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HSBC financing tied to deforestation, rights violations for palm oil in Indonesia

  • HSBC has helped several palm oil companies accused of community rights violations and illegal deforestation pull together billions in credit and bonds, according to research by Greenpeace.
  • The bank has policies that require its customers to achieve RSPO certification by 2018 and prohibiting the bank from ‘knowingly’ engaging with companies that don’t respect sustainability laws and regulations.
  • Greenpeace contends that HSBC, as one of the world’s largest banks, should commit to a ‘No deforestation, no peat, no exploitation’ policy and should hold its customers accountable to the same standard.

Loans and credit from the British bank HSBC have helped support the unsustainable clearing of forests for oil palm plantations in Indonesia, Greenpeace said in a report published Tuesday.

The world’s sixth-largest bank has helped marshal $16.3 billion in financing for six companies since 2012 that have illegally cleared forests, planted oil palm on once-carbon-rich peatland, and failed to secure the support of local communities for their operations – all of which run counter to HSBC’s own environmental commitments, according to Greenpeace.

“HSBC claims it’s a respectable bank with responsible policies on deforestation,” said Annisa Rahmawati, senior forest campaigner for Greenpeace Southeast Asia, in a statement. “But somehow these fine words get forgotten when it’s time to sign the contracts.”

Haze rises from a fire on an oil palm plantation in Indonesia. Photo by Rhett A. Butler

Environmental organizations recently have stepped up their efforts to expose the funding behind so-called “forest-risk” companies, which are likely to clear forests to produce palm oil and rubber, harvest timber, and make paper. In mid-2016, a coalition set up the Forests & Finance Database, connecting companies involved in these sorts of activities in Southeast Asia with their banking institutions around the world.

In the new report from Greenpeace, the organization contends that these bankers should take responsibility when their money is used to destroy critical habitat, separate local people from their land or unleash the ill effects of deforestation to both the planet and human health.

“Deforestation causes devastating fires that threaten the health of millions across Southeast Asia, and our global climate,” Rahmawati said in the statement. “So why is HSBC helping to raise billions for the companies fanning the flames?”

But the bank told Mongabay that’s not what is happening.

“HSBC’s policies prohibit the financing of operations that are illegal, damage high conservation value forest/landscaping or violate the rights of workers and local people,” Ankit Patel, a spokesperson for the bank in an email. “HSBC does not knowingly provide financial services which directly support palm oil companies which do not comply with our policy.

Palm oil plantations in the Indonesian province of Papua. Photo by Rhett A. Butler

“We are not aware of any current instances where customers are alleged to be operating outside our policy and where we have not taken, or are not taking, appropriate action,” Patel added.

How, then, have the six companies, identified by Greenpeace in the report and worth billions to HSBC in terms of credit and loans, fallen short of the standards set out by the Roundtable on Sustainable Palm Oil (RSPO) and HSBC itself?

The RSPO is an organization that aims to increase the sustainability of palm oil through voluntary certification measures. HSBC mandated in its 2014 policy on agricultural commodities that all of the oil palm operations owned by its customers be RSPO-certified by the end of 2018.

“[W]e support credible independent certification schemes and require that our customers use certification as a tool to evidence their commitment to sustainable development,” HSBC wrote in a 2014 statement on forestry and palm oil. “We believe that independent certification of forestry and palm oil operations is the most effective way of ensuring that our customers demonstrate that their behaviour is consistent with these principles.”

But in Nabire District in the Indonesian province of Papua, satellite imagery analysis presented by Greenpeace showed that “several thousand hectares of mostly primary forest” and peatland on the 17,000-hectare PT Nabire Baru plantation had been cleared between 2011 and 2013. Goodhope Asia, the palm oil subsidiary of the Sri Lanka-based company Carson Cumberbatch, holds the concession for this land and is an RSPO member.

Mature oil palm plantation in Sumatra. Indonesia is the world’s biggest producer of palm oil. Photo by Rhett A. Butler

Greenpeace’s research revealed that HSBC has helped orchestrate $400 million in credit and loans for Goodhope, which holds 15 oil palm concessions in Indonesia, as well as 4 in Malaysia.

On April 19, 2016, the Indonesian NGO Pusaka Foundation filed a complaint against PT Nabire Baru based on the deforestation, the lack of “free, prior and informed consent” of local communities (a central tenet of RSPO guidelines), and other violations. The complaint was finally “escalated” and formalized by the RSPO complaints panel on Dec. 19.

Only then was the information about the complaint published, along with supporting documents, on the website. That process should have taken weeks, not months, said Jago Wadley, a senior forest campaigner with London-based NGO the Environmental Investigation Agency (EIA).

Six baby orangutans from left: Lala, Svenja, Fathia, Meryl, Madara, Syahrini  playing on the ground at Borneo Orangutan Survival (BOS) Foundation in Nyaru Menteng, Central Kalimantan. Bjorn Vaugn / BOSF / Greenpeace
Six baby orangutans from left: Lala, Svenja, Fathia, Meryl, Madara, Syahrini playing on the ground at Borneo Orangutan Survival (BOS) Foundation in Nyaru Menteng, Central Kalimantan. Bjorn Vaugn / BOSF / Greenpeace

To take that amount of time was “unprecedented.” Wadley said. “That’s why we conclude that effectively, somehow this complaint was buried out of the public domain.”

Greenpeace notes that problems with the efficacy and enforcement of the RSPO standards exist, not just in Indonesia, but worldwide.

But several of the companies that HSBC does business with are not yet members of the RSPO. PT Bio Inti Agrindo has a 36,401-hectare oil palm concession in Merauke District in Papua. Neither PT Bio Inti Agrindo nor POSCO Daewoo, the South Korea-based corporation that owns 85 percent of the palm oil company, belongs to the RSPO. HSBC alone has contributed at least $269 million in loans to the POSCO Daewoo.

In analyses for the report, Greenpeace found that “19,000 hectares of primary and secondary forest” has been cleared for the plantation since 2011. What’s more, the company is suspected of using fires to clear the land between 2012 and 2015, which would violate Indonesian law and HSBC policy.

Haze rises from nearby forest and peatland fires in Indonesia. During a 2015 crisis, 100,000 people in Southeast Asia died as a result of the pollution from the haze, according to a 2016 study in the journal Environmental Research Letters. Photo by Rhett A. Butler

HSBC’s own agricultural commodities policy explicitly prohibits “knowingly” providing financial services for growers that have burned land to clear it, converted high conservation value areas, or violated community rights.

“We engage with our customers to help them understand and implement our policies,” the company said in the 2014 statement. “If they are unwilling or unable to achieve the standards we require by the deadlines we have set, we will end our banking relationships with them.”

Greenpeace’s position is that, because of the breaches uncovered in the report, ties should be – or should have been – severed with these companies.

“Even the most basic due diligence on these companies should have set alarm bells ringing,” the authors wrote, “which raises the question: Is HSBC failing to apply its policies altogether, or just failing to apply sufficient scrutiny when assessing whether current or prospective customers comply?”

They urged banks like HSBC to lead the way toward more transparency, closer scrutiny and a “No Deforestation, No Exploitation, No Peat” policy considering the transgressions the report reveals.

“Generally, HSBC is a leader at developing policies for financial institutions,” Wadley said, “but it does seem to be willing to bend its own rules in cases like these.

“It’s important that decision makers and procurement experts are aware that the fact that these policies exist doesn’t always mean they’re being implemented effectively.”

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A summary of the active loans arranged or provided by HSBC to six palm oil companies operating in Indonesia. In total, Greenpeace found that HSBC had been involved in financing $16.3 billion for these companies, some of which are no longer outstanding.


Banner image of Orangutans at BOS Nyaru Menteng Orangutan Rescue Center in Indonesia © Bjorn Vaugn / BOSF / Greenpeace

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