Forestry Business Overseas｜Sumitomo Forestry

Basic Policy

The Sumitomo Forestry Group is expanding its forestry business in consideration of local communities and the environment. The Group contributes to a stable supply of wood and regional economic development while maintaining the wider environment through management of "Economic Forests" which are planted forests for wood production, the preservation of "Protected Forests", which are responsible for ecosystem conservation and CO₂ absorption and fixation, and coexistence with surrounding "Local Communities".

Country	Name of Forestry Business	Managed Area	Operations Area	Afforestation Area in FY2023	Logged Area in FY2023
Indonesia	PT. Mayangkara Tanaman Industri (MTI)	104,664	10,534	1,959	1,850
	PT. Wana Subur Lestari (WSL)	40,750	11,451	2,288	2,941
	PT. Kubu Mulia Forestri (KMF)	9,270	5,688	1,588	1066
	PT. Kutai Timber Indonesia (KTI)	6,488	6,488	312	281
	PT. BINA OVIVIPARI SEMESTA (BIOS)	9,738	0	0	0
	Subtotal	170,910	34,161	6,148	6,138
Papua New Guinea	Open Bay Timber Ltd. (OBT)	31,260	11,618	329	282
New Zealand	Tasman Pine Forests Ltd. (TPF)	35,549	25,507	850	1049
Total		237,719	71,286	7,327	7,469

Forestry Business Overseas

The Sumitomo Forestry Group is expanding three approaches to conducting forestry business; industrial tree plantation, environmental reforestation, and social forestry. The purpose of industrial tree plantation is to produce wood and increase the supply of afforestation wood (raw material). By zoning its managed land appropriately, the Group aims to achieve both the conservation of valuable ecosystems and the development of local communities through forestry business.

In addition, the Group also conducts environmental reforestation, planting trees for environmental conservation. It aims to contribute to environmental conservation through the expansion of forested areas and the fulfillment of the ecosystem services function of forests, by actively planting trees on land where natural regeneration would otherwise be difficult. The Group has also been engaged in "social forestry" which shares the economic benefits of afforestation with local communities while enlisting the cooperation of local residents.

Distribution and Area of Overseas Forestry Business Sites (as of end of December 2023)

Forest Certification and Sustainable Forestry Business

Of an approximately 31,000-hectare planted forest owned and managed by Papua New Guinea‘s Open Bay Timber (OBT), about two-thirds, or 20,000 hectares, has received FSC^® forest certification*. After harvest, the company ensures afforestation is carried out, and in fiscal 2023, 375 hectares of trees were planted.

The entire area of approximately 37,000 hectares managed by Tasman Pine Forests Ltd. (TPF) in New Zealand has been FSC^®-FM certified. In fiscal 2023, TPF implemented 850 hectares of afforestation.

We will continue to practice sustainable forest management that lays basis for communities and environment to function in harmony.

* OBT: CW certification FSC-C019117, FM certification FSC-C103694, TPF: FM certification FSC-C132002

Forestry Business in West Kalimantan, Indonesia (Industrial Tree Plantation)

In 2010, Sumitomo Forestry established PT. Mayangkara Tanaman Industri (MTI) and PT. Wana Subur Lestari (WSL) in collaboration with Alas Kusuma Group, an Indonesian forest management and plywood manufacturing company. They have been developing large-scale afforestation projects in West Kalimantan Province under “License for Industrial Afforestation and Timber Product Utilization Project (UPHHK-HTI)*¹” issued by the Indonesian Ministry of Environment and Forestry. Regarding management form, investment ratio was sequentially increased, and WSL and MTI became 100% subsidiaries of the Sumitomo Forestry Group in July 2021.
In addition, since 2020, we have started forestry business at Kubu Mulia Forestry (KMF), which is close to WSL and MTI.

Background

Afforestation sites of WSL/MTI/KMF covers areas in which forest degradation has advanced due to commercial harvesting from the 1960s to the mid-1990s in addition to repeated illegal logging and slash-and-burn farming practices.
We believe that from an ESG perspective, it is a very significant business to responsibly conserve forests with high conservation value and provide local residents with an economic foundation through our business, while producing wood as a profit-making activity on these types of lands.

The land used in these operations locates in tropical peatlands which play an extremely vital role in the carbon and water cycle on a global scale.

Sustainable Forest Management

We launched these operations by conducting topographical surveys, and boring tests to understand the peat distribution, over five years. We also entered into an advisory agreement with the International Finance Corporation (IFC), the World Bank's group institute, in 2012. In accordance with the concept of High Conservation Values Forests (HCVF)*³, Sumitomo Forestry conducted assessments on its operational properties with the IFC and investigated whether the property use plan is implemented as stated and adequate consideration is made for biodiversity and livelihood of local residents. The reports of the investigation results were audited by a third-party organization, and valuable comments made by stakeholders on the report were adapted in the business plan. Our Group also held public hearings in 2013 where stakeholders such as local residents, companies in the communities, academics, NGOs, and government officers were invited to share the results of the investigations.

Our employees' unified and efforts have succeeded in building a unique peatland management model that stabilizes the underground water level throughout one year. Stabilization of the underground water level reduces greenhouse gas emissions and forest fires, while maintaining proper hydrological cycles, thereby making a significant contribution to climate change mitigation. Our peatland management model has been highly praised worldwide.
These and surrounding areas also isolate ecosystems where rare plant and animal species live in an island-like shape. To prevent this type of isolation, the Sumitomo Forestry Group works together with neighboring local business proprietors to preserve the entirety of the ecosystem.

The Sumitomo Forestry Group captures tropical peatlands and the ecosystems living throughout the peatlands as one type of important natural capital. In the future, businesses achieving a balance between industrial tree plantations and environmental protection will enhance value as natural capital and help resolve global issues.

*1Issued by the Indonesian government, this is a business license to engage in industrial tree plantation operations in Indonesia.

*2A generic term for plants that grow in water areas where seawater and freshwater mix in tropical and subtropical regions. It is said that there are 110 or more kinds of constituting plants

*3In considering the value of forests, it goes beyond their value as absorbers of greenhouse gases, outlining methods of extracting each one of the many aspects of value forests contain. These aspects include their value as habitats of rare, endangered animal species, as water resources, as providers of essential natural services such as soil erosion control, and as land that has an intimate relationship with the lifestyles and cultures of local communities.

2017	Entered into a Memorandum of Understanding (MOU) with the Indonesian Ministry of Environment and Forestry for a pilot project that aims to examine unique water level management technologies to sustainably manage peatlands and establish peatland management models in Indonesia. The term of this project is set for five years. The project is conducted with the cooperation of the Ministry of the Environment and Forestry as well as the Peatland Restoration Agency. The peatland management technology from this project was introduced as an example of excellent, leading-edge peat management at the November 2017 United Nations Climate Change Conference (COP23) held in Bonn, Germany.
2018	The Group formulated a grievance mechanism with the help of the IFC. Together with the University of Indonesia, we also conducted a social survey of operational and surrounding areas on a three-year plan. We reported on peatland management technology at the 24th Conference of the Parties (COP24) to the United Nations Framework Convention on Climate Change in Poland in December.
2019	We announced initiatives related to WSL peatland management and forestry business at The Seventh Tokyo International Conference on African Development (TICAD7) held in Yokohama in August. We introduced that tropical peatland forest not only acts as the lungs of the Earth but also a heart that circulates water around the globe. We also announced a peatland management system that prevents fires at a side event of the United Nations Climate Action Summit held in New York in September. At the United Nations Climate Change Conference (COP25) held in Madrid in December, we presented water management technologies and the preservation of rare species.
2020	The Global Landscape Forum held by the United Nations Environment Programme introduced the Sumitomo Forestry peatland management concept to not only address the issue of carbon emissions in peatland management but also consider forest, agricultural and food shortage issues as a main theme. We contributed essays about the expertise in peatland management which we have cultivated thus far and took charge of organizing the technical peatland management guidebook published by the International Peat Society (April 2021). Sumitomo Forestry also launched a counsel together with the IDH - The Sustainable Trade Initiative, an international organization, to improve assessment methods of natural capital and enhance added value.
2021	We gave presentations at the Japan Pavilion, Indonesia Pavilion, and Peat Pavilion at the 26th Conference of the Parties (COP26) of the United Nations Framework Convention on Climate Change (UNFCCC) in Glasgow in November.
2022	At the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27) held in Egypt in November, we made a presentation at the Japan Pavilion and introduced technologies that could help solve the problem of underestimated forest and peatland loss in tropical countries and our approach to maximizing the value of natural capital.
2023	At the 28th Conference of Parties to the United Nations Framework Convention on Climate Change (COP28) held in the United Arab Emirates in November, we made presentations at three pavilions: Tech for Transition, Land and Drought Pavilion, and the Asian Development Bank Pavilion. We introduced our initiatives for peatland management in Indonesia using AI and remote sensing technologies.

Forest Fire Prevention Measures at Each Work Site

Indonesia

Conventionally, reforestation in peatlands* was done by managing the water level with drainage to push water out of the soil. However, while drainage-type water level management works well for plants, it has dried out the land, decomposing organic matter in peat soils and releasing greenhouse gases, as well as leading to large peat fires that are difficult to extinguish.

WSL and MTI, on the other hand, manage stored water levels based on precise surveys and peat studies. This maintains a water level that allows plants to grow and also prevents the land from drying out.

Real-time measurements of peat thickness have shown that peat thickness has not decreased in the long term as a result of previous efforts. In other words, it reduces peat-related greenhouse gas emissions while also helping to avoid fires.

The Sumitomo Forestry Group has also continued to develop the infrastructure technology necessary to manage peatlands since launching the business. The concept is simple, low cost and easy maintainability, which aims to establish management technology that can be broadly expanded in rainforest peatlands throughout Indonesia and the rest of the world. As an alternative means to carry out massive amounts of surveys, we are striving to develop technology using drones and AI.

Regions where peatlands thrive, such as the Amazon, the Congo Basin, and Indonesia, have the most rainfall throughout the world. The soil of peatlands is made up of 80% to 90% water. Tropical forests and peatlands act as a pipeline dispersing water into the air from a large amount of rainwater accumulated in the ground during the monsoon season through evaporation. The tremendous evaporation from these rainforests and peatlands has the potential to act as a necessary water cycle function at global scale. The collapse of the world's water cycle will result in abnormal weather and adversely impact agriculture, which will cause even greater food shortage issues. Sumitomo Forestry advocated the importance of proper tropical forest and peatland management because these regions act as the heart of the Earth circulating water throughout the planet at our presentation at The Seventh Tokyo International Conference on African Development (TICAD7) held in Yokohama in August 2019.

* Characteristics of the peat soil found in the peat swamps is known to emit enormous amounts of greenhouse gases, typically carbon dioxide and methane gas, if the soil was inappropriately exploited. Owing to joint researches by Japanese and Indonesian academic institutes, our operations take into consideration minimizing greenhouse gas emissions that accrue as the peaty soil dissolves during exploitations.

Landscape management of forestry business designed based on detailed data

Papua New Guinea

Open Bay Timber (OBT) keeps track of the fire hazard levels by analyzing temperature, rainfall, and humidity every day, as well as by preparing firebreaks and organizing forest residues to prevent the spread of fire on the planted forest. In areas with a high risk of fire, patrols of work sites are increased from once to twice a day to meticulously check for signs of fire. We have had no cases of forest fires under our management in 2023 thanks to these initiatives.

New Zealand

TPF is working with Fire and Emergency New Zealand (FENZ), local municipalities, neighboring forestry associations and other relevant agencies to continuously conduct awareness-raising activities about fire in the local community in addition to taking other proactive fire prevention measures. Specific measures include setting up a Fire Index bulletin board that shows the fire risk level, distribution of leaflets to evoke caution in the local community, the creation of a system to always have fire-fighting helicopters on standby when the risk of fire is high, stockpiling of fire extinguishing agent, appropriate placement and management of water ponds, focused pruning of wood edges to prevent the spread of fires, fire-fighting equipment acquisition and training, conducting patrols, and preparation of forest roads. On days with a significantly high risk of fire, we also implement a wide range of regulations from time restrictions for harvesting work to rules on when people have recreational access to the mountains. We have had no cases of forest fires under our management in 2023 thanks to these initiatives.

Mangrove conservation business

In December 2022, Sumitomo Forestry acquired 100% of PT. BINA OVIVIPARI SEMESTA (BIOS), which owns and manages 9,738 hectares of mangrove forests, making it a wholly owned company. This business aims to create high-quality blue carbon credits by maintaining and managing mangrove forest, which is a globally valuable ecological system, as a “conservation forests” rather than an “working forests” that undergoes a cycle of logging and afforestation.
We will utilize the know-how we have cultivated over many years in sustainable management of peat lands in West Kalimantan Province to engage in wide-area ecosystem conservation projects, regarding mangroves on border between sea and land and peatlands and tropical forests in inland areas as continuous ecosystems. By doing this, we will realize Nature Positive* through maintenance of biodiversity, water purification, and improvement of water retention and water circulation functions.

*Stop and reverse biodiversity loss and put it on a recovery track

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Biodiversity Conservation in Planted Forests Overseas

Forestry fund operation

Eastwood Forests, LLC (“EF”), a U.S. - based forest asset management company under umbrella of Sumitomo Forestry, established Eastwood Climate Smart Forestry Fund I in June 2023. Ten Japanese companies are participating in this Fund, with an asset size of approximately 60 billion yen*¹ and a 15-year investment period. Through mechanism of the fund, the forest is appropriately managed in areas and fund scales which cannot be individually realized, and CO₂ absorbing and fixing function of the forest is maximally utilized to contribute to the realization of the decarbonization society.

This fund acquires forest assets mainly in the United States and Canada where market and system of forest asset transactions are established, and sells wood and carbon credits obtained through continuous forest management. Fund management, including acquisition and sale of forest assets and forest management, is handled by EF, which has knowledge and experience in formation and management of forest funds in the United States. Furthermore, SFC Asset Management, which is a 100% subsidiary company of Sumitomo Forestry, supports funds from the Japanese side with respect to fund composition and post-composition communication with investors.

*11 USD = 144.46 yen (calculated based on exchange rate on July 3, 2023)