The Chain: PNG leases, Wilmar put to test, responsible financing grows

In June, Papua New Guinea’s Prime Minister Peter O’Neill announced the cancellation of all illegal agricultural land leases. He also abolished future issuances of this kind of lease.

The legal reforms the Prime Minister introduced are the latest evidence of PNG’s progress in improving land rights and managing agricultural expansion, a trend which we have analyzed previously. PNG’s increasing stringency introduces serious risk into many supply chains based on forest commodities. Companies with traceable supply chains are more likely to be able to avoid such risk.

poneillannouncement

PNG Prime Minister Peter O’Neill announces new land regulations, June 18, 2014

 

Also last week, Wilmar’s no-deforestation commitment was put to the test. A new report by Greenomics provided evidence that Wilmar supplier PT Sumatera Jaya Agro Lestari cleared high-conservation value forest land after Wilmar’s commitment, putting it in violation of Wilmar’s policy. Wilmar rapidly responded that it would investigate this claim, with results on the implementation of its no-deforestation commitment still forthcoming.

Finally, more banks are moving towards responsible financing, in part due to external and peer pressure. NGOs continue to hold financiers accountable for supply chain sustainability issues. Last week, two European NGOs filed a complaint against Rabobank at the OECD, claiming Rabobank’s financing of palm oil producer Bumitama violates OECD and Rabobank guidelines. At the same time, several banks just announced a commitment to support the transition to deforestation-free commodities by 2020. These banks (Barclays, Deutsche, UBS, BNP Paribas, Lloyds, RBS, and Westpac) committed to requiring clients in the land-use sector to adopt credible sustainability certifications, and to work with consumer goods companies on responsible financing. While such a commitment can reduce sustainability and reputational risk for banks, this announcement has clear gaps in terms of implementation timeline, with 2020 as the target date rather than 2015, the target date for many leading organizations. We will discuss the risks and opportunities of commitment timelines in our next update.