The risk of reputation for the banks that fund unsustainable producers

InfoSAWIT, JAKARTA –The latest report launched by Roundtable on Sustainable Palm Oil (RSPO), in cooperation with Lanskap Indonesia, Profundo, World Agroforestry Centre, and CIFOR, noted the relationship between unsustainabl palm oil practices and the increasing risks for the banks and investors that fund the operational.

The report “Managing Palm Oil Risk: Brief Report for the Modal Owners or “Mengelola Risiko Kelapa sawit: Laporan singkat untuk pemodal” also mentioned, financial boards (institutions) faced the risks about reputation, impact with the regulation, and the increasing financial if they give financing to the unsustainable palm oil producers.

“Palm oil in Indonesia is changing. The stakeholders, including the government and the companies, are making steps and efforts to manage the issues in sustainability. This is risky to the banks having the unsustainable producers in their portofolio,” CEO Lanskap Indonesia, Agus Sari said, Tuesday, (12/12/2017)

There are some stakeholders making efforts to handle the sustainable issue relating to the expansion, such as, deforestation, peat, fire, area conflict with the people, employement, corruption, and transfer pricing.

He made example, in 2015, after the fire in the forest and areas, the government of Indonesia published the policy to develop in the peat and limited the numbers of palm oil areas. The policy postponed and even stopped palm oil enlargement in the future.

The result is that it is risky for the banks because the loan had been given before the policy was published. In addition, there has been condition in the global trade to buy palm oil in tight commitment, that is, should be derived from sustainable ways. Of course, this will be a loss of contract and in the end, it would decrease the profits and income of the companies. “Besides, the banks giving loan to the unsustainable producers would face the serious risk of reputation,” he who is as the Senior Associate in World Agroforestry Centre (ICRAF), said.

Meanwhile, Country Director for the activity of RSPO Indonesia, Tiur Rumondang, said, the banks have important roles to support palm oil development, and could be positive to the next progress. The financing institution, including the banks through the fund that they decided, could support the companies to fulfill and realize their social and environmental responsibility. “In the same time, the business decision in sustainable issues would create the stability and prosperity for the banks by limiting the fund that might be risky,” Tiur said.

For information, in July 2017, Otoritas Jasa Keuangan (OJK) published Peraturan Otoritas Jasa Keuangan No. 51 /Pojk.03/2017 about Sustainable Financing for Financial Institution, Companies, and Public Companies.

Through the policy, OJK obliges the banks to make sustainable report and should have plan of sustainable finance. The policy also mentioned, there would be warning (penalty) if the compannies do not obey the policy. Based on the vision of OJK in 2014, the financial sector needs to support the sustainable development in Indonesia.