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World Bank violated environmental rules in lending to palm oil companies, finds internal audit

A coalition of indigenous rights’ organizations and green groups is calling on the World Bank’s International Finance Corporation (IFC) to suspend lending to oil palm plantation developers over revelations by its own internal auditors that the loan-making entity failed to follow its own procedures for protecting against social and environmental abuses.

“IFC staff knew of the environmental and social risks in the palm oil sector, including unresolved land disputes and non-compliance with its social and environmental standards, but chose to ignore the risks,” said Marcus Colchester of the Forest Peoples Programme. “IFC investment staff overrode IFC procedures and the warnings of environment staff in order to speed investments … [and] mis-categorized investments as ‘low risk’ (Category ‘C’) to avoid safeguards and to avoid applying their own performance standards.”

“It is clear to us, and the audit confirms this, that IFC suffers a systemic problem whereby the pressure to lend and to support business interests overcomes prudence, due diligence and concern for social and environmental outcomes.”

The Forest Peoples Programme is demanding that the IFC suspend its support for the palm oil sector in Indonesia until it determines how a long list of violations, ranging from deforestation to land grabbing to human rights abuses, were allowed to continue. The group notes that many private banks “look to the IFC for leadership in their lending procedures and use the Performance Standards to guide them.”

“It is therefore all the more imperative that the IFC demonstrates responsible practice,” said Colchester.

Environmentalists say the palm oil industry has driven large-scale destruction of forests in Indonesia, boosting greenhouse gas emissions, endangering rare and charismatic species of wildlife, including the orangutan, and displacing forest communities.

The statement is available at NGOs call on IFC to freeze financing of palm oil sector in Indonesia [PDF]

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