Sime Darby: Liberian Crossroads

Sime Darby: Liberian Crossroads
As published by Chain Reaction Research, Sime Darby (SIME:MK), a Malaysian conglomerate, signed a 63-year concession agreement in 2009 for 220,000 ha of land to be developed into oil palm and rubber plantations in Liberia. An additional 44,000 ha are to be developed under an outgrower scheme. To date, Sime Darby has planted 10,411 ha palm oil and 107 ha rubber.

Key Findings

  • Significant changes in Liberian context since 2009. Customary land rights are entrenched in Liberian legislation and efforts to halt deforestation have increased, heightening risks for Sime Darby’s original aggressive expansion plans.
  • Sime Darby’s undeveloped land bank in Liberia contains high-density forest; thus 45% cannot be developed responsibly. This figure is conservative as it is not adjusted for medium-density forest (an additional 34%) or biodiversity hotspots.
  • Unresolved issues remain six years after community negotiations started. These long processes create the risk of ‘moving targets’ as previously made agreements can be voided by new developments.
  • Full concession development would require negotiations with an additional 55 communities. This could entail decades of negotiations with uncertain outcomes, and could result in significant delays to project development.
  • Respecting a 2km buffer zone around towns reduces the available area by 20%.
  • Sime Darby’s share price could devaluate due to restrictions on the concession area. Mainstream investors continue to value Sime Darby’s Liberian project
    assuming full concession development.

Sime Darby’s Liberian business model is at a crossroads. As shown in Figure 1 below, Sime Darby has three possible scenarios for future development.

  • Scenario A: Backtrack on social and environmental commitments
  • Scenario B: Full concession development implementing proper Free, Prior, and
    Informed Consent (FPIC), High Carbon Stock (HCS), and High Conservation Value
    (HCV) tools
  • Scenario C: A shift to 100 percent out-grower model


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Future Scenarios

Sime Darby’s Liberian Operations Are At A Crossroads: The company needs to develop a new strategy for the coming years, reflecting both market and environmental and social risk trends. In light of these trends, three expansion scenarios exist.

Analysis suggests that Sime Darby would benefit from pursuing a Scenario C – shift to a 100 percent outgrower model – while maintaining its 20,000 ha plantation to supply its CPO mill.  

Scenario A: Backtrack on social and environmental commitments  

In Scenario A, Sime Darby could be in non-compliance with its FPIC and NDPE commitments. In this scenario, it would aggressively develop its concession area in accordance with the investment plans that formed the basis of the 2009 concession agreement. Risks include:

  • Forceful removal of a large number of communities, the deforestation of large tracks of land, and no respect for buffer zones. As customary land rights are today entrenched in Liberian legislation, such violations could lead to fines, sanctions and/or legal costs. Communities might challenge violations of their rights leading to stop-work orders, administrative fees, or criminal punishment and other



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Gabriel Thoumi, CFA, FRM works as Director Capital Markets at Climate Advisers where he manages global financial analytics focusing on mitigating systemic climate risk while advising on “greening” capital markets. He has 18 years of experience managing and deploying frameworks to improve global capital markets sustainability through risk mitigation and return enhancement. Previously, for Calvert Investment Management, he valued global equity, index, and fixed income portfolios and their component positions in the utilities, energy, materials, chemicals, and financial sectors. He worked on quantitative index construction and asset allocation strategies. He engaged Fortune 500 CEOs on approaches to mitigating climate risk using financial risk management tools. He led initiatives to improve financial accounting of exchange-listed products and incorporated natural capital into financial tools. He has also worked at Morgan Stanley's carbon offset company, Wells Fargo Capital Management, and American Express. He is an adjunct at John Hopkins University.
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