Major Islamic financier singled out for deforestation in Indonesia

  • Lembaga Tabung Haji is a Malaysian Islamic financial institution whose listed palm oil arm, TH Plantations, owns dozens of estates in Malaysia and Indonesia.
  • The firm was the subject of a recent report by Chain Reaction Research that alleges it cleared hundreds of hectares of carbon-rich forest and peatland for oil palm expansion in 2017.
  • The firm supplies major refiners and users of palm oil, such as Wilmar, ADM, Nestlé and Unilever, some of which have promised to stop sourcing palm oil linked to environmental destruction.

New research into the activities of a major Malaysian financial institution has raised questions over the efficacy of major brands’ policies against buying from firms engaged in deforestation.

In a recent report by climate coalition Chain Reaction Research, Lembaga Tabung Haji, whose publicly traded palm oil firm TH Plantations controls 32 estates in Indonesia and Malaysia spanning 1,600 square kilometers (620 square miles), was accused of actively clearing forest and peatland.

The report’s authors amassed evidence that THP had cleared hundreds of hectares of forest at its PT Persada Kencana Prima and Hydroflow Sdn Bhd plantations in 2017, in violation of some of its buyers’ commitments not to source palm oil linked to the destruction of forests and peatlands or to the exploitation of workers — known collectively as “no deforestation, no peat, no exploitation,” or NDPE, policies.

The logging had already led to a suspension by palm oil giant IOI and engagement by Wilmar, it notes; moves that have managed to halt new deforestation at the sites.

THP also supplies other major brands, including AAK, ADM, Musim Mas, Olam, Nestlé and Unilever.

But the report suggests that Lembaga Tabung Haji’s PT Synergy Oil Nusantara (PT SON) is also an active “replacement” buyer for two firms that were suspended by other traders for NDPE violations, raising the prospect that companies could still suffer reputational risk if they buy palm oil from the Malaysian company.

The Chain Reaction Research report singles out Felda Global Ventures (FGV), an agri-commodities company and joint-venture partner with THP, as being particularly at risk. FGV did not respond to a request for comment from Mongabay.

A Wilmar spokesperson said that many suppliers lacked the knowledge and resources to comply with sustainability requirements, adding that Wilmar had established supplier training and grievance procedures to address the issue.

The spokesperson added that Wilmar had engaged THP in 2016 after the potential sustainability breaches were raised. “Our engagement with THP have been constructive and resulted in a commitment from their side on the compliance to NDPE policy and to halt further land clearing activities,” the spokesperson said.

Oil palm fruit in Indonesia. Palm oil is used in everything from detergents and cosmetics to breakfast cereals and ice cream. Image by Rhett A. Butler for Mongabay.

Chain Reaction Research estimates that THP’s compliance with NDPE policies could lead it to lose almost a fifth of its market cap, placing 43 percent of its equity value in jeopardy and creating “major risks for all financiers.” The firm has plans to almost double its landbank until 2020.

Despite these plans, THP subsidiaries such as PT SON remain among the minority of palm oil refineries that do not place sustainability requirements on its suppliers.

Gemma Tillack, forest policy director at the Rainforest Action Network (RAN), said Wilmar and other buyers of THP palm oil products were failing to enforce their sustainable palm oil policies.

“It is encouraging that a moratorium has been put in place for problematic PT Persada Kencana Prima (PKP), but Wilmar should set stricter prerequisites for ongoing sourcing,” she said. “It should require immediate adoption of ‘No Deforestation’ policy commitments and require all third parties to apply the High Carbon Stock Approach for all new developments.

“These pre-conditions are critical for industry laggards such as TH Plantations that have, to date, failed to acknowledge the need to protect secondary forests to end deforestation.”

However, Bastien Sachet, CEO of The Forest Trust (TFT), a consultancy that works with Wilmar and other plantation giants, said the problems in the palm oil supply chain were “not going to be solved quickly.”

“These supply chains are both complex and fluid. At the supplier level, there are enormous amounts of competing interests surrounding each aspect of NDPE policies, meaning that there isn’t a clear or simple solution to each problem,” he said.

But Sachet said that brands linked to “dirty” palm oil could do more to address the issue.

“All companies with sustainability policies which include deforestation requirements need to make them clear to all their suppliers. As transparency around supply chains continues to increase and companies become more aware of the sources of their palm and the associated links to deforestation, these requirements need to be made more explicit to suppliers,” he added.

“These are also incredibly complex supply chains at the upstream mill level and there are many opaque company ownership structures that make it difficult to pinpoint all the connections in supply chains, and where the problems lie.”

TFT believes that only efforts to work directly with suppliers like TH Plantations can bring about positive change, while brands and producers both need to provide more evidence and third-party verification in their supply chains, including by using satellite verification tools like the Starling program, a TFT joint venture with Airbus and SarVision.

Tillack of RAN said there needed to be clear red lines for Malaysian and Indonesian producers and refinery owners to follow.

“These rogue actors need to be encouraged by all buyers to improve their practices, and failing to do so, lose access to the global market,” she said.

But Sachet said a “carefully balanced compromise” was usually needed.

“We … believe that cutting suppliers and producers out of supply chains, without thoroughly engaging them to change, doesn’t solve problems. We’ve observed this many times over the years. Suspension is a tool, but it’s not going to stop deforestation, nor is it going to stop exploitation on palm plantations.”


Banner image: An oil palm plantation in Indonesia. Image by Rhett A. Butler for Mongabay.

This story first appeared on Mongabay

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