Analysis of palm oil grower BW Plantation shows significant risks

On November 24th, the shareholders of the Indonesian oil palm plantation company PT BW Plantation Tbk. will be asked to agree to a new rights issuance to finance the take-over of Green Eagle Holdings.

The take-over of Green Eagle Holdings will turn BW Plantation into the third-largest oil palm plantation company listed on the Indonesian Stock Exchange (IDX) in terms of planted area. Our analysis of relevant sustainability, governance, and financial issues is designed to inform BW Plantation’s present and potential future shareholders about risks associated with the proposal.

We believe that the issues presented in our analysis pose significant risks for present and future shareholders. Two of the main traders currently purchasing palm oil from BW Plantation are Wilmar Internation and Golden-Agri Resources. Given that both companies have adopted No Deforestation, No Peat, No Exploitation policies for their supply chain and third party suppliers, BW Plantation risks losing significant market share.

While our full analysis delves into the governance and financial elements of the proposal, we want to highlight here some of the sustainability risks highlighted. Despite limited disclosure by BW Plantation on the environmental performance of the expanded company, we have identified the following areas of concern:

• Deforestation: Between 2010-2014, PT Tandan Sawita Papua, a subsidiary of Green Eagle, converted approximately 7,000 hectares of primary rainforests into oil palm plantations. In addition, the company cleared more than 6,000 hectares of secondary forests in Papua.
• Encroachment on orangutan habitat: In early 2014, a Greenpeace report linked BW Plantation holdings in Central Kalimantan to habitat loss of endangered orangutans. In an incident this month, three orangutans were rescued after being stuck in the midst of clearings by PT Arrtu Energie Resources, a West Kalimantan subsidiary of Green Eagle. Most plantation companies listed on the IDX have carried out assessments to identify and preserve High Conservation Value (HCV) areas within their concessions. However, in BW Plantation’s prospectus, there was no information presented on HCV assessments or biodiversity conservation.
• Peatland development: The drainage of carbon-rich peatlands is a large driver of climate pollution. BW Plantation does not provide a clear policy to exclude development of peat areas. The prospectus reveals that BW Plantation presently cultivates oil palm trees on 17,000 ha of peatland. This is causing estimated annual emissions of at least one million tonnes of carbon dioxide, equivalent to the annual emissions of 400,000 cars.
• Social conflicts: Our initial analysis has found reports on the destruction of customary land by BW Plantation and reports about poor working conditions on a Papuan plantation operated by Green Eagle.

The full risk analysis with figures and citations is available.

Initial Risk Analysis: BW Plantation Tbk. [Now: PT Eagle High Plantations Tbk.]
November 19, 2014
On 24 November 2014, the shareholders of the Indonesian oil palm plantation company BW Plantation Tbk. will be asked to agree to a new rights issuance to finance the take-over of Green Eagle Holdings. To inform BW Plantation’s present shareholders about several risks associated with the proposal, Chain Reaction Research (CRR) is releasing this Initial Risk Analysis.

Read the Report | Download as PDF

Cargill’s first progress report on zero-deforestation palm oil

Agribusiness giant Cargill released this week its first-ever implementation progress report for its zero-deforestation palm oil policy. In late July, Cargill announced a No Deforestation, No Peat, No Exploitation policy for its palm oil supply chain, including third party suppliers. The progress report discusses the steps the company has taken on its own and with NGO partner The Forest Trust to implement and evaluate this policy on the ground. Cargill notes that it is currently on track to map 80 percent of its palm oil in key markets back to individual mills by the end of 2014, and 100 percent of all mills by December of 2015.

When Cargill’s policy was first announced, we reported that NGOs were calling on the company to provide greater detail and transparency on their implementation plans, to ban hazardous pesticides and methane emissions, and to expand their palm oil policy to other commodities they trade such as cattle, soy, and sugar. While issues around pesticides and methane emissions have not been formally addressed, this progress report shows a concerted effort to provide clarity and transparency around its palm oil policy.

In September, Cargill announced at the UN Climate Summit in New York that it would extend its zero-deforestation policy to all commodities. The New York Times called the announcement, “one of the most sweeping environmental pledges ever made by a large agricultural company.” The company has yet to announce a timeline or issue a report on its progress toward implementation of a cross-commodity policy.

Update: Bunge not a buyer for Golden Plantation IPO

In a previous IPO alert, we noted that Bunge and private equity giant KKR are reported to be potential major buyers of the upcoming Golden Plantation share issuance. While Bunge (BG:US) currently holds a 35% stake in Bumiraya Investido, which will be merged with Golden Plantation ahead of the coming IPO, Bunge has since stated that they are not planning to purchase shares of Golden Plantation when the company goes public.

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