HSBC agrees to stop funding deforestation for palm oil

Written by Rebecca O'Connor on 21st Feb 2017

HSBC today published a new ‘No Deforestation, No Peat, No Exploitation’ policy covering its financing of palm oil companies.

The move by HSBC, Europe’s largest bank and a major funder of palm oil companies, comes on the same day its shares fell 7 per cent as it announced a 62% fall in annual profits and that it is being investigated by the Financial Conduct Authority over its financial crime controls.

The publication of its new policy follows an investigation by Greenpeace that linked it to companies destroying Indonesia’s rainforests. Hundreds of thousands of people joined the campaign to change the bank’s policies, including 30,000 HSBC customers.

Annisa Rahmawati, forest campaigner for Greenpeace Indonesia, said: “Our rainforest is being carved up at a frightening rate and high street banks all over the world are funding this destruction. HSBC’s commitment to break its ties to destructive palm oil companies is a good first step and Greenpeace will be watching closely to make sure it delivers. This also sends a clear signal that other global banks must follow suit.”

In its new policy, HSBC has made stronger commitments to refuse finance for companies that clear forests and peatlands. If adopted across the banking sector, the policy would play a part in ending the role of banks in financing destructive palm oil companies.

The new policy will require HSBC commercial customers to:

  • Commit to protecting natural forest and peat by 30 June 2017.
  • Identify and protect forests and peat in new plantations prior to commencing new development.
  • Provide independent verification of their No Deforestation, No Peat, No Exploitation commitments by 31 December 2018.

A shift towards making palm oil financing more sustainable is long overdue. The rate of deforestation in Indonesia has overtaken Brazil. Last year, orangutans were moved from ‘endangered’ to ‘critically endangered’ on the IUCN’s listings. A recent study estimated that smoke from forest fires, which are fuelled by plantation companies clearing forests and draining peatlands, caused more than 100,000 premature deaths across South East Asia in 2015.

A first critical test for the banking sector will be its response to South Korean conglomerate POSCO Daewoo, which is preparing to clear an area of Papuan rainforest larger than Cambridge. New satellite images of PT Bio Inti Agrindo (a subsidiary of POSCO Daewoo) taken on 13 January 2017 show an estimated 4,000 hectares of rainforest crisscrossed by newly constructed roads, a key indicator of imminent plantation development.

Research by Greenpeace showed that in the past five years, 13 banks – including HSBC, BNP Paribas and Standard Chartered – have been involved in providing POSCO Daewoo and its subsidiaries with loans totalling nearly US$3.6bn and bonds totalling over US$5bn.

“It is clear from these shocking images that HSBC’s client POSCO Daewoo intends to destroy a vast area of rainforest. This is the critical test for HSBC. It cannot in good conscience continue to fund POSCO Daewoo if it continues to carve up Papua’s rainforest.” said Annisa.

Greenpeace will today be writing to all of the other banks exposed by the ‘Dirty Bankers’ investigation to ask what action they will be taking, in light of HSBC’s new policy, to ensure they are not funding deforestation.

In a statement published yesterday, HSBC said it: “agrees that rainforests need to be safeguarded from destruction with protection for local people and the rare species dependant on them. HSBC’s 2014 Agricultural Commodities Policy made it clear that we have no interest in financing illegal operations: land clearance by burning, the destruction of “high conservation value” areas like rainforest, harmful child labour, forced labour, or other activities violating the rights of local communities.

“In recent meetings, NGOs have confirmed that they want HSBC to stay involved in the palm oil sector to support companies moving to good standards, and to close relationships with those that do not do so in a timely manner. This is what we do.

We take our policy commitments seriously. We are not complacent about the need to implement them properly or the need to review our approach from time to time. And we have not breached our policy.

“HSBC has progressively raised the sustainability standards it applies to the palm oil sector since it introduced its first policy in 2004, resulting in our 2014 policy requiring customers to gain independent certification that their business operates sustainably. We remain open to tightening the policy further as society’s expectations change and new standards develop. We have recently been happy to discuss with Greenpeace its request that HSBC incorporate new standards for the palm oil sector to protect high carbon stock (‘HCS’) forests and peat.

“We have further strengthened our policy by expanding our prohibited businesses commitment, making it consistent with ‘No Deforestation, No Peat and No Exploitation’ (NDPE) policies which are increasingly common in the palm oil supply chain. We also extend our policy to include refiners and traders, as well as growers and mills. And, in the short transition period before customers have to make a commitment to NDPE, HSBC will not agree new financing facilities to customers who have not made the appropriate commitment. You can read our policy in full.

“This NDPE policy will enhance our existing commitment to the Roundtable on Sustainable Palm Oil (‘RSPO’) which provides a common, shared system for growers, processors, buyers and banks to use in order to check that palm oil is sustainably produced. The 2016 HCS Convergence Agreement between palm oil supply chain companies and NGOs, which defines a common methodology for application in the palm oil sector, also provides further support for the RSPO-NEXT initiative. RSPO has achieved much already, but we agree it needs to make further progress. HSBC – together with many companies in the sector and many respected NGOs – supports RSPO in making those improvements and would welcome the involvement of other NGOs with knowledge, experience and influence in supporting an improving RSPO.

“We recognise that the finance sector can play a greater role and that the wider market participants – growers, processors, consumer goods companies, NGOs and banks – can work together more successfully to promote a sustainable palm oil sector. We will play our full part.

“To that end, we will also seek to join the Banking Environment Initiative, which is linked to the Cambridge Institute for Sustainability Leadership (Patron: HRH the Prince of Wales) and we will join the Tropical Forest Alliance, hosted by the World Economic Forum, which brings together governments, NGOs and business to reduce tropical deforestation, improve the livelihoods of smallholder farmers, conserve natural habitats, and protect tropical landscapes. HSBC’s involvement will be led initially by the Group Chief Executive.

“HSBC does not and will not knowingly provide financial services which directly support palm oil companies which do not comply with our policy. We will always investigate credible evidence that companies may not comply with our policies, but we are not aware of any current instances where customers are alleged to be operating outside our policy and where we have not taken, or are not taking, appropriate action.”

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