Indonesia Strengthens Peatlands Moratorium

Indonesia Strengthens Peatlands Moratorium
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The Chain: Indonesia Strengthens Peatlands Moratorium; ING Places €80 Million in Debt for SocFin’s Palm Oil and Rubber Expansion

This week, the Republic of Indonesia revised it peatland regulations targeting a permanent peatland moratorium. According to World Resources Institute, this revision to Government Regulation No. 71/2014, in effect, could equal an emissions reduction 5.5 to 7.8 gigatons carbon dioxide of Indonesia’s emissions by 2030.

Contextually, 2015 U.S. emissions from the electric power sector were 1.9 gigatons carbon dioxide. This implies that the Indonesia’s revised peatland regulations is equivalent to removing three to four years of U.S. electric power sector emissions.

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The regulation formalizes into law President Joko Widodo’s November 2015 peatland moratorium. The revised regulation announced this week includes:

  • A moratorium on any new land clearing in peatlands.
  • The establishment of protection and utilization zones in peatland ecosystem areas for the planting of certain peat-friendly plants.
  • A prohibition on the building of any new canals.
  • Making it illegal to burn peatlands.
  • A scientifically rigorous approach to water level compliance to define peatland ecosystem damage.

Dr. Siti Nurbaya, Minister of Environment and Forestry, stated: “The government is unwilling to bear the costs of restoring peatlands that are burned in concession areas. If companies fail to comply with the revised peat regulation, they will be forced to face administrative sanctions from the government.”

Indonesia’s Ministry of Environment and Forestry will manage enforcement via a monitoring and verification process. If concessions holders are out of compliance, the Republic will now have the ability to impose sanctions such as reducing the size of the concession permit, and billing concessions holders for restoration and fire mitigation.

Earlier this year, Government of Indonesia fined Sampoerna Agro $81 million for 2014 forest fires on 3,000 hectares on its concessions in Riau Province, Indonesia. The $81 million fine is slightly less than Sampoerna Agro’s revenue in the first six months of 2016.

ING Raises €80 Million for SocFin’s Palm Oil and Rubber Expansion

Société Financière des Caoutchoucs SA (‘Socfin’), based in Luxembourg, raised €80 million in senior unsecured 4 percent 5-year debt to finance land-use expansion for its vertically integrated palm oil and rubber production in Africa and Asia.

In 2015, SocFin had 186,767 hectares under cultivation; 120,780 ha of oil palm trees and 65,987 ha of rubber trees. The company has operations in Liberia, Côte d’Ivoire, Nigeria, Cameroon, Congo DRC, Sierra Leone, Indonesia, Cambodia, Ghana, and Sao Tome.

These €80 million in funds are not ring-fenced and are assumed to be used to finance SocFin’s current expansion in Sierra Leone and elsewhere. ING facilitated this first public debt offering by SocFin. It is unknown if ING’s participation required SocFin to include climate and social risk safeguards into the use of funds. ING is a member of the Roundtable of Sustainable Palm Oil.

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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