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HSBC accused of financing destructive Indonesian palm oil

Asia / 18-01-17 / by
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HSBC “is supporting environmental destruction and exploitation” in Indonesia, according to Greenpeace, which has accused the bank of financing palm oil companies engaged in unsustainable behaviour.

HSBC is alleged to have provided loans or bonds to six companies accused of flouting international standards on palm oil.

One of the companies, Bumitama Agri, received two refinanced fixed term loans from a consortium of banks including HSBC in 2012 and 2013. They were worth US$120mn and US$70mn, respectively.

In concessions in Indonesia’s Kalimantan regions, Bumitama is accused of deforestation, operating without a licence, not meeting Roundtable on Sustainable Palm Oil (RSPO) certification within the required timetable and developing on a Ramsar wetland (a wetland protected under the Ramsar Convention for environmental reasons).

Not only do these breach commonly held international standards, Greenpeace claims they are in direct contradiction to HSBC’s own governance policies.

HSBC is not the only bank involved: others named include ABN Amro, ANZ, Bank of America Merrill Lynch, BNP Parbas, BTMU, Citi, Commerzbank, Credit Suisse, DBS, Deutsche Bank, ING, Mizuho, Rabobank, Standard Chartered, SMBC and UOB.

In fact, one of the companies named – Noble Group – is arguably one of the most banked commodity traders in Asia, regularly signing high-profile revolving credit facilities and refinancing agreements with the highest-profile banks in the region.

Last year, for instance, Noble Group signed an RCF worth US$90mn with 25 lenders. The year before, it closed a US$1.1bn deal with a syndicate of 35 banks.

Noble is also accused of deforestation, this time in West Papua, as well as violating the rights of local communities, significant social conflict and clearing a high conservation value forest (HCV).

HSBC’s very public profile, however, makes it a target for Greenpeace UK. The report reads: “Even the most basic due diligence on these companies should have set alarm bells ringing, which raises the question: is HSBC failing to apply its policies altogether, or just failing to apply sufficient scrutiny when assessing whether current or prospective customers comply?”

GTR contacted the bank’s head of NGO engagement Brendan McNamara, who gives the following statement: “HSBC’s policies prohibit the financing of operations that are illegal, damage high conservation value forest/landscaping or violate the rights of workers and local people. HSBC does not knowingly provide financial services which directly support palm oil companies which do not comply with our policy. We are not aware of any current instances where customers are alleged to be operating outside our policy and where we have not taken, or are not taking, appropriate action.”

Other banks contacted for comment failed to respond on time.

The bank revised its palm oil financing strategy in 2014 and says that it subsequently released more than 100 companies from its books.

McNamara says: “As noted in the statement: ‘Following the revisions to the policies in 2014, including firm dates by which customers had to complete certification, we decided to close banking relationships with 60 forestry and 104 palm oil customers.’ And we have since closed banking relationships with other customers.”

For confidentiality reasons, he says he is unable to comment on specific clients or cases, but says that if a client was found to be in breach of RSPO or HSBC’s own standards, they would follow RSPO standards in divesting from that client.

Greenpeace says the banking sector is well behind corporate counterparts such as Nestle and Unilever in pursuing sustainable supply chains. Regardless, the sheer number of banks named in the report raises questions about the due diligence undertaken by the financial sector when it comes to palm oil, a hugely destructive crop.

It also allows for valid questioning of banks’ commitment to sustainability: at a GTR event in Singapore last September, a survey showed bankers thought they were not responsible for ensuring that a transaction is sustainable.

More than 100 participants ranked financial institutions behind producers, government, manufacturers, traders and end users, meaning that it was the element of the transaction cycle perceived to carry the least responsibility.

To read the full Greenpeace report, click here

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