DBS, OCBC financed Indonesian palm oil firms engaged in unsustainable practices: Report

DBS, OCBC financed Indonesian palm oil firms engaged in unsustainable practices: Report

Burning peatland in South Sumatra. (Photo: Sujadi Siswo)

SINGAPORE: DBS Bank and OCBC Bank have been financing palm oil firms accused of environmentally damaging and unsustainable practices in Indonesia, according to a report released on Friday (Jun 2).

The report by non-government organisations (NGOs) Rainforest Foundation Norway, AidEnvironment and Fair Finance Guide Sweden and Norway, said the banks had provided loans to palm oil firms Sampoerna Agro, IndoAgri/Salim and Tunas Baru Lampung.

Based on satellite imagery, company annual reports, permit data from the Indonesian Ministry of Environment and Forestry and other supporting data, these companies were found to have engaged in unsustainable practices such as draining peatlands, poor fire prevention and mitigation, as well as engaged in land disputes with local communities.

“Neither OCBC nor DBS publish details of the amounts they loan to the Indonesian palm oil sector. However, several indicators – such as their lending to companies listed on the Indonesia Stock Exchange – point to the fact that these banks are among the largest lenders to the Indonesian palm oil sector,” read the report.

The report noted that both banks had stated that they would include Environmental, Social and Governance (ESG) aspects into consideration before lending to oil palm operations during a regional haze episode in October 2015.

However it also mentioned that both banks have “yet to come out with any substantial information on (their) contributions to the oil palm industry transformation”.

Tunas Baru Lampung and Sampoerna Agro have consistently scored below 25 per cent in the Zoological Society of London’s Sustainable Palm Oil Transparency Toolkit, which ranks companies on their practices based on information the companies make public.

IndoAgri/Salim scored around 50 per cent. All three companies are members of the Roundtable on Sustainable Palm Oil – an international group committed to sustainable palm oil practices and transparency of production and procurement operations.

“WE CAN PLAY A ROLE IN PROMOTING A SUSTAINABLE PALM OIL SECTOR”

In response to queries from Channel NewsAsia, DBS Bank said it recently updated its approach to the palm oil sector. It will require palm oil companies seeking loans to demonstrate alignment with no deforestation, no peat and no exploitation policies, or other equivalents that are increasingly adopted by the palm oil sector.

“While our credit exposure to growers and processors of palm oil is not material, accounting for less than 1 per cent of total loans and advances to customers as at end-2016, we recognise that we can play a role in promoting a sustainable palm oil sector by being discerning in our lending practices to this sector,” said a DBS spokesperson. “We will not consciously finance companies that we know are violating local or national regulations or engaged in unlawful land clearance by burning, adversely affect high-conservation value forest, involved in new planting on peatland or violate rights of workers or local communities.”

OCBC said it assesses borrowers on internal ESG (Environmental, Social and Governance) requirements in areas such as pollution prevention, biodiversity and legally protected areas, occupational health and safety, with reference standards and conventions from organisations such as International Finance Corporate (IFC), United Nations (UN) and the International Labour Organisation (ILO).

It added that the bank will engage borrowers assessed to be of higher ESG risk to understand their approaches, and will then support them towards raising their internal standards through periodic reviews and feedback sessions.

“We believe that this is an effective way to help address any ESG concerns and promote long-term sustainable development,” said Vincent Choo, OCBC’s Chief Risk Officer. 

Source: CNA/ek