Allegations related to environmental and social issues in Halcyon Agri’s Cameroon rubber plantations attracted unwelcome headlines until they were addressed through its Corrie MacColl subsidiary. Deutsche Bank’s Clarissa Dann talks to Ryan Wiener, Corrie MacColl’s Global Head of Strategic Marketing, about how sustainable finance is helping set industry standards in rubber.
Rubber is a critical raw material that the world’s mobility relies on – without rubber the world comes to a stop,” declares Ryan Wiener, Global Head of Strategic Marketing at UK natural rubber producer Corrie MacColl. Founded in 1780, the London-based company is now a subsidiary of Singapore-headquartered Halcyon Agri (Halcyon) and focuses on the medical and other specialty product sector.
Nothing looks set to entirely replace rubber anytime soon. We see its uniqueness where there are high levels of wear and heat resistance such as tyres; and although these have man-made components, there is always that irreplaceable natural rubber component in the mix. In addition, the latex harvested from trees is reduced to a rubber solution to make medical equipment such as latex gloves.
Rubber’s volatile trading environment does not encourage sustainable behaviour. “90% of production is by smallholder farmers who, at high prices, cause mass deforestation by cutting down forests to make way for the planting of more rubber trees,” explains Wiener. “It takes seven years for the trees to grow only for supply to outweigh demand resulting in six million smallholders earning well below their national minimum wage.”
As a downstream processor of rubber, Halcyon had created the heightened processing standard they called HeveaPRO, which marked the start of Halcyon’s sustainability journey. It was in late 2016 that the group acquired its own plantations. “Sustainability is built from the bottom-up, and this was an opportunity to have a direct impact on the upstream supply,” says Wiener.
The Corrie MacColl Group’s Cameroon plantation (CMCP) on the West Coast of Africa comprises the Hévécam and SudCam plantations, and taken as one, is the largest commercial rubber plantation in total, says Wiener. The land now within its control amounts to 100,000 hectares – an area approximately one-and-a-half times the size of Singapore. Around 40,000 residents – of whom more than 15,000 are children under 18 – form part of the wider community for the plantation’s 7,000 workers. This includes 28 villages, 58 government schools and two hospitals, along with various market places, recreation and sports centres.
From 2018 to 2019 several NGOs published highly critical reports which included various allegations regarding environmental and social issues in the Cameroon plantations, including deforestation and habitat destruction; encroachment into nature reserves; degradation of watercourses; damage to dwellings and cultural assets of local communities, including indigenous people; involuntary resettlement of people; and poor stakeholder engagement. In the spirit of transparency, Halcyon Agri has published these reports on its website in its ‘Sustainability grievances’ section, along with its responses to each claim, many of which relate to legacy issues that were inherited by Halcyon when it acquired the businesses in Cameroon.1
The incoming new management could see from their rubber processing expertise, “the need for significant investment and a management restructure at the HévéCam factory”, recalls Wiener. “We found that the studies and subsequent management plans run by the previous management were outdated and not up to international standards. This meant that land clearing was adversely affecting critical forest ecosystems while also displacing local and indigenous communities.”
Stop, assess, partner and re-align
In December 2018, Halcyon management ordered the immediate cessation of all clearing and felling activities, while contracts with external contractors were cancelled and the planned plantation expansion stopped.2 This lead to a permanent ‘No Deforestation’ commitment, which was added to the company’s Sustainable Natural Rubber Supply Chain Policy – a first for the rubber industry, and a commitment made by the entire Halcyon Group.3
Together with environmental protection campaigner Mighty Earth and local NGOs APED and APIFED, the team conducted an extensive community engagement in the Hévécam and Sudcam surrounding communities. After months of face-to-face meetings with local and indigenous people and their nominated leaders, a thorough grievance list was set up and this has now been adapted into a Social Action Plan.
Expansion beyond borders
The commitment to stop development could have resulted in an economic hit to the company, which was how they came to develop the Cameroon Outgrower Programme. Not only does it source more rubber, but the programme aims to bring about more socio-economic benefits without an environmental cost by targeting 13,000 smallholders.
“Using satellite imagery, we are able to uphold our No Deforestation commitment by selecting smallholders who were already in possession of degraded or fallow land before the December 2018 cut-off date – in total 27,000 hectares,” reflects Wiener. Outgrowers that meet the sustainability criteria are equipped with financing, tools, seeds and training to develop an integrated farming model with rubber intercropped with fruit, nuts and vegetables, combined with livestock of pigs and chickens while they wait seven years for the rubber to mature.
Traceability of the supply chain is key to ensure that no environmental or social harm is being, or has been, caused, says Wiener. “Our strict on-boarding process for our Outgrower Programme means that our rubber is 100% traceable – we are able to map and trace all of our raw material.”
Sustainability-linked loan facilities aim to facilitate and support environmentally and socially sustainable economic activities and growth. However, the actual use of proceeds in relation to a facility of this kind is not a determinant in this categorisation and, in most instances, it will be used for general corporate purposes.
The proceeds have to be consistent with each of the borrowers’ corporate values and core sustainability strategy aligned with the Loan Market Association and the Asia Pacific Loan Market Association’s Sustainability Linked Loan Principles.4
On 25 July 2020, Deutsche Bank and Halcyon Corporation announced a US$25mn sustainability-linked loan facility with a three-year tenor, and an accordion feature to upsize the facility to US$75mn, to Corrie MacColl, to finance the company’s capex investments for its rubber plantations in Cameroon and Malaysia.5
What does “sustainability-linked” mean? In short, an agreed set of key performance indicators written into the financing contract.
It was important, said Wiener, “to show this was being done properly”. Environmental Resources Management (Singapore) Pte Ltd (ERM) was appointed by the Singapore branch of Deutsche Bank AG “to undertake an environmental and social governance (ESG) due diligence review” of Halcyon and to set a series of ESG KPIs to be applied to what would be the sustainable financing facility.
KPIs had to be “a suitably meaningful, measurable and core to the borrower’s business – and externally verifiable”. The due diligence process had, said the consultants ERM, “helped us to determine where the company could enhance its performance and recommend the relevant SPTs to be achieved within this facility”.
Towards mandatory rubber standards
“In terms of industry-wide standards, rubber lags far behind other industries,” reflects Wiener. He continues, “Standards are still a while away which is frustrating because although we have invested years, and millions of dollars into creating a sustainable source, producers who haven’t followed suit are able to sell their rubber for the same price. There is no premium for sustainability… yet!
“This is why our partnership with DB and the opportunity of this loan is so important. Deutsche Bank has shown their support in the time of our sustainability transformation; not just once we’ve reached the goal. This means simply that we are able to expand on our sustainability agenda,” he concludes.
Clarissa Dann is Editorial Director of Trade Finance Marketing at Deutsche Bank Corporate Bank