Bank policies that protect peatlands and reduce deadly fires in Indonesia are long overdue

Many financial institutions are divesting from the coal industry, and avoiding association with fossil fuels, yet investment in the Indonesian pulp industry is also the root cause of massive greenhouse gas emissions. It’s time for banks to put in place safeguards to stop any further irresponsible involvement in the pulp industry.

In February 2018, Indonesia’s fire-prone Riau province increased the emergency status for peatland and forest fires in the province to alert level 3,  following fires that burned down hundreds of hectares of peatland. It is an attempt to avoid a repeat of fires that smothered Southeast Asia in smog in 2015. At the time, 100,000 fires occurred in Indonesia, burning 2.6 million hectares which released an estimated 1.75 billion tonnes of carbon dioxide equivalent, more than Germany’s or Japan’s total annual emissions. The haze that blanketed the entire region caused an estimated 100,000 premature deaths, due to the exposure to the toxic smoke. Such intense peat fires are a consequence of the plantation model used by palm oil companies and pulp and paper companies, such as Asia Pacific Resources International Ltd. (APRIL) and Asia Pulp and Paper (APP).

Drained and dried peat is a particularly high source of greenhouse gas (GHG) emissions through its oxidation and increased susceptibility to burning. As a result, Indonesia is among the top GHG emitters globally, more than half of the emissions coming from degraded peatlands.

Indonesia’s pulp plantations on peat soils release more than 80 million tonnes of CO2 every year. APP is responsible for almost 44 million tonnes and APRIL for more than 19 million tonnes. That is equivalent to the emissions of 23 coal-fired power plants.

The firefighting by the authorities is important, but to prevent a climate catastrophe, more urgent actions are needed and the causes of the fires need to be addressed: Financiers have to stop financing these the establishment of plantations on peat. Unfortunately, most banks still do not have policies that prohibit their clients from developing plantations on peat, regardless of depth. Last year EPN published the report “In the Red – An Assessment of Bank Policies for Financing Pulp and Paper”, which found that none of the 42 assessed banks had policies to protect peat, and only 2 banks had a policy on the use of fire.

To remind banks of their responsibility in preventing these fires, EPN has sent the report “Too much hot Air – The failure of the Indonesian pulp and paper industry to reform its management of peatlands” to all the banks that scored poorly on the assessment.

Pulp plantations on peat soil in Indonesia, even without fires, release more than 80 million tonnes of CO2 every year. To put these figures in perspective, excluding downstream emissions, the pulp and paper industry in Indonesia emits more GHGs than Finland.

Another way of looking at the same figures, is to compare these GHG emissions with coal, the dirtiest form of fossil fuel. A typical coal-fired power station emits 3.5 million tonnes of CO2 per year, so therefore Indonesia’s pulp industry’s emissions are the equivalent of 23 coal power stations.

Over the past years, EPN has warned several known financiers of companies such as APRIL and APP about the problems associated with development of plantations on peat. Banks that finance these activities expose themselves to high financials and reputational risk.

Fortunately, we are seeing some progress. Already in 2015, the bank Santander publicly announced that it would provide no more financial services to APRIL, until the company complies with the bank’s policies. At the time, ABN Amro and Credit Suisse made similar statements, and though their interpretation of this commitment seems looser than that of Santander, they did not participate in a recent syndicated loan to one of APRIL’s subsidiaries, worth over USD 500.[1]

If banks are starting to realise that they must scrutinize these investments and put in place safeguards instead of relying on voluntary and unfulfilled sustainability commitments, we warmly welcome this progress and invite other banks to follow their example.

We urge all financiers that have not done so yet to adopt policies for investment in pulp and paper companies which include a criteria that states: Clients must not establish plantations on peatland, regardless of depth, nor degrade peatland, or allow this to take place as a result of their operations.

See Green Paper, Red Lines for more policy recommendations.

[1] https://chainreactionresearch.com/2017/11/16/the-chain-paradise-papers-links-aprils-tax-avoidance-to-deforestation-and-banks-could-impact-usd-500-million-loan/ ; Thompson Reuters