This file photo shows officials raid illegal logger

Malaysian, Indonesian Banks Finance Most Forest Destruction in SE Asia

SEPTEMBER 09, 2016

Jakarta. A new study has found Malaysian and Indonesian banks are among the top financiers of forest degradation across Southeast Asia.

More than $38 billion worth of loan from global lenders contributed to destruction of forests in Indonesia and Malaysia between 2010 and 2015, "Forests & Finance" report reveals. The report was released by California-based environmental group Rainforest Action Network (RAN), Indonesian community rights group TuK Indonesia, and Dutch research consultancy group Profundo.

"Forest financing is murky and sometimes you just don't know where exactly the money goes – which is why we're doing this, so that we can add more transparency to the funding scheme," RAN Forest & Finance program coordinator Adelaide Glover said on Thursday (08/09).

Malaysia's Malayan Banking and CIMB are the top two financiers of forest-risk enterprises with loan values exceeding $2.5 billion each, she added.

PNB, Malaysia's biggest fund management company, and the Malaysian Employees Provident Fund for retirement planning are also financing forest-risk clients, Profundo economic and financial researcher Ward Warmerdam said.

Warmerdam said Indonesia's biggest lender by assets, Bank Mandiri, was the country's main financier of forest-risk businesses with more than $1 billion in loans. Bank Negara Indonesia and Bank Rakyat Indonesia gave loans of $678 million and $458 million respectively.

"We found that the top five financiers of palm oil companies are banks from Malaysia, Indonesia, United Kingdom, United States and Singapore – while China, Japan and Taiwan are mostly for pulp and paper," he said.

The banks' clients include Malaysian palm oil giant's Felda Group and Sime Darby and their Indonesian peers Rajawali Group, Salim Group and Wilmar Group. RAN found the companies are also linked with cases of rights abuses, deforestation and the usage of fire for land clearance.

The report also analyzed the lenders' sense of responsibility for client activities and the impact on local communities and environment.

"We assessed the policies adopted by the banks, and we found that most of them don't really care about the environment – all they care about is money," Warmerdam said.

While European banks such as the Dutch state-owned ABN Amro and Switzerland's CreditSuisse ranked highest in social and environmental consciousness, Asian banks still have a lot to work on. According to Warmerdam, some of the lenders, including Maybank, CIMB, Mandiri, BNI and BRI, do not mind financing operations in high conservation value areas and do not prohibit forced and child labor.

Regulatory reform

Rahmawati Retno Winarni, TuK Indonesia executive director, said the Financial Services Authority (OJK) is set to introduce a roadmap for sustainable finance in Indonesia in an effort to bring full transparency in the forestry industry a step closer.

She said the issue has become global as parties contributing to forest degradation and human rights abuses in Indonesia come from all over the world. Foreign governments, especially in Malaysia, Japan, China, Singapore but also Europe and United States, must also adopt sustainable finance measures, she added.

If things do not change, the banks are going to lose money through regulatory and operational risks, she predicted.

"I don't know about Indonesia, but the risk of damaging your company's reputation is problematic in the West, because it means you lose customers, which means the bank will lose money — they don't like that," Warmerdam said.

The report and list of banks involved in forest degradation is available online and will be updated quarterly.