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Perspectives on Innovation: Sustainable Commodities
May 11, 2023
The Calamos Sustainable Equities Team’s allocation and exposure to commodities differ from many investment managers. Most investment portfolios and the broad market indices are levered to finite commodities that involve costly and destructive extraction methods in environmentally sensitive areas. In contrast, we are focused on sustainable commodities sourced from natural capital-rich regions with proficient production and processing techniques that add value and mitigate negative impacts on local ecosystems.
“Klabin developed bio-oil, a renewable alternative to fossil fuels. Bio-oil is made from part of the residues from the forestry process and can be used for generating electricity and producing heating fuel.”
Brazil is rich in natural capital, with substantial forest, water, and other organic and inorganic resources. According to the United Nations, Brazil ranks highest among G20 nations for its natural capital of arable land, minerals, and renewable water sources. In the same way that coal and oil production helped Western nations emerge as economic powers, Brazil is squarely positioned to emerge as a power in a world more committed to sustainable commodity use. Looking to a future when access to water, clean air, and arable land will be a matter of survival, the world has never been more dependent on Brazil. Natural resources are indeed essential to Brazil’s economic development.
Sustainably managed forests and plantations, wood-based products, and low-carbon electricity all play a role in moving toward a more sustainable future. They are essential for finding solutions that both replace fossil fuels and move activities to a system that uses and reuses resources in the most efficient way possible.
Forest and paper products can be considered sustainable when produced from wood sourced from sustainably managed forests or made with high-recycled content. Sustainable forestry practices help keep timberlands healthy and flourishing so that they can store carbon, slow climate change, and improve soil and water quality.
Production of commodities goes beyond extraction or harvesting. When producers add value via processing and refining, their business models become more competitive and profitable. Turning natural resources into valuable goods is key.
Klabin is doing just that.
Klabin manufactures and sells timber, pulp, and a variety of paper products. It also owns and operates forests in Brazil and harvests its own timber. The timber is either sold to third parties or transported to the firm's mills, which produce pulp and paper products.
The company is a clear global leader in sustainable packaging, which we believe is a long-term secular growth trend. Furthermore, the company has offered compelling growth metrics, thanks in part to an integrated and flexible business model.
Klabin: Quick Facts
*Source: Klabin.com.br, and ROIC data from Klabin 4Q22 Institutional Presentation.
Klabin holds 11% of Brazil’s recycling market, which makes it the largest paper recycler in the country. The company is the largest buyer of cardboard scrap on the market, which further fosters the recycling chain and the circular economy. Klabin was also the only Brazilian company invited to join the group of leaders at COP26, the United Nations conference on climate change to help expedite the private sector’s commitment to actions that reduce carbon emissions and achieve targets based on climate science.
Innovation is part of Klabin’s DNA and is an important driver of its business. The company works to improve practices and processes to ensure the development of differentiated and innovative products that are more competitive, biodegradable, and efficiently produced.
Eliminating the disposal of industrial waste in landfills is one of Klabin's sustainable development goals. In 2015, the company committed to the smart use of our forest’s full potential. Klabin developed bio-oil, a renewable alternative to fossil fuels. Bio-oil is made from part of the residues from the forestry process and can be used for generating electricity and producing heating fuel. The company plans to ultimately be self-sufficient in the production of this green fuel.
As sustainable commodities displace finite and toxic ones, companies, shareholders, nations and society will benefit. Innovation and efficiency can amplify these gains. We believe our proprietary, quality-driven approach positions our team advantageously as we actively evaluate such investment opportunities around the world.
About the authors
Jim Madden, CFA; Tony Tursich, CFA; and Beth Williamson manage the Calamos sustainable equity suite, including Calamos Antetokounmpo Global Sustainable Equities ETF (SROI) and Calamos Antetokounmpo Sustainable Equities Fund (SROIX), as well as separately managed portfolios. Our team has been at the forefront of sustainable investing since 1997 and launched one of the first fossil-fuel-free funds in the United States.
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The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.
This material is distributed for informational purposes only. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the information mentioned and, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable.
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