because many of you will know, the vast majority of the company's emissions are actually beneath the surface in the supply chain. So we banded, in fact, 11.4x the average company's emissions are actually beneath the surface in the supply chain. So it's a critical area for organizations to take action. We are already suffering from the realities of climate change, so we must take action. And we are very pleased to be working with Suzano to take that action, and I'm really pleased to see them push that leadership out into their supply chain.

For us, sustainability is an essential part of our operation and is already incorporated into our business strategy and decision-making process, initiatives like CDP plays a very important role for companies to engage the value chain, climate change opportunities because it is possible to identify actions that are being carried out, their effectiveness and opportunities, besides to define actions for improvements. The involvement of the chain is essential to evolve towards climate change and present consistent results through training, disclosure and information sharing, understanding the market requirements and the need to take actions.

We are proud of our carbon negative status, which means that we are removing more carbon from the atmosphere in our forest areas than we emit in all our operations. In addition to the removals, Suzano has fossil and biogenic carbon emission, which must be counted and reported to parity according to the IPCC and the GAG product. The reason is a fundamental distinction in carbon flows. While fossil sources increase the concentration of CO2 in the atmosphere, biogenic sources do not. As you can see in the animation, biogenic carbon, available in the atmosphere, is used in the tree growth going to the wood or bioenergy to the operation and removed again in the new forest growth cycle. Due to Suzano's huge amount of native and planted areas, our operation is increasing the removal of carbon from the atmosphere, a process which enables eligibility for carbon credits. As companies progress in their decarbonization commitment, carbon credits can play a central role. They can compensate part of their emissions through the use of offsets while taking action to implement new technologies to reduce CO2 emissions.

Our forest, both planted and native, remove carbon while growing. The planted forests are renovated in such a way that an average stock of carbon hours remains stable and terminal. When we grow a new forest transforming a degraded land into a carbon-reach vegetation, the carbon removals can also be eligible for carbon credits. The landscape is complemented with native forest formation, a conservation area that holds carbon permanently. Removals from existing established forests also deliver environmental benefits, but they are not necessarily eligible for carbon credits. Our carbon credit pipeline at Suzano began by developing projects in the areas of expansion of our commercial forests. Our first project is now under the validation and audit phase with the certification body. In addition to carbon removal, we amplified the co-benefits, both in terms of promoting more biodiversity and support to the communities in our area of activity. Future scenarios indicate an increase in demand for carbon credits at increasing prices both in the voluntary market and in compliance mechanisms. Brazil has just published its initial roles to implement a regulated market in the country. Looking beyond planted forest, our collective attention now must turn to the opportunity to restore significant areas of native forests throughout our country. At Suzano, we already have the experience of conserving 1 million hectares of native vegetation, and we want to use this knowledge and capacity to implement large-scale projects, which can make significant contribution to the world. And the use of financing mechanisms such as carbon credits will allow us to unlock this activity and contribute to the wide-scale carbon removal.

As I said, all of this comes from a healthy standing forest. Conserving it and adding new areas of forest in degraded areas is essential to avoid the worst impacts of climate change as established by the Paris Agreement and, at the same time, as you'll see, to preserving biodiversity. [Presentation]

Hello, everyone. Suzano embraced its role in the protection of ecosystems. We have one of the largest private forest areas in the world, safe havens for thousands of species of fauna and flora. Our business model includes almost 1 million hectares for environmental conservation. And since the early '90s, we've been evolving in the development of initiatives to protect biodiversity. Here are some data that translates the positive impacts of our business model. 4,000 species of fauna and flora have been identified in our areas, some of which are rare. 90,000 hectares are classified as high conservation value due to the social environmental wealth. 35,000 hectares under restoration. For instance, as you can see in these satellite images, the benefits of a sustainable forest management. The first image was taken when we initiated our operations in an already degraded area. And the second image shows the result of about 10 years later. This is a very good and clear example of how we operate as a regenerative company. For the cycle, we enhanced the native species in the landscape mosaics, eucalyptus and native trees together. Suzano's business mode involves a separable relationship with the environment. The logic is quite simple. As a nature-based company, eucalyptus depends on natural resources, such as water and cycle to continuous growth, cycle over cycle in the same areas. Biodiversity as is essential to the provision, regulation and support of these resources, strengthening our productivity and, therefore, competitive in the long run. We will now hear more from Maria about how our impact takes place in practice.

[Foreign Language]

Hello. A little bit more than a year has passed since we announced our long-term commitment to mitigate one of the main global causes of biodiversity loss, the fragmentation of natural habitats. After the announcement, we focused on the development of a strong action plan that will guide us in our journey to connect using ecological partners, 0.5 million hectares of fragmented areas in the Cerrado, Atlantic rainforest in the Amazon biomes by 2030. It's important to mention that everything that we have done so far and will do along the way it's based on field studies, science-based methodologies and dialogues with farmers and local organizations. As an example, we have on the screen one of our corridors located in the Atlantic rainforest. The map shows how the commitment will be developed, seeking the highest biodiverse-level fragments in the landscape, connecting the most important areas to protect and conserve biodiversity. Looking at the commitments development, we have divided the work into 6 fronts. One, we start and create ecological corridors to connect fragmented areas. Two, introduce productive restoration models with ecological functions where eucalyptus plantations or other types of agriculture are located. Three, support local communities in implementing the productive restoration models. Four, has palm trees and primates as bio indicators and flag species. Five, create private conservation units to expand the integrated management of protected areas in the landscape. And six, protect the corridors and their surroundings against wildfires, hunting and illegal logging. In the second semester of 2022, we will set up the baselines for these work fronts, start ecological restoration of natural forests and the development of [ productive ] restoration models. By 2030, we want to connect more than 9,000 fragmented areas and establish more than 1,000 kilometers of ecological corridors. We will engage hundreds of farmers and establish partnerships with 32% of the surface area of the corridor is to take place. This is a goal that transcends Suzano. So the key to achieving it is collaboration. Shared value with local communities will help this corridor come to life. Let's hear from the Institute of Ecological Research, our partner, how initiatives like this are relevant to biodiversity.

The challenges involved in biodiversity are extremely relevant, complex. And therefore, they do require the implementation of systemic initiatives within the landscape. Suzano's biodiversity commitment was specifically designed to enable not only the restoration and the conservation of areas that are relevant to each biome, but also to provide socioeconomic benefits to the local communities. The approach developed in collaboration with our institution was a simple -- a very simple but very powerful rationale, the creation of networks with stakeholders aiming at identifying and protecting and sharing social, environmental and economic value.

To fulfill this commitment, Suzano foresees having to make agreements and partnerships with rural communities to support such things as agri-forestry conservation and the sustainable production and commercialization of goods from the forest. Standing forests also support the communities around them because they provide sustainable economic activity and address Brazil's pressing inequality challenge. Marcela Porto and Luis Bueno will take us on a journey through Suzano's social development policy.

Hello, Joel, and hello, everyone. In order to contextualize Suzano's approach to social territorial development, it is first necessary to understand the scale of the inclusion challenge in Brazil. We live in a continent-sized country where around 13% of the population lives below the poverty line. Recently, Brazil has been re-added to the World Food Program's Hunger Map, having last appeared on the map a decade ago. In 2022, the country registered over 120 million Brazilians living with some degree of food insecurity, and unemployment now reaches almost 13% of the economically active population. The pandemic took more than 5 million young people and children out of school, compromising futures that were already exposed to a situation of vulnerability. So any effective action by a company like Suzano needs to be systemic and to promote scalable actions for real change.

Suzano operates in 201 municipalities in Brazil, spread in 9 different states. They are home to 3.3 million people, and 1/3 of them lives below the poverty line. Among our neighbors, there are 126 traditional communities, for example, in business people and [indiscernible] our initiatives in those areas focus on the real needs of the local population, structured initiatives that goes beyond philanthropy. Over the last 10 years, we have already invested over $100 million on those areas. And we have a permanent relationship with almost 1 million people. One of the best cases that we have is the San Domingo Community in the Espirito Santo State. Let's take a look. [Presentation]

Hello, everybody. The San Domingo's case is a good example of scalable social impact business and of our community engagement methodology. In particular, it recognizes the challenges and addresses them by establishing a direct communication channel between Suzano and the communities. It also considers the social and economic impacts of our business and, together with the community, develops a common understanding of the contest, challenges, goals and solutions. All this generates our social license to operate, thus maintaining business stability. Suzano need systemic actions, which consider not just its value chain and the wider business, but also its ability to connect with other relevant social actors. This can be done through strategic partnerships that leverage the potential and create an environmental of mutual cooperation. This is how we will achieve the goal of lifting 200,000 people from below the poverty line in our areas of operation by 2030. The beginning of the journey has been difficult, given the scale and the challenges, full of learning opportunities, but with confidence rewarding results. In 2021, 9,000 people were lifted from below the poverty line and 21,000 people were positively impacted by our programs. These beneficiaries saw their income generation increase on average by 57%. Together, our programs generate around $80 million in revenue for these communities, producing 35,000 tons of food and other projects. The case of sustainable strategies is an example of an investment strategy in territory articulation, which results in socioeconomic autonomy of these groups, all while enabling the consideration of native forest. Today, these projects are organized into territorial clusters with several partners focused on diversifying and adding value to social biodiversity products. The enhancement of an inclusive bioeconomy has a positive impact on families, food security, quality of life and on consideration of essential social environmental attributes for the sustainability of these territories. [Presentation]

We're very proud of this work and all of sustainability initiatives and programs across our organization. Each of our employees, both direct and indirect, fully bought into these ethos and understand that, by doing good for the world, we're doing good for business. And now I'd like to invite Joel Makower back onto our stage.

Thank you, Cristina. Really interesting stuff. I want to pick up where you sort of left off with the social innovation piece. Talk a little bit more about why social innovation has become such an important issue for Suzano.

That's a great question, Joe. And I think, in an industry like ours, in the companies that have come to form Suzano, this always happened. It probably wasn't a mainstream issue, right? Corporate social responsibility was probably not even known as such, named as such many years ago. But if you think of a forestry company that has so many neighboring communities that transforms the landscape for the better, most of the time, but also with certain impacts, you have to engage with those communities. You have to talk to your neighbors. And you have to make sure they benefit from your business.

And you probably have. There's some trust issues you come into a community and you say you want to engage and you mean it, but there may be some resistance. What have you learned about how to break through that?

Of course, I'm the first one to say we always question companies. It's normal, right? So we have a fantastic team of people, many of our employees that are in our social responsibility area come from the various communities we're talking to. So we have a team that is formed by a lot of social scientists that understand how to listen to those communities, how to identify those needs, how to build the right programs to help address those needs. And we're continuously in dialogue. Any intervention we're going to do in the silviculture side of our business, we always go and talk to the communities first. We let them know. We listen to them. We tend to any need, and we prepare any type of interaction so that -- we don't have any negative impact, and we make sure we always have positive impact with communities. But of course, we're learning. We don't always do it perfectly.

What surprised you about some of the things you've learned as you've talked to communities?

Many things. And to be quite frank, I got here 7 months ago, and I didn't speak any Portuguese. So as I've come to visit communities, I think I have come to understand them better and to listen to the impact of our programs. Some communities sometimes are like, "Oh, I miss Suzano. You guys need to come more often," which actually worries me. They shouldn't become codependent, but at the same time, it's wonderful to see that they see the benefit of our interactions. I've seen -- for instance, we visited this farm of a producer in Bahia, where the soil is completely sandy. It's the worst soil you can believe -- you can think of for production. And it's such a fertile farm. This guy is growing all sorts of crops in an adverse forestry style. And he learns through another partner that we taught him. And he now has a school, and we bring a lot of the communities we work with to learn the best farming practices from him. And it's really nice to see this replication effect. It's like a domino effect. You work with one person, and this person gives back to more people in the community. And to me, that's really inspiring because we're not just helping or writing [ text ] or feeling good. We're really performing lives, whether it's the video we saw of this [indiscernible] property that gives services to our forestry area or a fisherman we work with or people who are transforming food or preparing people for employability with different skills in urban area. It's always seeing how we can learn from whatever we're doing and replicate and scale and always in partnership, whether it's government, other companies and figuring out how to find solutions to some of those social challenges we have identified.

Leadership team here, and I'm going to subject them to your questions and some of mine. And I want to say, first of all, [indiscernible] these questions I'm going to ask. And also I want to thank all of you for not only asking those questions, but doing so in English, which I know is not your native tongue. So let's get into it. We have a lot of questions already, but keep them coming in.

So Walter, let's start with you. I have questions about additionality of the carbon sequestration, the additionality for those who don't know [indiscernible] activities that you're doing -- or extra that you're adding as opposed to things that would have happened normally just in the course of business. How do you measure the additionality? How do you explain that [indiscernible] our ideas?

I think it's very important to tackle this issue because everyone has to understand that not all the carbon sequestration that we are doing should be subject to monetization, only additionality, what we are doing extra status quo. And what we are doing right now in this direction, we are expanding our forest base, we are expanding our native forest as well. Both of them are additionalities. And on top of that, what we are doing is that we are retrofitting our plants to increase renewable energy, to reduce chemical consumption. All of them are related with additionalities that could be subject to monetization of carbon.

I want to talk about forest, specifically about certification. First of all, not all of the forest, our FSC or SFI certified. What's the -- why is that? And how do you get from here to there.

And that's the question. Our certification is always fluid, right? We're always acquiring new land, leasing new land, planting new forests. So certification doesn't happen automatically. There's a number of actions that need to occur to get that certification. That said, we have full traceability of our value chain and all the wood, both with FSC and PEFC criteria.

Are there plans to grow that to get to -- can you get to 100%?

So as I said, it's fluid, right? You don't automatically get certification at the moment you plant the new tree or you lease new land or you buy new land. We always have that activity to get the certification for the new wood.

Question. I'll start with you, but I'd love to hear others as well, so much of what a company like Suzano does. You can talk about doing the right thing. You can talk about improving the bottom line. You can talk about attracting talent and all of the other things that sustainability can do. But ultimately, it's about risk. This is about risk mitigation. So how do you think? I'd love to hear -- I'll start with you, but anyone else on the panel, how do you think about risk as it relates to diversity, social inequality, property and of course climate change -- and in terms of how that affects what you do and the plans that you make?

I will ask our colleague, Fernando, to answer this question related with risk. But before that, I think it's very important to mention about purpose. I think the company have a purpose to Renew Life through trees, planted trees. We believe that we are in regenerative wood. We need to be part of the solution. And to do it, we need to recover the forest base that we had in Brazil at the same pace in the near future. We need to use our trees to replace other materials. We believe that the combination of carbon sequestration that we are doing right now with our native forest and the planted forest in the combination of replacing other materials could be part of the solution to the world. And purpose is critical to us. Now I'm going to ask Fernando to talk a little bit about risk.

Thank you, Walter. Thank you, Joel. Let's talk about the risk related to climate change because I think this is on the top of our risks, the risk that we have in our business today. As we presented in the first part of this ESG call, during the last 3 decades, we have developed a new generation of genetic materials and also a new generation of management practice in order to deal with these new challenges. For example, more recently, we are using molecular markers based on very advanced tools in order to evaluating in a very precise way the quality of our materials in order to select those ones that are more adapted for more climate challenge. So I think these are one of the examples that we have developed together with partners all over the world. National and international partnerships are key, in this case, in order to deal with better practice seeking for better solutions or to deal with the risks that we have today.

We need to hedge our risk in terms of future yield productivity. Our perception is that we are going to see more droughts happen in the future due to climate change. And we need to be prepared for that. I think Fernando and his team, they are doing an outstanding job to protect ourselves for the future.

About risk, I would like to add the business risk aspect because by doing the products that we're doing, all based in planting trees, we are ensuring among other things, the continue -- the business continuity of the company in terms of the demand for our products. I think companies that are producing from sources that can be questioned from the sustainability point of view. They have a business risk in terms of continuity of the demand for their products. So whoever is buying our shares or buying that issued by the company already has the benefit of being sure that in the future, 10, 20, 30 years down the road, whatever we produce based on the sustainability standards we have -- we will continue to be demanded by the market. And therefore, the company will continue to be in the business very healthy and generating results.

But there's so many uncertainties around the future [indiscernible] around particularly around climate. How do you bake that into your planning?

I think what we are doing here is that we are in a transition journey right now in the society. And to be prepared for this transition journey, as we have a lot of uncertainties, we need to hedge ourselves in different aspects, not only in the financial side, but we need to be hedged on the forest side as well. We need to hedge the society on the biodiversity issue for the future. We are losing [ speeches ] in the world. We need to mitigate the situation. And our idea is that we embrace this cause for the future, working with different entities of the civil societies.

One form of risk is policy risk. And Luis, I have a question for you in terms of what is the Brazilian policy environment right now. Is it helping? Or is it in the way of Suzano meeting its sustainability goals?

Thanks for the question, Joel. Of course, we need to say that Brazil has one of the most strict and advanced environmental legislation in the world. Said that, we understand there is a huge area, the country has a huge area to protect. And we know that there is still -- the country still lack in resources, the right resources to protect this huge amount of areas. So there is still room for improvement to enforce that this very good legislation is going to be [ recall ] is going to be compliant in the day-to-day business. And we understand that there is a risk in this. As we were discussing in the previous question, the climate change imposes risk for all the businesses in the world and ours included. We are trying to mitigate this risk with some of the actions that my colleagues mentioned before.

A question for Marcelo about the sustainability-linked loans and bonds. First of all, maybe explain a little bit about what those are linked to and what we can expect to see going forward in terms of future debt issuances that Suzano goes out to in the market.

That's a very interesting question because we've been using those instruments a lot and not everybody is aware of how they are structured. Basically, when doing a sustainability-linked loan or bond, you're linking the results of a set of results related to sustainability to the compensation or remuneration that the bondholder or the loaner will have in the future. And it's a very nice way to link the targets that we have on the sustainability side with our financial performance. So in some of the transactions we did in the past, we attached to the loans or to the bonds goals related to emissions both related to diversity and many different -- water consumption and others that link the targets that we have from the sustainability point of view to the interest of the bondholders of investors at the end of the day. There is a huge amount of money in the world seeking investments with environmental or social impact. And what we are providing to the market when coming with these transactions is a way to invest seeking the returns they need, but also instruments that will bring other results, other externalities that also attend the needs of the investors that are seeking impact investments. Today, more than 1/3 of our debt, our total debt is around $15 billion, more than $5 billion of our debt is issued under instruments like sustainability loans, sustainability-linked bonds, green bonds and other instruments that we believe will continue to grow in terms of the demand, and we're going to be ready to continue be part of those markets.

How does the current economic environment impact that rising interest rates, potential of a global recession. Is that going to change anything?

I think it's going to change the availability of funds. But on the other hand, I think for companies that have the kind of standards that we have, the trend, I think, is for us to be less impacted by companies in general because we have something to offer to the market that is very special and is valued by the investor. So everybody suffers whenever we get to a situation, economic situation or recession, high interest rates, high inflation. But I think the companies that have those capabilities like Suzano has, we tend to suffer less and to be better positioned.

I'd like just to add on this that since we are high intensive in capital, we decided that we are going to have almost all of our debt with a fixed rate on our debt. While our rate -- average rate right now is 4.4% on a very long period, and then we are very comfortable that this short-term impact of higher interest rates are not going to affect ourselves.

That was a lot of foresight to lock in the interest rate, I think, in the current environment. I have a question that's -- I think it's a broad question. So I'm not sure, in fact, ones, we haven't heard from you yet. I might start with you. We talked about ESG as it's -- we know it's one thing, but it's not just 3 things. It's many, many things. And I'm wondering how you integrate the environmental, social and governance in all of your work. Let's start with you -- hear from others.

Thank you for your question. Joel, I feel a good example to [indiscernible] Right now, it's our new products in [indiscernible] Of course, that we are totally committed with international laws and range of emissions and consumptions [indiscernible] But we know that our mission is going over the defense. Then we check in the impacts that we will probably have in the location, the earnings and the social impact, in the society of [indiscernible] that's a small city, around 23,000 people living there. And during the construction, we have more than 10,000 employees inside the fence. Then this view that we have to be a tent for all stakeholders around our operations. I think that it's our main action actually at [indiscernible] Suzano.

I'd like to add one point on that. I love the word of integration, as you have just raised. And I think a good example of the integration in our strategy it's what we call it's a mantra for us is the innovability strategy. It's the combination of innovation and sustainability. So everything that we do at Suzano at this moment is dedicated to improve the solutions talking to the sustainability value that we have established. I think it's important to emphasize that. Because for us, the sustainability goals that we have established, it's not part of the strategy, it's the strategy of the company today. And normally, we say that we are in the right side of the equation because everything that we produce comes from planted forest, renewable raw material but this is not take for granted to have to innovating solutions in order to provide that for the society. I think this is a good example of the integration in our strategy.

Cristina, do you want to weigh in?

No. I think proof of how sustainability and ESG is part of the company's strategy is the presence of my colleagues today, right? This is not something that I own. This is something that the whole company has committed to and whether it's in the industrial side of our processes, whether it's in forestry, in logistics and in innovation, in our financial vehicles, sustainability is very well embedded. We all have -- of course, I do, but everybody here has performing goals tied to their bones that are related to sustainability and a couple of levels down at least as well. So I think Suzano has made a very bold commitment on all areas of what is considered ESG, and we understand the compounded effect, right, and how governance impacts social and environmental, how environmental impact social and governance, et cetera. We understand that there are synergies in every...

I'm sure it's important that not everything that we are doing is perfect, but we are humble enough to understand to bring the problems to the table and try to address how we are going to build the action plan for the future. I'm very proud of my team that this team is very well focused on achieving targets on every single part of the company, not only in the economic side and the production on the forest and sustainability as well. And we have the other issue that is quite important, there is transparency. We have been bringing to everyone how we are performing right now and how we understand that we could evolve for the future. And I think it's very important. And we are learning. We are learning all the time. This is something that is -- it's a process that we had in the company. And this learning process allow us to be humble enough to understand how we are going to operate in the future.

One of words somebody brought up was innovation. And that's another word that we hear a lot about and we all know, of course, who doesn't love innovation. But it means lots of different things for this product, process, business model innovation, even value chain innovation. I'd love to hear what innovation means right now in this moment at Suzano, Who wants to take that one?

I can start here. I'd like to mention 2, I think, very important points related to innovation. First of all, -- this is what we call the bio component of our strategy. Many years ago, we saw in the video that we started with the plantation model that was, at that time, unique. It's the mosaic system. This is innovation. So we're having -- today, we have a more cycle of local expectations in different ages, different clones, interspacing with native forest that we preserve. It's not a big block of native forest and another big block of planted forest. Now they are together. And this was a big innovation that we did in the past, and this has a big impact in terms of landscape management and also in terms of water availability in the watershed. The second point related to innovation. I think the targets that we have established, for example, the 10 million tons of materials to replace fossil raw materials, for example, it's a target that can transform the society. So it's innovation -- it's not about incremental innovation. It's about transforming the society. We understand our responsibility. We understand our size. And because of that, I think we need to think big. We have to be bold in our aspirations in order to bring solutions to deliver new values to the society in general. I think innovation talks about that.

And it's very important to add on that. Fernando, the issue of the mosaic plantation. But now we realize that it would be very important to connect the fragmented areas, and this is a new innovation that we are doing. How we are going to connect -- we are going to connect 500,000 hectares of different biomes of native forest. And this would allow to have a better biodiversity. And we are all the time thinking and transforming the company for the future. I think this is part of the culture is embedded on our culture for many -- for decades right now. We are -- we were the first company to enter planting eucalyptus large scale in Brazil. We are the first company that used this to produce. In the beginning, everybody was claiming, no, eucalyptus is not going to give enough -- right quality fiber to the product. Right now, on the tissue market, for example, we have 100% on short fiber from eucalyptus. Then we have all the time thinking about what would be for the future. We have been working in the [ flip ] market transforming for short fiber as well. Now the next step, how we are going to have large production on the textile market. We are old and [indiscernible] we are all the time thinking about what would be the transformation for the future.

Just to add on that, and the transformation is not limited to Suzano. We have a clear north on sustainability, and it's spread all over the areas. In our areas, we have a relationship with different stakeholders in the country and overseas. And our commitment is to influence those stakeholders in different ways so that they can commit to sustainability also. And then our influence is going to be even bigger if we replicate that and influence all the stakeholders. And this is done by all of us in all the areas together.

Can you give me an example?

For example, we try -- we have communities all over our areas. And we try to work with them so that they can be integrated in our business when it's possible. When it's not possible, how can we develop those communities with social projects that is going to be good for Suzano is going to be good for those communities as well?

And I can raise another point that I think is very important here is that we cannot blame the [ past ]. We cannot blame other sectors that have higher intensity of carbon because it's very easy for the haters to say, "No, cement industry cannot operate. Oil industry cannot operate." Consumers are using these products. They need these products right now. What we need to do is to have a collaborative approach with different sectors to mitigate the solution. Then we are open and we are doing this to discuss with peers in our industry. Our industry is much better prepared for the future, but with other companies as well to work together with a long-term solution for the societies.

Yes. Well, you mentioned consumers, and I'm wondering you're mostly a B2B business-to-business company, you have some consumer products as well. But how do you talk to consumers about all this? Because most consumers, they want to -- they want -- they work or buy from good companies to work for good companies or invest perhaps. But how do you -- everybody wants to claim they're a good company. So what's the -- what do you want consumers around the world, but it's certainly in your home country, to understand about Suzano? And what's the story you're trying to tell?

I may go as a consumer who's very new to the sector and who has always have had a sustainability drive, I was always looking for these certifications and these fields that would tell me the source of that material was an ethical source, right? So I would see the FSC logo or other types of logos. It would help me decide over that product for that product over another one. And I think that that's something that we need to communicate to consumers. And we are -- we do much more beyond certifications, right, Suzano does much more than what certifying bodies require. And however we can get to consumers that information, I think it can help drive some of those decision.

Yes. And we are not talking about advertising here. We are talking about inviting people to this transition, into the transition of the society. And we are not here on the ESG call just to sell a very nice and perfect company. We are here to show everyone the journey that we are going and the learning process that we are going that would help the society and would help the business as well to have a better world in the near future. And I think it's very important to talk with -- right now, we are reaching 2 million people every month in the world, 2 million people.

How do you reach them?

With our products, we are reaching 2 million people, but we are reaching the 8 million people with our carbon sequestration that we know that we can do it much more for the future. Just [indiscernible] Mentioned to you, our Cerrado project, it's going to be, by far, the lowest not only cost producer in the world, but the world lowest emission per ton in the world. And I think this would be very positive to the society. we are creating a renewable and recyclable products to the society.

So just to clarify that 2 million, is those -- is that through Suzano's own products or through like Procter & Gamble products, for example? Or how do you measure that?

It's through our customers. We have a very large market share in different regions in the world, and we are seeing how many customers they are reaching. It's not directly from Suzano.

So that's really interesting. You have 2 million people every month. What does that opportunity create for the company and, for that matter, for the world, in terms of leveraging those relationships?

And we're looking at that, that's a great question. And we're building partnerships with some of our clients. We have some partnerships on the ground projects here in Brazil to protect basins, to work with communities. We're working with new clients to structure projects. It's a very large opportunity that we need to tap into somewhat more, right? And not just with our clients, with governments, with nonprofits, et cetera, to enlarge our impact. It certainly gives us an opportunity. And Luis here in the consumer goods side has helped put some of the messaging on the products of -- the positive impact Suzano's having on the field. And we'd love to be able to do that with some of our clients to show how we're protecting biodiversity, to show how we're helping communities and that they can own those impacts.

And perhaps Fernando can bring to us, what would the new projects would impact the society for the future?

For example, We are developing now a project with our partners in Finland called Spinnova. And we formed a joint venture with them in order to provide textile fiber in a totally different way of producing with a big reduction in terms of water consumption. A very, very big reduction in terms of water consumption, in terms of chemical cost compared with the other alternatives that we have today. So we are really transforming the society with our new products. Bio oil is coming as well has been -- can be an alternative kind of bio petroleum that we can use for biofuels. But beyond that, for bioproducts in general coming from the bio oil production, coming from planted forest, again, based in our forest model again. So these are...

And lignin as well.

And lignin as well, MFCs, microfibrillated cellulose that we can apply in paints, in cosmetics. We have already some products developed coming from our MFC microfibrillated cellulose applied to cosmetics. So several examples that -- the main question that we have every day is how can you do more out of our trees. So this is, I think, using our bio competence, we can provide new solutions for the world.

Yes, interesting. Go ahead.

That's important in the pillar of our decisions. Our investments are not based in the short term. When you decide to settle down a facility in one city, we stay there for the case, then to look forward [indiscernible] years and understand the impact that we will put in that region. That's the importance that we attend all time of these impacts in the society and try to drive our actions in order to enhance the quality life of the people that are around our operations.

We've got about 5 minutes left, and I want to ask each of you the following 2 questions. So I'm going to ask you to keep your answers kind of short. And again, you don't know that I'm going to ask these questions, and they're really putting you on the spot in a way. And it is -- obviously, I'm going to start with you. When you think about ESG and Suzano, what keeps you up at night?

Thank you for asking me before. And if somebody else wants to jump and if they have an answer before...

Let me try to help you. Based on -- for me, ESG, it's based on -- for me, it's the opportunity that we have to transform the society. I'm thinking every day, Joel, the world that we leave to our kids, to our grandsons and the grandkids in the future, and that we have to bring new solutions. This is what moved me every day, what -- I wake up every day thinking how can I bring new solutions to transform the society. This is what means ESG for me.

Great, who else?

What keeps me up at night is what we talked about before, the glass half empty or half full and really having shared value with all of our stakeholders or most of our stakeholders, how do we strike that balance where everybody benefit of what Suzano has been.

Yes. I think when we achieve a certain level of our careers, what motivate us is more than the money that we earn or the challenge that you have, but how can we contribute to the society? And I think that Suzano we have this opportunity daily. Every day that you can kind of work and find out new solutions to enhance the quality of life of our [indiscernible] I'm very grateful to be part of this company and to be part of this journey. And so -- when I think about the journey, it's going to be -- what I like in Suzano is that we set a high ambition and we go for it. And it's going to take time, years to transform. And to be part of this journey, I feel very grateful and lucky to be here.

I think it's very exciting to be in a company that has all the opportunities that we've been discussing here. We are like as Fernando said, at the right side of the equation. So we have the ability to contribute on a very impactful way to the improvement of the society. So this is very nice. It's very -- and also grateful for be part of this environment. What keeps me up at night related to that is the fact that, especially because we are in Brazil and we start remote regions, where the environment -- where the social situation is so complex that everything we do is just a tiny improvement to all these situations.

But all those tiny things add up. So Walter?

I think. I think two things that are quite important for me. One is scale. As we mentioned before, we need to -- how we are going to create scale on this transformation of the society. And the second thing that strikes me is the speed. We cannot anymore procrastinate this solution to the society. We can do -- we need to do something much quicker than we are doing. And this is -- I'm not seeing the society going in the right direction right now. We are seeing more poverty. We are seeing more climate crisis in the world. We are losing biodiversity. And every day is worse than the day before. We need to change completely the trend for the near future.

We're kind of out of time, so I'm not going to get to my second question, but I am going to ask you if you can answer it in 1 minute, Walter. When we meet back here for ESG call 2030, what's the story you hope to be able to tell about Suzano as it relates to ESG?

My hope is that we are going to have a completely different company in the near future. We have been transforming the company, the ideal business company is very nice, but the ambition is much bigger for the future. I hope that in 2030, when Fernando comes here, he said, we are leading the textile company in the world. We are the leading the bio oil company in the world. When Cristina comes here on [ 2030 ], she came to us and say, we were able in this period completely transform the biodiversity. We not only bring 200,000 people out poverty in this period, but we are generating sustainable income to them and education to the kids with high-quality education. And then I would be very proud of that.

Well, that's a great vision. And we are out of time. Thank you for your questions. So we didn't get to them all, but we've got to a lot of them. And thank you all for being such good sports and taking them all on. And Walter, I'll give you the last word.

I would like to thank you, Joel, very much for this participation and for being here with us today. And also to our colleagues, all of them who are, as Cristina said, before are working with us, to enable the regeneration of nature and building a more equal society. To be able to have a positive impact to our business needs to drive and continue to provide even ever more sustainable products to the society through continued innovation and commitment. Our colleagues truly have understand that ESG performance and our financial performance are independent, which ultimately strengthen the order. I want to thank the partners, supplier institutions that have joined us. Our [indiscernible] in their initiatives to enable change, and the world has changed. I will also thank my regards to each of the participants in our nature conservation and regenerative programs. And those in the income generation programs, that is quite important to see, and we have been telling you all the time how important it is for us. And I always say that the fight for the planet is the fight that only has 2 possible scenarios, the victory for all or a collective defeat. Today, we have an opportunity for us to share, but more importantly, to connect and to learn and there discovering new ways to be a catalyst for a new regenerative society by transforming this into an increasingly regenerative company. Thank you, everyone. And I hope everyone join us on this process.

Thank you.