Corporate Governance

Board Election and Nomination Process

The election of the members of the Company's Board of Directors will take place through the slate system. In the election by slate, each shareholder may only vote for one slate, with the candidates from the slate receiving the highest number of votes being declared elected. Alternatively, the election may take place through the multiple vote procedure, if shareholders representing together 5% (five percent) of the Company's voting capital, at least, request its adoption, according to article 141 of Law 6,404/76 and CVM Resolution No. 70/22. In this case, the election will be carried out by a candidate and each share will be assigned as many votes as there are seats to be filled on the Board of Directors through the multiple-vote procedure, each shareholder being able to freely allocate their votes among the candidates, being elected the candidates who receive the highest number of votes.

Board Performance Review

In the 2023 fiscal year, the Board of Directors conducted a self-assessment process, and in the 2021 fiscal year, it conducted an external evaluation, carried out by an independent consulting firm specialized in the subject. The self-assessment and external evaluation process included checks on the structure in which the Board of Directors operates, the dynamics of meetings and interaction among directors, strategy, duty of care, human capital, monitoring of Financial Statements, and risks and compliance.

Furthermore, the methodology adopted for the external consulting work consisted of document analysis, questionnaires, and interviews with all members of the Board of Directors and key personnel from other governance and management bodies, consolidating the information obtained to identify strengths and opportunities for improvement.

Additionally, the self-assessment of advisory committees takes into account various dimensions, including the dynamics of meetings, member development, environment, posture, and attendance at meetings.

The results of the external evaluations are examined in light of statutory, regulatory, and internal rules, best practices, and benchmarks, as well as the Company's strategic objectives and business. Based on the improvement opportunities identified throughout the evaluation process and the recommendations of the external consultancy, the evaluated bodies develop and implement action plans, within their respective competencies, with the support of the various bodies and managers of the Company.

Information was used following the reference form dated 05/29/24.

Compensation Policy and compensation-setting process

The purpose of the Company’s compensation policies includes: 

• Aligning the interests of employees with the Company’s and the shareholders’ strategy; 
• Enabling our employees’ compensation to remain competitive and attractive compared to the market at large;
• Recognizing high-performing Klabin employees, fostering a meritocratic culture, and attracting and retaining talent for the Company;
• Causing executive compensation to reflect our short- and long-term results, in addition to their individual performance.

The Company’s fixed and variable compensation policies make no distinction in terms of gender, race, religion, or any other aspects not associated with individual or corporate performance. In addition, executives operate under goals associated with KODS (Klabin Sustainable Development Goals), that is, relative to one of the four proposed theme axes (renewable future, sustainable economy, prosperity for people, and technology & innovation). 

For the CEO’s compensation, the Company sets relative financial metrics and financial return, as shown below: 

Financial return: comparison of the Company’s annual average ROIC (Return on Invested Capital) and WACC (Weighted Average Cost of Capital). 

Relative financial metric: aligns compensation with the market performance of shares. Until 2022, this took place using TSR (Total Shareholder Return) and Ke (Cost of equity). The 2023 plan adopted the relative position between the Company’s TSR (Total Shareholder Return) and the TSR for the Peer Group of companies. 

Deferral of the CEO’s Short-Term Compensation Bonus

Concerning the breakdown of the CEO’s variable compensation, the following applies: : 

• The CEO has the option to defer up to 50% of their short-term compensation into share purchases. 
• The longest performance period that the executive compensation plan covers is five years, and the vesting period for variable compensation is five years as well.  

Required shareholdings:

Starting in 2022, a Minimum Stock Ownership requirement was established for Statutory Executive Directors and Non-Statutory Executives. To comply with the program, the CEO must allocate 30 monthly fees (based on their earnings at the end of each fiscal year) for the purchase of the Company's shares and keep them in their possession (at a ratio of 2.50 concerning the annual salary). For Statutory and Non-Statutory Executive Directors, the amount to be allocated and kept in their possession is 18 monthly fees/salaries (at a ratio of 1.50 about the annual salary), as applicable.

Highest paid individual's total annual compensation to the mean total annual compensation of all employees ratio

Information in line with the Reference Form of 05/29/24

Sustainability Governance Structure

Materiality

Klabin reviewed its entire materiality considering the United Nations Sustainable Development Goals (SDGs). The process of identifying material topics involved the following steps: (1) Identification of potential material topics; (2) Reprioritization of themes; (3) Analysis of results; (4) Validation from senior leadership.

1. Identification of potentially material topics

The identification of potential material topics involved consultations with more than 30 corporate management and business unit leaders. This process allowed for the assessment of risks and impacts (both positive and negative) associated with activities conducted in Klabin's four business units (forestry, paper, cellulose, and packaging). During this stage, risk and impact matrices were consulted, as well as processes used for engaging with stakeholders (e.g., mechanisms for complaints and feedback), and external references (secondary sources) of impacts related to the company's sector of operation (benchmarking with other companies, ratings, indices, etc.). 

2. Evaluation of impact relevance

The risks and impacts identified in the previous stage were grouped based on thematic convergence and analyzed considering the probability of occurrence and severity of the generated impact. In line with the principles of dual materiality, all impacts were assessed considering their influence on the company's value generation, including the stakeholders affected by financial losses. 

During the impact assessment, consultations were conducted with groups of company stakeholders, especially customers and suppliers. This process supported the definition of prioritized themes.

3. Analysis of results and prioritization of themes

A total of 23 priority material themes related to the environment, society, and governance were defined, considering the challenges of the company's expansion plan while addressing urgent global challenges. 

These themes guided the development of the Klabin Sustainable Development Objectives (KODS), which are materialized through short, medium, and long-term targets until 2030. These objectives represent the values that the company must deliver to society and the planet, prioritizing 14 out of the 17 objectives established in the global 2030 Agenda. 

Klabin agenda for sustainable development

The 23 material themes have been prioritized and are listed under the following structural axes:

4. KODS Governance 

Klabin's 2030 Agenda is validated by Klabin's Fixed Sustainability Committee, the Executive Board, and the Board of Directors. The meeting agenda for both the Committee and the Fixed Sustainability Commission is defined based on the risk and urgency of the theme and the progress of the commitment. These meetings occur at least bimonthly. 

The alignment analysis of all new projects within the company is systematically conducted considering Klabin's sustainable development objectives. This includes internal audit processes and the periodic update of the company's Risk Matrix.

Starting in 2023, the individual goals of all Klabin executives include a Sustainability Index. The index comprises a set of goals related to Klabin's 2030 sustainable development agenda (KODS), which is selected at the beginning of each year based on the main challenges for the progress and risks of KODS during that period. This practice is mandatory for the company's directors and managers and encompasses safety, diversity, community relations, and environmental indicators.

For all employees at every level of the company, the long-term commitment to sustainability is extended by cascading the executive goals to teams in the short term. Additionally, employees can participate in the ILP Para Todos program, which enables them to acquire shares in the company. For more information, please refer to the Incentive Programs section.

Materiality Issues and Metrics for Enterprise Value Creation

Material Issues and Metrics for External Stakeholders

Certifications 

In 2022, Klabin's Sustainability Policy was updated and, therefore, training was conducted at the units and also through Klabin's Business School. The Sustainability Policy training covers all new employees (during the onboarding process) and direct and indirect training through the headquarters of each industrial unit.

Klabin makes external voluntary commitments that reinforce its commitment aligned with sustainable development. Learn more at commitments page.

The industrial mills in Pilar (Argentina), Rio Negro (state of Paraná), Manaus (state of Amazonas) and Horizonte (state of Ceará) are not yet ISO 14.001 certified due to internal and external reasons - and as previously mentioned in the last year, have been preparing to do so, to get certified in 2024. Although 26% of the industrial units’ operations are not certified by a third-party, all of them undergo an internal audit by a specialised Klabin team, which holds the ISO 14001 standard auditor certificate. Those that are certified carry out internal audits of the management system. In this way, units that do not yet have formal certification prepare for the certification audit, re-scheduled for the second half of 2024.