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A truck carries palm fruit for processing from a rainforest plantation in Indonesia. Photo: Rainforest Action Network via Flickr (CC BY-NC).

A truck carries palm fruit for processing from a rainforest plantation in Indonesia. Photo: Rainforest Action Network via Flickr (CC BY-NC).

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Banks raising $400m for palm oil expansion 'must examine high risks'

Oliver Tickell

20th April 2015

Banks preparing to launch a $400m bond issue for a global palm oil giant with a history of legal violations and broken standards have been warned of their 'high risk client' and the 'extreme and outstanding' social and environmental conflicts in the palm oil agribusiness sector.

GAR is talking a good game on paper, but all evidence shows that their destructive practices continue. Any bank that involves itself with GAR should be prepared for managing a high-risk client under the scrutiny of civil society watchdogs.

"Banks and investors must examine the full range of environmental, social, reputational, legal and market risks prevalent in the palm oil sector", warns a new alert from the Banktrack Network.

They should also "ensure that they undertake enhanced, robust due diligence procedures to identify, understand and screen these risks prior to any financing", the group insists.

The warning was issued as a syndicate of three global financial institutions - Credit Suisse, Oversea-Chinese Banking Corporation and Mitsubishi UFJ Securities - prepare to issue $400 million in bonds for palm oil expansion.

The syndicate is acting for Singapore-registered Golden Agri-Resources (GAR) - one of the world's largest palm oil companies and a part of the Sinar Mas Group - according to a Debtwire report last week. And it's beginning meetings this week with credit investors this week in Hong Kong and Singapore.

Banktrack Network, which camapigns on the operations and investments of private sector banks and their effect on people and the planet, sent a global alert to the three banks on the risks of such investments to alert potential financiers to the "extreme and outstanding social conflicts in the palm oil agribusiness sector."

Great promises, atrocious performance

GAR has been among the early adopters in a wave of company policies that pledge to protect forests, peatlands, and human rights, indicating the company's commitment to become a more responsible business.

However, detailed field studies of GAR operations in Indonesia show numerous legal violations. Specifically, GAR failed to obtain the Free Prior and Informed Consent (FPIC) of local communities, failed to undertake proper assessments of High Conservation Value areas (HCV), and was in breach of Indonesian laws on plantation permits. 

A complaint made to the Round Table on Sustainable Palm Oil (RSPO) was upheld this month, finding GAR to be in violation of its certification standards and procedures.

Another recent study into GAR's palm oil operations with its Liberian subsidiary Golden Veroleum Liberia Inc. shows that the company's social engagement is seriously flawed in both policy and practice, leading to vague, inadequate and potentially unenforceable promises of development benefits, while risking the permanent loss of, and damage to, community lands, natural resources, livelihoods and cultures.

GAR's parent company, the Sinar Mas Group, has come under scrutiny following the brutal murder of Indra Pelani - an Indonesian farmer and land rights activist killed by security guards contracted by another Sinar Mas company, Asia Pulp and Paper.

The company has condemned the killing but the incident points to the severity of risk associated with long-term conflict between Indonesia's plantation sector and local communities.

An investment in forest destruction

"At this moment, an investment in Golden Agri-Resources is an investment in forest destruction and human rights violations", said Jeff Conant, international forests campaigner at Friends of the Earth.

"Like other companies in the palm oil sector, GAR is talking a good game on paper, but all evidence shows that their destructive practices continue. Any bank that involves itself with GAR should be prepared for managing a high-risk client under the scrutiny of civil society watchdogs."

Investigations by Rainforest Action Network have shown that GAR "has not yet fully implemented its sustainability policies in order to exclude supplies of conflict palm oil from its supply chain."

As such it may be sourcing from growers that have destroyed valuable forests and peatlands in the Leuser Ecosystem, a global hotspot for biodiversity on the island of Sumatra, where critically endangered Sumatran orangutans, elephants, tigers, and rhinos are found together in the wild.

Must do better!

Banks and investors must ensure that GAR actively addresses these problems prior to providing financial services or investment, the groups say - and while promises of good intentions are welcome, they must be matched by performance:

"A strong palm oil commitment is an important first step towards being a responsible company, but banks and investors should not assume that companies with strong palm oil commitments in place are free of environmental, social, reputational, legal and market risks."

According to a statement by GAR, "we remain committed to complying with the RSPO Principles and Criteria and with the national laws and regulations. Sustainability has always been an integral part of our business and is supported by our management and Board.

"We launched our pioneering Forest Conservation Policy (FCP) in 2011 and subsequently our Social and Community Engagement Policy (SCEP) which commits to improving the lives of the communities we impact.

"As we progress on our sustainability journey, we acknowledge the need to constantly innovate our operational procedures to ensure effective implementation of our policies."

 


 

Oliver Tickell edits The Ecologist.

 

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