Forcing financial institutions to be held responsible for forest and land fires

Forest and land fires that still occur every year, especially in Sumatra and Kalimantan, and land conflicts with communities indicate that many things still need to be corrected by the Government of Indonesia so that the use of palm oil as a fuel source for biodiesel must come from sources that are managed sustainably and responsibly answer. The role of financial parties such as banks and non-bank financial institutions in providing loans to palm oil companies as CPO suppliers for biodiesel that has been appointed by the Indonesian government to Pertamina in the Minister of Energy and Mineral Resources No.2018K / 10 / MEM / 2018 is very important in selecting oil companies oil palm which has a sustainable commitment in the No Deforestation, No Peat Development and No Exploitation (NDPE) commitments.

The total area burned since January to August 2019 was 328,722 ha, and to date in South Sumatra there are still forest and land fires in several plantation concessions. Thousands of people are forced to breathe toxic air from burning land. BNPB said that the people affected by ISPA since February to September 2019 total 919,516 people.

Source: BNPB (2019)

How the role of banks and non-bank institutions play an active role in implementing sustainable finance in Indonesia is by applying the principles of NDPE in lending funds to palm oil companies, especially as a distributor of biodiesel to create sustainable biodiesel in Indonesia. Financial institutions must pay attention to environmental and social issues when providing financing to oil palm plantation companies. Financial institutions (banks) that provide funds to forest and land-burning corporations must be responsible for public funds (including smoke-exposed customers) that they manage (stored) and distribute to the corporation.

Willem Pattinasarany, Coordinator of the Indonesian Working Group on Forest Finance (IWGFF) said that the role of banks and non-bank institutions is very important in providing loans to palm oil companies, especially those appointed as Crude Palm Oil (CPO) distributors for bio diesel distributed to PT Pertamina and several Public Service Obligation (PSO) and Non-PSO companies. The impact of business processes in the palm oil industry that does not heed the principles of NDPE has resulted in negative results for Indonesian citizens who are in the area of ​​operations of palm oil companies. Deforestation has caused severe forest and land (Karhutla) fires like the recent one in several regions in Indonesia. How banks and non-bank institutions play an active role in implementing sustainable finance based on POJK No.51 / 2017 and its technical guidelines in Indonesia is by applying NDPE principles in providing loan funds to palm oil companies, especially as a distributor of bio diesel to create sustainable bio diesel in Indonesia.

Muhamad Kosar from JPIK said that Financial Services Institutions have an important role in supporting investment and finance in the palm oil sector with the aim of developing the performance and governance of the palm oil sector in Indonesia. The commitment of Sustainable Finance from the Bank (financial institutions) still needs to be reaffirmed, both the standards and supervision of the Financial Services Authority (OJK). In addition, banks that provide loans to companies that are not yet committed to NDPE will only create a bad reputation for the bank.

Furthermore Bayu Sefdiantoro from Link-AR Borneo said, in POJK 51/2017, banks must implement sustainable policies that are social and environmental aspects, this must be obeyed by the banks lending to debtors of oil palm company. From the results of monitoring of banks that provide loans to oil palm plantation companies that have not yet implemented the sustainable policy, this is based on the findings in the field that the company still does not carry out sustainable practices and also violates NDPE, as is happening right now such as forest and land fires in the oil palm concession. The impact of this is economic, social and environmental damage. OJK must be able to ensure that large banks that lend their money to palm oil companies run sustainable policies. In addition, OJK must make special regulations concerning sustainability with measurable standards and indicators, so that future forest and land fires will not recur in the future. It is important to remember that Indonesia is the biggest CPO producer, and has a biofuel policy which must be supported by biofuel suppliers that are clean from human rights and environmental violations. From companies that are sealed by the government, in this case the Ministry of Environment and Forestry found a group of CPO suppliers to Pertamina. We want biofuels that are clean from practices of human rights and environmental violations, so we can say that our biofuel production is clean from these violations.

Ismail from Padi Indonesia explained that Karhutla was an extraordinary crime that caused huge casualties, therefore OJK as an institution that has authority over the use of financial services which incidentally is a public fund must be serious about NDPE’s policy commitments by imposing strict sanctions on palm oil companies especially oil palm companies involved in forest fire and human rights violations.

Rahmat, Chair of AGRA, stressed that forest fires and haze disasters have afflicted millions of people, especially peasants, women and children. All of this stems from the underdeveloped agricultural practices of land monopoly in the semi-feudal system by palm oil corporations for the production of export commodities and biofuels. They are supported directly by large investments from national and international financial institutions to launch production, but using inexpensive methods, namely burning forests and peatlands. For that, they must take responsibility for this tragedy. It is unfair to just continue to blame and arrest the peasants, while the corporation and its owners are still left free from the more stringent laws. The peasants are the victims who continue to be blamed, they should be released immediately because they have been accused carelessly as the main cause of forest fires and haze disasters.

Hadi Jatmiko from LHI (Green Circle of Indonesia) said that Karhutla is an extraordinary crime that requires extraordinary law enforcement. Banking financial institutions must be involved in stopping crime by being involved in giving sanctions to companies that commit forest and land fires. Particularly in South Sumatra, the smoke condition has thickened due to forest and land fires which in recent times have become increasingly widespread. This condition should also be of concern to the public (customers) who have trusted their funds in the banking sector, and are used by banks to finance corporate and corporate forestry finance. “If banks do not provide sanctions then we invite the public to boycott funds to banks that are known to finance forest and land fires,” said Hadi.

Inda Fatinaware, Executive Director of Sawit Watch said that based on the results of our monitoring, there were at least 14 RSPO member companies that identified their concession areas burning during the January-October 2019 period. There were even companies whose concessions experienced repeated forest and land fires from 2015 to 2018 then . In addition, we also see a correlation between agrarian conflicts and forest and land fires. The RSPO certification body must ensure that RSPO members whose lands are burnt get strict action. In addition to the above, the government, palm oil companies, OJK and financial institutions (banks) that support the palm oil industry must also take responsibility, ”added Inda Fatinaware.

Muhammad Busyro Fuad from Elsam stated, in the context of law enforcement for cases of land and forest fires (karhutla) that occurred so far, the Government through KLHK has issued administrative sanctions in the form of written warnings, government coercion, license revocation, and license suspension for companies that involved in karhutla. However, forest and land fire cases that occurred again in Kalimantan and Sumatra, are important indicators that the efforts of the Government are apparently not able to reduce or stop forest and land fires. As a result, the community became the first victim most harmed by forest and land fires. In addition to restoring victims’ rights, there must be other preventive measures that can be used as a means to stop forest and land fires, one of which is through the financing sector. Birth of POJK No. 51 / POJK03 / 2017 concerning the Implementation of Sustainable Finance for Financial Services Institutions, provides a new chapter for the financial sector such as banks to contribute to ensuring the achievement of sustainable development. Thus, banks must have a firm commitment not to provide funding to companies involved in forest and land rights and other human rights violations.

1. Banks operating in Indonesia need to immediately implement sustainable finance as stipulated in POJK No.51 / 2017 concerning sustainable finance and technical guidelines in providing investment loans in the palm oil industry sector
2. OJK as a regulator in the financial services sector will immediately make policy standards in the palm oil sector industry as stated in the principles of sustainable finance
3. Financial institutions must review in providing investment loans to companies that are indicated to have committed environmental crimes and social impact, as suppliers of bio fuels
4. Every victim of forest and land fires (karhutla) must obtain remedies as part of the state’s obligation to protect human rights and corporate responsibility to respect human rights which includes apologies, restitution, rehabilitation, financial or non-financial compensation and penalties, whether criminal, civil or administrative matters, such as fines, as well as guarantees that a similar event will not occur in the future;
5. OJK must start encouraging financial institutions to integrate due diligence on human rights as part of the licensing and supervision mechanism of each business entity and direct financial service institutions to pay attention to the principles of sustainability when providing financing to oil palm plantation companies.

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