Singapore Urges SEA Lenders to Implement Eco-Friendly Policies

Jakarta Globe, Erwida Maulia, May 17, 2015

Palm oil plantations in Indragiri Hulu district in Sumatra's Riau province.
(EPA Photo/Bagus Indahono)

Singapore. The Singaporean government has called on financial institutions operating in Southeast Asia to exercise caution in funneling funds to palm oil producers, saying scrutiny on the sector continues to intensify with recurring problems in transboundary haze.

Banks have acted as an important source of capital for the region’s palm oil industry, Singapore’s Minister for the Environment and Water Resources Vivian Balakrishnan said last week.

Citing a 2010 report by BankTrack, he said lenders provided an estimated 24 percent of the total financing needed for the sector globally, with more than $50 billion invested in the Malaysian and Indonesian palm oil sectors alone during the decade prior to the release of the study.

“The number has grown significantly since then. And this includes local sources of capital from within Indonesia and Malaysia,” Balakrishnan said in a keynote speech during the second annual Singapore Dialogue on Sustainable World Resources held last Wednesday.

With the recurring issue of transboundary haze, he added, calls have intensified for companies and individuals “all the way down” the supply chain to be held accountable for deforestation — the main culprit behind recurring forest fires in Indonesia and haze affecting neighbors Singapore and Malaysia.

“Due to the environmental scrutiny and the campaigns by environmental NGOs, banks have now also become part of the watch list,” the minister said.

“And my plea to you, therefore, is please pay attention to this and remember the questions will be asked not only of the companies involved, but also of the financiers and the banks behind the industry.”

Balakrishnan added that lenders and other financial institutions are now expected to be more responsible in conducting background checks on palm oil companies. It is not enough to merely see whether their clients would be able to pay their loans and interest rates, he said.

How the companies derive their resources, their methods of production, the environmental, social and even political risks they face all must be assessed before banks decide whether they should invest in the business.

“These [steps] have to become part and parcel of standard due diligence,” Balakrishnan said.

Financial institutions, including banks and investors, have significant influence over the market and the proper behavior of producers, he added.

Representatives from the financial sector speaking at Wednesday’s dialogue conceded that more banks are gradually recognizing the opportunities in sustainable financing. They are also beginning to understand the need to assess their clients’ environmental and governance records to protect themselves from potential reputation damage.

“It makes good business sense, not just from a reputational perspective, but also from a credit prospective. Generally, a company that actually does good from an environmental perspective would be in better financial health,” said Vincent Choo, chief risk officer of OCBC Bank.

However, Jeanne Stampe, the Asian finance and commodities specialist of environmental group WWF International, sees  domestic banks from the Association of Southeast Asian Nations lagging behind in implementing environmental, social and governance standards.

Both bank management and shareholders simply don’t see the need or urgency to take action, she said.

Stampe added that she also recognizes a lack of senior-level prioritization, a lack of capacity and lack of pressure coming from both regulators and company stakeholders to take the issue seriously.

The Singapore dialogue raised concerns that sustainability, which should be a new basis for growth in the region, has instead become a greater challenge amid falling commodities prices across the globe, as well as the constant need to create more jobs in Southeast Asia.

However Simon Tay, the chairman of Singapore Institute of International Affairs, the organizer of the event, said there was still hope for a better outcome.

“If we look at the industry itself, we see signs of change,” Tay said during his opening speech.

“More larger and leading companies among us here today recognize and are responding more strongly to the sustainable challenge as a business issue; not merely as public relations.”

Minister Balakrishnan added that there was an increasing trend among consumers to demand for environmentally friendly products — and that this was not just a phenomenon in developed countries.

He cited a Nielsen survey conducted last year, which reported that 55 percent of the online consumers across 60 different countries said they were willing to pay more for products and services provided by companies that are committed to providing positive social and environmental impacts.

“This propensity of willingness to buy socially responsible brands is actually strongest in the Asia-Pacific region, where 64 percent of respondents [had] this preference. And I believe this preference will stay, with their wallets that will grow stronger in the years to come,” Balakrishnan said.

“The industry sectors that can first develop standards and labels on sustainable products will have a head start,” the minister added.

Arief Yuwono, the Indonesian Environment Ministry’s deputy for environment degradation control and climate change, said promoting sustainability would also be a key priority for President Joko Widodo and his administration.

The Indonesian government is currently seeking to extend the moratorium on granting new land concessions for plantations and mining activities, which expired on Wednesday.

“We’re working on the final draft, and we hope it will be issued very soon,” said Arief, who also addressed the audience at Wednesday’s dialogue.

He conceded that several issues still needed to be addressed before the new moratorium draft could be finalized, including law enforcement, synchronization with other related, existing regulations  and the one-map reference issue.

Overlapping maps of concessions, community forests and protected forests have caused problems in implementing the deforestation moratorium since it was first introduced by former president Susilo Bambang Yudhoyono in 2011.

Joko has agreed to extend the moratorium, Indonesian Environment and Forestry Minister Siti Nurbaya revealed after a meeting with the president at the State Palace in Jakarta on Wednesday.

“Proposals to strengthen [clauses in the moratorium] from Walhi, Kemitraan, Sawit Watch, WRI and others are very much appreciated and will be summarized by the Ministry of Environment and Forestry for a follow-up,” ministry spokesman Eka W. Soegiri said in a press statement on Wednesday, naming Indonesia’s leading environmental groups.