Jakarta Globe, Erwida Maulia, May 17, 2015
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Palm oil plantations in Indragiri Hulu district in Sumatra's Riau province. (EPA Photo/Bagus Indahono) |
Singapore.
The Singaporean government has called on financial institutions operating in
Southeast Asia to exercise caution in funneling funds to palm oil producers,
saying scrutiny on the sector continues to intensify with recurring problems in
transboundary haze.
Banks have
acted as an important source of capital for the region’s palm oil industry,
Singapore’s Minister for the Environment and Water Resources Vivian
Balakrishnan said last week.
Citing a
2010 report by BankTrack, he said lenders provided an estimated 24 percent of
the total financing needed for the sector globally, with more than $50 billion
invested in the Malaysian and Indonesian palm oil sectors alone during the
decade prior to the release of the study.
“The number
has grown significantly since then. And this includes local sources of capital
from within Indonesia and Malaysia,” Balakrishnan said in a keynote speech
during the second annual Singapore Dialogue on Sustainable World Resources held
last Wednesday.
With the
recurring issue of transboundary haze, he added, calls have intensified for
companies and individuals “all the way down” the supply chain to be held
accountable for deforestation — the main culprit behind recurring forest fires
in Indonesia and haze affecting neighbors Singapore and Malaysia.
“Due to the
environmental scrutiny and the campaigns by environmental NGOs, banks have now
also become part of the watch list,” the minister said.
“And my
plea to you, therefore, is please pay attention to this and remember the
questions will be asked not only of the companies involved, but also of the
financiers and the banks behind the industry.”
Balakrishnan
added that lenders and other financial institutions are now expected to be more
responsible in conducting background checks on palm oil companies. It is not
enough to merely see whether their clients would be able to pay their loans and
interest rates, he said.
How the
companies derive their resources, their methods of production, the
environmental, social and even political risks they face all must be assessed
before banks decide whether they should invest in the business.
“These
[steps] have to become part and parcel of standard due diligence,” Balakrishnan
said.
Financial
institutions, including banks and investors, have significant influence over
the market and the proper behavior of producers, he added.
Representatives
from the financial sector speaking at Wednesday’s dialogue conceded that more
banks are gradually recognizing the opportunities in sustainable financing.
They are also beginning to understand the need to assess their clients’
environmental and governance records to protect themselves from potential
reputation damage.
“It makes
good business sense, not just from a reputational perspective, but also from a
credit prospective. Generally, a company that actually does good from an
environmental perspective would be in better financial health,” said Vincent
Choo, chief risk officer of OCBC Bank.
However,
Jeanne Stampe, the Asian finance and commodities specialist of environmental
group WWF International, sees domestic
banks from the Association of Southeast Asian Nations lagging behind in
implementing environmental, social and governance standards.
Both bank
management and shareholders simply don’t see the need or urgency to take
action, she said.
Stampe
added that she also recognizes a lack of senior-level prioritization, a lack of
capacity and lack of pressure coming from both regulators and company
stakeholders to take the issue seriously.
The
Singapore dialogue raised concerns that sustainability, which should be a new
basis for growth in the region, has instead become a greater challenge amid
falling commodities prices across the globe, as well as the constant need to
create more jobs in Southeast Asia.
However
Simon Tay, the chairman of Singapore Institute of International Affairs, the
organizer of the event, said there was still hope for a better outcome.
“If we look
at the industry itself, we see signs of change,” Tay said during his opening
speech.
“More
larger and leading companies among us here today recognize and are responding
more strongly to the sustainable challenge as a business issue; not merely as
public relations.”
Minister
Balakrishnan added that there was an increasing trend among consumers to demand
for environmentally friendly products — and that this was not just a phenomenon
in developed countries.
He cited a
Nielsen survey conducted last year, which reported that 55 percent of the
online consumers across 60 different countries said they were willing to pay
more for products and services provided by companies that are committed to providing
positive social and environmental impacts.
“This
propensity of willingness to buy socially responsible brands is actually
strongest in the Asia-Pacific region, where 64 percent of respondents [had]
this preference. And I believe this preference will stay, with their wallets
that will grow stronger in the years to come,” Balakrishnan said.
“The
industry sectors that can first develop standards and labels on sustainable
products will have a head start,” the minister added.
Arief
Yuwono, the Indonesian Environment Ministry’s deputy for environment
degradation control and climate change, said promoting sustainability would
also be a key priority for President Joko Widodo and his administration.
The
Indonesian government is currently seeking to extend the moratorium on granting
new land concessions for plantations and mining activities, which expired on
Wednesday.
“We’re
working on the final draft, and we hope it will be issued very soon,” said
Arief, who also addressed the audience at Wednesday’s dialogue.
He conceded
that several issues still needed to be addressed before the new moratorium
draft could be finalized, including law enforcement, synchronization with other
related, existing regulations and the
one-map reference issue.
Overlapping
maps of concessions, community forests and protected forests have caused
problems in implementing the deforestation moratorium since it was first
introduced by former president Susilo Bambang Yudhoyono in 2011.
Joko has
agreed to extend the moratorium, Indonesian Environment and Forestry Minister
Siti Nurbaya revealed after a meeting with the president at the State Palace in
Jakarta on Wednesday.
“Proposals
to strengthen [clauses in the moratorium] from Walhi, Kemitraan, Sawit Watch, WRI
and others are very much appreciated and will be summarized by the Ministry of
Environment and Forestry for a follow-up,” ministry spokesman Eka W. Soegiri
said in a press statement on Wednesday, naming Indonesia’s leading
environmental groups.