Reported by Chain Reaction Research, as of April 28, it appears that Felda Global Ventures’ (FGV) management has yet to acknowledge the company’s possible risk exposure to Government of Indonesia’s administrative sanctions and buyers’ suspensions over continued peat clearance by its Indonesian subsidiaries. Peatlands are the world’s largest carbon sinks.
Chain Reaction Research highlighted risks such as these in its April 22, 2016 report Felda Global Ventures (FGV:MK): RSPO credentials at risk, immediate cash flow impacts.
On April 28, FGV published on the Bursa Malaysia website the following notice:
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“Clarification to articles published by:
Chain Reaction Research article dated 18 April 2017 by ThoumiCFA entitled “The Chain: Exclusive – FGV Risks Supply Chain Exclusion Over Repeat Offenses – See Video”; and Valuewalk article dated 19 April 2017 enttitled “Exclusive – FGV Risks Supply Chain Exclusion Over Repeat Offenses – See Video”.
The Board of FGV wishes to clarify that FGV has procured all necessary approvals from the relevant authorities in Indonesia in respect of the development of PT TAA’s land which commenced in late 2014. Further, FGV has complied with Roundtable on Sustainable Palm Oil (“RSPO”) New Planting Procedure (“NPP”) 2010. FGV is in the process of appointing third party assessor to conduct a verification exercise on the said articles.
Further development of this matter will be updated in due course. This announcement is dated 28 April 2017.”
The above-mentioned articles alleged that, inter alia, Felda Global Ventures Holdings Berhad (“FGV”) had cleared peat forest, contrary to its policies and industry standards, on its PT Temila Agro Abadi (“PT TAA”) plantation in West Kalimantan, Indonesia.
FGV’s risks were highlighted 12 months ago. Chain Reaction Research described FGV’s deforestation risks in its April 22, 2016 report Felda Global Ventures (FGV:MK): RSPO credentials at risk, immediate cash flow impacts.
To understand these risks better, it is key to know that peatlands are the world’s largest carbon sinks. Likewise, Harvard and Columbia universities published estimates in the journal Environmental Research Letters in 2016 suggesting that SE Asian 2015 forest fires and haze may have resulted in 100,000 fatalities in Indonesia, Malaysia and Singapore. By comparison, the Government of Indonesia’s official death toll as of September 2016 was 19 individuals. Finally, Indonesia’s 2015 haze crisis had an enormous cost for the country’s economy. According to the World Bank, the fires cost the Indonesian economy USD 16 billion in 2015 alone – more than double the sum spent on rebuilding Aceh after the 2004 tsunami.
This report explores several questions raised by FGV’s activities:
- Does FGV’s Deforestation Risk Continue to the Present?
- Does FGV’s Deforestation Violate its Own Board of Director’s Policy?
- Does FGV’s Deforestation Violate Indonesia’s Peatland Laws?
- Does FGV’s Deforestation Violate Roundtable on Sustainable Palm Oil Policies?
- What Will Malaysian Mega-Merger Mean for 1.2 Hectares, Much of it in Indonesia
Does FGV’s Deforestation Risk Continue to Present?
In 2015, in Landak District, FGV’s subsidiary PT Citra Niaga Perkasa, cleared a 240 hectares (ha) High Conservation Value forest on deep peatland greater than three meters. FGV previously bought PT Citra Niaga Perkasa in 2012 for USD 10.6 million.
More recently, on April 12, 2017, Chain Reaction Research-partner Aidenvironment commissioned a drone fly-over video of FGV’s neighbouring subsidiary PT Temila Agro Abadi’s concession. FGV previously bought PT Temila Agro Abadi in 2013 for estimated USD 4.2 million.
On April 18, 2017 Chain Reaction Research published a research note demonstrating drone video deforestation by FGV’s subsidiary PT Temila Agro Abadi.
Figures 1 and 2 below show that between January 1, 2017 to April 22, 2017, FGV subsidiary PT Temila Agro Abadi has cleared a total of 390 ha of peatland. This includes High Conservation Value forests.
Figure 1: FGV subsidiary PT Temila Agro Abadi peatland deforestation January 1, 2017 to April 22, 2017. Source: Aidenvironment.
Figure 2: FGV subsidiary PT Temila Agro Abadi peatland deforestation January 1, 2017 to April 22, 2017 (zoom). Source: Aidenvironment.
PT Temila Agro Abadi still has 1,550 ha of peatland forest remaining its concession. As shown below in Figure 3, PT Temila Agro Abadi is planning to clear some of this remaining peatland.
On the other hand, FGV stated – full statement above in introduction – that RSPO and the Indonesian government granted its subsidiary PT Temila Agro Abadi permission to deforest this peatland.
Figure 3: Peatland forest slated for conversion by FGV subsidiary PT Temila Agro Abadi. Source: Aidenvironment
FGV says they were granted legal authority to deforest peatlands by the Government of Indonesia.
Yet, this may contradict Indonesian Government Regulation No. 57/2016. President Jokowi signed the Presidential Regulation No. 57 of 2016, which amends Presidential Regulation No. 71 of 2014 on the Protection and Management of Peatland Ecosystems, into law December 1, 2016.
Does FGV’s Deforestation Violate its Own Board of Director’s Policy?
On August 25, 2016, FGV’s Board of Directors and new CEO and Group President Zakaria Bin Arshad issued its new sustainability policy. It states that the company has committed to provide accurate, factual, and balanced information on its sustainability initiatives to all its shareholders and stakeholders on an annual basis.
P. 16 of FGV’s sustainbility policy states:
10.2: The Group commits to provide accurate, factual and balanced information on its sustainability initiatives to all its stakeholders.
In fact, p. 10 of FGV’s Group Sustainability Policy appears to specifically prohibit deforestation practices described above in Figures 1, 2, and 3. FGV’s sustainability policy states:
6.7: The Group shall not perform any development in areas rich in biodiversity or that are under protection e.g. primary forests, wildlife reserves and wetlands. The Group has appropriate action plans in place which are in line with international guidelines and established practices to guide the operations near these areas and to continually improve the Group’s practices. The Group pledges to no conversion of HCV areas, peat soil, and/or areas with High Carbon Stock (“HCS”) and implementation of Best Management Practices for existing peat land estates. The Group shall perform a HCV assessment through which it will develop management and monitoring plans. In addition, the Group will ensure that the operations do not pose a threat to wildlife and establish programmes to enhance and enrich habitats of endangered species.
Does FGV’s Deforestation Violate Indonesia’s Peatland Laws?
President Jokowi affirmed by law his policy of no-peatland development when signing Government Regulation No. 57 on December 2, 2016. The regulation, known as ‘ PP Gambut,’ amends an earlier regulation (No. 71/2014) concerning the protection and management of peatland ecosystems. The new regulation declares a ban on all new peatland development in Indonesia until appropriate action plans are in place. Failure to comply will result in administrative sanctions as per article 40 paragraph (3) of the earlier regulation. These sanctions include:
- Stop-work orders
- Permit suspension
- Permit cancellations
- Requirements to restore the land
FGV’s legal advisor stated that President Jokowi’s peat moratorium would not apply to FGV because the government had previously issued permits to clear the peat. A similar argument was cited in an article published by The Edge.
The Edge article stated:
Palm oil giant Felda Global Ventures Bhd (FGV) today dismissed media reports alleging that it had violated its own sustainability policies and industry standards by clearing peat forests in Indonesia.
FGV said it has procured all necessary approvals from the relevant authorities in Indonesia, in respect of the development of its unit PT Temila Agro Abadi’s plantation in West Kalimantan Indonesia, which started in late 2014.
Defiance of Indonesian law may trigger the Ministry of Environment and Forestry to commence investigations, as in other previous instances. FGV’s buyers may also intervene by suspending purchases. Various buyers have previously committed to end trading with companies that violate their procurement policies.
Does FGV’s Deforestation Violate Roundtable on Sustainable Palm Oil Policies?
Before FGV’s USD 3.1 billion June 2012 IPO, FGV set a goal to become the world’s largest palm oil company with a targeted land bank of over one million ha. Its IPO prospectus asked FGV to provide a certification plan in accordance with RSPO criteria. Despite several acquisitions, FGV did not reach either goal.
RSPO standards require members to avoid extensive planting on peat and to uphold strict no-development policies on High Conservation Value areas.
On May 2, 2016, FGV withdrew its Roundtable of Sustainable Palm Oil (RSPO) principles and criteria certificates from 58 complexes spread across Malaysia. It announced the Group might spend USD 8 to USD 10 million over a three-year period to recertify its mills to RSPO.
FGV is a member of RSPO.
It is unknown how RSPO will respond.
Finally, FGV could begin to mitigate their deforestation risks by issuing a stop-work order.
What Will Malaysian Mega-Merger Mean for 1.2 Million Hectares, Much of it in Indonesia?
April 29, 2017, the Star Online reported that the Federal Land Development Authority of Government of Malaysia may seek the return of land currently leased to and managed by FGV. The article suggests the Federal Land Development Authority (government agency) thinks it can extract higher returns by managing the land directly. The land is leased for 99-years at an estimated discount rate of 9.47 percent.
The Star Online also stated that FGV would also like to see a new shareholder. The article suggested that this new investment vehicle could be lead Wilmar International Ltd co-founder Martua Sitorus.
The non-publicly listed plantation assets owned by Sitorus and his immediate family members have minimal visible exposure within the public and international investment community. Sometimes referred to as ‘Gandasawit Utama’ (GSU), according to Aidenvironment, the Sitorus family has controlling stakes or management control in over two dozen of plantation entities. These stakes are estimated at over 360,000 hectares of land throughout Indonesia. One study has found that members of the GSU group are reportedly involved in clearance of large tracts of peatland.
In December 2016, Federal Land Development Authority of Malaysia acquired a 37 percent stake in PT Eagle High Plantations Tbk (EHP) for USD 505.4 million.
A possible coalition comprised of Federal Land Development Authority of Malaysia, FGV, GSU and EHP, jointly controlling over 1.2 million hectares, would represent a huge development in the plantation industry. Given the environmental record of its members, it is not known if they could access the certified sustainable palm oil markets, such as in the European Union.