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Australia: The greening of a timber giant

Once the arch-enemy of conservationists, Tasmanian company Gunns has made an about-face

Source:  Copyright 2010, Australian
Date:  October 16, 2010
Original URL: Status DEAD
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HATING forestry and pulp giant Gunns Limited has long been a favourite pastime for many Tasmanians, as any observer of car bumper stickers knows.

"Gunns -- dangerous in the wrong hands," reads one. "I no longer shop at Gunns," proclaims another. The most popular simply reads: "So Sue Me", a reference to the timber company's notorious lawsuit against its opponents.

The feeling has been mutual. In the Gunns book of community engagement, conservationists were dismissed as lunatics trying to shut down its industry and turn lumberjacks into latte-serving baristas. The terms of derision on both sides were so well worn they became as Tasmanian as tannin-stained rivers, scallop pies and hung parliaments. Little wonder, then, that Tasmanians are still trying to get their heads around Gunns' apparent new status as a green crusader.

The company, long at the vanguard of the logging industry, has raised the white flag, vowing to lay down its native forest chainsaws forever and shift into plantations.

If that isn't strange enough, Gunns is driving reform of the entire industry and backing protection of the forests of high conservation value that it once coveted for woodchips.

Company chief executive Greg L'Estrange is even credited with getting industry to sit down with conservationists in the current "peace talks" aimed at finding a lasting resolution to the native forest conflict.

The speed and scale of the turn-around has left some of the company's former allies dizzy with disbelief and, in some cases, disgust. Even those members of the public without bumper stickers are struggling to come to terms with the scale of the transformation, the reasons behind it and just what it may mean.

Former arch-enemy the Wilderness Society is suddenly Gunns' latest fan, praising L'Estrange for his leadership and commitment to reform.

How did this topsy-turvy land arrive at the top of the old-growth wishing tree? The first breach of the defences of the old Gunns came in February, when the company's Japanese woodchip customers decided to refuse product sourced from forests identified by conservation groups as being of high conservation value. These include the Wilderness Society calendar forests in the Styx Valley, the Upper Florentine, the Weld, Blue Tier and Tarkine.

After decades of activists lying in front of bulldozers and perched in tree sits, a silent and landmark victory was won with a flurry of pens in the boardrooms of Nippon, Oji, Marusumi and Mitsubishi. These paper companies had long resisted the arguments of the Wilderness Society, but this time they had little choice. The society and its partner in Tokyo, the Rainforest Action Network, had shifted tactics, targeting companies further down the supply chain, notably retailers such as Ricoh. By persuading retailers that customers did not want paper made from woodchips from these forests, the Wilderness Society forced the paper-makers to re-evaluate their loyalty to Gunns.

This breakthrough for the Wilderness Society coincided with an increasing market focus on green certification of timber products, including paper. The society embraced certification by the Forest Stewardship Council of Australia as another vehicle to shift paper-makers, and thus Gunns, away from native forests and towards plantations. The shock waves from Japan reverberated through the industry, with the loss of business for Gunns flowing to already struggling forest contractors.

However, the society considered that Gunns' then chairman John Gay and a fellow board member, ex-Liberal premier Robin Gray, remained barriers to translating the situation into lasting change. The Wilderness Society campaign chief Alec Marr -- who devised the Japanese paper strategy (and who would later be deposed by internal rivals) -- dreamed up the next move.

"Alec's idea was, 'Well, let's reform the board of Gunns', and I was directed to work out how," the society's pulp and corporate campaigner Paul Oosting says.

"Most people [in the society] thought we were absolutely insane." Even so, Wilderness Society campaigning had already persuaded Gunns' banker, ANZ, not to fund the company's proposed $2.3 billion Tamar Valley pulp mill. Similar pressure had then been successfully applied to other prospective financiers in Australian and abroad.

"Gunns couldn't get funding for the pulp mill and couldn't get access to Japanese markets," Oosting says. "So we began reaching out to their shareholders."

Superannuation holders were asked to contact their fund and demand it stop investing in Gunns shares, while Gunns' key institutional shareholders, such as Perpetual and Concord, were approached directly by the Wilderness Society.

Aided by the nous of Sydney-based businessman and pulp mill opponent Geoffrey Cousins, the society offered these shareholders a way out for Gunns. "We were able to demonstrate a better way forward: FSC certification, shifting out of high conservation value native forests to plantations and . . . working to obtain a social licence, something every corporation wants," Oosting says.

Their case was helped by a nose-dive in Gunns' share price as the market grew increasingly nervous about where the company was headed on the back of a profits slump. Cousins went public in The Australian, offering to swing behind Gunns, and even potentially its pulp mill, if the company reformed its board and shifted out of native forests.

"There was a real turning point when we would go visit these shareholders and present options to them about the industry that were in many instances totally in keeping with their thinking and that of the investment community," Oosting says.

"Then they'd go and talk to John Gay and he'd say, 'Oh, these people are only out to wreck my business' and 'You can't trust these greenie bastards', and they'd respond, 'Well, actually where they're coming from stacks up.' "

Gay and Gray were fighting a losing battle and Gray retired on May 5. When the combative Gay refused to go, the institutional shareholders began selling, forcing the already low share price to down to 27c, close to a 20-year low. It was too much for any board and on May 27, Gay was jettisoned to save the company.

L'Estrange, with 30 years' experience in the industry, had joined Gunns as timber chief in 2008 and became chief executive from July last year. With Gay gone and a new board in place, he began to remould the company in a way previously unimaginable. He shed non-core assets, from wineries to hardware stores, sold Gunns's privately owned native forests and announced the company intended to shift to a 100 per cent plantation base.

A negotiator of the peace deal in the forests of southeast Queensland in the 1990s, when he worked for Fraser Island sawmiller Boral, L'Estrange reached out again to conservationists. He ended use of 1080 poison in plantations; ordered engagement with anti-mill groups; and withdrew Gunns' membership of industry lobby group the Forest Industries Association of Tasmania.

L'Estrange does not dispute that shareholders, egged on by the Wilderness Society and Cousins, forced change, including the dumping of Gay and Gray.

"There's a whole range of shareholders or potential shareholders who haven't invested in Gunns purely because of some of the activities we've been involved in," he says. "That's the market. Certainly, being a greener, more transparent organisation will provide us with greater opportunities to win capital."

L'Estrange believes the forest war is over, that the industry has been "out-thought and out-played" and that "a radical plan" is required "because we have lost the public debate and support of the broader community".

Such views are not shared by other players. "I don't believe that is true," says Forest Industries Association of Tasmania chief executive Terry Edwards. "I think Greg is being influenced overly by the resistance the community held towards his own company. I don't believe the war is lost."

Edwards believes Gunns' transformation, which he attributes "almost single-handedly" to L'Estrange, is all about gaining the FSC certification demanded by would-be pulp mill financiers. Gunns accounts for the state's entire native forest woodchip volumes and about 60 per cent of sawlog harvesting, so if it quit the native timber industry the consequences would be severe.

L'Estrange argues Gunns is instead doing the right thing, linking the timing of its phase-out to an industry restructure to be agreed with conservationists and funded by government. "The only real way of doing that is if Gunns plays the role of the solver in the issue," he says. "The community in Tasmania has been in conflict for too long. It's bad for our employees, it's been bad for the overall community and it's not good for the general economy."

Gunns' exit from native forests makes such a solution more achievable by freeing up resources to allow surviving players to move to plantations and to provide for ongoing high-end furniture and joinery products.

However, the bulk of the industry, lacking Gunns' vast plantation resource, resents its willingness to sign the death warrant of the native forest sector. "People resent the suggestion that Gunns should be dictating to them how they ought to run their businesses," says Edwards.

Gunns' focus is now on a plantation-fed pulp mill, but some in the industry believe this is a risky strategy. What happens if attempts to lock in mill finance and a joint-venture partner fail?

L'Estrange denies the project's demise would sink the company but says Gunns might have to look outside Tasmania for its future.

The Wilderness Society and other green groups, as well as Tamar Valley residents groups, remain opposed to any mill at the present proposed location, while L'Estrange insists relocation is not an option. All of which means those bumper stickers are likely to be around for a while yet.

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