- According to a recent analysis and report, financial backing for palm oil, pulp and paper and other industries associated with forest loss in Southeast Asia is estimated to have topped $60 billion over the past five years.
- Many Asian banks, the biggest funders of palm oil and similarly damaging activities, have no standards that restrict the harm their clients cause.
- The Forests and Finance campaign may extend its scrutiny to include the soy sector, a significant factor in the loss of rainforest and grasslands in South America.
Industries that cause the loss of rainforest and peatlands in Southeast Asia were bankrolled to the tune of $62 billion between 2013 and 2018, according to new data released by the Forests and Finance campaign of the Rainforest Action Network (RAN).
Chinese, Japanese, Indonesian and Malaysian banks were the biggest funders of so-called forest risk activities and were least likely to have internal policies that restricted damage to the environment from the activities they funded, RAN concludes.
According to the Forests and Finance campaign director, Tom Picken, eliminating or restricting the financial support for forest-risk businesses – defined as unsustainable palm oil, pulp and paper, rubber and timber developments – is the most significant action that can be taken to reduce their impact. The campaign is a collaboration between RAN, the NGO TuK Indonesia, and a Netherlands-based not-for-profit called Profundo.
“Step back for a second and think about recent efforts to address deforestation in Southeast Asia,” Picken said in an interview with Mongabay. “Take the Norway effort, which pledged to put in $1 billion [to stop deforestation in Indonesia], and compare that with $62 billion over five years. It is absolutely critical that the allocation of capital stops encouraging deforestation.”
The Forests and Finance briefing does show a slight decline in levels of loans and underwriting to the companies involved in forest-related enterprises. They were expected to reach $9 billion in 2018. That’s higher than in 2017, but lower than every year since 2010.
Picken said he didn’t believe this was a permanent trend, however. “All the predictions suggest significantly increasing demand for pulp and paper and palm oil from rising market pressure globally,” he said.
Funding issues
Some Asian banks have started to develop environmental, social and governance, or ESG, standards, but not quickly or rigorously enough, according to Forests and Finance.
But in the past five years, it has been the single biggest funder of forest-risk activities, channeling nearly $3 billion to the pulp and paper sector and about $800 million to fund palm oil expansion.
Clients of SMBC include Wilmar International, which is the world’s largest palm oil refiner, “continues to face significant risk exposure to labor rights violations, unresolved land conflicts, illegal palm oil plantations, deforestation and high greenhouse gas emissions,” says the Forests and Finance briefing. Another client is Sumitomo Forestry, which has been accused of supplying plywood (for the Tokyo 2020 Olympic Games volleyball arena) that had been manufactured from illegally-logged timber.
Asked to comment, Ryota Fukazawa from SMBC’s corporate sustainability department referred Mongabay to a statement released in June 2018 announcing the establishment of ESG guidelines. Reflecting its “commitment to combat climate change,” SMBC will no longer finance any activity “which may have a significant impact on the global environment.”
Specifically on the issue of palm oil, SMBC says it will not support any companies involved in illegal logging or that use child labor. “We will check that internationally accepted external certifications such as RSPO (Roundtable on Sustainable Palm Oil), or other equivalent certifications, are obtained or expected to be obtained to support sustainable palm oil development,” the statement reads.
On the issue of deforestation, SMBC says it will review and evaluate the environmental and social risks of large-scale developments, “including if they entail clearing of primary forests and/or local ecosystems.”
Other financial institutions, such as RHB Banking and CIMB Group, both of which are headquartered in Kuala Lumpur, Malaysia, and China CITIC Bank International (CNCBI), highlighted as being either major funders of forest-risk industries or having especially poor ESG standards, did not respond to requests for comment.
RHB Banking, which was found by Forests and Finance to have no ESG policies, has a short statement on its website which refers to its responsibility to consider the social, economic and environmental impacts of its business decisions.
CIMB Group also scored zero on for its ESG policies, and it has provided nearly $2 billion worth of funding, mainly to the palm oil sector, in the past five years. Its website says it is committed to reducing its “impact on the environment” by “offering green products and services to our customers” and by “promoting environmental awareness projects and campaigns.”
RAN’s Tom Picken says he finds both sets of statements to be nothing more than “PR.”
“They do not imply a bank-wide policy is in place to deal with the complex environmental and social impacts of clients, nor do they indicate any internal systems are in place to implement such a policy,” he added. “One glance of their client lists suggest these banks have little regard for the consequences of client operations on the environment or communities harmed by destructive forest-sector projects.”
Heavyweight support
Some banks involved in funding activities such as palm oil have thrown their weight behind a new initiative of the U.N. Environment Finance Initiative (UNEP-FI) called Principles for Responsible Banking (PRB). The idea is that all signatories align their businesses with the objectives of the Sustainable Development Goals (SDG) and the Paris Climate Agreement. Backers include CIMB Group and the Industrial and Commercial Bank of China (ICBC), identified by Forests and Finance as also having no policies to reduce the impact its funding has on the environment.
Johan Frijns, director of BankTrack, a campaigning and monitoring group that assesses the sustainability of banks’ funding in all areas of commerce, says the U.N. initiative, while welcome, does not go far enough.
“We were in the room [at the launch] and voiced our concern about banks signing up to the PRBs while having a large fossil-fuel portfolio,” he told Mongabay in an email. “That same logic applies to banks active in forest-related business sectors.”
Picken said it was clear that many European banks had established better standards on the environment as a result of the stricter regulatory environment they operated in and improving standards on financial disclosure, but also because of “good old-fashioned campaigning and public pressure.”
He also pointed to some movement toward that end by Asian banks, especially in Japan.
“In the last couple of years, two of the three megabanks published forest-sector policies,” he said. “They are not strong enough, but it’s solid progress. We believe this has come about partly because we are bringing the standards of their clients to their attention, turning up at AGMs and engaging in public campaigns, alongside an emerging corporate responsibility sector in Japan.”
It was the absence of reliable information about the relationship between finance and loss of rainforest, especially that resulting from palm oil expansion, that prompted RAN to start the Forests and Finance campaign in 2016.
