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02/12/2016

Report: Illegally produced palm oil is financed by European banks

Development Policy

Report: Illegally produced palm oil is financed by European banks

Palm Oil_Vincentraal.jpg

Biofuels giants Bumitama and Wilmar have knowingly traded illegally-extracted palm oil from plantations that encroach on and threaten orangutan habitats, says a report released today (21 November). European banks are amongst the firms' biggest investors.

The report, commissioned by Friends of the Earth (FoE), alleges that the Indonesian palm oil company Bumitama and subsidiary firms operated 'ghost estates' in plantations spread across 7,000 hectares which they lacked permits to run.

The plantations were based in West Kalimantan, a province on the Indonesian part of the island Borneo, but were not registered with the Indonesian forestry ministry of forestry, the report says.

Anne van Schaik, finance campaigner of FoE Europe and co-author of the report, says: “We have written to Bumitama and asked them repeatedly to prove the legality of the plantations, but they could not offer this so far.”

The FoE investigation, which utilised satellite imagery, trade data and on-the-ground report claims to have established that the land for the plantations was acquired from growers who unlawfully cleared vast tracts of rainforests, including sensitive orangutan habitat and protected forest reserves.

After the palm oil had been harvested, it was reportedly bought by Wilmar, a Singapore-based agribusiness company ranked as the world’s worst environmentally performing company by Newsweek magazine for the last two years.

Selling palm oil from unaccredited plantations is illegal, but van Schaik said that “this palm oil finds its way into the global supply chain of international trading in the product.”

It could then end up being used in Europe, where a target for providing 10% of fuel from renewable sources by 2020 encourages the use of biofuels.

The FoE report stresses the danger of deforestation in West Kalimantan. The Kalimantan province’s large rainforests are a vital habitat for orangutans – an endangered species. But Bumitama disregarded warnings that their plantations were encroaching on the jungle.

The International Animal Rescue filed a complaint in April with the Roundtable on Sustainable Palm Oil (RSPO), a platform organisation which sets voluntary guidelines on the cultivation of palm oil. Bumitama promised to halt its de-forestation – a promise they did not keep, according to the report, in which satellite imagery shows continuous deforestation of the area between May and September 2013.

In a reaction to EurActiv's questions, Bumitama put out a statement, saying the company and its subsidiaries "did not destroy the forest or kill any orang-utans", but acknowledged that "after conducting its own investigation, [we] noted that there were compliance gaps found in [our] adherence to the strict RSPO Principles and Criteria, mainly in the New Planting Procedures".

European investors involved

Bumitama Agri is based in Indonesia and controls around 200,000 hectares of plantation land banks. Amongst the main investors in the company is the British bank HSBC and Dutch bank Rabobank.

Both HSBC and the Dutch bank Rabobank provided significant loans to Bumitama. In an effort to increase pressure on Bumitama, FoE has flagged the issue with the European investors. “Both Rabobank and HSBC are very much looking into what comes out of the complaint at RSPO,” van Schaik says.

Positions

In reaction to the report, Bumitama acknowledged non-compliance in the adherence to the strict RSPO Principles and Criteria. "The Group (Bumitama and its subsidiary companies) has taken immediate remedial actions to stop all planting activities in the three companies mentioned above and will appoint an independent third party to audit the planting areas under the three companies. The Group has also signed an MOU with Tanjung Puting National Park to rehabilitate some parts of the forest and plant fruit trees as food for the orang-utans." Read the full statement here.

Background

As governments attempt to move away from fossil fuel-based power, they are increasingly looking at biomass, as new technologies now allow it to be converted competitively into liquid fuels and electricity. In Europe, palm oil used in car fuel has increased by 365 percent over the past six years.

However, in the search for cheap land, suitable climates and competitive transport costs, investors increasingly focus on Africa and south-east Asia, where many countries suffer from food insecurity and weak land rights.

Such plantations could displace poor and marginalised communities. De-forestation also threatens rare and endangered animal species or the environment.

Apart from biomass fuels, palm oil is dominantly used in the cosmetics sector and in food production.

Further Reading