Warning to Banks: Don’t Finance Rainforest Destruction

posted by Rainforest Action Network

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 buyers 18, 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 sanctuary 21, 22,23, forest areas it has identified as high conservation value forests for protection 24, 25 and forest areas it has promoted as part of the Giam Siak Kecil-Bukit Batu UNESCO Man and Biosphere Reserve 26. It has committed to sole plantation sourcing for its pulp supplies by 200427, 200728 and 200929 and missed all these self-imposed deadlines 30. 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 capacity 31, 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