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Financial institutions must not contribute to forest and peatland destruction and transboundary haze

  • Publication Date | October 19, 2022
  • Document Type | Media Statement
  • Programmes | Forests & Biodiversity
  • Issues | Biodiversity, Deforestation, Forest & Finance
  • Tags | carbon emissions, free prior informed consent, monoculture
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As the climate and biodiversity crisis intensifies, credit to forest-risk commodity companies increased 60 per cent between 2020 and 2021

A new report, released today by the Forests & Finance Coalition, whose members include the Rainforest Action Network, Profundo, TuK Indonesia, Bank Track, Amazon Watch, Reporter Brasil, Friends of the Earth US and Sahabat Alam Malaysia, finds that none of the largest banks and investors in the high-risk AFOLU (Agriculture, Forestry and Other Land Use) sectors have sufficient environmental, social and governance (ESG) policies. Forests & Finance hosts an unrivaled transparency platform which reveals the financial flows to the world’s largest forest-risk commodity companies operating in tropical forests regions. The extensive, searchable dataset[1] has just been updated to include credit, bondholdings and shareholdings as of September 2022.

On the whole, the report finds that global bank policies continue to have inadequate policies to prevent the financing of deforestation, climate chaos and human rights abuses. Money keeps flowing to forest-risk commodity companies in a largely unrestricted way. Since the Paris agreement was signed, banks have pumped USD 267 billion into forest-risk commodity companies, and as of September 2022, investors held USD 40 billion in bonds and shares in forest-risk commodities.

“It is now well established that the twin crises of climate change and biodiversity loss pose a generational, planetary scale threat and yet, the world’s financial institutions are actually increasing their lending to the very industries driving humanity to the brink,” said Tom Picken, Forest and Finance Campaign Director with Rainforest Action Network and a founding member of the Forests & Finance Coalition[2]. “This latest assessment shows how big banks and institutional investors are blind to the urgency of the moment and financial sector policies remain dangerously inadequate. With the agriculture, forestry and land-use sector contributing 23 per cent of global carbon emissions, it is abundantly clear that we must overhaul the rules governing bank and investor decision-making if we are to meet the global climate, biodiversity and rights emergencies we face.”  

The new assessment of 200 of the largest banks and investors in global forest-risk commodities in tropical forest regions raises grave concerns. Overall, the average score was just 1.6 out of 10 and an alarming 59 per cent of financial institutions scored under 1, indicating an abject failure to manage and mitigate environment, social or governance risks. Just 3 financial institutions scored 7 or higher which still leaves substantial room for improvement and does not reflect the urgency with which the world must address climate change and biodiversity loss.

The briefer highlights the role of finance for two particularly forest destructive sectors: the pulp and paper sector in southeast Asia and the beef sector in the Amazon. 

The Southeast Asian pulp industry can be linked to over 170,000 hectares of deforestation in the past years. Yet, since the Paris Agreement, the sector has attracted USD 23.6 million in credit. The largest five banks financing Royal Golden Eagle and Sinar Mas’ pulp divisions in Southeast Asia between 2016 and September 2022 were: Indonesian Bank Rakyat Indonesia (USD 4.3 billion), Bank Mandiri (USD 2.7 billion), Bank Central Asia (USD 2.5 billion) and Bank Negara Indonesia (USD1.4 billion); and British Barclays (USD 2 billion). The average score for the pulp and paper policies of these banks was only 1.3 out of 10.

The Forests & Finance 2022 policy assessment of the largest banks and investors shows that the majority have no policies to prevent deforestation, peat degradation, fires, or uphold human rights, including the free, prior and informed consent (FPIC) for indigenous and local communities, or to prevent forced or child labor. The policies are very minimal and fall well below providing protection. Regulators need to wake up and stop outsourcing the pace and scale of climate action to the financial institutions profiting from destruction.

The unsustainable development of the pulp and paper industry in Indonesia, is of great concern to Malaysia. For example, the expansion in the capacity of pulp and paper mills in Sumatra and Kalimantan, may entail the conversion of more peatland and forested areas, into pulp and paper monoculture plantations, in order to provide more raw materials to the mills. Consequently, the risk of transboundary haze incidents occurring in Southeast Asia in the near future may then continue. Compounding the matter, climate change may also increase the frequency and intensity of El Niño events, resulting in more severe droughts that can render the plantations and surrounding forests more vulnerable to larger fires that cannot be put out easily.

Therefore, members of the financial sector, including Malaysian banks, must play their role in ensuring that they do not finance companies that have been and may be involved in the conversion of forests and peatland into monoculture plantations. This can only be achieved if a financial institution has a coherent and effective ESG policy, which includes a robust No Deforestation, No Peat and No Exploitation policy (NDPE). 

The report can be accessed here[3].

Meenakshi Raman
President


[1] https://forestsandfinance.org/

[2] https://forestsandfinance.org/about-us/

[3] https://forestsandfinance.org/wp-content/uploads/2022/10/FF2022-policy-briefer.pdf

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Testimonials

Sahabat Alam Malaysia adalah satu badan bukan kerajaan (NGO) yang telah sekian lama berjuang mempertahan kelestarian alam. Ia juga mendidik masyarakat tentang pentingnya kebersamaan dalam pemikiran dan tindakan agar alam ini dapat kita wariskan kepada generasi hadapan dalam keadaan yang elok dan terpelihara. Dalam pada itu juga SAM giat membantu golongan nelayan pantai dalam memperjuangkan hak-hak mereka sehinggalah tertubuhnya Persatuan Pendidikan dan Kebajikan Nelayan Pantai Malaysia (JARING). Nelayan pantai sepenuh masa ini dididik oleh SAM sehingga mereka mampu memainkan peranan sebagai pemimpin nelayan yang meneruskan kesinambungan memperjuangkan hak-hak nelayan pantai lainnya. Sebagai contoh SAM telah berjaya menyedarkan masyarakat nelayan keperluan menjaga hutan paya bakau untuk kebaikan hasil tangkapan nelayan itu sendiri.
Jamaluddin Mohamad Bualik
Jamaluddin Mohamad BualikPersatuan Pendidikan dan Kebajikan Jaringan Nelayan Pantai Malaysia (JARING)
During the 1980s, I used to read about the Consumers’ Association of Penang (CAP) in the news. After retirement, some time in 2001, while lazing around, I read news about the construction of a carbon in leach plant using sodium cyanide to extract gold in Bukit Koman. My friends and I visited CAP and we were introduced to SAM and her legal team. We discussed the details of filing a case against the gold mining company and the department of environment with Ms Meenakshi Raman and her legal team. That was the beginning of a beautiful friendship between lawyers from SAM and many of us from Bukit Koman. We had many ups and downs in our struggle to shut down the gold mine that was causing a nuisance in our village. But, as a community we never gave up because SAM had our backs.
Hue Fui How
Hue Fui HowSecretary, Bukit Koman Ban Cyanide in Goldmining Action Committee (BCAC)
Sahabat Alam Malaysia adalah sebuah NGO yang memperjuangkan nasib masyarakat luar bandar khasnya. SAM menerima aduan-aduan masyarakat dan menyelesaikan masalah yang dihadapi. SAM telah mewujudkan ramai aktivis-aktivis sosial dan alam sekitar. Pada era 1980 dan 90an SAM sangat dihormati oleh masyarakat dan agensi kerajaan. Apabila media sosial menguasai maklumat maka SAM pun terkesan dan masalah masyarakat terus disalurkan dengan pelbagai cara. SAM perlu mewujudkan aktivis-aktivis pelapis yang muda untuk terus membantu masyarakat. SAM juga perlu membuat perubahan supaya banyak turun kelapangan dan jangan mengharapkan laporan media sahaja. Tingkatkan prestasi sebagaimana pada zaman kegemilangan SAM di era 80-90an.
Che Ani Mt Zain
Che Ani Mt Zain
SAM taught me the importance of social activism and the role it plays in upholding the rights of people and the protection of the environment. In my experience, SAM has never hesitated to speak up in defence of people and their environment, and has gone the extra mile to champion their rights, by helping communities take their battles to the higher ups and even to the courts.
Jessica Binwani
Jessica BinwaniPublic/Private Interest Lawyer
Semenjak kami kenal SAM, banyak pengalaman dan pengetahuan yg kami dapat. Kami telah belajar cara membuat baja asli daripada SAM. Semenjak itu, bermulalah minat kami dalam aktiviti pertanian. Dengan memperolehi kemahiran dalam membuat baja asli dan penanaman lestari, kami juga telah dapat menambahkan pendapatan sampingan kami. Ini lebih baik daripada tanah kami terbiar dan tidak diusahakan. Terima kasih SAM kerana sudi memberi bantuan dan tunjuk ajar kepada Persatuan kami.
Chedo Anak Nyuwen
Chedo Anak NyuwenPersatuan Penduduk Sg Buri, Bakong, Marudi
My journey with SAM started when her community organisers took me to the meet the paddy farmers of Kedah, connecting my growing interest in environmental law with our people who struggle to work the land in the face of pollution, replacement of traditional seeds with commercial hybrids and their accompanying chemical package of fertilisers and weedicides. I then had the honour to work with SAM in the struggle for the rights of the native communities of Sarawak, in defence of their forests from massive logging and destructive mega-projects. In every issue that SAM takes up, she combines rigorous research with the realities and voices of the communities to advocate for policies and laws that care for people and nature. From the courts to the elected legislators to policy makers and implementers and to the United Nations, SAM walks side by side with the communities in Malaysia. How can I not be inspired by the vision and passion of the generations of women and men who coalesce to form SAM?
Chee Yoke Ling
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Sahabat Alam Malaysia (Headquarters)
No. 1, Jalan Joki, 11400 Penang,
Malaysia
Tel: +604 827 6930
Fax: +604 827 6932

Sahabat Alam Malaysia (Marudi Office)
129A, First Floor,
Jalan Tuanku Taha,
P.O.Box 216,
98058 Marudi, Baram, Sarawak,
Malaysia
Tel & Fax: +6085 758 973

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