Warning to Banks: Don’t Finance Rainforest Destruction

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Last week, RAN joined sixty environmental and social organizations, including a dozen Indonesian groups, in signing an open letter to banks and other financial institutions across the globe warning them to avoid investments in pulp and paper industry projects associated with deforestation and human right abuses in Indonesia. The letter highlights concern with companies associated with the Sinar Mas Group, specifically Asia Pulp & Paper (APP), which is planning to build one of the world’s largest new pulp mills in South Sumatra.

APP has been a leading beneficiary of the ongoing, wholesale pulping of Indonesia’s rainforests, expansion on peatlands and appropriation of community lands. Thoughtful financial institutions will recognize that this poses considerable reputational and financial risks. In the early 2000s, APP was delisted from the New York Stock Exchange after defaulting on $13.9 billion in loans. In 2004, APP promised to protect High Conservation Value Forests (HCVFs) and reach “full sustainability” as part of a legally binding US$6 billion debt “Master Restructuring Agreement” with Western financial institutions and Export Credit Agencies, yet APP still remains in gross violation of this agreement.

But that wasn’t the last time APP has failed to meet a commitment. APP has repeatedly promised investors, customers, environmentalists and the public that it will end its dependence on rainforest wood for its paper but has consistently failed to meet its own deadlines, first promised for 2004, then moved to 2007, then revised to 2009 and most recently reset for 2015. When it comes to APP and its purported commitments to sustainability, history has repeated itself again and again and again—all to the detriment of Indonesia’s rainforests and communities.

APP’s controversial practices require major reforms to its business model. Yet, APP has responded with empty promises and endless greenwash. While the media has reported that APP has submitted plans to the Ministry of Forests to build the mill, APP is still denying its connection to the mill and dodging questions by pointing to its “sustainability” commitments.

APP’s proposed new pulp mill looks like the perfect recipe for further social conflict and destruction of forests and peatlands to a growing coalition of civil society groups. Investors would do well to pay attention to the alarm bells. We have been down this road before. With APP it is best to look at what the company does, not what it says. Financiers should ‘just say no’ as long as APP continues using rainforest wood, expanding on peat and failing to obtain the free, prior and informed consent of communities whose customary lands they appropriate for plantations.

View the open letter below:

OPEN LETTER TO FINANCIAL INSTITUTIONS

6 November 2012

Dear Sir/Madam,

With this letter the 60 undersigned non-governmental organisations (NGOs) wish to ask you to carefully screen any pulp industry investment projects related to Indonesia, such as new mills, particularly those of companies associated with the Sinar Mas Group, notably Asia Pulp & Paper (APP).

Our concern is the environmental and social consequences of the massive destruction of natural forests that can be shown to be linked to past and current over-capacity in pulp milling plants in Indonesia. We would contend, however, that investment in further milling capacity that relies on natural forest or utilizes land without the free, prior and informed consent of affected communities carries considerable reputational hazard and economic risk to financial institutions.

Our concern is heightened by reports in the Indonesian and trade press that APP is preparing to build a new pulp mill in Sumatra in Indonesia. This would reportedly be one of the world’s biggest pulp mills1, with a planned production of between 1.5 and 2.0 million tonnes per year.

The undersigned NGOs are very concerned about the threat any such new mill might pose to the remaining natural forests in Sumatra and beyond. According to a recent estimate by Sumatra-based NGO coalition Eyes on the Forest, APP has pulped more than 2 million hectares of tropical forests in Sumatra since it started pulp production there in 19842.

Drainage of deep peat soils both for natural forest clearance and for plantation establishment is an issue of global concern in relation to climate change3, 4, 5. Impacts on indigenous peoples and local communities6 and the role of habitat destruction in pushing Sumatra’s elephant to critically endangered status, and its tigers and elephants into deadly conflicts with people and in some cases local extinctions have activated civil society campaigns globally7, 8, 9, 10, 11. It has been reported that three wood suppliers of APP are among the 14 companies which the Ministry of Environment has under examination for possible liability suits over environmental damages12. Four wood suppliers who also supply APP have so far been implicated before courts in the proven bribery of public officials in connection with the issuing of licenses to clear certain natural forest areas13, 14, 15, 16, 17. APP has lost a number of high-profile customers (such as Disney, Hasbro, Mattel, Unilever, Nestle, Danone, Xerox, Mondi) in recent years, as a result of concerns about its deforestation practices, community conflict and the business and reputational risk to buyers18, 19, 20.

APP has put considerable resources into trumpeting its sustainability credentials, but this campaign has been undercut by the company’s failure to meet its own publicised commitments in protecting forest areas it has previously designated as tiger sanctuary21, 22,23, forest areas it has identified as high conservation value forests for protection24, 25 and forest areas it has promoted as part of the Giam Siak Kecil-Bukit Batu UNESCO Man and Biosphere Reserve26. It has committed to sole plantation sourcing for its pulp supplies by 200427, 200728 and 200929 and missed all these self-imposed deadlines30. In its most recent (2012) sustainability roadmap it is clear APP intends to rely on natural forest clearance beyond 2015, a situation which will be exacerbated by the addition of any new pulping capacity31, 32, 33, 34, 35.

Some of the tactics employed in campaigning on APP’s behalf have also come under question 36 and independent sustainability certification agencies have rejected APP’s claims of their endorsement37.

We would suggest that special caution is required in relation to Sinar Mas, APP and companies associated with them, in view of the economic risks of adding pulp production capacity in large increments despite manifestly inadequate pulp supplies outside of their continuing and increasingly controversial assault on natural forests.

Financial institutions should particularly note the circumstances and consequences of the previous failure of APP’s business model, graphically illustrated when APP declared a moratorium on the servicing of $US 14 billion in debt in 2001 and was subsequently delisted from the New York Stock Exchange38, 39. Although many of the details remain unclear, this resulted in substantial and unresolved losses to financial institutions and investors.

Much controversy still rages around this default. APP currently faces US court orders to pay back more than $900 million in defaulted debt to US creditors, but the company continues for various reasons to delay in complying with asset disclosure or payment orders40. There are indications that environmental covenants agreed to with export credit agencies for the restructuring of debt have not been complied with, something that NGOs are continuing to pursue with the institutions concerned41, 42, 43.

Given the above, we would welcome your assurance that you would not be investing in or supporting any investment in increased pulp milling capacity by companies associated with the Sinar Mas Group.

The issue is one that all the undersigned NGOs – and others – feel strongly about, and will continue to monitor and campaign on.

We look forward to your response and would also welcome any opportunity to further brief you on the issue. Please send your response to sergio.baffoni@environmentalpaper.eu.

Sincerely,

Abetnego Tarigan, Executive Director, WALHI, Friends of the Earth Indonesia, Indonesia
Muslim Rasyid, Kordinator Jikalahari, Indonesia
Aidil Fitri Wahana Bumi Hijau, South Sumatra, Indonesia
Usman Gumanti, Ketua AMAN Jambi, Indonesia
Jaringan Masyarakat, Gambut Jambi (JMG-J), Indonesia
Persatuan Petani Jambi (PPJ), Indonesia
Umi Syamsiatun, Yayasan CAPPA – Community Alliance for Pulp and Paper Advocacy and Ecological Justice, Indonesia
Hariansyah Usman, Director, WALHI Riau, Indonesia
Rudiansyah, WALHI Jambi, Indonesia
Tandyono Bawor Purbaya, Coordinator, Program Community Law Empowerment, HuMA, Indonesia
Harry Oktavian, Scale Up, Center for Natural Resource Conflict Resolution Assistance, Indonesia
Y.L. Franky, Director, Yayasan PUSAKA, Indonesia
Diki Kurniawan, Program Manager of Policy & Advocacy, Conservation Community WARSI, Indonesia
Rodney Taylor, Director Forests, WWF International, Switzerland
Femke Bartels, Forest Network Director, Greenpeace International, The Netherlands
Rebecca Tarbotton, Executive Director, Rainforest Action Network, USA
Agnieszka Komoch, Friends of the Earth Europe, Belgium
Johan Frijns, Director, BankTrack, The Netherlands
Tom Griffiths, Forest Peoples Programme, UK
Deborah Lambert Perez, ECA Watch, Belgium
Jane Madgwick, Chief Executive, Wetlands International, The Netherlands
Thomas Wenidoppler, Director, ECA Watch Austria
Richard Wainwright, FERN, Belgium
Sara Van Dyck, Bond Better Leefmilieu, Belgium
Yu Xiaogang, Green Watershed, China
Jaromir Blaha, Hnuti DUHA – Friends of the Earth Czech Republic
Sini Eräjää, Suomen luonnonsuojeluliitto / Finnish Association for Nature Conservation, Finland
Jürgen Wolters, ARA, Germany
Anna Voß, Managing Director, BOS Deutschland, Germany
Nicola Uhde, BUND – Friends of the Earth Germany
Joanna Cary-Elwes, Elephant Family, Germany
Evelyn Schönheit & Jupp Trauth, Forum Ökologie & Papier, Germany
Heike Drillisch, Coordinator, GegenStroemung – CounterCurrent, Germany
Klaus Schenck, Rettet den Regenwald e.V. – Rainforest Rescue, Germany
Christoph Schmidt, Pro Wildlife, Germany
Simone Hörner, Pro Regenwald, Germany
Agnes Dieckmann, Urgewald, Germany
Monika Schlicher, Watch Indonesia, Germany
Vittorio Cogliati Dezza, Legambiente, Italy
Giulia Franchi, Re-Common, Italy
Fabio Ciconte, President, Terra!Onlus, Italy
Yoshihiro Fujii, Finance GreenWatch, Japan
Junichi Mishiba , Friends of the Earth Japan, Japan
Yoshio Nishioka, Hutan Group, Japan
Akira Harada, Japan Tropical Forest Action Network, Japan
Graziella Cavlan, Nature Trust, Malta
Lars Løvold, Director, Rainforest Foundation Norway
Maria Huma, Polish Green Network, Poland
Nuno Sequeira, Quercus, Portugal
Alba Valle, Euronatura, Portugal
Andrey Laletin, Chairman, Friends of the Siberian Forests, Russia
Tom Kucharz, Ecologistas en Acción, Spain
Almuth Ernsting, Biofuelwatch, UK/USA
Simon Fairlie, The Land Magazine, UK
Archie Beaton, Chlorine Free Products Association, USA
Scott Quaranda, Dogwood Alliance, USA
Michelle Chan, Director, Economic Policy Programs, Friends of the Earth USA
Stephanie Fried, Ulu Foundation, USA
Wim Dekok, Executive Director, World Animal Net, USA
Teresa Perez, Coordinator, World Rainforest Movement, Uruguay

60 signatories to the open letter

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