An influential campaign group has called for greater oversight of Chinese banks over concerns that a cluster of the country’s biggest lenders are pumping billions into companies with ties to deforestation risks.
In a new report, Global Witness says that Chinese banks and investors provided over US$22.5bn in loan and underwriting services to major companies that produce and trade commodities at high risk of driving deforestation from January 2013 to April 2020. These include palm oil, soy, beef, rubber, timber, as well as pulp and paper.
The analysis draws on data from Forests & Finance, a coalition of non-governmental organisations, and pinpoints five commercial Chinese banks as having dominated the funding for risky producers and traders.
The Industrial and Commercial Bank of China (ICBC), Bank of China, Agricultural Bank of China, Bank of Communications, and China Construction Bank are all listed in the report, which says that between them the lenders accounted for 45% – or US$10.25bn – of the total figure.
None of the banks were immediately available for comment.
“These banks dominate China’s retail banking landscape and have become some of the world’s largest banks in recent years. The Industrial and Commercial Bank of China and Bank of China are the biggest financiers. Each respectively provided US$3.66bn and US$2.91bn of financing for major companies producing and trading forest-risk commodities between January 2013 to April 2020,” Global Witness says.
According to the Forests & Finance data, China ranks as the sixth-largest financier in the world for major companies that produce and trade forest-risk commodities.
While financial institutions based in Brazil, Malaysia, the US and Indonesia are some of the main sources of liquidity for these firms, once financiers based in producer countries are removed from the equation, China comes in as the second largest financier worldwide, after Japan.
Two of the banks listed in Global Witness’ analysis have previously been flagged as some of the “worst performing banks” globally.
In the Forest 500 – a ranking system of the deforestation policies of the 500 most influential companies and financial institutions in forest-risk commodity supply chains – both Bank of China and ICBC scored the lowest possible mark of zero for their performance last year.
With the Chinese government currently in the process of revising its Commercial Banks Law, Global Witness makes the case that there is a “crucial opportunity” for addressing these issues.
It says it “would like to see the revised law explicitly require the banking sector not to finance companies linked to deforestation, or other types of environmental destruction and social damage”.
At the same time, the paper recommends that the law should build on requirements set out in several guidelines issued by the Chinese government in recent years, including the 2012 Green Credit Guidelines, which require financial institutions to carry out environmental and social due diligence.
“Little or no due diligence”
Alongside regulatory changes, Global Witness suggests in its report that Chinese banks should take it upon themselves to carry out more rigorous checks and commit to ending support for companies involved in deforestation.
In specific analysis of three of the most damaging commodities for forests globally, the paper says that Chinese lenders have often performed “little or no due diligence” on producers and traders of palm oil, soy and beef.
Environmentalists have frequently railed against the damage caused by the palm oil industry in countries such as Indonesia and Malaysia, citing destruction of rainforests and harm to species such as the orangutan.
Global Witness says that Chinese financiers have played a role in funding the palm oil sector, having funnelled US$3.2bn in loan and underwriting services to companies in the industry from January 2013 to April 2020.
Much of the financing (US$2.1bn) went to a single company, China Oil and Foodstuff Corporation (COFCO), which is the country’s largest agricultural processing and trading company.
The firm requires its suppliers to avoid deforestation within its own supplier code of conduct, however Global Witness claims that COFCO “may not be putting this policy into practice”.
“Our analysis reveals that 77 processing facilities which had been suspended by palm oil giant Unilever for non-compliance with its sourcing policies were still listed as COFCO suppliers in 2019. This is based on the latest disclosures from Unilever (September 2020) and COFCO (in 2019). It is concerning that COFCO has failed to exclude suppliers that have been in breach of Unilever’s sourcing policy dating back as far as 2010, and therefore could be guilty of deforestation,” the report reads.
At the same time, Global Witness says that Chinese banks have also supported other, major domestic and international firms such as Wilmar and Tianjin Julong, with financial analysis group China Reaction Research claiming in a report earlier this year that the latter has been linked to forest fires and deforestation since 2010.
Wilmar, meanwhile, was accused by a Greenpeace report in 2018 of having ties to Indonesian palm oil company Gama, which it said was actively involved in deforestation in the country.
Greenpeace argued that Gama was run by Wilmar executives and members of their family, though the multinational trader denied having any influence over Gama at the time.
Global Witness’ report further details the role that Chinese banks have played in potentially facilitating deforestation in Brazil, where soy and beef production is driving the destruction of the Amazon.
Under the stewardship of far-right President Jair Bolsonaro, the South American country has seen the rate of deforestation surge in recent years.
Inpe, Brazil’s space agency, reported in November that deforestation in the Amazon reached its highest level in over a decade between August 2019 and July 2020. More than 11,000 square kilometres was found to have been destroyed, an increase of 9.5% from the previous year.
With environmentalists having cited the damage caused by companies clearing out land for soy bean and beef production, Global Witness notes in its latest report that one major meat producer with ties to deforestation, JBS, has sourced funding from China Construction Bank.
That’s “despite the company’s poor environmental track record and a number of published exposés on its links to environmental and biodiversity destruction in the Brazilian Amazon”, the report reads.
As shown in a December report, Global Witness’ concerns and recommendations aren’t limited to Chinese banks and regulators.
The organisation urged in that paper that international banks – based in the UK, US, EU and elsewhere – cut ties to meat traders it suspects as being linked to deforestation in Brazil.
Meanwhile, last month, Global Witness was among a group of NGOs to outline a raft of policy recommendations including stricter due diligence requirements for European banks and companies, as well as possible criminal penalties.