The Fool's Todd Wenning recently spoke with Jeff Mendelsohn, founder and CEO of New Leaf Paper -- a privately held recycled paper company that has shaken up the traditional paper market. In this interview, Mendelsohn offers his insights into changing environmental standards in the paper industry, and the benefits of environmentally friendly products. Followers of paper-affiliated companies like International Paper (NYSE: IP ) , Domtar (NYSE: UFS ) , MeadWestvaco (NYSE: MWV ) , and Xerox should find this interview interesting.
Todd Wenning: Tell me a little bit about why you decided to start New Leaf Paper, and what made you think recycled paper was the way to go?
Jeff Mendelsohn: The story dates back to a company I started right out of college in 1991, called New York Recycled Paper. I chose paper because the paper industry is massively polluting. In 1991, when I got started, the industry was stuck, there was no change going on, and it seemed like the perfect challenge. I thought, "Here's this enormous industry with enormous impact and an opportunity for somebody to come in and look at it differently and change the paradigm."
Wenning: What aspect of polluting are you focused on? Is it deforestation, landfills, or chemical pollutants?
Mendelsohn: I'm going to be boring and say all of the above, because I look at it holistically. It's all about the interconnectedness for me. I also saw how deforestation was going on to plant grains to farm cattle, which is totally unsustainable in tropical environments because there's little topsoil. So you would go from tropical rainforest to pasture for five-10 years to desert. So I was watching these dynamics, and I didn't want to write about it or change it from without, so I set out to set another standard in order to change it from within.
Wenning: Major paper companies have their own initiatives such as forest sustainability and conservation. Do those efforts miss the point?
Mendelsohn: Actually, it's exactly the point of my business in that our mission statement is to inspire through our success a fundamental shift toward sustainability in the paper industry. So we applaud these types of efforts.
The key factor is to ensure a reality check on what a true shift is. It's not just launching a green product or buying some energy credits, its going to require a fundamental shift in the infrastructure. The key thing for us is being a pioneer in the green paper industry, which we did ... Now we're in sort of a leader phase where we ensure that the standards keep improving, and the reality of a company's commitment is what carries the day, and not the rhetoric. The most exciting time is now, because while pioneering is fun, the real challenge is when you get the attention of the mainstream, and you're hoping to be a real influence.
Wenning: Your client list is a veritable who's-who of the S&P, like Apple (Nasdaq: AAPL ) and Bank of America (NYSE: BAC ) . Do these companies just want to appear green, or do they really want to change their business processes?
Mendelsohn: It's a combination of factors. We proved to the paper market that these large customers care about value beyond the cheapest price they can get for their paper. We would approach these companies and share our mission and our vision. We wouldn't position our paper as a boutique item, and our goal was to be affordable. All we asked for is a chance to prove that we could do it. It was with Bank of America that we were able to launch the first nice 100% post-consumer letterhead paper.
Other companies we met along the way were impressed with who we were and what our mission was and would give us a shot, and we succeeded. The paper industry has huge competitors, but in the realm of environmentally responsible paper, we're actually very competitive with companies that are 100 times our size, because we focus specifically on recycled paper.
Wenning: Sticking with the topic of quality, the picture I have in my mind of recycled paper is the flimsy, gooey stuff we made in elementary school. I know this is a misconception, though, so how do you compete on quality?
Mendelsohn: Our quality has not been an issue, which is great. The bad impressions of recycled paper date back to the 1970s, and people have a misconception of what it looks like. Our goal is to come up with the type of paper that people buy in bulk -- coated and uncoated basic white -- and make it high-quality and affordable. Before that, most of the high-recycled content papers were only available in colors, often with flecks in them.
Wenning: What should investors and consumers demand of companies that claim they are green?
Mendelsohn: I could answer that for an hour, but I'll try to be concise. One of the most important things in my book is transparency, and at least for now, the independent verification of claims. Both investors and consumers should look for true transparency from their companies' green claims. The most interesting are the companies that don't tell the perfect green story, because the reality is there is no perfect green story. Everything has an impact. The best stories are the ones that share the challenges in addition to the benefits.
In addition, the independent verification of claims is important, because in many sectors, there aren't good systems for monitoring such claims, so people are using words to imply "green" and "healthy" that don't always pan out.
Especially in the paper industry, there's a proliferation of "green marks," bugs and logos. I think there's going to be an overload of those. These things are important, I'm not knocking them, but consumers are going to get to a point where they're going to want to know the company behind the logos. I've seen marketing materials with six logos lined up right next to each other to tout how green their something is, and that gets a little confusing.
It's really important to ask a company not just how they're doing on their "green product line," but how they're doing overall, to try to separate who is doing this for a marketing opportunity and who's doing this for values. You might ask a paper company, "What percentage of fiber across all the products you make comes from either post-consumer or FSE-certified sources?" In other words, it's great that you have one product that's post-consumer, but I want to know about its use across all your product lines. How sustainable is your fiber sourcing overall?
Wenning: Which publicly traded company do you most admire for its environmental stewardship?
Mendelsohn: Whole Foods Market (Nasdaq: WFMI ) . I have great admiration for Whole Foods' pioneering work in bringing organic food to the mainstream grocery market. As the founder of a green company competing in the highly commoditized paper industry, I can relate to the challenges of shifting established purchasing habits. Whole Foods has done a remarkable job of linking high quality to environmental responsibility and sustainable living, connecting good values with mainstream aspirations for good living.