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Billions of US Dollars from Bank Owned by the Government Flow to Companies Allegedly Damaging the Environment

A total of USD 18.25 billion from 10 banks in Indonesia flowed to 15 companies suspected of damaging the environment from 2016 – 2015. Bank Rakyat Indonesia is the largest creditor.

Degraded peatland
Source: Pantau Gambut

Sunday, 11 December 2022, Pantau Gambut, with Transformation for Justice (Tuk), released the results of a joint study on State-owned Bank Financing for Companies Destroying Peat Ecosystems. This report states that Bank Rakyat Indonesia (BRI) has become a debtor for the palm oil, pulp and paper industries. BRI is the largest funder for the forest-risk business sector. Within five years, BRI has disbursed funds of USD 4.22 billion for financing that impacts damage to peat ecosystems, such as deforestation and activities that cause drought on peatlands.

The report also states that this risk arises because corporate customers who receive funds from BRI are suspected of being involved in forest fires in Indonesia in 2015 and 2019. These corporate production activities caused peatlands to burn, which contributed to the climate crisis, causing premature deaths in affected areas, economic losses, and threats to biodiversity in peatlands.

Top Ten Creditor for Palm Oil and Pulp and Paper Industry Between 2016 and 2021
Source: Pantau Gambut

Five corporations receive funds from BRI. The corporation that received the most funds was the Sinar Mas Group (SMG), with a total funding of USD 3.2 billion. Data processed from forestandfinance.org states that 75% of the funding received by SMG is for the palm oil industry. The 2020 investigation of all companies related to SMG, whether subsidiaries or specifically affiliated, shows violations in exploiting peatlands that serve a protective function for planting oil palm or acacia. In addition, there needs to be more effort to restore peat in areas that have been burned or at the location of peat rewetting infrastructure under the planning documents.

Using the Environment, Social, and Governance (ESG) criteria, this report finds results that differ from BRI’s claims regarding its environmental sustainability rhetoric. BRI’s ESG policy for pulp and paper commodities scores very severely. Meanwhile, BRI’s ESG policy achieved a medium score for the palm oil commodity.

Funds distribution from BRI to Corporations allegedly damaging the environment
Source: Pantau Gambut

“The statement from the sustainability report provided by BRI and the palm oil, pulp and paper group that has been mentioned is very different from the environmentally friendly claims they submitted,” said Agiel Prakoso, a researcher at Pantau Gambut.

In the prospectus of PT Bank Rakyat Indonesia (Persero) Tbk, released on 31 August 2021, Sunarso, as the Main Director of BRI, said that all investments made by BRI are environmentally friendly. In doing business, BRI is also committed to ESG principles. Sunarso added that BRI would limit credit in the fossil energy sector, including coal and oil mining. BRI also added the ESG assessment to provide credit to palm oil corporations.

ESG assessment for BRI from forestandfinenace.org
Source: Pantau Gambut

As a bank that claims to be environmentally friendly, this report provides several recommendations to BRI for;

  1. Strengthen ESG safeguard policies by taking into account government regulations related to peat protection
  2. Immediately formulate an ESG policy on commodities that are at risk to the environment
  3. Improve the sustainability report verification protocol
  4. Improving information disclosure and complaint procedures
  5. Stop financing if environmental violations are found

The National Coordinator of Pantau Gambut, Iola Abas, revealed that BRI needs to be firm with debtors who damage the environment. “BRI debtors’ non-compliance with policies that protect peat must be addressed firmly by BRI. In earnest, BRI must implement a strict credit policy for industries at risk of environmental damage. Don’t let claims of commitment to ESG principles be just “embellishments” in the annual report,” said Iola.

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