Big banks support firms linked to deforestation

Jakarta Post 21 Sep 16;

The link between the world of finance and the destruction of forests has become clearer with a recent study finding that global banks, including three large banks in Indonesia, have been financially supporting forest-risk companies.

The study titled “Forest & Finance” revealed that financial institutions provided more than US$38 billion worth of commercial loans and underwriting facilities to 50 companies implicated in deforestation in the Asia-Pacific region, in the period between 2010 and 2015.

The banks provided loans and underwriting facilities to companies through their production and primary processing operations in four sectors: palm oil, pulp and paper, rubber and tropical timber.

The report was drawn up by the community group TuK Indonesia, California-based Rainforest Action Network (RAN) and Dutch consultancy Profundo. “This study aims to provide a comprehensive assessment and encourage transparency, so financial institutions can consider the impacts of their financial services,” Rahmawati Retno Winarni, TuK Indonesia executive director, told The Jakarta Post.

Malaysia is the country with the two biggest financiers of forest-risk companies. The total value of loans, credit and underwriting disbursed by Malaysia-based banks, Malayan Banking and CIMB amounted to $5.3 billion. Other countries in the spotlight include China, Japan and Indonesia.

In Indonesia, Bank Mandiri, the country’s largest lender by assets, provided $1 billion in loans, while Bank Rakyat Indonesia (BRI) provided $458 million for forest-risk companies. State-owned lender Bank Negara Indonesia (BNI) gave $678 million to companies such as Sampoerna Agro, Rajawali Group and Barito Pacific Group.

PT Nasional Sago Prima, a subsidiary of publicly listed plantation firm PT Sampoerna Agro, was found negligent in burning 3,000 hectares of its concessions in Meranti Island regency, Riau, in 2014.

The South Jakarta District Court handed down fines on Aug. 11 to the company amounting to Rp 1.07 trillion ($81.5 million).

“Only tighter financial sector regulation is capable of setting the kind of binding standards needed to stop banks fuelling forest crime,” said Tom Picken, forests and finance campaign director with RAN.

Rahmawati said that based on the facts revealed in this research, the community group recommended that financial regulators push financial institutions to publish reports on sustainability information every year.

Responding to the report, the Indonesian banks — Bank Mandiri, BNI and BRI — denied claims they had financed companies that were involved in environmental destruction.

Bank Mandiri corporate secretary Rohan Hafas said the bank had set strict requirements for its clients when providing loans. “We will only finance corporations that have met our requirements and licensing regulations. In this context, we will provide loans to plantation companies that have all the required permits, for example, the environmental impact analysis [Amdal] and other permits,” he said.

“BNI has been recognized as a ‘green’ bank. The bank is also included on the Sri-Kehati index,” Ryan Kiryanto, corporate secretary of BNI, said.

He explained that the Sri-Kehati index showed which companies are regarded as constantly managing sustainable development and were concerned about environmental issues. Twenty-five companies were listed on the Sri-Kehati index, including BNI.

Hari Siaga, BRI corporate secretary, also said that before giving out loans, the bank required companies to have plantation business permits from the Agriculture Ministry, business permits, company registration certificates and an Amdal.

The Rajawali Group declined to comment on the report. (win)

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