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Unsustainable Palm Oil Faces Increasing Market Access Risks – NDPE Sourcing Policies Cover 74 Percent of Southeast Asia’s Refining Capacity
November 1, 2017
The palm oil industry’s transformation towards sustainability gained traction in 2013 when major Southeast Asian palm oil traders/refiners began to embrace ‘No Deforestation No Peat No Exploitation’ (NDPE) sourcing policies. Through such policies, these firms require their suppliers to refrain from clearing forests and peatlands for new oil palm plantations. However, unsustainable practices continue to take place and non-compliant palm continues to be produced, traded and consumed. One of the main reasons for this ‘leakage’ of unsustainable palm oil is that a segment of the refining market does not apply NDPE sourcing criteria. Insights in the market share and primary actors of this segment is crucial to understand both the risk that the sector transformation is halted, as well as the business risks for non-compliant plantation companies.
The Chain: Paradise Papers Links APRIL’s Tax Avoidance to Deforestation and Banks, Could Impact USD 500 Million Loan
Asian Pacific Resources International (APRIL), one of the world’s largest pulp-and-paper companies, has been linked to deforestation in Indonesia. With the leak of the so-called ‘Paradise Papers’ this week, further information about APRIL’s financial backers have been revealed, leading to more questions about whether banks such as ABN AMRO follow their own sustainability policies and how global corporations may use tax engineering to increase funds available for deforestation.
These questions come as an APRIL subsidiary, as reported by Bloomberg, seeks a potential USD 500 million loan. Funders for this possible loan may include their previous lenders such as ABN AMRO, Maybank, Bank of China or others. According to Bloomberg, the loan is currently under syndication which means that banks are in the process of deciding to proceed or not proceed to finance the loan.
The Paradise Papers, 13.4 million files leaked from offshore law firm Appleby, demonstrate how global corporations move money to tax havens to avoid taxes and other government regulations. Last week, the International Consortium of Investigative Journalist (ICIJ) published a report based on the Paradise Papers that analyzes Asia Pacific Resources International (APRIL) and its lenders, one of many Asia-based companies in the forest sector that used the law firm’s services.
Records from Appleby support previous statements from advocates, researchers and government officials that the global financial system’ use of tax havens has expanded access to resources for companies involved in deforestation and other practices linked with climate change. These fears are especially pronounced in Indonesia, which has both the world’s highest rate of deforestation and its third-most land covered by tropical forest.
Chain Reaction Research conducts sustainability risk analysis for financial analysts and investors. Our special focus is on sectors that deal with environmentally intensive commodities, especially those sourced from tropical regions like palm oil, and pulp and paper.<
We explore whether unsustainable corporate practices and actions have introduced unreported risks – and how or whether sustainability leadership can mitigate those risks and possibly provide competitive advantage. Where possible, we provide pre-IPO checking of claims about risk and assets reported in prospectuses. We also review claims made by publicly traded companies.
Chain Reaction Research has received support, in part, from the David and Lucille Packard Foundation, and from the International Climate and Forest Initiative (NICFI) scheme managed by the Norwegian Agency for Development Cooperation (Norad). Chain Reaction Research statements and materials do not necessarily reflect the standpoints of the Packard Foundation or Norad.