March 26, 2008

"Report on the Discrepancy in the Ratio of De-Inked Pulp Content"
and "Our Challenges: Social/Environmental Contribution Plan"

Nippon Paper Industries Co., Ltd.


Our Challenges: Social/Environmental Contribution Plan

1. Raising the utilization rate of recovered paper
In order to meet the posted recovered fiber content, we should have input 1.98 million tons of more recovered paper (0.88 million tons for the Green Purchase Law products and 1.1 million tons for the others) in our recycled grades sold since 1990, according to the estimate of our in-house survey.
To date, on the other hand, our company has increased the utilization rate of recovered paper by improving its operation facilities for the material and raised the ratio up to 38.8% by 2006 from the level less than 30% in the 1990s. Our current target is to put up the recovered paper utilization rate to 40% by 2008, as described in our environmental action plan "Green Action Plan 2010". Now we are examining whether we can further augment the ratio to 42% in 2009 or thereafter, although influenced by the domestic market as well as import-export situation of recovered paper. According to our estimates, the Company would exploit additional 160,000 tons of recovered paper by elevating the rate from the actual 38.8% to 42%.
Besides maximizing the capacity of recovered paper procurement and de-inked pulp manufacturing facility, we will propel innovation in the treatment process of recovered paper, especially for inferior grades, which have been least utilized. For instance, office waste paper (including glued and colored paper) has not so properly sorted that it has not conventionally served for raw material of printing paper. We will engage in joint technological development with de-inking plant suppliers. Due to the closure of the Fushiki and Komatsushima Mills, planned for the latter half of fiscal 2008, our total production capacity for de-inked pulp will decline, but we have enhanced the capacity at the Ishinomaki, Iwanuma and other mills offsetting more than such decline. In addition, one of the Nippon Paper Group companies is committed to making much of old confidential documents, which is expected to be some 20,000 tons of additional recycling per year.
2. Expanding overseas afforestation
The Company targets to expand overseas afforested areas to 200,000 hectares by 2015, and has already reached 166,000 hectares as of the end of 2006. Achieving this goal in 2015, the Company currently contemplates raising the next target to 300,000 hectares (about 1.5 times as large as Tokyo Metropolitan area), which could fulfill the Company's entire demand for imported hardwood chips.
Recycling of wastepaper is no doubt an essential activity to save resource and to reduce environmental impacts, and shall be further promoted. However, it must also be recognized that fiber resources demanded in the domestic paper manufacturing could not be fully provided only by Japanese recovered paper because of the property of pulp fiber. When repeatedly recycled, the pulp fiber inevitably deteriorates and disintegrates, and would not eventually serve for proper pulp fiber. Hence it is necessary to continue supplying fresh pulp made from wood. For the sustainable procurement of wood resources, the Company will expand its afforested land reserves.
3. Sustaining and growing domestic forests
The Company owns 90,000 hectares of forests in Japan and have also promoted the use of such domestic wood resources as thinned woods. We believe that our activities to conserve our own timberland and to utilize domestic lumber contribute to environmental sustainability. In 2007 some 29% of our woodchip supply came from domestic timber source. Our challenge is to increase this rate to 30% by 2010 in cooperation with the relevant parties.
Domestic lumber lost its price competitiveness with imported lumber as Japanese yen having appreciated since the mid 1980s and the Company's consumption of domestic lumber has declined to the current level as a result. However, the domestic forests perform diverse functions, such as supplying nutrients to the sea, mitigating flood, purifying water, and preserving biodiversity. According to a report from the Science Council of Japan, the appraised value of domestic forests is estimated to be worth JPY 70 trillion when these environment functions are assigned a monetary value wherever possible. Some of those multi-facetted functions are deeply related to the issue of global warming (e.g. the fixation of carbon dioxide).
4. Contributing to the society
The Company offers hands-on classes named "Forest and Paper Friendship School" to the public. The program is designed to understand sustainable relationship between our industry and the environment through such activities as nature walks in forests and handcraft paper-making. The classes have been held in the Company's forests in Gumma and Kumamoto, and they were well-received by the participants. We plan to expand these activities to areas, including Hokkaido and Tohoku. At the same time, the Company encourages each mill as well as the head office to engage in an individual program to cooperate with local community. For example, the Shiraoi Mill in Hokkaido is considering whether it can support Shiraoi Town's waste disposal by utilizing sewage sludge and residential waste generated in the town as fuel for the mill.
The Company also plans to study more direct measures for social contribution, such as cause-related marketing (CRM). For instance, we are planning to donate a portion of the sales from designated products to organizations active in environmental conservation and domestic lumber promotion.
5. Preventing global warming
The Nippon Paper Group aims to reduce by fiscal 2010 the basic unit of carbon dioxide emission from fossil fuel and the unit of fossil fuel input per product by 10% and 13 % respectively from their 1990 levels. Nippon Paper Industry Co., Ltd. has installed biomass boilers so as to save energy and to reduce carbon dioxide emissions from fossil fuels. Within its fiscal 2006, the Company attained an 8.7% reduction from 1990 level in the basic unit of carbon dioxide emission from fossil fuel. As a new challenge, the Company is now considering enhancement of the reduction target mentioned above to 16% and 20% respectively by 2010.
6. Dialoguing with stakeholders
To attain a sustainable society, our pulp and paper industry is also required to manufacture the products in a sustainable manner. We will attempt to clarify what to pay our attention and what to implement in our corporate activities through dialogues with the stakeholders. Anticipating tighter resource supply to be prolonged, we may start a long-term discussion of sustainable energy and resource policy for with stakeholders including NGO members, external experts, academic specialists and our employees.