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Critical questions remain as carbon credit deal in Sabah presses forward

A pair of orphaned orangutans in Sabah.

A pair of orphaned orangutans in Sabah. Image by Rhett A. Butler / Mongabay.

  • Details around a secretive “nature conservation agreement” signed in 2021 between a Singaporean company and the government of Sabah, a Malaysian state on the island of Borneo, remain elusive.
  • Several internationally known companies that work in climate mitigation have said they’re not affiliated with the agreement, despite implications by Jeffrey Kitingan, a deputy chief minister and the deal’s primary backer, that they are involved.
  • Kitingan also revealed that Hoch Standard, the Singaporean company, is controlled by a single director through another company registered in the British Virgin Islands.
  • Kitingan said the project is moving forward, leading to renewed calls from civil society, Indigenous and research organizations for the release of more details about the agreement.

New revelations around a carbon deal in Malaysian Borneo criticized for its opacity have led to further calls for clarity and transparency about the project.

Two international carbon credit project developers purportedly linked to the project have denied any involvement. And a disclosure by the agreement’s primary backer linked an entity registered in a country that the European Union considers a tax haven to the company that signed the agreement with the Sabah state government.

These findings have surfaced even as key questions remain more than two years after the agreement was signed. It remains unclear to the public what parts of the state the deal covers, who stands to benefit from any profits, and how the project will conserve forests and alleviate poverty — the potential results touted by the project’s promoters.

That starts with learning more about a Singaporean firm called Hoch Standard Pte. Ltd., said Robecca Jumin, head of conservation for Sabah with WWF-Malaysia.

“Foremost, the public needs to have confidence in the project proponent that partners with the government in the agreement,” Jumin told Mongabay in an email.

In November 2021, Mongabay first reported that the state of Sabah had signed a nature conservation agreement in secret with Hoch Standard to sell credits for carbon and other natural capital from 2 million hectares (4.9 million acres) of forest for the next 100 years. The revelation took civil society and Indigenous groups in Sabah by surprise, and they soon raised concerns about the dearth of details shared by the agreement’s architects.

In particular, it appeared as though communities in Sabah, many of whom depend on forests for sustenance and livelihoods, hadn’t been consulted about a project that would cover more than a quarter of the state’s land area and half of its forests. Critics from Sabah and abroad said this violated the principle of free, prior and informed consent (FPIC) codified in the United Nations Declaration on the Rights of Indigenous Peoples.

Several months after news of the agreement became public, Sabah’s attorney general issued a statement stating that it was “legally impotent,” in part due to the lack of FPIC and details about where the project’s activities would be situated. And for more than a year, it appeared as though the deal had fallen apart.

Then, in June 2023, Jeffrey Kitingan, a deputy chief minister in Sabah and the most vocal supporter of the agreement, said it was still active. But it remains clouded by critical questions, and as long as these remain unanswered, implementing the agreement could harm the people of Sabah, critics say.

A community at the edge of the forest in western Sabah. Image by John C. Cannon/Mongabay.
A community at the edge of the forest in western Sabah. Image by John C. Cannon/Mongabay.

A question of ownership

“The area covered by the agreement is massive and is likely to impact the majority of Sabahans,” WWF-Malaysia’s Jumin told Mongabay. WWF-Malaysia is a member of the Carbon Sovereign Sabah Coalition, which includes Sabahan and international NGOs, research organizations, and Indigenous groups. “Details such as track record and expertise in carbon offsets [and] trading will give the public confidence that the agreement will be carried out in a proper manner,” Jumin added.

But that information, including who controls Hoch Standard, has been hard to come by — until recently.

In an Aug. 11 call, Kitingan said that Lionsgate Ltd., the British Virgin Islands-based company that controls Hoch Standard, is “100% owned” by Ho Choon Hou, a Singaporean surgeon who is listed as the “NC Project Director/Strategic Funder” for the project. In February, the EU added the British Virgin Islands to a list of countries it says allow companies to circumvent tax obligations.

Ho has turned down multiple requests for interviews with Mongabay through his representatives dating back to 2021, saying that all questions about the project should be directed to the Sabah government. Kitingan, through his associates, has also declined to speak with Mongabay.

The agreement describes Hoch Standard as a company “which carries on the business of implementing and managing programs for the sustainable management of natural assets, including biodiversity, forestry, and nature capital, and also carries on the business of an expertise in the development of carbon sequestration offsets projects and emissions avoidance offsets projects.” But research by the coalition into Hoch Standard’s history revealed only that shareholders have invested $1,000 in “paid-up capital” in the business, according to financial records from Singapore’s Accounting and Corporate Regulatory Authority (ACRA). The company has not released any evidence demonstrating its expertise in running natural capital projects.

Mongabay obtained a document from the British Virgin Islands Financial Services Commission confirming that Ho is the sole director of Lionsgate as of the document’s filing date of Sept. 5, 2023. The coalition is now calling for the backers of the agreement to release more information about who, beyond Ho, stands to benefit financially from any potential proceeds. The organizations are also demanding more clarity about Lionsgate’s ownership history on the grounds that the profits would be derived from Sabah’s publicly held land.

Aerial image of Sabah's rainforests.
Aerial image of Sabah’s rainforests. Image by Rhett A. Butler/Mongabay.

Illusory partners

For his part, Kitingan has tried to link the agreement with internationally known companies involved in climate change mitigation.

“We are engaged with ALLCOT Group,” he said during the press call.

ALLCOT is a carbon credit project developer involved in more than 60 projects around the world. A photo of two documents, one with ALLCOT’s letterhead and another with the letterhead of Brazil-based Sustainable Investment Management (SIM), appeared on the screen during the call.

In September, the website REDD-Monitor reported that ALLCOT had never agreed to be a part of the project. Company spokesperson Laura García Fernández shared a letter with Mongabay from December 2021 in which the company expressed interest in working with the government of Sabah on the project outlined in the agreement.

However, she said, “ALLCOT AG or any of its affiliates or subsidiaries has never been engaged in any way with the Sabah State Government, the Deputy Chief Minister Datuk Seri, Dr Jeffrey Kitingan, Hoch Standard Pte Ltd or Lionsgate Ltd.

“We hold ourselves to high standards when it comes to taking on new projects. We prioritize due diligence, which involves conducting a thorough assessment of the project’s viability, potential risks, and the availability of essential information,” she added in an email. “In the case of the project in question, we were unable to proceed due to the lack of necessary information.”

Deforestation in Sabah.
Deforestation in Sabah. Image by John C. Cannon/Mongabay.

Pedro Moura Costa, SIM’s founder and CEO, acknowledged that he contacted Kitingan after learning about the agreement at the 2021 U.N. climate conference in Glasgow, United Kingdom. In a letter seen by Mongabay and dated Nov. 22, 2021, he congratulates Kitingan on his efforts to conserve Sabah’s rainforest and offers “to contribute to the success of this initiative.” But Costa said he never heard back from Kitingan or his associates.

Any implication that SIM is a part of the project is “not true,” he told Mongabay. “We are not involved.”

Still, Costa, who in the 1990s spent four years working as a forest officer in Sabah, said he supports the principle of finding ways for Sabah to benefit from maintaining and restoring its forests.

“I would love to see like a statewide payment for environmental service program in Sabah,” he said. But the approach by Kitingan and his allies is “completely wrong” due to the lack of FPIC and the dearth of critical details about the project, Costa added.

Location, location, location

Kitingan said the 600,000-hectare (1.5-million-acre) “initial launch” of the project was set to begin in “different classes of forest reserve,” starting with “Trusmadi.”

Trusmadi is the name of a mountain in central Sabah, and there are actually two Trusmadi reserves in the state. The coalition has said that Kitingan was referring to the 75,000-hectare (185,000-acre) Nuluhon Trusmadi Class I Forest Reserve, which Sabahan law classifies as a totally protected area. An infographic (also available in Bahasa Malaysia) produced by the coalition indicates that project leaders have not obtained consent from communities in the area.

In November 2021, Kitingan said that all of the 2 million hectares covered by the agreement would come from Sabah’s bank of totally protected areas, which includes Class I forests as well as others set aside mainly for conservation. He reasoned at the time that these previously gazetted reserves had already been through a consent process with local communities and thus required no further FPIC to be a part of the agreement.

The text of the agreement makes no mention of Sabah’s protected areas being part of the deal. And yet the continued refrain from Kitingan and his allies about situating project activities in these places has puzzled critics. They question how developers plan to achieve the “additionality” that sources say is critical to the project’s ability to sell carbon credits and bring in the revenues that Kitingan and his colleagues have said will benefit Sabahans.

A red-leaf monkey (Presbytis rubicunda), pictured here in Danum Valley Conservation Area, one of Sabah’s Class I (totally protected) forest reserves. Image by John C. Cannon/Mongabay.

“In carbon offset projects, carbon credits are required to be additional — in that it represents emission reductions or removals that would not have otherwise occurred without the added incentive from the carbon market,” Jumin said.

Those reductions and removals can come from planting trees or protecting forests from deforestation due to the expansion of agriculture, for examples. It can be difficult to prove such measures actually reduce emissions when carried out on land that’s already protected, sources said.

But during the press call, Kitingan suggested that there were “many components of additionality.”

“Additionality is not confined to, like, you plant new trees,” he said in response to a question. “It has got seven or eight types, including compliance to the Indigenous people, like FPIC, is also additionality.”

“FPIC is an important part of a forest carbon project,” Jumin said, noting that a consent process helps to ensure that community interests are taken into account. “I am not aware of how it contribute[s] to additionality,” she added.

“[F]or carbon offset projects to be truly meaningful in addressing the global urgent need to reduce the concentration of greenhouse gas in the atmosphere,” Jumin said, “[they need] to genuinely contribute to the reduction of [greenhouse gas] emissions.”

Planted rice with the forests of Sabah behind. Image by John C. Cannon/Mongabay.
Planted rice with the forests of Sabah in the background. Image by John C. Cannon/Mongabay.

Continued legal challenges

In September, the Carbon Sovereign Sabah Coalition began preparations to launch a judicial review, according to Cynthia Ong, chief executive facilitator of the Sabah-based NGO Land Empowerment Animals People (LEAP). The review builds on an earlier legal challenge to the agreement by former Malaysian senator and Indigenous leader Adrian Lasimbang filed in December 2021.

The attorney general confirmed, in communications with the coalition, that the legal issues she had raised in February 2022, including the requirement of adequate due diligence, had not yet been resolved, Ong said.

The attorney general did not respond to requests for comment from Mongabay.

Amid renewed calls for more information in July, Anuar Ghani, Kitingan’s political secretary, chided those opposed to the deal, saying they were standing in the way of a project that could bring in 8 million ringgit (currently equivalent to more than $1.67 million) per day.

In November 2021, Kitingan said the project would bring billions of ringgit to alleviate poverty in Sabah. But Jumin said his calculations overestimated potential revenues from carbon credit sales. They were based on a price of $20 per credit, which represents the removal or avoided emission of 1 metric ton of carbon dioxide.

“For the voluntary market, the carbon price has never gone up to USD20,” Jumin said. Prices have ranged between $1 and $3 since early 2023, with nature-based credits currently going for $1.10 on the voluntary carbon market on Nov. 1.

Banner image: A pair of orphaned orangutans in Sabah. Image by Rhett A. Butler / Mongabay.

John Cannon is a staff features writer with Mongabay. Find him on 𝕏: @johnccannon.

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