Malaysia is the world’s second-largest palm oil producer, after Indonesia. Peninsular Malaysia accounts for more than 12 percent of world production and produces approximately half of Malaysia’s palm oil. It also hosts a large number of forests rich in biodiversity and large carbon stock. How are Peninsular Malaysia’s forests protected from more deforestation for oil palm? What more can main corporate players in the palm oil supply chain do to stop deforestation? This report sheds a light on deforestation monitoring in Peninsular Malaysia.
Download the PDF here: Oil Palm Expansion in Peninsular Malaysia Is Guided By Non-Transparency
- Expansion of Peninsular Malaysia’s oil palm area continues. More than 20 percent of its land area is covered with oil palm plantations, with new plantations established in several states.
- Peninsular Malaysia’s 11 state governments will determine the fate of remaining forests, as they control 84 percent of Peninsular Malaysia’s forested areas. Only state governments can remove areas from forest reserves and allow for conversion to oil palm or other plantations. This decentralized power is in sharp contrast to Indonesia, where the central government largely controls policies that impact forests.
- Peninsular Malaysia’s governments are not transparent about forest clearing inside forest reserves. There is no public information detailing which companies clear forests inside concession boundaries. Environmental Impact Assessments (EIAs) seldomly appear on government websites.
- Despite the non-transparency, Peninsular’s main palm oil refiners (such as Mewah and Wilmar) could improve their no-deforestation commitments. Only 9 out of Peninsular’s 28 largest palm oil growers and millers have a no-deforestation policy, and traceability is only to mill, not plantation.
- Five cases analyzed in this report account for 40,000 hectares of forest loss. The cases are exemplary of the much larger deforestation conducted inside Peninsular Malaysia’s forest reserves. Eventually, palm oil may leak unmonitored into the supply chains of refiners and consumer goods companies with no-deforestation commitments.
- The non-NDPE palm oil actors in Peninsular Malaysia have received at least USD 2.4 billion of identified financing, mainly from Malaysian financial institutions. This financing was mainly through loans and underwriting services and included Malayan Banking, CIMB Group, Public Bank, and RHB Banking.
Peninsular Malaysia, one the world’s largest palm oil producers, sees development of new oil palm plantations
Peninsular Malaysia accounts for more than 12 percent of global palm oil production. Its oil palm planted area stood at 2.7 million hectares (ha) at the end of 2020, which is more than 20 percent of its land area.
Malaysia is the world’s second largest palm oil producer with 26 percent of global output, following only Indonesia (58 percent). At the end of 2020, Peninsular Malaysia accounted for 47 percent of Malaysia’s planted area of 5.9 million ha. The remaining 53 percent resides in the Malaysian part of Borneo (Sarawak and Sabah).
As also shown by cases in this report, new oil palm plantations are still being developed in Peninsular Malaysia. According to figures of the Malaysian Palm Oil Board, the oil palm planted areas of Peninsular’s states Pahang, Kelantan, and Terengganu increased by 41,000 ha, 9,000 ha, and 7,000 ha in the period 2018-2020 respectively. This data suggests that these states are presently the main areas of oil palm expansion.
Figure 1: Peninsular, states and federal territories
Figure 2: Oil palm concessions Peninsular Malaysia
Source: Concession map compiled by Aidenvironment
State governments determine the fate of Peninsular Malaysia’s forests
Approximately 84 percent of Peninsular Malaysia’s remaining forests is classified as Permanent Forest Reserve. Control of Permanent Forest Reserves is not in the hands of the central government, but of the 11 states of Peninsular Malaysia.
Under the Federal Constitution of Malaysia, all Malaysian states have jurisdiction over their lands, forests, fishery, agriculture, and water resources, including the power to decide on the administration, management, use, and allocation of their forest resources. State governments can remove areas from Permanent Forest Reserves by publishing details of the removal in a gazette, an official government publication. Whenever an oil palm plantation is developed inside a forest reserve, it is not officially considered a forest reserve. Together, four states (Pahang, Perak, Kelantan, and Terengganu) have more than three-quarters of the surface of Permanent Forest Reserves.
Figure 3: Peninsular Malaysia’s Permanent Forest Reserves
Source: Forestry Department Peninsular Malaysia, Annual report 2019.
Malaysia’s central government may announce measures to reduce deforestation for oil palm, yet state governments determine the fate of Peninsular Malaysia’s forests. Teresa Kok, then Malaysia’s Minister of Primary Industries, stated in March 2019: “Oil palm plantations have been accused [of] causing deforestation. That is why my ministry has come up with the position to cap the expansion of our oil palm plantations, but improve seedlings and yields in our planting areas.” The Ministry wanted to keep the oil palm planted area at a ceiling of 6.5 million ha from 2023 onwards. However, the Minister had an important reservation: She needed the help of state governments to achieve a cap.
Malaysia’s decentralized powers are in contrast to Indonesia, where the central government is largely in control of forests. Indonesia’s government issued a nation-wide logging moratorium for primary forests and carbon-rich peatlands that cover a total of 66 million hectares, or 35 percent of its land area.
According to its forestry department website, Peninsular Malaysia had a forested area of 5.6 million ha in 2019, or 43 percent of its total land area. The forested area comprises Permanent Forest Reserves (Hutan Simpan Kekal, 4.8 million ha), wildlife parks (0.6 million ha) and stateland forests (0.2 million hectares). However, Peninsular’s biodiversity is declining. In March 2021, the director-general of the Forest Research Institute Malaysia stated that 567 out of the 1,600 plant species of Peninsular Malaysia have been classified as threatened. Peninsular Malaysia has less than 200 tigers and 1,200-1,500 elephants left in the wild.
Non-transparency in oil palm expansion in Peninsular Malaysia
Peninsular Malaysia’s governments are not transparent about forest clearings inside forest reserves. The Malaysian government recently allowed concession maps of RSPO-certified areas to be made publicly available, yet concession maps of companies in the early or planning stages of deforestation remain undisclosed. For example, only a fraction of the Environmental Impact Assessments (EIAs) conducted for projects involving forest conversion appear on the website of the Environmental Department of the Ministry of Environment and Water.
Issues with deforestation and unknown concession boundaries also exist in Indonesia, but to a lesser extent. In Indonesia, when boundaries are not clear, often deforestation can still be linked to a company based on location permits and newspaper articles. Malaysia does not work with location permits, and its media landscape is less advanced.
Another contrast with Indonesia is Peninsular Malaysia allowing company projects that have clear-felling of forests as their sole purpose. One company may be clear-felling an area; another company may later start an oil palm project in that area. This results in a confusing situation as to whether the palm oil grower can still be held responsible for the deforestation. Among the retrievable EIAs, two oil palm projects in degazetted forest reserves were found, for which the forests were already cut down, and not part of the oil palm project. These two oil palm projects were the following:
- Felcra’s Bekok oil palm plantation of 609 ha in Johor’s Labis Tengah forest reserve. Felcra’s EIA was approved in October 2018, but the forests had already been cleared by June 2016. The EIA mentioned that Felcra was already eyeing the area in 2010 as a future oil palm plantation.
- Bunga Group’s oil palm plantation of 2,026 ha in Kelantan’s Limau Kasturi forest reserve through its subsidiary Value Greenworld Sdn Bhd. The EIA was approved in September 2018, but the forests had already been cleared by December 2015. The Limau Kasturi Forest Reserve had been degazetted from permanent reserve forest in November 2013 by the Kelantan State Government.
Some EIAs on projects concerning the removal of forest reserves by state governments do in fact appear on the website of the Environmental Department of the Ministry of Environment and Water. The projects may solely comprise the clear-felling of forests. In other cases, the commodity is included in the project, such as oil palm, durian, rubber, timber plantation, mixed agriculture, or vegetables.
Peninsular’s main palm oil refiners can do better in implementing their no-deforestation commitments
The eight largest palm oil refiners of Peninsular Malaysia have No Deforestation, No Peat, No Exploitation (NDPE) policies. The implementation of such policies has, however, been set back due to unknown concession boundaries of deforesters (so-called ghost deforestation). Deforestation can be detected in near real-time, yet when concession boundaries and owners are not known, refiners cannot determine who to engage to stop deforestation.
Palm oil refiners are a strategic bottleneck in the global supply chain. NDPE policies are the strongest private actor that can cut the direct link between deforestation and palm oil. Refiners commit to NDPE policies that cover their own plantations and the plantations of their third-party suppliers. The eight largest palm oil refiners cover 70 percent of Peninsular Malaysia’s refining capacity. All eight companies publish lists of their supplying mills (supply chain transparency) and also publish their incoming grievances, including actions taken and outcomes achieved.
Despite present efforts, Malaysia’s palm oil refiners have the potential to take more action to implement their no-deforestation commitments. Out of Peninsular’s 28 largest palm oil growers and mill owners, only nine have an NDPE policy. By comparison, of the 21 largest oil palm growers in Indonesia, 16 are meeting their suppliers’ no-deforestation expectations. This indicates that refiners are not making their no-deforestation commitments clear to Peninsular’s palm oil growers.
The final pages of this report show Peninsular’s main palm oil growers and mill owners. Mill owners are often not the ones who grow the palm oil. This report examines this with two deforestation cases related to the Sultans of Johor and Terengganu. For both cases, even though the company group was selling produce from the plantation to third-party mills, the main refiners took little action. Only nine out of Peninsular’s 28 largest palm oil growers and millers have a no-deforestation policy, and traceability is only to mill, not plantation.
Figure 4: Main palm oil refiners inside Peninsular Malaysia
Sources: Company websites, industry sources.
Five recent deforestation cases inside degazetted forest reserves show both oil palm expansion and non-transparency
In the following section, CRR explores five cases of removed forest reserves, including analysis of links to oil palm plantations being developed when known. The following cases show Peninsular’s lack of transparency on concession boundaries and ownership:
- Case 1 examines a planned 12,000-ha oil palm plantation inside a forest reserve. This case was identified by main refiners with NDPE policies in April 2020. By then, however, most of the forests had already been cleared. The forest clearing started in 2015.
- Case 2 shows 6,000 ha of forest clearing inside a forest reserve since 2016, while public information also shows that two oil palm plantations planned clearing that totaled 4,000 ha.
- Case 3 looks at a 2,200-ha oil palm plantation that appeared in a forest reserve after the forest was cleared between June 2016 and December 2018. This plantation is an oil palm project of AA Sawit, a company that is 51 percent owned by the Sultan of Johor. The case did not result in any grievances or engagement by the main refiners.
- Case 4 focuses on 1,800 ha of deforestation inside a degazetted forest reserve in the period 2016-2018. This clearing made way for an oil palm plantation owned by the Sultan of Terengganu. For this case, the main refiners took only little action.
- Case 5 shows massive clearing of more than 20,000 ha inside the Lesong forest reserve since 2016. Information on the companies active in this area, and on whether oil palm will be developed, is limited.
Case 1: TH Plantations and its clear-felling of the Yong forest reserve
Inside the Yong Forest Reserve, in Pahang state, the company Deru Semangat Sdn Bhd developed an oil palm plantation of over 12,000 ha, covered by approved EIAs in March 2017, March 2018, and February 2020. The forest clearing for this project took place in the period 2015-2019, and subsequently the oil palm plantation was developed.
Figure 5: Forest loss Yong Forest Reserve
Source: GLAD deforestation alerts, 2015-2021
Deru Semangat Sdn Bhd is 55 percent owned by Lembaga Tabung Haji (LTH). LTH is also the majority-shareholder of the large palm oil company TH Plantations Berhad. The remaining 45 percent of Deru Semangat is owned by the Sultan of Pahang and his relatives.
By April 2020, the case came under the attention of main traders/refiners with NDPE policies, but most forests had already been cleared. Wilmar International, which met with TH Plantations in July 2020, mentioned that TH Plantations had ceased all oil palm development inside the concession. Engagement with TH Plantations concerning Wilmar’s re-entry criteria was also triggered. Mewah International met with TH Plantations in October 2020. TH Plantations mentioned that it is considering a potential recovery plan.
Inside the Yong Forest Reserve (marked in green in the above graphic) and outside Deru Semangat’s area (marked in black in the above graphic), another 2,400 ha of forests have been cleared since 2015 (marked in red). The three patches in the Northwest of Deru Semangat’s concession were cleared in 2020 and 2021. It remains unclear which companies are responsible for these clearings, and whether oil palm plantations are planned.
Case 2: Planned oil palm plantations remain undiscovered inside Bukit Ibam Forest Reserve
Since 2016, the Bukit Ibam Forest Reserve in Pahang state lost 5,900 ha of its forests (red marked areas in the figure below). Various large-scale, clear-felling operations have taken place, mostly for the development of oil palm and forest plantations. There is scarce public information available on the companies operating in the area and their concession boundaries.
The Malaysian consultancy Eco Synergy is one of the most frequent assigned organisations to produce EIAs for projects involving forest clearing in Peninsular Malaysia. Its 15 EIAs account for 11,900 ha concerning the Bukit Ibam Forest Reserve.
Two approved EIAs were for projects for converting forest into oil palm plantations. One project was for 2,000 ha, but the name of the client was not revealed. The other project was for 1,900 ha, with Perkayuan Rimba Murni Sdn Bhd as the client. It remains unclear whether these projects have proceeded, though the largest red-marked area in the figure below (representing 3,600 ha) could represent clearing for these oil palm plantations. Most of the clearing took place in 2020.
The company Perkayuan Rimba Murni Sdn Bhd is majority-owned by the Malaysian Loo family (Loo Swee Thing and Loo Swee Chew, among others). The Loo family is also known from other logging projects inside forest reserves, such as those through the companies Eco Lumber Sdn Bhd and Super Radiance Sdn Bhd. The Loo family is not known for having oil palm plantations, and it is unclear whether the Loo family is just managing the logging project, or also developing the oil palm plantation.
Of the 15 Bukit Ibam EIA projects listed by Eco Synergy, only one EIA was available on the website of the Environmental Department of the Ministry of Environment and Water. The one project was the 3,800-ha clear-felling area controlled by Seruan Gemilang Makmur Sdn Bhd (marked in black in the figure below). The EIA was approved in December 2020. The company may start its large-scale logging in the near future, and there is no clarity which commodity will be grown on the logging project.
Figure 6: Forest loss Bukit Ibam Forest Reserve, between 2016 and February 2021
Source: Global Forest Watch, Deforestation alerts (GLAD), January 2016 – February 2021 (yellow markings are recent 2021 clearings).
Figure 7: EIAs for forest clearing inside Bukit Ibam Forest Reserve, Pahang state
Source: Eco Synergy, Experiences, Environmental Impact Assessment (EIA) (viewed on March 8, 2021).
Case 3: AA Sawit clearing the Jemaluang forest reserve
The Jemaluang forest reserve, located in Johor state, lost around 3,100 hectares of its forests since 2016. The company AA Sawit Sdn Bhd developed an oil palm plantation of 2,190 ha, and the company Nadi Mesra Sdn Bhd has an approved an EIA to develop an oil palm plantation of 2,126 ha. The forest clearing for AA Sawit’s plantation was conducted between June 2016 and December 2018, while the clearing for Nadi Mesra’s plantation started in early 2018 and more than half of the approved area is presently cleared.
Figure 8: Forest loss Jemaluang forest reserve
Source: GLAD deforestation alerts, 2016-2021
The Jemaluang Forest Reserve was entirely degazetted in 2015. It was part of the Central Forest Spine (CFS), a blueprint to conserve biodiversity and limit unsustainable development by connecting the largest remaining tracts of forests in Peninsular Malaysia. The CFS master plan was developed in 2010 under the auspices of Malaysia’s central government. It identified an ecological corridor called “SL04” to connect the forest complexes of Endau-Rompin and Jemaluang, the Ministry of Energy and Natural Resources recently told Macaranga.
Macaranga also reported in December 2020 and January 2021 that residents in the nearby town of Jemaluang were worried over herds of up to 30 elephants roaming into town and damaging farms and plantations. According to the EIA documents of AA Sawit as well as Nadi Mesra, the cleared areas may have very well harbored elephants, tigers, and tapirs.
AA Sawit has around 4,400 ha of oil palm concessions in Johor state, including the 2,190-ha plantation. It is 51 percent owned by the Sultan of Johor. The Sultan of Johor also has other palm oil companies, such as Mados’s Holdings Sdn Bhd (planted area of 8,700 ha) and Ibzi Plantation Sdn Bhd (area of 5,700 ha).
AA Sawit’s deforestation case did not result in any grievance or engagement by the main refiners. AA Sawit used to lease a palm oil mill, yet presently the Sultan of Johor does not own palm oil mills. The produce is sold to third-party mills. Its deforestation case shows that palm oil refiners may not fully pay attention to who is supplying their mills.
Nadi Mesra’s owner is Mr. Pek Kok Sam. He does not have a palm oil mill or any other known oil palm operations. Mr. Pek Kok Sam is the owner of a mining company, Aras Kuasa Sdn Bhd, which is responsible for several deforestation sites in Pahang.
Case 4: The Sultan of Terengganu puts an end to most of the Hulu Setiu forest reserve
The degazetted Hulu Setiu forest reserve in Terengganu state lost 1,800 hectares of its forests in the period 2016-2018. The clearing led to the company Cahaya Ikhtiar Sdn Bhd developing an oil palm plantation by. The total area of Cahaya Ikhtiar is 7,336 hectares. The area was almost entirely forested in 2012 when the oil palm project started. The last forests inside the concession were cleared in 2018, while the EIA for this clearing of 402 ha was approved in December 2018. And no more than the cover page of the EIA was published.
Figure 9: Forest loss Hulu Setiu forest reserve
Source: GLAD deforestation alerts, January 2016-December 2018
Cahaya Ikhtiar Sdn Bhd is owned by the Sultan of Terengganu and his relatives. According to the MSPO-certification audit report of Cahaya Ikhtiar Sdn Bhd, the company sells its fresh fruit bunches to one of the palm oil mills owned by TDM Berhad. Along with to the earlier example on AA Sawit, this deforestation case shows that palm oil refiners could pay more attention to traceability to plantation.
Case 5: Massive clearing in the Lesong Forest Reserve
Of all forest reserves in Peninsular Malaysia, the Lesong Forest Reserve in Pahang has experienced the most forest loss over recent years. In September 2014, it already became clear that 17,000 hectares would be converted to plantation sites. The Pahang Forestry Department director stated: “The whole 16,896 ha of Lesong that have been designated for forest plantation can all be classified as degraded or poor forest.”
Instead of regenerating forests after too many logging operations, the state government has preferred commercial timber trees and rubber, among other products. The director also stated that the terrain was suitable for conversion to oil palm and other agricultural activities.
Since 2016, the Lesong Forest Reserve in Pahang state lost 20,800 ha of its forests (see red-marked areas in the figure above). Little information is available on the companies active in this area and whether oil palm will be developed.
Figure 10: Forest loss Lesong forest reserve
Source: GLAD deforestation alerts, January 2016-February 2021
Many palm oil growers in Peninsular Malaysia do not have NDPE policies
In contrast to Indonesia, most of the large palm oil growers in Pensinsular Malaysia are majority-owned by a government institution. The four largest palm oil growers, which together run 31 percent of Peninsular’s estimated oil palm area, are majority-owned by the central government of Malaysia. Many other large palm oil growers are owned by a state government, which corresponds with the jurisdiction that state governments have over their forests. Some palm oil growers also have ownership links with sultans of states, as noted for example for the states of Johor, Terengganu, Pahang, and Kelatan.
Looking at palm oil mills instead of oil palm plantations, the role of the government becomes less dominant. For example, Felcra and RISDA have few mills compared to their oil palm-planted areas, and this also applies for many of the governmental institutions at state level. Some private partners have four or even more palm oil mills, even though they do not own significant oil palm planted areas.
Out of Peninsular’s 28 main palm oil growers and palm oil mill owners, only nine have an NDPE policy. NDPE policies include commitments to the following: Free, Prior, and Informed Consent (FPIC) for indigenous and other local communities, zero-burning, preventing poor working conditions, and preserving High Conservation Value (HCV) areas, High Carbon Stock (HCS) areas, and peatlands. When palm oil growers and palm oil mill owners do not have NDPE policies, they may in practice still adhere to NDPE policies of their buyers: the main palm oil refiners.
Figure 11: The largest palm oil growers and/or palm oil mill owners in Peninsular Malaysia
Source: Global mill list and concession map Aidenvironment, MSPO-certified areas, total area estimated from planted area according to Malaysian Palm Oil Board, websites companies.
Palm oil actors in Peninsular Malaysia mainly financed by Malaysian financial institutions; non-NDPE actors received at least USD 2.4 billion
Between 2016 and 2020, financial institutions provided at least USD 6.2 billion in palm oil-connected loans and underwriting to palm oil growers, millers, and refiners in Peninsular Malaysia. Data on creditors is available for nine of the identified companies, including five companies without an NDPE policy. Key banks providing loans and underwriting were Malaysian Malayan Banking, CIMB Group, Public Bank, and RHB Banking, accounting for 55 percent of the total identified flows. With a total of USD 2.4 billion, loans and underwriting linked to non-NDPE companies accounted for 38 percent. These flows were almost exclusively linked to Malaysian financial institutions. Malayan Bank and Public Bank were the largest creditors to non-NDPE actors with respectively USD 998 million and USD 553 million (Figure 12). Due to the lack of transparency, the amount of financing provided to companies without an NDPE commitment is likely higher.
The financial institutions with zero-deforestation policies mentioned in Figures 11 and 12 (such as HSBC, Standard Chartered, JP Morgan Chase, DBS) are not exposed to non-NDPE palm oil companies in Peninsular Malaysia.
Figure 12: Top creditors (loans and underwriting) of palm oil companies in Peninsular Malaysia
Note: All amounts are adjusted for palm oil attributable value. Source: Forests & Finance (2021).
Moreover, palm oil-related investments in shares and bonds with a value of USD 10.4 billion can be linked to financial institutions. The Forests & Finance database identifies investments in 11 palm oil growers, millers, and refiners active on the Peninsular, of which eight have an NDPE policy. Of the total identified value, 99 percent, or USD 10.3 billion, is linked to these eight companies (Figure 13). Among the investors, Permodalan Nasional Berhad and the Employees Provident Fund account for the largest shares with respectively USD 5.2 billion and USD 2.0 billion.
Figure 13: Top investors in shares and bonds of palm oil companies in Peninsular Malaysia
Note: All amounts are adjusted for palm oil attributable value. Source: Forests & Finance (2021).