Image showing fire hotspots recorded on land owned by the Korindo company PT Papua Agro Lestari in December 2015
Banks owned by the Indonesian government are
funding illegal activities by large-scale palm oil companies that are undermining
high-profile policy commitments made by the country’s President to reduce
greenhouse gas emissions.
Three banks majority-owned by the state – Bank Mandiri, Bank
Rakyat Indonesia and Bank Negara Indonesia – have ploughed billions of dollars
into an industry that is systematically undermining the rule of law and
efforts to repair Indonesia’s reputation as a climate villain in the wake of
catastrophic forest fires.
The companies financed by the three banks are clearing and
draining peatlands and stand accused of failing to avoid fires in areas under
their management. Some are even alleged to have deliberately started fires to
clear land. All of these acts are, to varying degrees, illegal or criminal in
The evidence has been laid bare in a new report by Aidenvironment, commissioned by the
NGO Rainforest Foundation Norway. It provides detailed allegations against
seven palm oil companies operating across the islands of Sumatra, Kalimantan,
Sulawesi and Papua.
The Korean-owned conglomerate Korindo, the largest palm oil
company in Papua, is alleged to have intentionally used fire in the
course of clearing for its plantations. It has destroyed 30,000 hectares
of tropical forest for palm oil since 2013.
“All evidence – satellite imagery, hotspot data, and aerial
photographs – pointed to systematic and abundant use of fire during Korindo’s
land clearing processes,” the report states. “This is illegal in Indonesia.
During the 2013–2015 period, all Korindo’s land clearing to establish oil palm
plantations was accompanied by burning.”
Korindo has been financed by the state-owned Bank Negara
Sampoerna Agro, which is embroiled in land rights conflicts,
is currently being prosecuted by the Indonesian Ministry of Environment and
Forestry for failing to mitigate fires in its concessions. The Ministry alleges
that Sampoerna made “no effort” to prevent fires spreading inside and outside
its concession in 2014, according to the report.
In August 2016, a court ordered Sampoerna to pay
approximately US$80 million for compensation and ecosystem restoration.
Sampoerna has appealed the verdict. It also has outstanding loans amounting to
more than two trillion Rupiah from the three Indonesian state banks.
While development on peatlands more than three meters deep
has been prohibited in Indonesia for several years, the government has taken
several measures to prohibit all expansion into peatland since Indonesia’s
peatlands were the site of massive fires in 2015.
Peatlands, which function like a wet sponge in their normal
conditions, become highly combustible when drained for plantation development.
As in 2015, the fires are almost impossible to control when they begin and
generate vast greenhouse gas emissions.
The evidence suggests that almost all of the companies
financed by state banks are in violation of the measures taken to prevent
further exploitation of peatlands, including planting on burned land.
An analysis by the NGOs Rainforest Action Network and TUK in
2016 found that, according to their public policies, the three state owned
banks had no measures in place to avoid financing of such illegal activities.
None of the banks required proof of legality in the
operations of their clients, or checked the legality of their land tenure.
According to their policies, they do not commission independent assessments of
The Aidenvironment report principally highlights the role of
Norwegian financial institutions as investors in the Indonesian banks. Over
recent years the Norwegian state pension fund has led the sector in divesting
from environmentally harmful activities, including many palm oil firms.
However, it may still be benefiting from illegal deforestation through
their investments in the Indonesian government-owned banks.