Asian banks gave $19bn to palm oil firms linked to Indonesia fires

Thursday, December 12th, 2019

NGOs call out complicity of region’s largest financial institutions in bankrolling palm oil corporates implicated in forest fires crisis.

The 2019 fires in Indonesia destroyed over 850,000 hectares of land and forest. Credit: Shutterstock.

Financial institutions across Asia have doled out $19bn to palm oil, rubber and pulpwood firms in the past four years despite many of the companies implicated in recent illegal fires that ravaged Indonesia, a new NGO report has claimed.

Palm oil giants Korindo, Sinar Mas Group (SMG) – owners of Golden Agri Resources – and The Salim Group, among others, are named as recipients of significant sums from various banks even though they were implicated in the fires and have faced separate allegations of environmental abuses over the years.

The report, produced by Rainforest Action Network (RAN), TuK Indonesia, Riau Forest Rescue Network, Friends of The Earth Indonesia and Profundo, stated that 17 corporate groups implicated in the 2019 fires have received at least $19bn in loans and underwriting services since 2015.

“The National Agency for Disaster Management estimates that 80% of fires were deliberately started to clear land for oil palm plantations,” the report stated.

“The Ministry of Environment and Forestry (KLHK) sealed off plantations owned by 83 palm oil, pulpwood and rubber plantations due to this year’s fires. Of these, 17 corporate groups were identified, including major conglomerates with listed entities on the Jakarta, Kuala Lumpur and Singapore Stock Exchanges.”

Banks from China, Indonesia, Malaysia, Taiwan, Singapore and Japan represented the largest sources of finance by country of origin. Bank Rakyat Indonesia, Maybank and Bank Negara Indonesia represented the three largest single creditors.

The 2019 fires in Indonesia destroyed over 850,000 hectares of land and forest, an area ten times larger than Singapore.

“Companies are regularly implicated in using fire in their concessions and have plans to continue developing flammable peatland thereby perpetuating fire risk,” said Edi Sutrisno, Executive Director of TuK-Indonesia.

“Yet banks continue to offer these clients vast sums of credit without conditioning finance on legal or sustainable operations. This indiscriminate financing ensures companies have no real incentive to change.”

The report stated that SMG’s pulp and paper concessions in Indonesia have been “major contributors” to recent fires.

“Recent analysis shows that SMG’s pulp and paper concessions are major contributors to the fires and haze crisis, with a total burned area of over 257,000ha (2015-2018); the largest burned area of any plantation group in Indonesia,” the report stated.

Meanwhile, KLHK ordered a Singapore firm to pay $18m in October after it was found to have burned almost 1,000 hectares of land at palm oil developments in Kalimantan.

The report came five years after OJK, Indonesia’s Financial Service Authority, released an ambitious roadmap designed to stem the flow of funds from international banks to corporate businesses linked to illegalities and unsustainable commodity production.

“Banks continue to fall well short of identifying and mitigating the range of ESG risks posed by their clients,” the report added. “Many foreign and domestic banks continue to obscure the risks connected to their lending, even where client operations involve violations of laws and regulations.”

 

A forest cleared for palm oil cultivation in Kalimantan, Indonesia. Credit: Shutterstock.

The role of financial institutions in bankrolling businesses tied to environmental abuses and deforestation has been under renewed scrutiny in recent months.

A July 2019 report by Friends of the Earth Australia showed that the country’s four largest banks had given $6bn worth of funding to a slew of palm oil firms whose Indonesia operations have been linked to illegalities.

The world’s largest palm oil firm Wilmar along with Astra International, Goodhope Asia, Noble Plantations Pte, Olam International and Triputra Agro Persada were all named in the FoE report.

Meanwhile, $44bn of financing from more than 300 banks and investors, including Barclays, HSBC and Santander was awarded to six of the world’s “most harmful agribusinesses” between 2013 and 2019, according to a September 2019 Global Witness report.

Controversial Brazilian meatpackers JBS, Marfrig Global, and Minerva Foods and Cameroon rubber plantation owners Halcyon Agri were among those identified as recipients.

The new RAN report called on OJK to implement measures to strengthen how funding given to such corporates is governed, including setting up monitoring and grievance systems to assess the compliance of financial institutions.