Paper & Packaging Report 2023

Unpack the power of sustainable packaging

Acknowledgments

Ilkka Leppävuori, who leads Bain & Company’s Global Forest Products, Paper & Packaging practice,
prepared this report with help from a team cocaptained by Practice Senior Manager Jan Budde and
Practice Director Catherine Safaya-James.

The chapters of this report were written by Bain Partners and Expert Partners Ilkka Leppävuori,
Mattia Bernardi, Jenny Davis-Peccoud, Torsten Lichtenau, Oliver Straehle, Melchior Bryant,
Peter Meijer, Moritz Vielhauer, Luciana Batista, Daniela Carbinato, Magali Deryckere, Erik Nordboe,
Marcos Rutigliano, Florian D. Mueller, Sambit Patra, David Waller, Pablo Cornicelli, Manuel de Soto,
Andrea Isabella, Elena Recio, Jared Lapin, Jason Heinrich, and Jenny Lundqvist; Associate Partners
Anders Bäck and Pol Tarragó; Expert Associate Partner Stephanie Yee; Senior Manager Emma Elofsson;
Consultant Kajsa Schrewelius; and Systemiq Partner Yoni Shiran.

The authors wish to thank Bain Global Advanced Manufacturing & Services Executive Vice President
Andy Bankert; Partners Michael Staebe, Niels Koggersbol, and Jens Hjortegaard; Expert Partner
Mark Burton; Senior Associate Consultant Andreas Kroebl; Leila Kunstmann-Seik and Anna Civilini
for their planning and marketing support; and Aili McConnon and Paul Judge for their editorial support.

This work is based on secondary market research, analysis of financial information available or provided to Bain & Company and a range of
interviews with industry participants. Bain & Company has not independently verified any such information provided or available to Bain
and makes no representation or warranty, express or implied, that such information is accurate or complete. Projected market and financial
information, analyses and conclusions contained herein are based on the information described above and on Bain & Company’s judgment,
and should not be construed as definitive forecasts or guarantees of future performance or results. The information and analysis herein does
not constitute advice of any kind, is not intended to be used for investment purposes, and neither Bain & Company nor any of its subsidiaries
or their respective officers, directors, shareholders, employees or agents accept any responsibility or liability with respect to the use of
or reliance on any information or analysis contained in this document. This work is copyright Bain & Company and may not be published,
transmitted, broadcast, copied, reproduced or reprinted in whole or in part without the explicit written permission of Bain & Company.

Copyright © 2023 Bain & Company, Inc. All rights reserved.

 Paper & Packaging Report 2023

Contents

Navigating Turbulence in Paper and Packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Full Potential Transformation in Paper and Packaging . . . . . . . . . . . . . . . . . . . . . . . . 8

The Paper and Packaging Industry Faces a Biodiversity Crisis . . . . . . . . . . . . . . . . . 14

Which Packaging Substrates Are the Most Sustainable? . . . . . . . . . . . . . . . . . . . . . 20

How Paper and Packaging Companies

Can Catch Up in Commercial Excellence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Putting Sustainability to Work in Paper and Packaging . . . . . . . . . . . . . . . . . . . . . . . 32

The State of Private Equity and M&A in the Paper and Packaging Industry . . . . . . 39

Sustainable Packaging: What Consumers Want

Next from the Paper and Packaging Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

The Mill of the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

1
Navigating Turbulence in
Paper and Packaging
Scenario planning can create a dynamic, future-proof strategy.

By Jason Heinrich, Ilkka Leppävuori, and Jenny Lundqvist

At a Glance

Successful companies embrace disruption rather than fight it by focusing on the vital few
uncertainties that matter.

Becoming future ready, more sustainable, and reaching full potential requires a dynamic strategy.

A winning strategy is good in all scenarios rather than brilliant in one context but a failure in others.

These days, chief executives in paper and packaging face extreme uncertainty, volatility, and disruption.
Covid-19 caused abnormal demand patterns across many product categories. In addition, paper
and packaging companies have seen record-high volatility in input costs, spurred by surging energy and
chemical costs, record-high inflation, and an enormous spike in overseas transport costs in 2021.
New regulation is also scrambling categories, boosting some products while destroying others.

Despite this acute turbulence, most companies still rely on traditional approaches to strategy—such as
analyzing trends, making forecasts, and committing to a set of actions that they rigidly follow—but these
approaches are unfit for the high degree of instability that many companies are currently experiencing.

Companies getting it right embrace uncertainty and disruption (rather than fighting it) by focusing on
the vital few uncertainties that matter. These include supply and demand fluctuations, cost volatility

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in energy and raw material prices, and geopolitical risks. There are also uncertainties around the impact
and timing of the green transition as well as around new technologies, including artificial intelligence,
smart packaging, and e-commerce penetration.

Leading companies are engaging in strategy making as a continuous process that generates a dynamic
plan. They are laying out the possible scenarios that could develop, taking key actions now, and preparing
the organization to react in a timely manner via signposts or trigger points when conditions change.

A perfect storm

External pressures and disruptions are at an all-time high, and companies can’t afford to ignore
uncertainty when planning and implementing strategy.

Covid-19 caused demand to surge in certain product categories such as the panic buying of toilet
paper, and plunge in others, such as the radical drop in office paper demand as copying and printing
in offices suddenly disappeared while electronic contract signing took off.

As a result of the crisis in Ukraine, natural gas prices in Europe spiked from an already high €80
per megawatt-hour in January 2022 to a peak of more than €300 per megawatt-hour in August, with
electricity prices following suit (see Figure 1).

Figure 1: European energy price volatility increased dramatically in 2021 and 2022

Price in euros per megawatt-hour, quarterly

500

400

300

Electricity, Germany
Electrictiy, Sweden
200

100 Electricity, Spain

Natural gas, Europe

0
Q1 2021 Q2 Q3 Q4 Q1 2022 Q2 Q3 Q4

Sources: Statista; Refinitiv

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 Paper & Packaging Report 2023

Overseas transport costs more than tripled in 2021 and sustained high levels for a large part of 2022
because of the lack of sea container capacity and other supply chain disruptions. Key chemicals
used in the industry have skyrocketed in cost as well—for instance, starches rose by more than 60%,
and caustic soda increased by almost 200% for some customers.

Regulation is also shifting growth patterns and in practice eliminating some product categories (such
as plastic straws) while creating new ones (such as molded fiber for compostable salad bowls). Bans
and restrictions on single-use plastics are propelling a clear shift from plastic to paper straws and lids,
and they are boosting the demand of recycled content in PET (polyethylene terephthalate) bottles.

Recent proposed EU regulation aims at reducing “avoidable packaging”—that is, reducing the demand
of quick-service restaurant packaging and shifting from single-use tableware, for instance, to washable
items, as already showcased in France.

Finally, record-setting rates of inflation, increasing interest rates, and the fear of a recession are
additional drivers of uncertainty. Becoming future ready, more sustainable, and reaching full potential
requires a dynamic plan and continuous strategy process.

Scenario planning

Scenario planning is certainly not new, but while it used to be an academic exercise that executives
performed every few years, it’s now mission critical given the ever-increasing turbulence. Scenario
planning begins with no-regret moves, or actions a company needs to take under any scenario. Then,
it is key to identify trigger points or signposts to signal when a scenario occurs so that you can react
quickly and take a new strategic direction (see Figure 2).

For example, a company evaluating sustainability may determine that under any scenario it will need
to create more recyclable and compostable packaging going forward in light of tightening regulations
and changing consumer demand. It would start by investing in R&D to develop new forms of packaging
and improve resiliency. Then, the company would plan for various scenarios that factor in possibilities
such as volatile energy costs, input prices, evolving regulation, and the dollar value of potential losses
should each scenario play out. Finally, the company would track clearly defined signposts, and when
signposts suggested one scenario becoming more likely, management could react quickly and adjust.

The company would then use these scenarios for sensitivity analysis, meaning it could pressure
test strategic decisions and investments. For example, an investment into a new paper mill will have
massively different economics depending on the expected growth of paper demand and the input costs.
Having a feeling for the extreme upper and lower bounds can help identify the most promising
investment across scenarios.

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 Paper & Packaging Report 2023

Figure 2: Scenario planning helps prepare for extreme outcomes

Examples of extreme
Category Possible metrics to measure impact 2030 outcomes

End market demand • Growth in carton board demand 0 7% p.a

• Growth in corrugated packaging demand 1% 7% annually

• Decline in graphic paper demand –1% –10% annually

Raw material • Average cost of softwood in euros per cubic meter €10 €100 per cubic meter

• Global market pulp capacity additions (in tons) by 2030 5% 30%

Other variable costs • Average cost in euros per megawatt-hour for electricity €5 €500 per megawatt-hour

• World container index (40-foot container) $1,000 $15,000

• Price of carbon emission rights per ton €10 €200 per ton

Capital costs • Interest rates 0 6%

Source: Bain & Company

Solidify new pricing and product portfolio management

High inflationary environments make pricing a priority for companies. Some high-performing
companies choose to streamline the product offering and optimize the mix to mitigate supply shocks
and drive growth. These companies eliminate product families and stock-keeping units (SKUs) based
on complexity analytics, migrating customers to a more profitable portfolio. They reprice high-
complexity SKUs for which customers are willing to pay more, transform the cost structure of low-margin
products, and exit product categories that aren’t strategic fits.

It’s also important to develop a strategy for passing through the fluctuating costs of raw materials.
This will depend on whether your contract with suppliers is tied to market dynamics or an agreed-upon
index that could be tied to global inflation or containerboard prices, for instance, or a mix of the two.
Where you have negotiating power, you may need to push for higher than 100% pass-through pricing,
and in other categories, you need to realize that your competitive position is such that you can’t get
the full pass-through price. And all this decision making needs to happen quickly in response to
market circumstances.

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 Paper & Packaging Report 2023

Build long-term customer relationships

The paper and packaging industry is known for long-term customer relationships, and one of the
best examples is liquid carton packaging, where there are only a few suppliers and a few customers
that are already in long-term relationships.

For many of the other grades, you have many more choices, and in turbulent times, customers often
look for better value alternatives, leading to increased churn. Winning companies in these categories,
however, also invest in superior customer engagement, such as deeper collaboration in demand
planning, inventory management, logistics, and new product innovation.

Even packaging companies in grades with more choices for customers prioritized serving customers
with long-term relationships rather than chasing the highest-margin customers when prices increased
rapidly in 2022. Now in 2023, those companies are reaping the benefits in terms of maintaining their
customers’ share of wallet because those long-term customers have stuck with them.

Double down on operational resiliency and traceability

Over the past year, volatile energy prices have been the most obvious driver of uncertainty, and supply
chain issues, with both input and output prices fluctuating wildly, have also played a role (see Figure 3).
As a result, operational resiliency and traceability are more important than ever. Leading companies
are investing in multiple sources of supply so that they are not dependent on one supplier per category.
They are also thinking about their footprint strategy and regionalizing their supply chain more than
they have done in the past, meaning that their subcontractors for a given region (e.g., North American
operations) would be mostly in that region. Finally, for high-volatile categories, they are using contractual
terms or hedging to ensure they are protected.

Strategically allocate capital expenditures, R&D, and M&A funding

Downturns are a great time to gain market share. To win, you must invest selectively to outperform
competitors. Use M&A to reshape the portfolio of businesses. For example, in 2008, Graphic Packaging
acquired Altivity Packaging for $1.75 billion to create one of the largest producers of folding cartons
in North America. The combined company was able to realize significant cost savings and operational
efficiencies, improving profitability and solidifying Graphic Packaging’s position as a leading producer
of folding cartons in North America.

It’s also critical to continue investing in R&D, allocating capital toward the right projects while making
sure they are flexible. Stora Enso, for example, is currently investing €1 billion into converting an
idle paper machine into a high-volume consumer board production line. The machine will be able
to produce folding box board as well as coated unbleached kraft, which can be used in a wide range
of industries, including food and beverage packaging for frozen, chilled, dry, and fast food.

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 Paper & Packaging Report 2023

Figure 3: Output prices surged in 2022

Prices index (starting month January 2013) Prices index (starting month January 2013)

300 300

250 250

200 200

150 150

100 100

50 50
2014 15 16 17 18 19 20 21 22 2014 15 16 17 18 19 20 21 22

Carton board Containerboard Pulp Graphic paper PET (polyethylene terephthalate) Recycled PET clear

Notes: Graphic paper refers to uncoated woodfree, coated woodfree, uncoated mechanical, coated mechanical, and newsprint; pulp refers to bleached hardwood kraft
pulp, bleached softwood kraft pulp, and others; containerboard refers to kraftliner, testliner, and fluting, carton board refers to white-lined chipboard, solid bleached
sulfate, folding box board, coated unbleached kraft, and food service board; price movements within the subcategories were highly similar, therefore an average across
the categories was taken to construct the index
Sources: RISI; Kunststoff Information Verlagsgesselschaft (KIVI)

Reset the cost base and prioritize automation

Basic automation tools have become common in many paper and packaging companies. Modern
machines can run sawmills and pulp mills with very little human oversight, and digital sales channels
can automate many sales activities. Automation cuts costs (because it reduces variability) and improves
safety. With improving industrial controls and closed-loop control systems, fewer employees are needed
to run highly complex paper machines.

Going forward, the only certainty is uncertainty. Turbulence will most likely only increase. For this
reason, winning executives are designing a strategy that is good in all scenarios rather than brilliant
in one context but a failure in others.

7
Full Potential Transformation
in Paper and Packaging
Boosting profitability, cash flow, top-line growth, and company value.

By Pablo Cornicelli, Manuel De Soto, Andrea Isabella, Ilkka Leppävuori, and Elena Recio

At a Glance

A full potential transformation can raise a company’s profitability, cash flow, top-line growth,
and value to a completely different level.

Paper and packaging companies that have achieved a full potential transformation have typical-
ly doubled their EBITDA over two to five years.

Successful companies embrace clear purpose, full alignment, accountability, and sprint-based
prioritization of actions.

How did Fedrigoni Paper more than double its adjusted sales and almost triple its EBITDA in just a few
years? Established in 1888, the Italian family-run company has a long and storied history of producing
specialty paper and self-adhesive labels. More recently, however, Fedrigoni lost two large international
banknote customers, and market dynamics shifted. In 2018, Bain Capital acquired a 90% stake in
Fedrigoni for €600 million and helped the Italian company execute a full potential transformation.

By building scale in existing markets, expanding its geographic scope, and acquiring several Italian
companies with a strong European presence, Fedrigoni became one of the top players in self-adhesive
labels worldwide. It also embedded sustainability into internal operations and its day-to-day business,
developing circular products such as specialty paper made of 40% to 100% recycled material as well

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as paper combining pulp and alternative fibers such as cotton, hemp, and linen. Finally, it also cut
costs and optimized operational excellence. Thanks to these measures and others, investors achieved
a five times return on investment with the new valuation of Fedrigoni at €3 billion.

For every company that has invested at the right time and achieved game-changing operational and
commercial results, there have been many more that have faced declining profitability and serious
balance sheet issues. Given this wide variation, CEOs and shareholders have prioritized understanding
how to generate the most attractive returns and make the most out of their existing production assets.

“Transformation” is used widely in the business world, and at Bain & Company, a “full potential
transformation” is the cross-functional effort to alter the financial, operational, and strategic trajectory
of the business. When implemented successfully, this plan can dramatically raise the company’s
performance to a completely different level in terms of its profitability, cash flow, top-line growth,
and value. This success often leads to an increased ability to make bold new investments in new
production capacity and R&D. These days, such transformation plans also often include a concrete
sustainability plan that outlines how to get toward lower (or ideally zero) carbon emissions within a
given timeline, often through site energy-efficiency savings or investments in non–fossil fuel energy.

Successful companies articulate a clear purpose and value creation plan or a roadmap to achieve their
full potential transformation (see Figure 1). They align fully across the organization and split bigger
key initiatives into multiple shorter sprints. Executives meet regularly to ensure that performance is
transparent, roadblocks are quickly cleared, and decisions are quickly made. Finally, they ensure that
the best talent leads the transformation, and they honestly evaluate where they are missing certain
skills, hiring externally to fill those gaps.

A full potential transformation usually consists of a five-year plan to significantly improve the EBITDA
of the company. Everything on this broad agenda cannot be successfully executed at the same time.
Instead, successful companies identify and quantify the relevant ways to create value. Three different
ways that top-quartile companies Bain has worked with have employed specific value levers as part
of their full potential transformation include revamping their portfolio strategy, stepping up their
commercial and operational excellence, and improving their performance through cost transformation
and next-generation sourcing.

Revamping portfolio strategy: Leading companies anticipate and react to changing market demands,
and they adjust their portfolio accordingly. Early lessons can be learned from paper companies that
switched some years ago from declining products such as graphic paper to producing higher-demand
packaging products such as carton board or containerboard. Revamping their portfolios often involved
divesting or spinning off lower-demand products, closing certain paper mills if they were too old or
costly to convert, or transforming machines to produce the higher-demand products.

Today’s leaders also realize that transforming one’s portfolio means accepting that they will need
to close certain plants and make new investments to convert machines into growing and attractive
product grades. Finally, leaders will upgrade the commercial organization to effectively sell the new

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 Paper & Packaging Report 2023

Figure 1: Value creation levers that accelerate a full potential transformation

Strategic choices Commercial Cost and capital Operational

excellence efficiency excellence

Define and refine a Accelerate growth Improve performance Improve operations

winning strategy and through commercial and sustain cost through results-focused
ambitions excellence transformation initiatives

Where to play Market and customer Fiber sourcing Utilization and

opportunities productivity

How to win Product portfolio mix Other raw material Variable cost
sourcing optimization

Site and portfolio Pricing and discount Working capital Asset health
management, management efficiency
including M&A
Capital investments Salesforce Selling, general, and Footprint optimization
effectiveness administrative expense
optimization
Business-to-business Sales and operations
marketing planning

Customer experience/
feedback

Environmental, social, and corporate governance (ESG) key enablers

Energy and Material Water Waste and Employee Supplier ESG

emissions consumption consumption product end health and practices
and treatment of life safety

Operating model and other key enablers

Organizational People skills, Agile Digital Performance

model and culture, and deployment management
alignment talent

Source: Bain & Company

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 Paper & Packaging Report 2023

products to new customers. This could entail training sales teams to sell carton board or molded fiber
products to fast-moving consumer goods companies, retail chains, or quick-service restaurants, instead
of selling graphic paper to publishers.

Stepping up commercial and operational excellence: Many full-scale transformations rely on

improving commercial and operational results across dozens of production sites. One packaging
producer, for example, started by setting high ambitions to improve operations vs. the baseline. It
began by seeking full transparency of what good looks like on a very granular level. On the operations
side, supervisors tracked how workers did on key performance indicator dashboards in every plant
for every shift, how the shift changeover was managed, and many other details. They did this to
establish their ambition and where certain teams and plants needed to close the gap.

The company brought in the equipment manufacturers (who also functioned as consultants) to share
best practices and help the teams accomplish operational excellence. Finally, it connected those teams
focused on operational excellence with the teams working on commercial excellence and sourcing
excellence to ensure that operational excellence improvements were not, for instance, negatively
impacting the commercial team. Sourcing was looped in early on to help find which materials, recipes,
and suppliers were needed to optimize product cost.

Improving performance through cost transformation and next-generation sourcing: Other companies
have improved their cost structure and upgraded sourcing to stay competitive and drive a multiyear
transformation. For one company, this included coordinating procurement for key product categories
so that every single mill did not negotiate with suppliers separately, but instead, they could take
advantage of volume discounts and more strategic dialogues with select suppliers.

Analyzing the data enabled the company to determine a more efficient balance when choosing among
the share of fiber to produce internally, to source from external suppliers, or to purchase on the open
market. Big data analysis on varied performance across all products and sites helped manage demand
and identify how it could reduce the cost of chemicals and energy within its operations—for example,
through calibration of recipes and consumption in the production. As a result, this company managed
to reduce costs, improve collaboration between sourcing and key business stakeholders, and upgrade
the supplier management and overall sourcing strategy significantly. Sourcing teams were involved
early and throughout the full transformation process so as to be more cost efficient if the team were
to be sought out to alter the product recipe, and they would rethink sourcing to reduce the quantity
of the most expensive ingredients, which are typically chemicals.

Past Bain project experience shows that most companies undergoing a full potential transformation
use several levers in parallel, with the most successful ones (especially in the private equity setting)
sequentially improving in all areas (see Figure 2). Operational excellence and commercial excellence
were the most commonly targeted levers and showed the highest return. All in all, companies utilizing
the full set of levers were able to achieve a roughly two times EBITDA uplift, truly transforming the
business in the process.

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 Paper & Packaging Report 2023

Figure 2: Improving operational excellence created the most value in past Bain-supported transformations

Average percentage of EBITDA uplift per lever

38% 191%

9%
26%

18%
100%

EBITDA before Strategic Commercial Cost/capital Operational EBITDA after

full potential choices excellence efficiency excellence full potential
transformation (volume growth) (fixed costs) (variable costs) transformation

Source: Bain & Company

How to succeed in a full potential transformation

Successful companies begin their transformations with a diagnostic phase to establish a starting point,
followed by a design phase to specify the actions and planned impact. It is in the implementation
stage, however, where the winners emerge. These companies embrace a clear purpose, the principle
that talent is king, full alignment and accountability, sprint-based prioritization, performance
transparency, and fast decisions.

Clear purpose: The CEO articulates why the company needs to do things differently, what the world
will look like if it succeeds, and the specific motivations for different roles within the organization.
Perhaps the company is chronically less profitable than competitors or a new private equity owner is
aiming for a successful exit in five years or has an ambition to achieve global leadership through M&A
and consolidation. The key is that the leadership team and the broader organization feel motivated
to take the journey toward that joint ambition.

Talent is king: Transformations are disruptive and can lead to attrition as well as new skill requirements.
Leaders identify the best talent at the firm to lead the transformation, rather than simply the employees
available to do so. These top performers are freed up from other tasks so that they will be the best

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sponsors to ensure buy-in for the transformation. Looping in top talent before companywide
communications can help them feel integrated in leading change. And diversity is reflected at every
level of employment—from the factory line to the C-suite.

Full alignment and accountability: The top team and key profit-and-loss owners embrace the approach
and its urgency. Every initiative has clear owners and sponsors, and the broader organization is
informed of plans and regularly updated on progress through all-hands town hall–style meetings.
A clear sponsorship spine extends through all levels to ensure buy-in and help anticipate risk early
on. Employees hear about transformation directly from their managers, who can explain why the
change is critical and how it will impact employees’ day-to-day work.

Sprint-based prioritization: Broad transformations often cover countless different initiatives. To ensure
progress, work is split up into multiple shorter sprints, without losing sight of long-term objectives.
The most critical enablers and highest-value initiatives are front-loaded and operationalized within
4- to 10-week sprints, during which the working team is onboarded and key improvements are
introduced. After the sprint is finished, leaders communicate results to all relevant stakeholders and
map them against long-term ambitions.

Successful companies seek transparency on performance and

a “red is good” mentality in tracking progress.

Performance transparency: Dashboards showing progress in transformations too often tend to

migrate toward showing green lights across, whereas the real point of tracking is to identify issues
and react to those quickly. Successful companies seek transparency on performance and a “red is
good” mentality in tracking progress. If waste percentages at a converting plant are not dropping,
for instance, or if most price increases are leaking out, the leadership team is notified immediately.

Fast decisions: During well-run transformations, executives meet weekly or biweekly to address
how specific roadblocks or delays in a given workstream can be mitigated. For instance, a recipe
optimization effort requires a new chemical supplier in order to succeed, or the speed calculation
methods across a company’s board machines need to be harmonized or the salespeople cannot charge
the correct transportation costs because the data is not available on time. Quick, pragmatic decisions
are made to course-correct the initiatives that are struggling, and all employees from the C-suite to
the front line accept that sometimes teams make the wrong decisions and need to course-correct.

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The Paper and Packaging Industry
Faces a Biodiversity Crisis
Sustainable forestry practices and recycled and reused materials deliver a competitive edge.

By Emma Elofsson, Erik Nordboe, and Marcos Rutigliano

At a Glance

Biodiversity loss could put $44 trillion at risk—that’s more than half of global GDP.

More than a third of companies surveyed plan to act on protecting biodiversity within two years.

Sustainable forestry practices have helped one company increase its standing timber volume
and sustainable harvesting level significantly, without increasing land use.

Biodiversity loss is not only a threat to nature but also to the economy. In fact, the World Economic
Forum (WEF) estimates that nature and biodiversity loss could put $44 trillion, more than half of
global GDP, at risk. And in a recent WEF survey, global risk experts rank biodiversity loss and associated
environmental risks such as climate change as the most critical threats to the global economy within
the next decade (see Figure 1).

Nature loss is unfortunately well underway. Populations of mammals, birds, amphibians, reptiles,
and fish have, on average, declined by 69% since 1970. In addition, around 1 million species globally
are at risk of facing extinction. Biodiversity loss and climate change are, of course, interconnected
as climate change accelerates biodiversity loss. In turn, the destruction of ecosystems undermines
nature’s ability to regulate greenhouse gas emissions and protect against extreme weather, thus
speeding up climate change and increasing vulnerability to it.

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 Paper & Packaging Report 2023

Figure 1: Biodiversity loss is seen as one of the most severe global risks

Global risks ranked by severity over the short and long term

1 Failure to mitigate climate change

6 Natural resource crises

2 Failure of climate change adaptation

7 Erosion of social cohesion and
societal polarization

3 Natural disasters and extreme

weather events 8 Widespread cybercrime and
cyber insecurity

4 Biodiversity loss and

ecosystem collapse 9 Geo-economic confrontation

5 Large-scale involuntary migration 10 Large-scale environmental

damage incidents

Source: World Economic Forum Global Risks Perception Survey, 2022–2023

Companies choosing to act now are poised to benefit. Leading companies are reducing their exposure
to biodiversity-related risks and brand risk as well. Early movers realize that biodiversity is not just a
risk to be managed but also an opportunity to gain competitive advantage. Leaders are using sustainable
forestry practices and increasing the share of recycled and reused materials to appeal to customers
who are increasingly concerned about reducing their biodiversity impact on the supply chain. Others
are developing innovative packaging that enables them to target new markets with a lower carbon
and biodiversity footprint.

Paper and packaging perpetuate some severe issues driving biodiversity loss

Paper and packaging companies contribute heavily to biodiversity loss through unsustainable forestry
management in their supply chain and specifically through their use of forestry resources as raw
materials. For example, large-scale clear cutting is a particularly unsustainable forestry practice, and
in Sweden, 97% of final tree felling is clear cutting and much of this is on large plots measuring greater
than 10 hectares. The paper and packaging industry also impacts biodiversity with water use. Water
is used to soak pulp before producing paper, and pulp, paper, and final packaging production create
air, water, and soil pollution. Packaging companies not directly involved in forestry still contribute
to upstream biodiversity loss through their supply chain and downstream biodiversity loss through
consumer consumption.

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 Paper & Packaging Report 2023

Only a minority of paper and packaging companies are taking the issue seriously and acting on
biodiversity loss today. Of a global sample of about 100 paper and packaging companies disclosing
to the CDP (and therefore biased toward action), only 22% reported assessing their value chain impact
on biodiversity and only 31% reported taking any action to progress on biodiversity-related commitments.
On the positive side, however, about 45% of respondents are planning to begin assessing their
biodiversity impact within the next two years and 35% are planning to act. Part of the challenge is
that most companies have tackling climate change and reducing emissions as their highest priority,
so biodiversity competes with climate when it comes to management attention and resources. So far,
regulations, investor pressures, and incentives are less developed for biodiversity compared with
those established for emissions, which can make it seem less urgent despite the acute need.

Most companies are following forest certification schemes such as those created by the Forest
Stewardship Council and the Programme for the Endorsement of Forest Certification. These certificate
programs are good, but they are not enough overall. These certificates can be used as a base, and then
companies need to consider their unique conditions, tailor their approach, and do more.

Only 31% of companies surveyed are acting now to address

biodiversity loss, but 45% said that they plan to begin assessing
their biodiversity loss within two years.

Regulation is beginning to emerge, but it lags behind other areas of

climate change

New biodiversity legislation, regulations, and reporting standards are currently under development,
and, when finalized, they are expected to pressure companies to do more to prevent biodiversity loss.
National governments adopted the new post-2020 global biodiversity framework at the UN Convention
on Biological Diversity’s December 2022 COP15 event in Montreal, setting 23 biodiversity targets to be
achieved by 2030. This agreement includes the overall committment to conserve 30% of the planet’s
lands and oceans and to restore at least 30% of degraded land and ocean ecosystems.

In the EU, the European Green Deal includes commitments to legally protect at least 30% of the EU’s
land and seas by 2030 (and to strictly protect at least 10%). The US has committed to conserving at
least 30% of US lands and waters by 2030, as well as establishing the America the Beautiful Challenge,
a $1 billion public-private partnership that supports ecosystem restoration projects that invest in
watershed restoration, resilience, equitable access to nature, and collaborative conservation. Ultimately,
goals and commitments around the world need to become regulations and legislation to help speed
up responses from companies to protect biodiversity.

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 Paper & Packaging Report 2023

Managing risk and capturing the business potential of biodiversity

Leading companies are using sustainable forestry practices to improve biodiversity and gain a
competitive edge. Below are two examples of different sustainable forestry strategies in two different
regions of the world.

Europe: In 2020, SCA developed an intiative to increase its conservation measures. It defined critical
habitat categories required to retain 203 threatened species on those lands. It used this data to inform
which areas should be set aside and not harvested, how to adapt harvesting methods to protect the
habitats, and which other small-scale conservation methods can be used. As of December 2022,
the company has set aside more than 160,000 hectares of its productive forest land for the purpose
of promoting biodiversity.

In addition, the company conducts active measures to promote species survival, such as prescribed
burning or creating dead wood, benefiting both local biodiversity as well as the company. These efforts
reduce risks from climate change or pests, creating a more stable and resilient forest as well as higher
diversity of raw materials for new product innovation. The increased focus on biodiversity is not
expected to affect forest productivity negatively. In fact, SCA has managed to increase its standing
timber volume and sustainable harvesting level significantly, aiming to further increase harvesting from
4.3 million m³sub (a measurement unit for form-adjusted solid log volume) in 2010 to 5.4 million m³sub
in 2025.

South America: Brazilian paper and pulp company Suzano has committed to connecting half a million
hectares of fragmented forests in Brazil by 2030. This will reconnect 1,850 fragmented pieces of land,
allowing plant and animal species to extend their habitat and increase genetic variability.

Adjusting products and supply chains

Leading paper and packaging companies are innovating products to use more sustainable raw materials
and optimizing supply chains to protect biodiversity. Many companies are developing innovative
packaging solutions to meet new requirements. New EU regulations on deforestation-free products,
for instance, will require companies selling wood products or rubber to prove that they are deforestation-
free and legal, covering the global supply chain. Measures such as these will change the market
dynamics and create financial incentives to find solutions that address these areas because products
that don’t meet these tighter regulations will increase a company’s costs through taxation and
penalties. By increasing awareness and involvement in developing policies, companies are better
prepared to handle upcoming regulation.

Other paper and packaging companies are looking to biodiversity leaders in other industries for strategies
regarding how to manage biodiversity in their supply chain when they don’t produce the raw materials
themselves. For instance, in order to improve biodiversity in its wool and cotton value chain, Swedish
clothing retailer H&M is working with farmers in India to safeguard wildlife corridors and buffer zones,
implement regenerative practices, and support access to markets for regenerative raw materials.

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 Paper & Packaging Report 2023

Reducing exposure to biodiversity-related risks

As a result of using sustainable forestry practices and sourcing from more resilient fibers, companies
are reducing their biodiversity-related risks, including physical risks and reputational risks. The
danger of ignoring physical risks is that forests become less resilient, which can push up input prices,
contribute to raw material shortages, and reduce resilience to outbreaks. Planting nondiverse forests,
increasing temperatures, and droughts contribute to biodiversity loss as they drive increases in beetle
populations—such as the bark beetle, for example, which is a severe threat to coniferous forests.

A strategic approach to safeguarding biodiversity

A structured approach can help businesses define their biodiversity strategy. This approach consists
of four steps (see Figure 2).

Scan: Map sector-wide and companywide biodiversity impact, both directly and through the value
chain, and benchmark with current efforts. It is also important to collaborate with stakeholders to
identify current needs and opportunities. While it is currently challenging to measure biodiversity
impact in as clear a manner as carbon dioxide, for instance, some existing tools for assessing biodi-

Figure 2: A strategic approach to safeguarding biodiversity

Set bold ambition Get started Longer-term actions

1 Scan 2 Select 3 Scale 4 Transform

• Map sector-wide/ • Define goals and targets • Execute transitions and • Identify micro-battles
companywide biodiversity based on future scenarios setting the organization up to accelerate results and
impact to create a baseline and potential financial upside for scaling by having the learnings through prioritized
diagnostic and identify right enablers in place no-regret moves
• Identify where to play
best practices
and how to win to capture • Work with stakeholders • Engage leadership team
• Collaborate with stake- biodiversity value potential to limit impact of pressures and organization in change
holders to identify current and prioritize spheres and leverage business
needs and opportunities of influence opportunities (e.g., regulators,
municipalities, investors,
• Combine the current • Mobilize to execute on
consumers)
state with future scenarios identified transitions
to move toward a nature- • Design a flexible roadmap in
positive business model waves and stepping-stones

Preparation for Micro-battles

disclosure and quick wins

Source: Bain & Company

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 Paper & Packaging Report 2023

versity impact can be useful to help companies create a baseline and assess their impact. WWF’s
new Biodiversity Risk Filter tool, for instance, helps corporations and financial institutions assess
the biodiversity risks and opportunities within their operations and value chains. In general, there
is scope for a lot more collaboration along the entire value chain.

Select: Define goals and targets based on future scenarios and potential financial upside, identify
where and how to capture biodiversity value potential, and mobilize to execute on identified transitions.
Existing frameworks such as the WWF’s biodiversity stewardship approach can be used to set targets
and track results, map biodiversity ambitions amid broader sustainability efforts to ensure that they
reinforce one another, and communicate results to all stakeholders. For example, retail chain Coop
has developed and introduced a sustainability declaration that presents a product’s sustainability
footprint to customers. Sustainability is assessed through 10 areas, including biodiversity.

Technical development and digitalization will enable completely new and innovative solutions such
as developing digital twins for forests. These digital replicas of entire forests will help model different
biodiversity scenarios based on various external scenarios (such as different weather conditions) and
specific measures taken by given companies. In turn, it will be possible to connect these digital twins
to specific biodiversity key performance indicators.

Scale: Get started on executing transitions, and set the organization up for scaling by having the
right enablers in place. Work with stakeholders such as regulators, investors, and consumers to limit
pressures, leverage business opportunities, and design a flexible roadmap.

Making the business case for biodiversity will help scale. For instance, internal carbon pricing is set
to help mitigate the impact of climate change. The same should be done for biodiversity. Leaders are
aiming to develop climate- and biodiversity-positive products. And now that there are consumers
and brand owners who are ready to join, these pilots could be tested in cosmetics and luxury products
packaging, for instance.

Transform: Take longer-term action by identifying micro-battles (smaller pilot projects) to accelerate
results. Completely new capabilities—that is, new competence, new structure, and new processes—
will be required to make the change happen. Management needs to own and implement biodiversity
rather than outsource it to sustainability specialists. Finally, the total value chain needs to join the
effort and not simply outsource this piece to the next participant in the value chain.

Ultimately, executives can take a page from their overarching sustainability strategy and create bold
targets, such as being biodiversity positive or nature positive by 2030, and then create a roadmap and
adjust it based on continuous learning.

19
Which Packaging Substrates Are the
Most Sustainable?
Geography, regulations, and consumer preferences all impact substrate selection.

By Melchior Bryant, Emma Elofsson, Ilkka Leppävuori, Peter Meijer, and Moritz Vielhauer

At a Glance

Leading companies account for the full life cycle of substrates—from the raw materials that
go into packaging design to end-of-life disposal.

Companies configure their end-to-end sustainability strategy by product, geographic location,

and associated regulations.

Rigid paper packaging growth rates may surpass plastic packaging growth rates by 2026.

Four packaging CEOs meet at a sustainability conference, each representing a different substrate.
“My products are more sustainable than yours,” starts the paper packaging CEO. “Fiber-based
packaging is the only compostable substrate, and it degrades faster than other alternatives.”

The plastic packaging company CEO responds immediately, “My products are more sustainable than
yours. Plastic packaging has a very low carbon footprint, and it is increasingly becoming recyclable.”

The glass packaging company CEO cannot hold back: “You talk about recyclability, but my products
are actually recycled, without downcycling. Plus, you can reuse them, cutting down the footprint
even further.”

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 Paper & Packaging Report 2023

Finally, the metal packaging company CEO chips in, too: “My products are fully recycled, without
downcycling, and metal cans are much more lightweight than glass, resulting in lower carbon
emissions when transported.”

While the anecdote above is imaginary, the arguments about which products are the most sustainable
are all very real. Whereas companies historically considered cost, functionality, and consumer
experience as they determined which substrate to use for a given product, now sustainability is top
of mind for everyone from regulators to consumers to the C-suite.

In this early moment of transformation, however, there is no clear winner (see Figure 1). Even though
some substrates such as rigid paper may have an edge, it’s too early to tell. And across geographies,
there is still not a shared understanding of what is necessarily the preferred or most sustainable type
of packaging.

What is clear, however, is that packaging producers must proactively focus the discussion around
substitution and provide solutions to consumer packaged goods (CPG) companies, retailers, and
consumers—or they risk being unpleasantly surprised by their customers’ choices.

Figure 1: Growth rates of different substrates

Global packaging market size evolution by substrate, 2012–2026 (in billions of US dollars)

Compound annual
growth rates
2012–21 2021–26
Forecast
2% 4%
1,230
(6%) Other 1% 3%
(4%) Glass 0 2%
1,015 (2%) Flexible paper 1% 2%
937 (7%)
(4%) (12%) Metal 1% 2%
839 833 (2%)
(12%) (17%) Flexible plastic 3% 4%

(16%)
(21%) Rigid plastic 3% 4%
(21%)

(35%) Rigid paper 2% 5%

(33%)

2012 2015 2018 2021 2026

Note: Other includes other packaging and flexible foil packaging

Sources: Smithers (2021); Bain analysis

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 Paper & Packaging Report 2023

Leading companies are assessing the environmental impact of different substrates and taking the
full life cycle into account—from resource extraction and production to transportation and products’
end of life. They employ a proactive strategy that considers packaging design, collection and recycling,
and the regional regulations regarding each of their products. They communicate early and clearly
with regulators and their customers. They also appreciate that CPGs are striking a balance between
environmental benefits and making their offerings more premium, meaning they will use what drives
more rotation on the shelves and what allows them to charge more for the same product.

Stakeholders demand sustainability

Executives are feeling the pressure from every angle to improve sustainability—whether that’s
decreasing their carbon footprint, using more bio-based materials, or ensuring that their production
is pollution free.

Regulators are pushing toward more circular products, meaning products that can be reused or that
are created with a plan for how they will be recycled into something else after their first use. The EU
is ahead of other regions regarding sustainability as it has introduced bans on certain substrates as
well as effective recycling and reuse targets for others. For example, in November 2022, regulation
was proposed in the EU to achieve climate neutrality by 2050 and to ensure that all packaging in
EU markets is graded on recyclability, with greater than 70% of packaging assessed recyclable by 2030.

In 2023, researchers found that there are more than 170 trillion
pieces of plastic in the oceans, or more than 21,000 plastic pieces
for each of the 8 billion residents of Earth.

Consumers are also increasingly demanding sustainable products as greater media and non-
governmental organization scrutiny is raising general awareness regarding the environmental impact
of plastic packaging. In 2023, researchers found that there are more than 170 trillion pieces of plastic
in the oceans, or more than 21,000 plastic pieces for each of the 8 billion residents of Earth.

While consumers are increasingly concerned, at the same time, many customers have limited
willingness to pay and a poor understanding of the real environmental performance of products. For
example, according to a 2022 Bain survey of nearly 4,000 US consumers, 70% of consumers believe
single-use glass has a lower carbon footprint than single-use plastic, while only 12% guessed it was
plastic—the correct answer.

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 Paper & Packaging Report 2023

Retailers are responding. Most consumer product companies have publicly announced sustainability
commitments, though brand owners still do not have a clear view on which substrates they prefer across
different applications. Many companies have focused on replacing virgin plastics and increasing
recyclability and reusability for plastics in compliance with the Ellen MacArthur Foundation Global
Commitment 2022 initiative. Some targets cover all packaging substrates, such as Nestlé, which aims
to make 100% of its packaging recyclable or reusable by 2025. Other companies are making clear
commitments about eliminating one type of substrate, typically plastics. Apple, for instance, is planning
to eliminate all plastic packaging by 2025.

To meet the varied demands of their multiple stakeholders, leading companies are setting the
foundation for their sustainability strategy by first analyzing the key environmental properties for each
of their products throughout their life cycle, from production to transport to end-of-life disposal
(see Figure 2).

Paper and packaging executives are asking themselves the following questions: Who are the customers
and end consumers for each product in our portfolio? How will the product be used? How will it be
disposed of? Which role do we play in our customers’ value chain? Certain substrates may score very
well on one dimension but badly on another, so which dimension is more important to us?

Figure 2: Substrates have different characteristics that need to be factored in when assessing the
environmental properties of a specific application

Rigid Flexible Rigid Flexible Metal Glass

plastics plastics paper paper

Environmental properties

Carbon emissions (production)

CO2e (in grams per unit,
virgin production) 30–40 15–25 25–35 10–20 100–200 220–230

Carbon emissions (transport)

Circularity (recyclability,
recycling rate, recycled content)

Bio-based material

Compostability/biodegradability

Lowest Best
performance performance

Sources: Smithers; Wrap (2010); Bain analysis

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 Paper & Packaging Report 2023

With answers to these questions, it becomes possible to identify the key environmental criteria of your
customers, such as is it more urgent to act on carbon emissions or recyclability or recycled content?
Retailers are increasingly stating targets for specific packaging substrates in their sustainability
guidelines. For example, Walmart classifies the recyclability of different packaging substrates and
formats in its internal guidelines, expecting its suppliers to change unrecyclable packaging to more
recyclable versions. Unrecyclable packaging as defined by Walmart includes bags made from multiple
materials, polystyrene/polyvinyl chloride bottles, or paper-based containers with metal tops or bottoms.

After identifying the key environmental criteria for customers, leaders can prioritize segments where
they have the highest external pressure to act. For example, one of the larger paper manufacturers
has identified substituting paper for plastic as a key priority for its end customers, so the company
has started creating new products that help its customers transition to paper-based packaging.

How to incorporate substrate substitution into your sustainability strategy

With the key environmental criteria established, and the priority segments selected, companies
can design their sustainability strategy, which typically includes developing clear sustainability
and substrate ambitions, starting with packaging design, considering collection and recycling, and
communicating with regulators and customers (see Figure 3).

Figure 3: Consider end-to-end choices from raw materials that go into packaging design to tracking
final results

Substrate strategies are also

tailored to specific geographies and local regulations

Raw materials: Recyclability: actual recycling

Packaging Substrate used recycled, renewable, rate, downcycling vs. true
design choices
or bio-based circularity, biodegradability

Use of public vs. Investments in own collection

Collection and Partnerships with
proprietary raw and recycling infrastructure
recycling choices value chain players
material streams (including M&A)

Communication
Engagement with Engagement in Public and Sustainability-
with regulators
regulators industry associations consumer education focused marketing
and customers

Rollout and Regional Product portfolio

prioritization R&D roadmap prioritization
implementation prioritization

Recycling/circularity
Results CO2 reduction Waste reduction Financial impact
quotas

Source: Bain & Company

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 Paper & Packaging Report 2023

Develop clear sustainability and substrate ambitions. Adopt an end-to-end, upstream-downstream

perspective. This perspective considers every step—from where to source sustainable raw materials
to how to meet market and regulatory demands as well as factoring in what customers want. Your goals
should differ per region given regulations and your customers’ sustainability focus in that geography.
As a result, what you optimize for will vary based on region.

An end-to-end, upstream-downstream perspective considers

every step—from where to source sustainable raw materials to
how to meet market and regulatory demands as well as factoring
in what customers want.

Start with packaging design. Leading companies design their packaging with expected substitution
pressures in mind. They constantly seek to improve their own product to meet external requirements
by optimizing the total environmental impact and incorporating a higher input of recycled materials.

Frozen food company Frosta, for example, introduced an innovative new packaging format made
of 100% compostable paper instead of plastic. At the same time, some companies are experimenting
with up to 100% plant-based plastic bottles. Finnish company Sulapac makes a biodegradable, moldable
alternative to plastic that can be used for a variety of items, including cosmetics containers (such as
perfume jars) and drinking straws.

Collaborating with other players in the value chain can optimize solutions. For example, a packaging
converter could partner with a carton producer to create packaging with higher recycled fiber input,
better recyclability, and lower environmental impact.

Consider collection and recycling. Up until recently, recycling has often been managed by governments
or specialized organizations. Companies are increasingly recognizing that without proper recycling
solutions, many substrates fall behind in the ranking of sustainability.

CPGs and retailers can leverage recycling to secure valuable raw materials, such as recycled PET
(polyethylene terephthalate), especially as post-consumer recycled raw materials have recently become
dear. For example, Schwarz Gruppe (the parent company of Lidl and one of Europe’s largest retailers)
founded PreZero in 2018 to enter the waste management and recycling business, providing access to
in-demand recycled substrates.

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 Paper & Packaging Report 2023

In June 2023, a new recycling line for post-consumer beverage cartons, backed by Tetra Pak and Stora
Enso, started operations in Poland. Set to serve as one of Europe’s main recycling hubs, this line will
triple the country’s recycling capacity—and it has the potential to recycle the entire volume of beverage
cartons sold in Poland, with additional volumes coming from neighboring countries such as Hungary,
Slovakia, and the Czech Republic.

The facility is solely meant to handle beverage carton material separation, with the recycled fibers
being used for new paper-based packaging materials. This will be complemented by other solutions
to recycle polymers and aluminum into other end applications such as pellets and crates.

Communicate with regulators and customers. Engage with regulators and industry associations
to understand which regulation is likely to influence your business going forward, how you can react
early on to optimize your position, and how you can influence upcoming regulation.

Communicate your selling points to the consumer. While producers and converters typically
have limited direct touchpoints with consumers, it’s the consumer who in the end makes the
purchasing decisions. Since consumers are not always great at making sustainability decisions,
actively educate them and communicate the benefits you and your substrate offer to enable them
to make informed decisions.

Every company is upping their sustainability game, so whether

a CEO decides to lead and take market share or follow, they will
be scrutinized, and their work in this area cannot just be marketing
or greenwashing.

After rolling out and implementing one’s substrate substitution plan, it is equally important to track
and share results and adjust the plan accordingly. Every company is upping their sustainability game,
so whether a CEO decides to lead and take market share or follow, they will be scrutinized, and their
work in this area cannot just be marketing or greenwashing. For those investing in this area, extra
due diligence is required as every substrate will claim to be the most sustainable. To determine the
best bet, investors will need to dig deeper and determine which substrate is winning for each specific
application and geography (where specific regulations play a large role).

Winning companies are approaching their substrate strategy from an end-to-end perspective, from
considering the raw materials that go into the packaging design all the way to the end-of-life disposal
of their substrate. This end-to-end strategy is also configured based on each one’s geographic location
and its associated regulations.

26
How Paper and Packaging Companies
Can Catch Up in Commercial Excellence
Target new growth opportunities and optimize price to turbocharge performance.

By Anders Bäck, Manuel de Soto, Pol Tarragó, and Stephanie Yee

At a Glance

Paper and packaging companies lag behind other industrial goods and services companies
in terms of their commercial excellence.

Commercial excellence includes the design and delivery of commercial best practices that
maximize profitable revenue.

Paper and packaging companies that prioritize commercial excellence can increase their
EBITDA by 25% to 40%.

Paper and packaging companies consistently show worse performance in one critical dimension vs.
comparable industrial goods and services companies: commercial excellence. By commercial excellence,
we mean the design and delivery of commercial best practices that maximize profitable revenue.
These could include programs to consistently improve salesforce effectiveness, the view into market
opportunity and customer segmentation, route-to-market design, customer experience, commercial
operations and enablement, and pricing (see Figure 1).

While historically many companies have focused on optimizing their production costs because of capacity
constraints, leading companies now realize that deploying a tailored set of business-to-business
commercial excellence best practices can present an opportunity to grow and gain a competitive edge.

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 Paper & Packaging Report 2023

Figure 1: Paper and packaging performs below the industry average on most commercial
excellence elements

Bain Commercial Excellence X-Ray, average score by capability

(Scale: 1=significant gap to best practice levels; 5=operating at best practice levels)

5 Paper and packaging sample range

Average across industrial companies

1
Market Sales Salesforce B2B Commercial B2B
opportunity and deployment management pricing operating model customer
segmentation experience
Route-to- Account, Business-to- Commercial Offering
market design territory, and business (B2B) operations and design and
channel marketing enablement management
management

Market opportunity Route-to- Account, territory, and Salesforce

Sales deployment
and segmentation market design channel management management

Quantifying total Making strategic design Setting specific sales Defining a process to Getting the most out of
spending by customer, choices by customer resource levels for each set an account ambition your salesforce through
product, and geography segment (e.g., direct or role, territory design, and actions to achieve incentives, development,
to identify growth indirect, inside or direct) and account coverage full potential and coaching
opportunity

Business-to- Commercial Offering design

Commercial B2B customer
business (B2B) B2B pricing operations and and
operating model experience
marketing enablement management

Generating demand Driving margin Installing critical Designing an Delivering Designing a customer
through outbound and uplift through pricing back-office support organization or ways differentiated customer experience that
inbound activities strategy and price (e.g., frontline of working to ensure value across products creates customer
setting or price getting training, analytics) effective collaboration and offerings advocates

In our experience, commercial excellence winners outgrow their markets by 1.5x to 2x and typically
have a 200- to 400-basis-point margin advantage from favorable price realization and mix

Note: Benchmark consists of industry peer group of industrial goods and services companies
Source: Bain Commercial Excellence X-Ray survey (results of select paper and packaging companies)

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 Paper & Packaging Report 2023

In fact, companies that prioritize commercial excellence can increase their EBITDA by 25% to 40%.

Achieving commercial excellence starts with understanding profitability with customers and products
as well as where there is opportunity to grow. After gaining greater transparency on growth opportunities,
forward-thinking companies have zoned in on optimizing price and discount levels, enabled by sales
and operations processes. There are many elements of commercial excellence, but top firms have found
that tackling these first has had the greatest impact.

Questions leading paper and packaging companies are asking

Do we have a robust view of customer, product, geography, and channel profitability? Many paper
and packaging companies currently lack a robust view of profitability. Sales teams know directionally
which business segments are attractive, but they do not have a clear understanding of true net margins
on a granular level. These margins are often obscured by complexity or lack of data.

Transparency creates clarity into where value is created or

destroyed in a company and enables a company to answer key
questions such as which customers should I prioritize, which
products are most profitable, and which should I deprioritize?

Transparency by itself, however, does not solve everything. Instead, it brings clarity into where value
is created or destroyed in a company and enables a company to answer key questions such as which
customers should I prioritize, which products are most profitable, and which should I deprioritize?

For example, Bain worked with a leading European paper and packaging company to help it understand
true profitability on a product and customer basis to inform the future portfolio it wanted to have.
To do so, the company created a list of low-performing stock-keeping units in its portfolio that it
deprioritized in sales and operations.

This not only created insights to support long-term portfolio strategy but also drove a list of quick wins
for the organization, which included creating a list of unprofitable customers and corresponding pricing
actions to take with sales teams.

Where is the market opportunity, and how do I win? Many paper and packaging companies do not
understand how much share of wallet or business they could capture with existing customers, and
they don’t have a comprehensive list of new customers to go after.

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 Paper & Packaging Report 2023

Successful companies start with a granular view of customer potential and prospects by focusing on
geographic regions so that the salesforce has a list of very specific growth opportunities to go after.
Once the company has a clear view into growth opportunities, it can determine if it has the right value
proposition to win.

When a plastic packaging company, for instance, aspired to accelerate profitable organic growth, it
found that with its top 20 customers, the company had a low share of wallet and a low Net Promoter
Scoresm, which measures the likelihood that a customer would recommend that company to a friend
or colleague.

The customers’ feedback provided clear instructions on what the company needed to do to grow
with existing customers. Specifically, customers wanted better service, such as better availability
of popular products and shorter lead times, as well as competitive prices for high-quality products.

Based on this input, the company created action plans for each of its top 20 customers: The company
identified specific volumes to pursue at the right price, articulated the value proposition more clearly
(including its unique approach to service and quality), and defined specific action steps with clear
owners to win new volumes.

Do we actively manage price and discount levels? The legacy model of a stable price list that changes
once per year with discounts based on outdated data and assumptions no longer works. In the current
volatile environment, with supply chain disruptions, drastic changes in input and labor costs, and other
destabilizing macro factors (market and economic), companies need to invest in pricing agility so that,
for instance, prices can be adjusted if input costs change.

In addition, companies often experience price and revenue leakage from overly discounting or not
getting value on the services they are providing, such as not charging for rush delivery. Finally, discount
levels also often vary widely across customers and are typically based on a perpetuation of historic
discounts rather than strategic decisions by the company that generate returns on investment.

Winning companies manage pricing proactively, adjusting it regularly and setting prices based on
the value to the customer and their willingness to pay. Price floors need to be set to cover the cost.
Price ceilings should be set based on what clients are willing to pay for the products.

Top teams are starting to establish dedicated pricing teams that build and execute on key pricing
capabilities to ensure that they are accurately setting prices at a regular cadence to match changing
market dynamics. They also improve price realization through a disciplined approach to discount
management, ensuring that they have the right people, processes, and tools in place to do this well.

Digital pricing tools, for example, can provide sales with pricing guidance. This guidance can identify
target margins for sales reps to hit and define a price floor below which no sales should be made.
Plotting customers by realized price and size can help identify where a company may be discounting
too heavily.

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 Paper & Packaging Report 2023

To tackle underperforming customers, developing a targeted approach based on customer size

and profitability is key. This approach could include increasing prices, decreasing the cost to serve,
or changing the product mix—all of which aim to increase profitability.

Do we have a robust sales and operations planning process? As a final step, after identifying their
most profitable customers and products, leading companies ensure that their sales and operations
planning (S&OP) process prioritizes selling and producing those products for those customers, and
they allot their capacity accordingly.

An efficient and robust S&OP process will not only save costs on logistics and improve operational
efficiency through production cycle optimization and capacity balance, but it also will help manage
working capital through optimized inventory levels and lead to higher customer profitability through
an optimized customer mix.

At a minimum, companies need good data quality; standard S&OP reporting, including stock levels,
sales, and production volumes; clearly highlighted shortfalls; and regularly scheduled and structured
S&OP meetings.

Those companies that differentiate themselves often leverage additional tools. For example, a large
paper and packaging company used its recently introduced pricing tools to generate insights for its
S&OP discussions, calculating whether increased price levels in currently unserved markets would
enable profitably selling spot quantities to these markets, forecasting expected future price levels
given expected raw materials price changes, or helping to fill unsold machine capacity at a positive
gross margin during times of reduced demand.

Commercial excellence and pricing provide a huge opportunity to companies to increase their EBITDA.
Gaining visibility into true profitability and market opportunity is key to deploying commercial muscle
toward segments and customers with the most attractive growth. Finally, tools that allow for agile
pricing and a robust S&OP process are critical for capturing value.

The roadmap alone, however, is not enough. Developing a culture of commercial excellence that
fosters the right set of behaviors through coaching and supported by tools and processes will help
embed the gains for the long run.

Net Promoter®, NPS®, NPS Prism®, and the NPS-related emoticons are registered trademarks and Net Promoter Scoresm, NPSxsm, and Net Promoter Systemsm are service marks of Bain & Company, Inc.,
NICE Systems, Inc., and Fred Reichheld. Consumer Elements of Value® is a registered trademark of Bain & Company, Inc.

31
Putting Sustainability to Work
in Paper and Packaging
Reduce energy costs and spur organic growth.

By Mattia Bernardi, Jenny Davis-Peccoud, Torsten Lichtenau, and Oliver Straehle

At a Glance

The World Bank predicts that, without drastic actions, global waste will increase by 70%
through 2050.

A sound sustainability strategy can reduce material use and energy costs and spur organic growth.

Sustainability can contribute 4 to 6 percentage points to EBITDA through cost savings and
revenue growth.

The pressure on paper and packaging executives to become more environmentally friendly has never
been higher. The industry generates a significant amount of carbon emissions because producing paper
and packaging is energy intensive and requires high amounts of raw materials and water. At the same
time, paper is a core input for a huge range of products, packaging protects goods during transport and
sale, and it increases the shelf life of perishable products.

While, historically, executives have viewed sustainability initiatives as an extra expense to shoulder,
leading companies realize that a decarbonization and sustainability agenda can, in fact, create economic
value. Specifically, a sound sustainability strategy can reduce energy costs and increase access to
recycled or renewable raw materials at a competitive cost. It can also help spur organic growth and
price realization, not to mention the fact that many leaders and employees think that it’s simply the
right thing to do.

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 Paper & Packaging Report 2023

In sum, leading companies realize that this pressure to address emissions, raw materials, biodiversity,
and waste impacts also presents an opportunity. Sustainability has already become a license to operate
and critical to create value along several dimensions. Successful companies follow a clear playbook
that includes setting a sustainability ambition, creating value through cost savings and commercial
growth, and embedding sustainability in the organization for continuous improvement.

Under scrutiny for sustainability

The paper and packaging industry is broadly exposed to sustainability issues for several reasons.
Producing paper, glass, and metal uses a very large amount of energy. In addition, the production
of many substrates, such as plastic and aluminum, generates large amounts of greenhouse gases and
some toxic emissions. Finally, much of the plastic, metal, glass, and paper packaging that gets created
and sold to retailers ultimately ends up as litter from consumers on land and in the sea.

The Organisation for Economic Co-operation and Development

estimates that around 80 million tons of plastic waste are
mismanaged per year.

Packaging converters are typically less energy intensive but nonetheless produce waste that can
ultimately be mismanaged. Plastic waste is continuously increasing and ending up in the environment.
In fact, the Organisation for Economic Co-operation and Development estimates that around 80 million
tons of plastic waste are mismanaged per year.

Paper and packaging companies have started to address sustainability, but most can do much more.
While the number of companies in the industry that have verified or committed to science-based
targets has rapidly increased from 5 companies in 2019 to 164 in 2022, more than 30% of those companies
have missed their near-term Scope 1 and Scope 2 targets—and even more are missing their Scope 3
targets (see Figure 1).

Pressure from all sides

In light of overflowing landfills and oceans littered with plastic waste, companies are under growing
scrutiny by consumers to develop more sustainable packaging solutions. Without taking drastic
actions, the World Bank predicts that global waste will increase by 70% through 2050. In Europe,
71% of consumers claim they want to buy sustainable products. In the US, 71% of consumers claim
they want to buy products with as little packaging as possible.

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 Paper & Packaging Report 2023

Figure 1: Paper and packaging companies’ sustainability targets and early results

Paper and packaging companies setting Share of companies on track to achieve

or committing to science-based targets near-term targets

223 80 27

2022 saw a nearly 500% increase

in company participation Behind track
31%
(Below 80% of targets)
41%
164
Slightly behind track 3%
(Within 80% to
100% of targets)

On track or ahead 66%

59%

34

12
5

2019 2020 2021 2022 H1 2023 Scope 1 and 2 Scope 3

Note: Share of companies on track to achieve near-term targets data includes only absolute targets and targets expiring in 2030 or before
Sources: SBTi; CDP

Both consumer packaged goods companies (CPGs) and retailers are pushing the paper and packaging
industry to innovate and create sustainable solutions and decarbonize. Upstream Scope 3 emissions
typically account for a large share of CPGs’ carbon footprint, with packaging a significant contributor.

Regulation to reduce total packaging volume and improve recycling is also increasing across the world,
notably, with push in the EU. For example, the current proposal under review of the EU Packaging and
Packaging Waste Regulation requires 20% of take-away beverage containers to be reusable packaging
by 2030 and 80% by 2040. It also sets targets for recycled content and bans certain single-use plastics—
and these are in addition to existing national regulations.

In the US, certain state laws are setting the pace, such as California’s SB 54: Plastic Pollution Prevention
and Packaging Producer Responsibility Act, which requires a 25% reduction in the use of single-use
plastics and that all single-use plastic packaging be recyclable or compostable by 2032. The multitude
of local, state, country, and regional laws can make it difficult for global companies to navigate the full
set of rules. In addition, the number of regulations keeps increasing, and how regulation will ultimately
play out across different substrates remains largely unknown.

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 Paper & Packaging Report 2023

The Paris Agreement and corresponding laws and regulations regarding emissions also impact the
industry. Large pulp and paper mills are obliged to participate in the EU’s Emissions Trading System,
and rising carbon prices will incentivize producers to reduce their emissions. Further carbon taxes
and more stringent regulations are expected globally.

The sustainability playbook

After a thorough environmental evaluation, many companies realize that sustainability can be both
a method for them to create value as well as a way for them to distinguish themselves from industry
competitors (see Figure 2).

Set the ambition. As a first step, leading companies set an ambition that requires a deep understanding
of their company’s current sustainability performance vs. the competition based on benchmarking.
They also consider current and expected regulations and infrastructure, such as the availability of
environmentally friendly raw materials, clean energy, and recycling services.

For example, one packaging company Bain worked with set the plan to reduce its Scope 1 and 2 emissions
by more than 1 million tons by 2030, surpassing its own 1.5°C science-based targets by a significant
margin. After articulating this ambition, the company identified a long list of potential decarbonization
levers and quantified the carbon savings potential and cost for each lever.

Figure 2: A holistic approach to sustainability can create cost savings and revenue growth

Key questions
Establish an
environmental, social, and corporate
Where are we now,
governance (ESG) point of departure for the and where do we
organization by defining benchmarks, strategy, and target ambitions want to go?

A Generate cost savings by B Generate revenue growth by What are the most
embedding energy, emissions, boosting current ESG portfolio, effective top-line and
waste, and other ESG measures offering new ESG features, and
bottom-line levers?
into operations creating new ESG businesses

An integrated roadmap sets clear milestones and assigns ownership

throughout the company

How do we get there,

Compelling communication to investors, customers, and employees backed by proof and how do we take
everyone along?

Operating model, governance, and engagement in ecosystem and public policy and
mechanisms in place to monitor, report, and audit progression

Source: Bain & Company

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 Paper & Packaging Report 2023

Create value through cost savings and revenue growth. There are generally two ways to create value
through sustainability. They include cost savings and commercial or top-line growth. Leading paper
and packaging companies are able to achieve a 4- to 6-percentage-point EBITDA increase through
their effective use of cost savings and commercial levers (see Figure 3).

• Cost savings: One paper company tackling cost savings started with short-term moves that included
changing its heat source from coal to gas, optimizing steam consumption, and energy recovery.
The company also adjusted its recipe and process, reducing the functional surface of its paper,
and screened pulp more efficiently.

Then, the company moved to mid-term projects that required longer lead times and larger
investments. The company also investigated biomass investments and black liquor gasification
to provide some of the electricity and steam needs of pulp plants.

Finally, the company tackled long-term projects, which typically require either substantial
organizational adjustments, high investments, or technological developments. These projects
could include electrifying machines, switching from natural gas to hydrogen, or carbon capture
and storage.

Figure 3: Sustainability can contribute 4 to 6 percentage points to EBITDA

Savings from environmental, social, and corporate governance (ESG) Commercial contributions add 3 to
in operations boosts EBITDA 1 to 2 percentage points 4 percentage points to EBITDA

Energy Emissions Waste Current portfolio New portfolio

3 to 4
percentage
points

1 to 2
percentage
points

2025 Expected Expected Expedited Savings Revenue ESG

base case energy price Emissions Trading disposal engine loss in EBITDA
increase System price price case of delta
increase increase no action
Energy Emissions Waste Raw Boost New
(greenhouse materials, current ESG ESG
gases) water, labor portfolio feature

Note: Based on Bain client experience

Source: Bain & Company

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 Paper & Packaging Report 2023

Through a reduction of energy, emissions, waste, raw materials, and water usage, the client was
able to achieve a 1- to 2-percentage-point EBITDA improvement. With higher energy prices and
the rising cost of emissions certificates, savings are expected to increase even more.

Many players will start long-term projects with pilots to test new technologies or strategies on a small
scale. For example, Smurfit Kappa is the first paper and packaging company to test a hydrogen
fuel–powered mill. The pilot mill is in France and is funded by European sustainability incentives.
UPM, by contrast, is the first player to launch a conversion of its gas boiler to electricity in an effort
to move toward zero emissions. Companies such as these put pilots on their sustainability roadmaps
and scale once they have achieved success.

There are countless options for providing more sustainable products

to customers—such as developing low-carbon, fully recyclable,
compostable, or biodegradable solutions; using recycled or
upcycled inputs; or marketing environmentally friendly production,
such as “chlorine-free” or “made with renewable energy.”

• Commercial or top-line growth: Another way companies create value is by offering packaging
solutions that help customers achieve their sustainability targets. There are countless options for
providing more sustainable products to customers—such as developing low-carbon, fully recyclable,
compostable, or biodegradable solutions; using recycled or upcycled inputs; or marketing
environmentally friendly production, such as “chlorine-free” or “made with renewable energy.”

To create top-line growth, one paper and packaging company started by scouting key environmental,
social, and corporate governance (ESG) trends within its end markets. Plastic-to-paper substitution
and low-carbon packaging were deemed as most relevant. The company then reviewed its existing
product portfolio and identified which products could help customers in these areas. The company
next collected products, such as plastic-free shopping bags for luxury brands and thermoformed
cellulose packaging, into a new catalog, developed marketing tools and trainings to support the
sales network, and approached their customers with tailored solutions.

To develop long-term product options, the company set up a new innovation process to prioritize
ESG initiatives, partnered with experts and universities, and developed prototypes of innovative
low-carbon products such as paper-based single-serve portion packs for liquid products.

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 Paper & Packaging Report 2023

These initiatives helped the company grow revenue by boosting its current portfolio and developing
new products, and they helped it avoid revenue loss from inaction. In total, these initiatives led
to a 3- to 4-percentage-point EBITDA increase.

Sometimes companies will launch entirely new businesses to create value. Papermaker UPM
has started to leverage the large amount of biomass in its value chain for different applications
beyond using pulp for paper production. Specifically, it has invested in a biorefinery in Leuna,
Germany, that transforms biomass such as solid wood into a range of biochemicals. Once
operational by the end of 2023, the refinery will be able to produce 220,000 tons of sugars, lignin,
and residue streams for bioenergy and biofuels that can be used instead of fossil fuels by UPM and
others. Molecular bioproducts are one of UPM’s three strategic areas for growth going forward.

Embed sustainability

As a final step, leading companies embed sustainability value creation in the organization to make
sure achieved improvements stick and the organization develops continuous improvement from
within. To do so, they set up the right structure and governance to deliver on the ambition and link
strategy to clear roles and responsibilities. They also integrate sustainability in business processes,
decision mechanisms, and tools across functions and processes.

Paper and packaging company Ahlstrom, for instance, has embedded sustainability in its mission
statement so that now it seeks to innovate products that purify and protect the environment, which
has required a full redesign of the company’s innovation pipeline.

Focusing on building a sustainability-oriented culture and mindset to embed change throughout the
organization is key. Practically, this can mean appointing a head of sustainability on the executive team
and a sustainability leader in every division. This helps everyone in the organization link short- and
long-term incentive systems to sustainability targets. Finally, it is important to ensure that sustainability
is led by line executives, those responsible for delivering the business performance day-to-day, so
that all employees will focus on what it takes to combine sustainability outcomes with profitability
and growth.

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The State of Private Equity and M&A
in the Paper and Packaging Industry
Resilient end markets and a repeatable value creation playbook fuel strong M&A activity.

By Florian Mueller, Sambit Patra, and David Waller

At a Glance

The paper and packaging sector has seen more than 2,000 M&A transactions since 2007.

Revenue growth, margin expansion, and free cash flow generation will increasingly create value.

The repeatable playbook includes a leading cost position, M&A opportunities, and a profitable
portfolio mix combined with a loyal customer base.

The paper and packaging sector has had two times more M&A deals relative to its size than the broader
manufacturing industry over the past decade. This flurry of M&A activity comes both from strategic
paper and packaging investors who are filling gaps in their portfolios as well as external private
equity (PE) players that are creating standalone value with new acquisitions.

Historically, significant value created by paper and packaging industry PE investments has been
through multiple expansion—that is, companies selling off companies at a much higher multiple
than they purchased them—driven by an overall booming valuation market (see Figure 1).

We are now, however, amid a transformational shift in which multiple expansion can no longer
be taken for granted. Going forward, value will increasingly be created through the fundamentals
of revenue growth and especially margin expansion, as well as free cash flow generation.

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 Paper & Packaging Report 2023

Figure 1: The fundamentals of revenue growth and margin expansion will increasingly generate value

Sources of value creation in packaging deals

13% Multiple expansion

32%

53% 25% Margin expansion

15%

19%
62% Revenue growth
53%

28%

2011–2014 2015–2018 2019–2022

Notes: Median value creation index for packaging sector deals 2010–2022, including buyout and growth deals, fully and partially realized deals, all sizes, all regions;
all figures calculated in USD
Source: DealEdge

Given this trend, leading companies are using an investor lens to examine themselves from the
outside both in terms of value creation but also in regard to M&A opportunities. This perspective helps
companies understand potential attractiveness for full or partial take-private opportunities as well
as any potential exposure to unwanted approaches. Further, taking a PE growth investor lens on their
business can help companies unlock full potential regardless of any third-party investor activity.

Resilient end markets and high M&A activity

The paper and packaging sector has seen more than 2,000 transactions since 2007. And of those,
84 were greater than $1 billion and 11 greater than $5 billion. The multiple on invested capital has
historically been highest in the US, approximately 2.2 times that in Europe and 1.5 times that in
Asia-Pacific over the past 10 years. By substrate, paper-related deals have been the most profitable vs.
plastic and glass (see Figure 2).

The flurry of M&A activity has been enabled by important end markets such as packaged food, home
care, and pharma, which have been resilient in down cycles and have even shown consistent positive
growth rates through the global financial crisis of 2008–2009 and 2020’s Covid-19 pandemic-related
crash. This resilience has in turn spurred more M&A activity and private equity interest. While end-

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 Paper & Packaging Report 2023

Figure 2: Median packaging, paper products, and forestry deal multiples on invested capital
by subindustry

Median packaging, paper products, and forestry deal multiples on invested capital by subindustry,
2010–2022 (in US dollars)

6X

3.0
2.3 2.0
2 1.9 1.7 1.6
1.3
1.1

0
Metal Paper Packaging, Rigid plastic Flexible plastic Glass Paper Forest
packaging packaging other packaging packaging packaging products products
No. of
9 28 21 32 17 13 14 14
deals

Top quartile Median Bottom quartile

Note: Median packaging, paper products, and forestry deal multiples on invested capital by subindustry includes fully and partially realized buyout and growth deals
of all sizes and in all regions
Source: DealEdge

market resilience will remain a key attraction to invest in packaging going forward, it also requires
investors to become much more activist to create value through margin expansion and revenue
growth (as multiple expansion is no longer a given).

Margin expansion

Historically, this lever has had the least impact, but it will become increasingly more important going
forward. First, a culture of continuous improvement is required to offset headwinds such as inflation,
and then it is possible to expand margins. Key elements in top-line margin expansion include value-
based pricing (including pass-through pricing), innovation, and optimizing the product mix. Leading
companies will also achieve bottom-line excellence in areas such as procurement and operations by
using the right assets for the right products and reducing the downtime of machines.

Revenue growth

Significant value will also be created through revenue growth, especially through M&A as companies
buy and build—namely, buying smaller companies, improving their performance, and gaining market
share. Among the capabilities that leaders are looking to acquire are sustainability and consumer

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 Paper & Packaging Report 2023

packaged goods innovation, which would allow them to differentiate from competitors and gain share
in markets that are otherwise moving slowly.

The packaging market is still very fragmented across many regions, offering plentiful M&A opportunities
going forward. Small to midsized players create room to consolidate and achieve leading scale positions
in major markets or attractive niches. The maturity level of the M&A market is different by substrate.
Metal and glass, for instance, are reasonably consolidated, whereas plastic is midway in industry
consolidation. Paper packaging, such as folding cartons, perhaps offers the biggest opportunity as
it is still relatively unconsolidated.

Strategic investors inside paper and packaging are pursuing different types of M&A strategies depending
on their goals. Those looking to increase revenue and market share in existing business or enter new
geographies are seeking pure play scale deals.

Scope deals will also only continue to grow in importance as companies use acquisitions to enter new
businesses or build up a new technology capability. Faerch acquired Paccor in 2022, for example,
allowing the company to enter the dairy packaging market and leverage its joint innovation and
recycling technologies for circular food packaging. Companies such as Mayr-Melnhof, a producer of
carton board and folding cartons, also do scope deals to integrate down the value chain. Mayr-Melnhof
acquired Essentra’s packaging business in 2022 to bolster its position in resilient downstream markets
such as pharma secondary packaging.

Since many scale deals come with an element of scope, few

targets are pure plays. While hybrid deals add complexity in the
first instance, they also provide an opportunity to enter attractive
adjacent areas.

These days hybrid deals that combine scale and scope are also gaining popularity (see Figure 3).
Since many scale deals come with an element of scope, few targets are pure plays. While hybrid deals
add complexity in the first instance, they also provide an opportunity to enter attractive adjacent areas.
Graham Packaging, historically focused on beverage containers, acquired Liquid Container, which
was heavily focused on food packaging, to get access to new customer relationships and technologies.

Going forward, scale deals will remain relevant because of ongoing consolidation and the opportunity
to fill gaps in geographies, and scope deals will continue to be important because of adjacent
opportunities, allowing companies to explore new products.

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 Paper & Packaging Report 2023

Figure 3: Scope deals experienced a peak before the Covid-19 pandemic; since then, scale deals
(pure or hybrid) appear to be regaining share

Strategic deals with greater than $100 million in deal value

Scale deals Hybrid deals Scope deals Deal Count

2015–2016 38% 14% 48% 65

2017–2018 27% 27% 46% 59

2019–2020 33% 11% 56% 36

2021–2022 35% 20% 44% 54

Notes: Analysis includes deals from strategic investors (i.e., excluding financial investors such as private equity funds) and deals with greater than $100 million in
deal value; deals classified by rationale using a proprietary classification framework, as per stated strategic rationale at the time of deal announcement; deal value
based on announcement year; scale deals include deals made to increase market share or to improve financial strength; scope deals include growth scope and
capability scope deals
Sources: Dealogic; Bain analysis

Lessons learned

Deal success depends first and foremost on the standalone attractiveness of the target, understanding
what to integrate vs. leaving as is and how to create a repeatable playbook of value creation.

Three elements in this repeatable playbook that have consistently generated value for top quartile
companies include the following (see Figure 4):

• A leading cost position for organic share gain: For example, global packaging and paper company
Mondi has an active M&A and integration agenda. After the company made key acquisitions in
Eastern Europe to expand its footprint in emerging countries, it was able to reap the operational
synergies relatively quickly.

• A profitable portfolio mix combined with a loyal customer base for organic growth: For instance,
Fedrigoni further diversifies its portfolio of luxury high-end packaging, where competition is
limited and importance of the packaging quality, consistency, and availability is high to the brand
and customer. Price is relatively lower in importance, and it is adding further adjacencies such
as molded pulp products for luxury applications.

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 Paper & Packaging Report 2023

Figure 4: A successful M&A deal includes one or more of the following

• Sustainability and plastics substitution

1 Growth megatrend
• E-commerce packaging

• Integrated board producers with modern assets and access to low-cost fiber
2 Low-cost leadership
• Innovative use of low-cost recycled input materials

• Patent-protected designs and solutions

3 Unique solutions/technology
• Digitally enabled smart packaging solutions

• Consolidated segments (e.g., liquid carton, cigarette packaging, metal cans

4 Attractive industry structure
for food packaging)

5 Profitable mix • Specialty packaging (e.g., pharma, luxury)

• Successful rollups demonstrated in many converting segments, some segments still

6 M&A fragmented (e.g., flexible packaging, corrugated, carton board)

7 Market leadership • Building regional niche leadership (e.g., beauty packaging, food flexibles) organically
or through M&A

• Invest in flat/declining markets with limited competition to strengthen own position

8 Last one standing
and harvest position as peers exit

Source: Bain & Company

• M&A opportunities such as rollups and other capabilities in the industry: For example, Smurfit
Kappa and DS Smith both play in a very regional industry of corrugated packaging. Consequently,
over the past years they have added plants to densify their networks.

Companies in the top quartile are matching their M&A value creation strategy with their talent
strategy, ensuring they have the right executives pulling the appropriate levers in this playbook.
These executives have already developed muscles to take down costs (beyond eliminating headcount)
as well as find the right deals—whether those are market rollups by larger players or technology-led
deals in environmental, social, and corporate governance to acquire new technologies or move into
recycling/circularity.

Going forward, the M&A market in paper and packaging will remain attractive and active, driven in
large part by resilient end markets as well as the repeatable playbook with which many companies
continue to find success.

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Sustainable Packaging:
What Consumers Want Next from
the Paper and Packaging Industry
Balancing opportunities and trade-offs to reimagine packaging for sustainability.

By Daniela Carbinato, Magali Deryckere, and Yoni Shiran

At a Glance

Fast-moving consumer goods companies have transformed packaging to achieve circularity

targets and reduce greenhouse gas (GHG) emissions.

Leading consumer goods companies focus on best practices, legislation, infrastructure, consumers
and retailers, and technology.

This approach helped one global beauty company pinpoint ways to use 20% less packaging and
consequently reduce GHG emissions by more than 40% by 2030.

This chapter expands upon the existing Bain Brief “A Roadmap for Sustainable Packaging in Consumer
Goods” (published September 2022).

The environmental challenge of packaging waste has exploded, with governments, regulators,
consumers, shareholders, employees, and society at large putting immense pressure on brands to
address the unintended consequences of their current linear packaging system. Going forward, we
expect to see a further acceleration of pressure on packaged goods companies. In parallel, reuse and

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 Paper & Packaging Report 2023

refill may be legally mandated (as we are starting to see in France and other markets). Standardized
packaging may also become the norm, and certain polymers, additives, and pigments may be banned.

In this context, many fast-moving consumer goods companies are reimagining packaging to achieve
circularity targets while reducing greenhouse gas (GHG) emissions. But they face some big hurdles.
Even when they invest in innovations for recyclable packaging, for example, companies often find
themselves at the mercy of inadequate recycling and waste management systems in the markets where
they make and sell goods. In addition to dealing with broad variations in infrastructure and legislation
in different countries, companies must plot their packaging roadmap amid the uncertain path of
technology advances in everything from materials to recycling as well as unpredictable consumer
acceptance of different solutions, especially new business models. And success requires thoughtful
coordination and cooperation with multiple stakeholders across the system, including suppliers,
retailers, industry groups, and governments.

With these and other obstacles in front of them, companies are stymied by how to make progress in
their sustainability journeys.

But sustainability is a huge deal and only getting bigger. Today, 45% of the world’s emissions come
from making products and consuming them, and the top 10 sources of plastic litter by consumers are
all in the consumer products industry. The stakes keep rising as consumer goods companies target
growth in the developing markets that represent the lion’s share of unmanaged waste. In developed
markets, it is critical for consumer goods companies to use more recycled content and to adhere to
their sustainability targets.

Given the critical role they can play, most large consumer goods companies have made big
commitments to packaging innovation and other means of reducing emissions, falling into different
categories based on their ambition (see Figure 1). But major sustainability transformations are
difficult to achieve. According to our research, only 7% of companies succeed—half the rate of other
transformations. Another disappointing finding: 80% of companies that started less than a year ago
report that their sustainability programs are not on track.

Consumer goods companies that make the biggest strides toward packaging circularity will invest
to understand the trajectory of five fundamentals at play:

• benchmarks and best practices;

• legislation;

• infrastructure;

• consumers and retailers; and

• technology.

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 Paper & Packaging Report 2023

Figure 1: When setting targets for reducing packaging waste, consumer goods companies fall into
four categories

Active Proactive Leading Distinctive

Packaging • Make packaging • Make packaging • Make packaging • Make packaging

waste ambition 100% recyclable 100% recyclable 100% recyclable 100% recyclable
• Not an Ellen • Low ambition to use • Goal to use 25% • Goal to use 35%
MacArthur Foundation recycled material recycled plastic recycled plastic
Global Commitment in packaging in packaging in packaging
signatory • Potential Ellen • Ellen MacArthur • Ellen MacArthur
MacArthur Foundation Foundation Global Foundation Global
Global Commitment Commitment Commitment signatory
signatory signatory • Have a circularity
target
• Target on downstream
recycling

Consumer
packaged 6 13 9 4
goods (top 35)

Packaging is responsible for up to 40% of scope 3 greenhouse gas (GHG) emissions,

making it a critical lever for GHG emissions targets in the industry

Notes: Relative positioning of companies is directional; the Ellen MacArthur Foundation’s Global Commitment unites organizations behind a common vision of a circular
economy for plastics; “consumer packaged goods (top 35)” includes the top 10 companies in the beauty and personal care market as well as the top 25 companies in
the food and beverage market; the total number of companies does not add up to 35 because 3 of the top 25 food and beverage companies have no target
Sources: Company annual reports; company sustainability reports; analyst reports; Bain analysis

We refer to them collectively as BLICT (see Figure 2). That analysis helps companies prioritize the
appropriate levers to pull so that they can achieve their packaging circularity goals, choosing among
the four R’s, including reduce, reuse, replace, and recycle.

Mapping trends in the BLICT fundamentals also enables companies to clearly see the trade-offs they
will need to make as well as the best way to mobilize stakeholders to deliver on the plan.

This approach set the stage for a global beauty company to establish priorities and identify what to
expect from each of the four R’s across all its markets. The company ultimately pinpointed ways of
reducing packaging GHG emissions by more than 40% in 2030 vs. its 2020 emissions by using 20%
less packaging material, delivering products in which half of the plastic ingredients are recycled, and
by making 100% of all packaging ingredients either reusable, recyclable, or compostable.

Companies hoping to pursue similarly bold goals need to ask basic questions for each element
of BLICT to understand their starting point as well as the potential impact on the industry.

How do you compare vs. competitor benchmarks? Consumer goods companies across subindustries
have set ambitious packaging sustainability targets. The specific targets as well as the actions behind
them, however, can differ significantly. Benchmarking vs. competitors can help companies identify

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 Paper & Packaging Report 2023

Figure 2: Creating sustainable packaging solutions requires building a view into the future in five
key areas

Company
goals
Full circularity Net-zero carbon

Change
catalysts
Reduce Reuse Replace Recycle

Foundation
elements Benchmarks Legislative Consumers’ Technological Infrastructure
and best practices and regulatory and retailers’ breakthrough requirements
evolution preferences and adoption

Source: Bain analysis

where they outperform and where they must improve along their packaging portfolio. This could
entail the types of packaging, number of packaging types, and current sustainability of packaging that
they offer. The same applies to their sustainability targets. These could include specific substrate targets,
such as striving to reach 100% sustainable materials (e.g., recycled or bio-based) by a certain deadline
as well as establishing innovation channels through partnerships and innovative packaging materials
or formats. It is similarly important to understand how and what competitors are communicating
around packaging choices and targets.

How is legislation evolving? Waste legislation can happen in the form of bans (e.g., single-use plastics);
mandatory targets (e.g., recycling rate, minimum required post-consumer recycled content); taxes
and fees (e.g., extended producer responsibility, EPR, fees paid by the polluter); and standards and
compliance (e.g., deposit return scheme, labeling). Although these mechanisms are similar globally,
countries are in widely different stages of waste legislation evolution. In general, the EU is furthest
along, with the revision of the EU Packaging and Packaging Waste Directive adding additional
requirements, bans, and definitions. But a few pioneering US states are starting to implement a robust
agenda, significantly increasing recycling rates through EPR mechanisms by material and select
deposit return schemes, for example.

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Consider the situation in three key markets for consumer goods. The UK’s favorable environment
and ambitious targets should help many companies achieve their goals. For example, companies can
avoid the circa £210-per-ton plastic tax if their packaging has 30% or more post-consumer recycled
content; it’s a move that is spurring the recycled content market. On the other hand, Brazil’s legislation
and infrastructure challenges are likely to persist, and cross-industry mobilization may be needed
to help local companies achieve circularity goals.

In the US, different conditions across different states can require the industry to take the lead in
nationwide strategies. For example, California’s SB 54: Plastic Pollution Prevention and Packaging
Producer Responsibility Act established a broad EPR program. It requires all single-use plastic
packaging and food service ware to be recyclable or compostable by 2032, a 25% reduction in plastic
packaging, and a 65% recycling rate of single-use plastic, all by 2032. Given California’s outsized
relevance for the overall US economy and the preference of consumer packaged goods companies
to sell uniform products across all states, this bill could have effects across the nation.

Nongovernmental regulation can also play a role. For example, the Science Based Target Initiative
(SBTi) defines the 1.5°C pathway as an absolute emissions reduction target of at least 42% by 2030
vs. 2020 levels. Consumer goods companies committing to a 1.5°C target will need to achieve this
ambitious path in part by limiting the carbon footprint of their packaging.

The waste management infrastructure for packaged goods spans

manufacturing, post-consumption discarding, collecting/sorting,
and recycling/disposing.

What are the infrastructure requirements? Having identified the legislative environment in their
major markets, companies need to look at infrastructure. The waste management infrastructure for
packaged goods spans manufacturing, post-consumption discarding, collecting/sorting, and recycling/
disposing. Infrastructure, as well as recycling rates, varies by material and by country (see Figure 3).
For example, the UK and EU have achieved high rates of formal collection, sorting, and recycling for
most important materials. By contrast, Brazil has low rates of formal collection and sorting. While
the US has high rates of formal collection, its recycling rate is low, even for important materials such
as polyethylene/polyethylene terephthalate (PET) plastics (typically present in bottles). While the UK
and US waste management systems are consolidated into large companies, recycling in Brazil is made
possible by several small and mostly informal participants. A deep understanding of how the waste
management system deals with discarded packaging materials is key to informing product innovation
and generating a positive impact.

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Figure 3: Recycling rates vary greatly across countries

Recycling rate by material and country, 2020 (percentage of generated waste)

76%
68% 67%
(1) 69%
66% (1)
(1)
54%
47%
(3)
15%, excluding 28%, excluding
(1)
21%, excluding beverage bottles 39% beverage cans
cardboard
6%, excluding 25% 26% 13%, excluding
23% cardboard and beverage cans
(2)
white paper
9%

UK US Brazil UK US Brazil UK US Brazil UK US Brazil

Plastic Paper Glass Aluminium

Estimates for the beauty and personal care market Includes alternative sources (see note)

Notes: Rates consider all generated municipal waste (do not consider industrial waste); rates for UK only consider packaging waste; (1) difference between UK
packaging reported rates and derived calculation to estimated UK total recycling rate (lower); (2) difference from rates published by Veolia; (3) difference from rates
published by The Aluminum Association
Sources: UK Government Statistical Service; US Environmental Protection Agency; MaxiQuim; ANAP; Abividro; ABAL; The Aluminum Association; Veolia;
The Wilson Institute; expert interviews; Bain analysis

How is consumer behavior changing, and how are retailers responding? Consumer goods companies
need to clearly understand the role that consumers and retailers play in accepting and leading changes.
Consumers are increasingly aware of sustainability challenges and say they are more willing to act.
Climate change, air pollution, and waste are the top-of-mind sustainability concerns globally, and
avoiding excessive packaging is the action that consumers are most willing to take. Nearly a quarter
of US consumers can be classified as “conscious consumers,” meaning that they are actively concerned
about climate change and environmental sustainability is a key purchasing criterion for them. On the
other hand, the US has 32% of “conscious nonconsumers,” meaning that they express concern about
climate change and have several environmentally friendly lifestyle habits but do not buy eco-friendly–
branded products.

There are, however, important issues that prevent consumer behavioral change. Although awareness
is increasing, many consumers still are confused about sustainability—that is, what makes a product
sustainable and what to do. Consumers aren’t fully confident in their ability to change their behavior
or make an impact and are not always correct when choosing what they believe is the most sustainable
solution. For instance, when presented with single-use plastic vs. single-use glass packaging, 75% of
respondents did not know or chose glass as the product with the lower carbon footprint, when in fact
it is plastic.

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There’s also the convenience factor; adopting more sustainable practices requires greater effort from
consumers. Retailers can make it easier for customers to identify sustainable products on the shelf
through labeling, for example, and make sustainable products available when consumers are deciding
which product to buy for each category (vs. separated/dedicated session, for example).

Finally, while consumers say they would pay a premium for sustainable products and brands, some
perceive them as being too expensive. Even of those consumers who say they are willing to pay extra
for sustainable products, roughly half will only pay a minimal amount—sustainable solutions are often
still much more expensive than the premium price consumers are willing to pay.

There still is a gap between consumers’ expectations and available sustainable options. In general,
for consumer goods companies to deliver on circularity targets, more consumers will need to make
trade-offs by trying new packaging presentations or sensory experiences—everything from concentrated
solutions in cleaning, for example, to powders and solid bars in toiletries. They’ll also need to participate
in waste sorting and reverse logistics programs, where retailers can have a critical role to play and
allow for real circularity.

When asked to rank elements of sustainability they consider when

purchasing products, shoppers ranked sustainable packaging as the
second most important element, ahead of the product contributing
to animal welfare, being organic, and having a low carbon footprint.

Importantly, however, packaging can play a key role in positioning your brand as sustainable.
Consumers place a lot of emphasis on packaging, with the plastics problem being vigorously publicly
debated. When asked to rank elements of sustainability they consider when purchasing products,
shoppers ranked sustainable packaging as the second most important element, ahead of the product
contributing to animal welfare, being organic, and having a low carbon footprint.

Meanwhile, although the retailers that sell consumer products are at different stages of maturity, their
overall level of environmental, social, and corporate governance (ESG) engagement is increasing.
Our study across 40 global retailers found that nearly three-quarters of them included a sustainability
pillar in their corporate strategy. They are setting science-based targets for reducing their emissions
or becoming Ellen MacArthur Foundation Global Commitment signatories for circularity. Retailers
are also putting significant pressure on brands to use recyclable packaging or packaging with recycled
content. British supermarket chain Tesco, for instance, said it will no longer carry brands that use
excessive or nonrecyclable plastic packaging. The immediate implication for the consumer products
industry is that retailers will change what they find acceptable in packaging ingredients and will
redefine shelf space allocation.

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What are the technology breakthroughs? Technological innovations are being developed to minimize
waste generation and to improve decarbonization and the management of unavoidable waste; GHG-
capturing technologies are also in the works. Since 2018, private equity and venture capital firms
invested more than $6 billion in recycling facilities and bio-based packaging alone. Recycling and
substitution with recycled glass, metal, and paper are the solutions with the highest probability of
scaling by 2030. To achieve their 2030 targets, companies shouldn’t count on chemical recycling
or industrial composting, given that both technologies won’t be available on a large scale by the end
of this decade. On the other hand, mechanical recycling will get more effective and still should be
the dominant technology by 2030. Recent significant price increases in recycled substrates such
as recycled PET, however, have caused companies to revisit their short-term targets and look for
alternative solutions. If prices remain high, this could be an enabler for new technologies breaking
through and becoming economically competitive.

Since 2018, private equity and venture capital firms invested more
than $6 billion in recycling facilities and bio-based packaging alone.

Planning for different scenarios

While packaged goods companies want to take meaningful action, the economic, environmental, and
social implications of different solutions are often uncertain, and the industry still needs guidance
regarding what actions to prioritize in diverse geographies/applications as well as how to find synergies
among various solutions.

Based on this BLICT assessment, three plausible scenarios emerge for what consumer goods
sustainable packaging could look like in 2030 across the US, UK/EU, and Brazil markets:

• a substitute economy in which advances in consumer behavior will lead to a shift toward
alternative materials and new product presentation (in this scenario, companies should not rely
too heavily on recycling);

• a circularity breakthrough brought on by advances mainly in legislation, infrastructure, and

technology, leading to recycling industry development; and

• a green shift in which advances in all five BLICT elements reduce material demand and reshape
the value chain to a circular flow.

Each market’s situation and unique BLICT trends will determine its most likely scenario. For example,
in the UK, a strong push for recycling in the coming years, combined with incentives and a build-out of
infrastructure capacity, likely will advance the market toward a green shift. By comparison, Brazil could

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move toward a substitute economy based on likely poor waste management infrastructure and an unclear
2030 legislation outlook. There, most relevant changes will be mostly driven by consumer behavior and
retailers’ practices. In this context, companies’ product innovation will be critical to promote circularity.

The situation in the US likely will be more complex. Pioneering states with a robust infrastructure
and legislative agenda can advance toward a green shift; in other states, a possible shift to a substitute
economy will depend in large part on changes in consumer behavior encouraged by nationwide
companies. Understanding these potential scenarios helps companies decide on the right circularity
agenda and how to engage other stakeholders.

When a global beauty and personal care company went through this process, it was able to clearly
determine the impact of different actions by evaluating the weight of materials produced, the
potential to be truly recycled, reused, or composted, and the GHG emissions per ton produced
(see Figure 4). Because those factors don’t always move in the same direction, the company needed
an integrated view, and it acknowledged that some trade-offs would be required. It considered the
feasibility of different initiatives given specific constraints. For example, the company could make
great strides with innovation in refill packaging and concentrated product formulations, both of
which involve minor technological challenges but major consumer behavioral shift requirements.
Designing for recycling would be harder from a technology perspective.

Figure 4: One global beauty and personal care company determined it could make significant
sustainability gains, even with market growth

UK Brazil US
2020 2030 2020 2030 2020 2030
Packaging
consumption
(kilotons, beauty and 83 74 323 351 293 288
personal care market)

Recycled waste
(percentage of total 55% 65%
discarded)
21% 24% 24%
13%

Use of
post-consumer
40%
recycled materials
(percentage of total 20% 15%
raw materials)
9% 6% 7%

Greenhouse gas
emissions
(kilotons, beauty 813
and personal care 782 764 741
321 249
packaging)

Beauty and personal care market projected growth by 2030

Sources: Euromonitor; Bain analysis; “Breaking the Plastic Wave,” a study led by Systemiq (https://www.systemiq.earth/breakingtheplasticwave/); governmental agencies;
literature review; expert interviews

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The company decided that it could achieve greater impact in the short term by reducing material
weight and by reducing or eliminating some plastic. Using compostable materials and biopolymers
and developing on-premise refill or returnable options would take longer because of technological
and waste infrastructure challenges, but those initiatives could transform the industry in the medium
term. Meanwhile, working on alliances and coalitions to contribute to the development of infrastructure
and technology, encourage consumer behavioral change, and support waste legislation would
require coordination outside the organization, but doing so could help advance the sustainability
agenda both within and beyond the company.

Armed with these insights, the beauty company created a clear roadmap for a more than 40%
reduction in GHG emissions through packaging changes. The quantitative approach helped the
company identify the key moves to make.

To achieve its goal, the company also needed to mobilize the organization and promote leadership
alignment around priorities.

Circular packaging transformation: A top management collective agenda

What could this look like at a large consumer goods company? Sustainable packaging transformation
is a complex agenda. As with any other strategic transformation, top management engagement is
critical to set the priorities, allocate resources, promote behavioral change, and engage all stakeholders
in the journey. More precisely, each top management leader will play a critical role to drive this change.

As with any other strategic transformation, top management

engagement is critical to set the priorities, allocate resources,
promote behavioral change, and engage all stakeholders in
the journey.

The CEO could make public comments and mobilize the organization while also committing company
resources to ESG initiatives. The chief marketing and sales officer could focus on overcoming
consumer barriers, generating desire for sustainable products, and commercializing more sustainable
offerings together with retailers. Category managers could be tasked with translating product
innovation projects that align consumer needs with the company’s sustainability goals.

The chief procurement officer should go after sourcing the new materials and ingredients needed,
and the chief supply chain officer should revisit the supply chain and make the adjustments required
to adopt new packaging materials and formulas.

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Meanwhile, the chief sustainability officer could support all areas based on a quantitative approach
with an integrated view and a clear roadmap. The R&D head could allocate the appropriate resources,
respecting mandatory moves while also betting on future (and more disruptive) solutions. Teams could
focus on developing a reverse logistics program as well as supplier engagement on product innovation,
and they could create alliances within the industry, forging relationships with key stakeholders.

The best companies will identify options to shift toward favorable

packaging materials, and they will gain control of after-use
packaging materials and the supply of recycled materials through
vertical integration or strategic collaborations with the full waste
value chain.

Forward-looking companies that build the capabilities and flexibility to navigate the complex
packaging challenge are likely to emerge as winners. Success means starting early and taking some
calculated risks. The best companies will identify options to shift toward favorable packaging materials,
and they will gain control of after-use packaging materials and the supply of recycled materials through
vertical integration or strategic collaborations with the full waste value chain. First movers can commit
to volumes of recycled materials early on and ensure the availability of increasingly in-demand (and
potentially increasingly expensive) raw materials. Brands that fully embrace circular economy
principles can connect with their consumers in new ways and create new value pools around different
sensory experiences (better design, better materials) and better delivery models.

Consumer goods executives see the opportunity to transform packaging as a way of advancing toward
their circularity targets while reducing emissions. They acknowledge that there’s much on the line
and much ground to cover quickly. Yet, as they plot their path amid an aggressive timetable and
obstacles that seem daunting, those that take a systematic approach will make the biggest leaps
toward their sustainable future.

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The Mill of the Future

Paper and packaging mills become more adaptable, optimized, sustainable, and data driven.

By Mattia Bernardi, Andrea Isabella, and Jared Lapin

At a Glance

The mill of the future is integrated and flexible, sustainable and technology driven.

Talent management will be essential, and 65% of job searchers already view inclusion as very
important in new roles.

Best-in-class mills that achieve true operational excellence can raise EBITDA by a 7-percentage-point
margin or more.

The paper and packaging industry is changing rapidly amid unprecedented turbulence within the
sector. As a result, chief executives are dramatically rethinking their operational models and their
global footprints. The market mix is changing as traditional commodity markets such as newspapers
are shrinking and specialty papers such as high-barrier papers that protect food from moisture and
oxygen are growing. Global competition is intensifying, and technology is disrupting all parts of
the supply chain. Economy-wide raw material shortages and volatility are further complicating
market dynamics.

Agile companies are reacting now to exploit new markets and products. They are shifting from a
mill-centric to a customer-centric approach, which requires greater flexibility and structural changes

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to the company. Business-wise, players are engaging in M&A and consolidation. Process-wise, they
are capitalizing on the increasing availability of data and sensors that are providing new opportunities
to optimize production.

While the manufacturing mission in the paper and packaging industry has historically centered
on maximizing throughput and being highly efficient in a standalone mill-by-mill approach, this
approach will no longer suffice. Leading companies are taking steps now to create interconnected
mills of the future.

The mill of the future is integrated and flexible, sustainable and technology driven. It enables maximum
productivity through high uptime and high asset health, effectively leveraging its full capacity. It is
adaptable and optimizes for different objectives—whether a company’s mission is to lower costs
(producing the right quality with the lowest possible cost), minimize carbon emissions, or optimize
customer service. Finally, mills of the future attract top talent for current and evolving needs.

Integrated and flexible

The mill of the future is part of an integrated network of plants with an optimized footprint, meaning
products are made at those plants with the lowest production cost and that are nearest to customers
to minimize logistics costs while ensuring quick delivery times and factoring in regional market
demand, including expected demand growth.

Mills of the future balance cost efficiency and customer

demands and service levels through next-generation sales
and operations planning.

In addition to being integrated, the mill of the future is highly flexible. This allows companies to optimize
performance of the overall footprint of their plants as well as to react to changing conditions such as
increasing energy prices, market downturns, or plant closures. Mills of the future balance cost efficiency
and customer demands and service levels through next-generation sales and operations planning.

With an integrated network of plants and factories, executives can optimize for multiple scenarios and
identify opportunities to improve, such as reallocating volume, upgrading assets, and optimizing
portfolios and capacity. If they want to optimize for carbon emissions and reach carbon neutrality,
for instance, they can move production to plants where energy sources are sustainable.

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Footprint optimization also helps when there are drastically different energy prices in one region vs.
another, as happened in Europe vs. the US in 2022. Conflicts and natural disasters such as the
earthquake in Turkey can also interrupt the supply chain. Leaders can quickly pinpoint impacted
plants and move production to other plants that are the most cost-effective and efficient.

Sustainable

The mill of the future is fully sustainable. Energy sourcing, production, and consumption are optimized
for net zero, requiring both very high-energy efficiency through the full deployment of operational
levers and a massively increased use of renewable energy. No or little waste is sent to landfills, and there
is full recyling of water usage. In addition, the full life cycle of the manufacturer’s products is designed
for sustainability and zero impact. The mill follows high safety standards, with a zero-accident mindset.

Technology enabled and data driven

Employees use technology and data to make better decisions and innovate faster. The digital mill is
made possible by a full technology stack (see Figure 1).

Figure 1: Digital applications and the digital twin are at the top of a broader technology stack

Visualizations and the digital twin improve

Applications performance through advanced algorithms and
control mechanisms

Select subset of information from data lake used

Digital twin to enable advanced analyses and applications

Easily accessible and interpretable dashboards

Data visualization structured to monitor operations data and key
performance indicators

Structured, consistent, scalable repository

Data lake
of real-time data stored over time

Machine-level system that supports management

Manufacturing execution system of production orders and performance

Machine-level systems that record real-time

Machine systems machine data (e.g., paper quality, production,
and process parameters)

Machine-installed sensors that can read and

Machine sensors
monitor key technical variables and parameters
such as vibration and temperature

Source: Bain & Company

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A key technology in the technology stack is the digital twin, which is a digital copy of a company’s
mills and network. The digital twin enables improved analytics and decision making by optimizing
process parameters (such as the quality of paper, strength of paper, and weight of paper) and
performance parameters (such as the speed of the machine and consumption of raw materials).

The digital twin has many specific applications in individual mills that can help improve performance
across utilization and productivity, cost optimization and asset health. For example, digital twins can
be used to make machines more efficient, producing better-quality products with fewer resources.
Digital versions of machines allow operators to test different configurations of the machine and find the
optimal setup without the need to physically test many configurations, therefore making optimization
quicker, less costly, and more effective.

Talent magnet

While the workforce of many paper and packaging companies used to be characterized by highly
experienced blue-collar employees with long tenures within their organizations, employers are now
seeing higher turnover of younger employees who rotate jobs more frequently. As a result, instead of
having decades of knowledge, employees now only have a year or two’s worth of knowledge. In addition,
the various new technologies require entirely new skills that existing employees don’t necessarily
have. This means leaders need to redesign how knowledge is transferred and retained.

Executives have different tools to centralize expertise, such as video training and augmented reality,
which can be offered to employees in their local mills. Secondly, they can redesign the operating model
to centralize employee competence and some of the mill activities. There will be an increased need
for high-profile skills to remotely drive mills, such as the ability to remotely operate control rooms
and monitor maintenance. The increased need for remote skills will also open up new labor pools
of employees that don’t need to live near the mills they operate.

Finally, future mills will have a well-thought-out diversity, equity, and inclusion strategy that provides
a welcoming environment for all employees. This helps the company attract a diverse group of talent,
which is relevant as 65% of job searchers view inclusion as very important when considering a new
role, according to a recent Bain survey—the same study found that employees who feel fully included
are six times more likely to stay within the organization.

Highly productive, exhibiting world-class performance

The mill of the future guarantees maximum productivity through high uptime and high asset health,
which is achieved with the right maintenance strategy, operations, organization, and processes.

The largest drivers of downtime are known, the maintenance strategy for each piece of equipment is
based on the likelihood and consequence of failure, and action plans are defined and followed through
on for each asset based on their risk level.

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 Paper & Packaging Report 2023

Downtime is minimized through predictive maintenance, supported by machine learning.

Maintenance is embedded within the organization, with dedicated roles and responsibilities and
intelligent leveraging of external maintenance support. Productivity is boosted by improving
utilization, overall equipment effectiveness, and de-bottlenecking.

Cost is minimized by reducing material consumption, realigning recipes to customer needs and
specifications, maximizing energy efficiency, reducing waste, mitigating quality costs, and optimizing
the distribution network. Performance is regularly monitored.

Finally, world-class mills are highly adaptable so that they can be optimized and tailored to each
company’s specific goals. When done right, achieving true operational excellence can lead to great
value generation. Bain has supported many paper and packaging companies in a broad cost savings
program across more than 70 plants, resulting in an average 7-percentage-point EBITDA increase
(see Figure 2).

Figure 2: World-class mills are highly adaptable and optimize operational excellence, with the
potential to increase value by a 7-percentage-point EBITDA margin

Average EBITDA margin uplift in percentage points

Recycled 4%

Graphic paper 5%

Converting 6%

Virgin carton board 8%

Pulp 9%

Specialties 10%

Average 7%

Note: Based on the average results obtained by Bain clients on more than 100 actual projects
Source: Bain & Company

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Bold ideas. Bold teams. Extraordinary results.

Bain & Company is a global consultancy that helps the world’s most
ambitious change makers define the future.

Across 65 cities in 40 countries, we work alongside our clients as one team with a shared ambition to
achieve extraordinary results, outperform the competition, and redefine industries. We complement
our tailored, integrated expertise with a vibrant ecosystem of digital innovators to deliver better,
faster, and more enduring outcomes. Our 10-year commitment to invest more than $1 billion in
pro bono services brings our talent, expertise, and insight to organizations tackling today’s urgent
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We earned a platinum rating from EcoVadis, the leading platform for environmental, social, and
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our founding in 1973, we have measured our success by the success of our clients, and we proudly
maintain the highest level of client advocacy in the industry.
For more information, visit www.bain.com