A Japanese financial services giant has breached a commitment to stop financing companies that develop carbon-rich peatlands, according to an investigation by environmental campaign group Rainforest Action Network (RAN).
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Satellite analysis by RAN identified 7,800 hectares (ha) of peatlands converted for palm oil and sugarcane plantations in South Sumatra by resources company Tunas Baru Lampung (TBLA) between 2020 and 2023. The conversion was funded by Mitsubishi UFJ Financial Group (MUFG), through Indonesian subsidiary Danomon, according to data from Forests & Finance, a platform that uses financial databases to track financing of commodities.
The loans provided to TBLA, which totalled US$281 million, flout a ‘No Deforestation, No Peat and No Exploitation’ (NDPE) policy MUFG made in 2021 to avoid financing clients that convert peatlands, chop forests or exploit local communities or workers. The sustainability commitment is widely considered as best industry practice for the resources sector.
Since MUFG acquired a majority stake in Bank Danamon in 2019, the latter’s sustainability reports have publicly reflected MUFG’s NDPE policy. “However, Danamon’s lending to TBLA indicates that this NDPE commitment is not being implemented,” the report said.
MUFG did not directly respond to questions about RAN’s findings and the potential breach of its NDPE commitment, but told Eco-Business that it conducts “rigorous” assessments of palm oil clients to ensure that their plantations are developed in an “environmentally and socially responsible manner”.
It added that it encourages clients to become members of the Roundtable on Sustainable Palm Oil (RSPO), a standard for sustainably grown palm oil, and requests for them to get their operations certified by RSPO and publicly commit to NDPE.
Bank Danamon said that it has a sustainability policy for lending that is aligned with the environmental and social policy framework issued by its parent company, and it considers Indonesia’s local market conditions and complies with prevailing regulations.
“Danamon constantly ensures that financing provided to customers is undertaken prudently and in full consideration of our sustainability framework,” Thomas Sudarma, Danamon’s enterprise banking and financial institution director, told Eco-Business in a statement.
TBLA did not respond to requests for comment.
RAN’s analysis shows that between 2015 and 2019, 28,903 ha of peatlands burned in TBLA’s concessions.
In the concessions of TBLA subsidiary PT DGS, the biggest area that burned was in 2015, one of the worst years for transboundary haze air pollution in recorded history.
Areas that burned within the concession of TBLA subsidiary PT Dinamika Graha Sarana between 2015 and 2023, according to satellite analysis. Source: RAN
TBLA has a track record of fires in its concessions in Ogan Komering Ilir, a district in South Sumatra, a part of Indonesia that has been a common source of transboundary haze over the years. Major palm oil traders including Musim Mas have ceased sourcing from TBLA, due to its poor environmental track record.
RAN estimates that TBLA’s peatland conversion resulted in fires that spread over 14,500 ha of land in 2023. TBLA’s subsidiary, PT Dinamika Graha Sarana (PT DGS), was sued by the Indonesian government for US$41.5 million for the ecological damage and economic losses the fires caused in 2023.
Peatlands converted in PT DGS’s concessions between 2016 and 2023. Source: RAN
RAN said that Bank Danamon’s failure to follow MUFG group policies on NDPE raised questions as to whether its Indonesian subsidiary is also ignoring MUFG Group’s wider commitments on human rights.
NDPE policies are still relatively rare in the Asian financial services sector, with MUFG, Malaysian financier CIMB and Singapore’s DBS among those to have adopted a policy. None of the four largest banks in Indonesia, Bank Mandiri, BRI, BCA and BNI, have adopted NDPE policies.
The investigation emerges eight months after a RAN study called into question millions of dollars worth of sustainability-linked loans (SLLs) that MUFG had provided to Apical’s parent company, Royal Golden Eagle (RGE), after satellite analysis found deforestation within in RGE’s supply chain. The key performance indicators underpinning the SLL included 100 per cent NDPE compliance. RAN called the SLLs “sustainable finance greenwashing”.
MUFG and RGE responded to explain how their performance targets are verified and audited.
Last month, MUFG withdrew from the Net Zero Banking Alliance, a United Nations-convened group of banks committed to align their investments and lending with a decarbonisation target of net zero by 2050. Other Japanese banks including Mitsui Financial Group and Normura Holdings also exited NZBA, soon after a number of American banks broke away.
This story has been updated with a comment from Bank Danamon, which came in after the story was published.
