Report: Singapore banks financed up to SG$1.9 billion to companies linked with haze-causing fires in Indonesia

Aerial view forest fire and smoke Java, Indonesia. (Image by Alexpukner / Shutterstock.com)

Indonesia has just experienced yet another year of catastrophic fires that have caused immense damage and blanketed the country and its neighbour in a toxic haze. Schools, airports and businesses closed, as six Indonesian provinces declared a state of emergency. This year’s fires blazed over 850,000 ha of land and forest, an area more than 10 times the size of Singapore.

The haze, described by Indonesian President Jokowi as a “national embarrassment” has become a recurrent international environmental and public health crisis. The United Nations (UN) warned that Indonesia was putting 10 million children under five at risk from air pollution. The fires also pose a major climate change risk given much of it involves ancient tropical peatlands that are known to store approximately 2,600 tons of carbon per hectare.

A recent study by the Environmental Study Centre in Riau University estimates that the fires in Riau, one of Indonesia’s worst hit provinces, have resulted in material losses of US$3.6 billion (SG$4.89 billion). At a national level, the World Bank estimated that the fires in 2015 resulted in US$16 billion (SG$21.74 billion) loss and damage nationwide.

On 30 October, Indonesian NGOs Jikalahari, TuK-Indonesia and WALHI Eksekutif Nasional revealed that the Indonesian Ministry of Environment and Forestry (KLHK) has sealed off 64 palm oil, pulpwood and rubber plantations due to this year’s fires.

This means that KLHK has issued a ‘stop work order’ in each of the plantations, preventing any work, processing, or transportation of any goods pending investigations. This is done when the Ministry suspects that companies have been using fire deliberately. The stop work order remains in effect until the investigations are completed, at which point, KLHK will decide if there is any evidence to charge the plantations via administrative sanctions or court action.

While big plantation companies have been quick to blame smallholders, 17 corporate groups were identified as parent companies of the subsidiaries operating the plantations that have been sealed, including major conglomerates with listed entities on the Jakarta, Kuala Lumpur and Singapore Stock Exchanges.

Rainforest Action Network (RAN) is working with Indonesian NGOs TuK-Indonesia, Jikalahari, Walhi and Dutch financial consultancy Profundo to analyse the financiers behind the companies implicated in the 2019 fires and haze crisis. The findings were released on forestandfinance.org and are part of a broader analysis of the financiers behind illegal and unsustainable forest-risk/plantation companies operating in Indonesia.

According to forestandfinance.org, the names of the companies implicated in the fires include Austindo, Batu Kawan, DSN, Cargill, Ganda, IOI group, Musim Mas, Provident Agro, Rajawali, Royal Golden Eagle, Salim, Sampoerna, Sinar Mas, Sime Darby and Tianjin Julong.

Financial data from forestandfinance.org shows that between January 2015 and August 2019, these 17 groups’ palm oil, pulp & paper, timber, and rubber divisions received at least US$19.2 billion (SG$26.09 billion) in corporate loans and underwriting facilities, though RAN notes that this is a conservative estimate as the methodology does not capture all financing due to lack of transparency by financial sector.

RAN stressed that this amount of money illustrates the kind of leverage financial institutions could use to reform client operations, at a time where the Indonesian authorities are clearly struggling to prevent burning through enforcement and civil and/or criminal sanctions.

The data also revealed that, much like the haze itself, this is an international problem, with much of the finance coming from ASEAN and East Asian financial institutions. The report shows that banks from China represent the largest share of financing at US$5.8 billion (SG$7.88 billion), followed by Indonesia at US$4.5 billion (SG$6.12 billion), Malaysia at US$2.3 billion (SG$3.13 billion), Taiwan at US$1.5 billion (SG$.04 billion), Singapore at US$1.4 billion (SG$1.9 billion) and Japan at US$1.0 billion (SG$1.36 billion). Together these countries accounted for 86% of finance to fire-linked groups. On top of that, around 2% came from United States banks and 6% from European Union banks.

In Singapore, the haze has become a major issue with prevailing winds from Sumatra blowing the haze to the island, causing widespread public health concerns due to the abysmal air quality. RAN highlighted that many of the groups implicated in the fires – and the tycoon families that control them – have enormous assets in Singapore or have listed companies on the SGX stock exchange. This includes Sinar Mas, Salim, Royal Golden Eagle, Sampoerna and Genting, as identified by the report.

Singapore bank links to companies implicated in Indonesia fires

In 2014, the Singapore Parliament passed the Transboundary Haze Pollution Act which imposes civil and criminal liability on companies domiciled or operating overseas but which cause or contribute to haze pollution in Singapore. While the government has repeatedly threatened to use the act against errant companies, it has not yet brought any such prosecutions or civil suits, emphasised RAN.

Source: forestandfinance.org

Of the Singapore banks, OCBC (SGX:039) is the fifth largest overall financier of the 17 groups linked to the 2019 fires, providing US$960 million (SG$1.3 billion) in finance, says the report. Nearly of all that was for palm oil operations of Sinar Mas, Austindo Group, DSN Group and Sampoerna Group. On top of that, DBS (SGX:MU7) – whose largest shareholder is Temasek Holdings – provided SG$281 million to palm oil groups Harita Group, LG International and Rajawali Group.

In 2017, The Association of Banks in Singapore (ABS) requires all members to manage haze and fire risks using ‘Haze Diagnostic Toolkit’ which sets out indicators of best practice. However, the strong links between Singapore financiers and fire-implicated companies has RAN calling into question the effectiveness of this approach, which they described as a substitute for actual regulation, with sanction, of banks whose lending has proven to be negligent when it comes to haze prevention.

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