Banks a threat to Indonesian forests
IN EARLY 2015, scientists monitoring satellite images at Global Forest Watch raised the alarm about the destruction of rain forests in Indonesia. Environmental groups raced to the scene in West Kalimantan province, on the island of Borneo, to find a charred wasteland: smouldering fires, orangutans driven from their nests, and signs of an extensive release of carbon dioxide into the atmosphere.
“There was pretty much no forest left,” said Karmele Llano Sánchez, director of the non-profit International Animal Rescue’s orangutan rescue group, which set out to save the endangered primates. “All the forest had burned.” Fingers pointed to the Rajawali Group, a sprawling local conglomerate known for its ties to powerful politicians like Malaysia’s scandalplagued prime minister. But lesser known is how some of the world’s largest banks have helped Rajawali – and other global agricultural powerhouses – expand their plantation empires.
The year before the clearing of trees in West Kalimantan, Rajawali’s plantation arm secured $235 million in loans – funds the Indonesian company used to buy out a partner and bolster its landholdings – from banks including Credit Suisse and Bank of America, according to an examination by the New York Times.
The deal forms part of at least $43 billion in loans and underwriting to companies linked to deforestation and forest burning in Southeast Asia alone, according to a tally compiled by the California-based Rainforest Action Network, the Dutch consultancy Profundo and the Indonesian nongovernmental organisation TuK Indonesia. More than a third of that sum comes from US, European and Japanese banks, many of which have sustainability pledges that specifically mention deforestation.
That figure is almost certainly incomplete because not all financing is made public. It also excludes loans made by the same banks to forestry projects outside Southeast Asia, or financing provided to other, more global players. And it contrasts with efforts by companies like Nestlé and Procter & Gamble to distance themselves from suppliers linked to deforestation.
And while there has been a growing movement among endowments and pension funds to divest from the fossil-fuel industry – and banks have started to back away from financing coal projects – any move away from deforestation has been slower to catch on, experts say. The role of banks has come under the spotlight in recent weeks after environmentalists called out banks like Bank of America and Goldman Sachs for financing the contentious Dakota Access oil pipeline project.
The money is aiding a process that scientists say destroys ecosystems, displaces indigenous communities and covers the region each year in a thick, suffocating smog that stretches from Jakarta to Hong Kong.
Deforestation – and the fires that frequently accompany it – also generates one-tenth of total global warming emissions, making forestry loss one of the biggest single contributors to global warming, according to the Union of Concerned Scientists.
“Destroying the world’s forests makes fighting climate change almost impossible,” said Andrew Mitchell, executive director of the Global Canopy Programme, a forestry think tank. “The finance sector is really lagging behind in realising that.”
Palm oil plantations
In funding Rajawali’s palm oil plantations, the banks appear to have violated their own sustainability policies. In its forestry and agribusiness policy, adopted in 2008, Credit Suisse says it will not finance or advise companies with operations in “primary tropical moist forests” like those of West Kalimantan. Bank of America says in a banking policy, adopted in 2004, that it will not finance commercial projects that result in the clearing of primary tropical moist forests.
The 2014 deal financed Rajawali’s expansion into palm oil by helping the conglomerate buy out a former partner, invest in new palm oil mills and increase its landholdings. Demand for palm oil is surging worldwide, driven by rising incomes in markets like China and India and a switch away from trans fats by Americans and Europeans.
Rajawali’s plantations have been accused by environmental and labour groups of deforestation and illegal burning. Indonesia is one of the world’s biggest palm oil producers, and forestry loss there and elsewhere ranks as one of the biggest single contributors to global warming.
Sebastian Sharp, a spokesman for Rajawali’s plantation arm, acknowledged that the burning and clearing on its West Kalimantan forest sites might be illegal but said local communities encroaching on its properties and starting the fires were to blame.
He said the company did not engage in illegal burning or clearing.
Credit Suisse declined to comment on its Rajawali deal or to say whether the deal violated its sustainability policies. A Bank of America spokesman, Bill Halldin, said the most serious accusations against Rajawali came after the 2014 loan, in which the bank played “a very small role”.
“Today, we would certainly consider more information before making any decision on any client,” he said.
Brigitte Seegers, a spokeswoman for ABN Amro, declined to comment.
Climate concerns have been brought into sharp relief by the impending presidency of Donald Trump, who has called climate change a hoax. Trump has said he will pull the United States out of the Paris accord, a commitment by 95 countries to take concrete measures to reduce planet-warming carbon emissions.
Daily emissions from Indonesia’s forest fires last year at times exceeded emissions produced by all economic activity in the United States. A recent Harvard and Columbia study estimated that the fires caused at least 100,000 premature deaths across Southeast Asia. The World Bank estimates that the fires cost Indonesia’s economy $16 billion.
Although deforestation has slowed in many parts of the world, notably in the Brazilian Amazon, forest clearing is on the rise in Southeast Asia. Indonesia, in particular, suffers the world’s highest rates of forest loss, an average of almost 2.1 million acres a year, a study published in 2014 found.
About 15 percent of the world’s historical forest cover remains intact, according to the World Resources Institute. The rest has been cleared or degraded or is in fragments.
Rajawali originally operated its palm plantation business, Green Eagle Holdings, as a joint venture with the French conglomerate Louis Dreyfus. But starting in 2014, Rajawali took the first step to consolidate the palm oil business under its control, and invest in new infrastructure.
Its loans from Western banks were crucial. In January 2014, Green Eagle attracted a $120 million loan from a group of lenders led by ABN Amro. In July of that year, it scored an even bigger loan of $235 million from a syndicate led by Credit Suisse. Bank of America also took part in that loan.
The financing allowed Green Eagle to buy out Louis Dreyfus to invest in new palm oil mills and increase its landholdings. In November 2014, Green Eagle merged with another plantation operator, BW Plantation; Rajawali is majority shareholder of the resulting company, Eagle High Plantations.
The banks issued those loans as Rajawali was being accused of extensive forest and peatland destruction, illegal burning, use of child labour and the use of force against workers at plantations under its control.
Credit Suisse and ABN Amro declined to discuss specific deals. Bank of America declined to comment on the accusations.
In a February 2015 research note, Credit Suisse deemed Rajawali’s palm oil push a success. Eagle High’s increased landholdings and land rights signaled “significant headroom for expansion” of palm oil production, Priscilla Tjitra, an equity analyst for the bank, said in a report to clients.
In September, Rajawali’s plantation arm secured a $192 million loan from Bank Negara Indonesia, a state bank, to refinance the debt held by its plantation subsidiaries and to double the capacity of palm oil refineries in Papua and West Kalimantan.
Bank Negara Indonesia’s sustainability policies say its clients must adopt “minimum environmental, social and governance standards.” The bank did not respond to requests for comment.