Sustainable Loans to Asian and African Agribusiness Rubber Plantations Bypass Environmental and Human Rights Concerns | Thomson Reuters Regulatory watch and compliance learning

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Sustainable loans provided to finance the expansion of African and Asian rubber plantations by agribusinesses avoid environmental and human rights concerns while enabling deforestation, anti-corruption activists have said. Increasingly, governments and anti-money laundering agencies are highlighting the risks stemming from human trafficking, modern slavery and environmental crime that arise in supply chains. agri-food companies.

In Africa, Global Witness has found that industrial rubber cultivation is responsible for nearly 520 square kilometers of deforestation over the past 20 years. Almost all the rubber plantations linked to African deforestation belong to three international agro-industries: Olam International, Halcyon Agri and Socifin.

“Massive private investment fuels the production of key agricultural commodities such as rubber, palm oil, beef products, soybeans, pulp and paper, and timber, but little or no due diligence is conducted on these chains. sources, customers or transactions even though we know these industries are extremely vulnerable to deforestation and human rights abuses. This opens the door to the laundering of the combined illicit profits made by companies in these sectors.” said Alexandria Reid, senior deforestation and finance adviser at Global Witness in London.

Communities living in the middle of these rubber plantations have reported a lack of clean water, as well as the loss of farmland and hunting grounds, according to a new report from Global Witness. Residents of Cameroon told the non-governmental organization that they had been subjected to violent repression.

Sustainability-related

United Overseas Bank (UOB), China CITIC Bank International, Bank of Communications and Shanghai Pudong Development Bank last month provided a $300 million sustainability-linked loan to Halcyon Agri, a Singapore-based agribusiness linked to deforestation and the displacement of indigenous peoples in Africa. .

Halcyon Agri claims its sustainability and transformation plans have been vetted by Moody’s Environmental, Social and Governance (ESG) Solutions and are compliant with sustainability-related lending principles. Benchmarks such as these deal with pollution, community engagement and transparency. They do not include a plan to reverse rainforest destruction linked to the company’s plantations, nor do they address alleged land grabbing, Global Witness said.

Deutsche Bank has provided a £75m sustainability-linked loan facility to Halcyon Agri in 2020 to finance capital investments in its rubber plantations in Cameroon and Malaysia.

“It is gratifying to work with partners like Halcyon on this type of project, which assesses a broader set of more environmentally conscious metrics in defining a successful business,” said David Lynne, then head of Deutsche’s APAC corporate bank, now global head of corporate banking.

In June, the chief executive of Deutsche Bank’s asset management arm resigned after raids by German prosecutors following allegations the company misled investors about green investments. The headquarters of DWS and Deutsche Bank in Frankfurt were raided.

Halcyon Agri’s Sudcam Plantation

Until 2011, the area comprising Halcyon Agri’s Sudcam plantation in Cameroon remained virtually untouched, Greenpeace said in a 2018 report. From 2011 to 2016, some 6,000 hectares were cleared, displacing the local population, under the name Baka. Members of the Baka community told Global Witness that they were not consulted or asked for consent when the plantation was established. Halycon Agri’s Sudcam plantation has made it harder for the Baka to survive, they said.

Halcyon Agri told Global Witness it cleared 2,300 hectares in the Sudcam plantation between 2016 and 2017. Most of it was already logged, he said. No further clearances have taken place since 2018, Halcyon Agri said. He also disputed reports from Global Witness that he had not done enough for those displaced by the plantations or to reforest the land.

A 2020 Greenpeace report linked Sudcam to Paul Biya, president for life of Cameroon, saying his son, Franck Biya, has a 20% stake in the company. A 2020 US State Department report on Cameroon describes a corrupt state where politically motivated killings and human rights abuses are common.

Billions lent to Olam high risk

Singapore-based Olam International earns a high-risk ESG rating (38.9) from Sustainalytics.

“Between 2016 and 2020, Olam secured credit agreements worth more than $1 billion with Dutch bank Rabobank and $768 million with French banking giant BNP Paribas,” the report said. from Global Witness.

Olam International is one of three food companies being sued by Brazilian prosecutors for allegedly failing to tackle labor abuses, including child and slave labor, in their supply chains. Olam International sources its cocoa from Brazil, but last year told a Brazilian court it could not trace its supplies, contradicting its own public statements, Reuters reported.

The Forest Stewardship Council (FSC), which certifies the sustainability of forests worldwide, is investigating Olam International’s operations in Gabon, after an environmental group filed a complaint alleging the company cleared “vast areas” of tropical forest to develop oil palm and rubber plantations, in violation of the FSC association policy. Olam International disputes the allegations.

Barclays, BNP Paribas, Rabobank and Deutsche Bank responded to Global Witness, which published the responses in its report. HSBC had no comment.

rubber threat

Rubber is now a bigger threat to deforestation in Africa than palm oil, Global Witness said. A March 2022 article, “Africa’s oil palm expansion slows, reputational risks remain for FMCG,” said slow growth still carries environmental, social and supply chain risks. procurement for fast-moving consumer goods companies and their financiers.

Many agribusinesses involved in palm oil – Olam and Socifin, for example – are in the rubber business. The EU imports $500 million worth of rubber from West and Central Africa, compared to $39 million worth of palm oil, Global Witness said.

Rubber also threatens Asian rainforests. A May 2022 article, “Hidden Risks of Deforestation in Global Supply Chains: A Study of Natural Rubber Flows from Sri Lanka to the United States,” stated that global demand for natural rubber is driving deforestation, with “consequences for biodiversity, carbon storage and local communities”.

“Our analysis identifies rubber traders and multinational tire manufacturers as key players impeding the traceability of rubber back to plantations. This opacity increases the risk of unsustainably produced rubber entering global supply chains. of transnational corporations such as Loadstar (Michelin) and Nike,” wrote American academics.

Supply chain due diligence

The UK and EU are introducing new regulations for deforestation-free products that will require suppliers to ensure the products they sell are sustainable; however, these new rules will apply to soybeans, cotton, palm oil, pulp and paper, coffee, beef and cocoa, but not rubber. UK may add rubber later.

“Each of these sectors usually have very active lobbyists working to ensure that they are not included in the scope of any kind of due diligence legislation that comes along, whether in the space of human rights, commodity-specific initiatives, or broader deforestation regulation, such as the next EU law.And in the report, we draw attention to fake evidence and tactics successful lobbying efforts that have been deployed by the tire industry in Europe to prevent rubber from falling within the scope of the regulation so far,” said Reid.

These new laws are important, but the legal obligations are already well established, Reid said. The UN Guiding Principles on Business and Human Rights already establish that companies have human rights obligations. However, companies do not always adhere to these principles.

The UK Modern Slavery Act 2015 contains a provision regarding the transparency of supply chains.

In February 2022, the European Commission adopted a proposal for a Corporate Sustainability Due Diligence Directive which will require companies “to identify and, if necessary, prevent, end or mitigate the adverse effects of their activities. on human rights, such as child labor and exploitation”. workers, and on the environment, for example, pollution and the loss of biodiversity”.

Human rights violations, human trafficking and forced labor are predicate crimes for money laundering in many jurisdictions. Last year, the Financial Action Task Force (FATF) released reports on money laundering from environmental crime and money laundering and illegal wildlife trade.

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