- The new Forests and Finance database was launched on Tuesday by a coalition of research and campaign groups.
- The data show that in 2010-2015, banks in Asia and the West pumped over $50 billion into Southeast Asian forest-risk companies.
- Many banks lack policies to prevent their money from being used to harm the environment.
- Even the policies that do appear strong on paper are often of little effect, experts say.
A new online database is shining light on the big banks and investors funding forest-risk sector companies operating in Southeast Asia, with financiers in Malaysia, China and Europe among the biggest backers, and many lacking adequate safeguards to ensure the money they hand over does not prove destructive.
The database, which was launched this week by a coalition of campaign and research organizations including Rainforest Action Network (RAN) and Profundo, uses financial data from Thomson EIKON and Bloomberg, as well as publicly available company reports, to identify corporate loans, credit and underwriting facilities provided to 50 selected companies in 2010-2015.
The database is “essentially an effort to bring more transparency and accountability” to forest-risk sector funding, said Tom Picken, RAN’s Forests and Finance campaign director.
“We hope it is useful [in enabling] researchers, campaigners and activists to more easily identify financier-client relationships,” he explained, adding that members of the “responsible investment community” had also showed an interest in analyzing the data, which will be updated quarterly.
According to the data, banks and investors in Malaysia are the biggest financiers of the selected forest-risk companies, with a particular focus on palm oil. The total amount in loans and underwriting recorded from Malaysia is $7.73 billion.
Financiers in China, meanwhile, are shown to have provided $6.21 billion to pulp and paper, rubber, and palm oil companies, while those in the U.S. and Europe are also linked to significant investments in forest-risk sectors.
The majority of the money detailed in the database flows into Malaysian companies, followed by Indonesian ones, according to Picken, who added that most of the Malaysian companies receiving finance have “significant operations” in Indonesia.
Malaysia’s Malayan Banking is the top financier of forest-risk sectors in Southeast Asia, according to the database, which details around $2.71 billion awarded to palm oil companies, including Felda Global Ventures and Salim Ivomas Pratama.
Last year, a Wall Street Journal investigation exposed serious human rights abuses in Felda’s plantations, including human trafficking, forced labor, and withholding of wages, while the Salim Group has been linked to rainforest clearance and violations of community and worker rights.
The new database includes an assessment of banks’ social and environmental policies, in which Malayan Banking fails to rank under criteria including whether operations in primary forests are prohibited, and whether the banks are signatories to the main international covenants related to forest and land issues.
Malayan Banking did not respond to requests for comment. It is not alone in providing big money to forest-risk sector companies, while seemingly lacking adequate safeguards.
Other banks that scored poorly include Indonesia’s Bank Mandiri, China’s Bank of Communications and Singapore’s DBS.
“Our assessment found that that very few of the banks most involved in forest-risk sectors had adequate policies in place. Performance was generally average in the EU, poor to average in the U.S. and Japan, while Malaysian, Indonesian and Chinese banks had few if any policies at all,” said Picken of RAN.
He added that while there was “a correlation between the absence of bank policies and the financing of more controversial clients, many banks with policies in place still had financial relationships with very problematic clients.”
Anne van Schaik, sustainable finance campaigner at thinktank Friends of the Earth Europe (FOEE), which has also done extensive research on the financiers of environmentally damaging projects, said existing policies that appear strong on paper are often of little effect.
“Voluntary social and environmental policies are not enough to stop banks providing financial services to land-grabbing companies or forest-risk companies,” she argued.
“Financial regulators in Indonesia and Brazil already are introducing binding sustainability criteria that need to be upheld by Indonesian and Brazilian banks, and European NGOs are calling on the EU to do that as well.”
But while progress is being made in some countries, others, including Malaysia, “offer less immediate hopes of reform in either the voluntary or regulatory space,” according to Picken.
Experts say that key to banks becoming more responsible is a move towards greater transparency.
“These financial institutions need to be held to account if the companies they invest in are related to land grabbing, deforestation or environmental degradation,” said van Schaik of FOEE, noting that while databases like Thomson ONE and Bloomberg provide financial information on big banks and investors, it remains difficult to find information on smaller or privately held companies.
Scott Poynton, executive director of The Forest Trust (TFT), said it was essential for scrutiny to be placed on banks over their involvement with forest-risk sector businesses.
“The finance greases the wheels and any institution providing that finance is as culpable for the destruction as the company they finance. They don’t drive the bulldozers, but they provide the money to pay the driver and buy the fuel,” he said.
However, Marco Albani, director of the Tropical Forest Alliance (TFA) 2020, noted that as well as pushing financial institutions to stop financing destructive projects, they also needed to be encouraged to “act as positive agents of change.”
According to research by TFA 2020, the financial sector could “flip the system” in the shift towards sustainable supply chains, but moving towards deforestation-free production by 2020 will require up to $200 billion per year in financing and investment.
“We need scrutiny on environmentally destructive projects as well as attention on the environmentally constructive activities where large banks are part of the solution,” he said.