Sustainable loans to Asian, African agribusinesses' rubber plantations sidestep environmental and human rights concerns | Thomson Reuters Regulatory Intelligence and Compliance Learning

Sustainable loans made to fund agribusinesses’ African and Asian rubber plantation expansion sidestep environmental and human rights concerns while enabling deforestation, anti-corruption campaigners said. Increasingly, governments and anti-money laundering bodies are highlighting the risks arising from human trafficking, modern slavery and environmental crime that present themselves in agribusinesses’ supply chains.

In Africa, Global Witness found industrial rubber cultivation is responsible for almost 520 square kilometres of deforestation in the last 20 years. Almost all the rubber plantations linked to African deforestation are owned by three international agribusinesses: Olam International, Halcyon Agri and Socifin.

“Massive private investment fuels the production of key agri-commodities such as rubber, palm oil, cattle products, soy, pulp and paper, and timber, yet little to no due diligence is conducted on those supply chains, clients or transactions even though we know that those industries are extremely vulnerable to deforestation and human rights abuses. This opens the door to laundering the co-mingled illicit profits made by businesses in those sectors,” said Alexandria Reid, senior policy advisor for deforestation and finance at Global Witness in London.

Communities living amid these rubber plantations reported a lack of clean water, as well as loss of farmland and hunting grounds, according to a new report from Global Witness. Locals in Cameroon told the non-governmental organisation they had been subject to violent repression.

Sustainability-linked

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

Halcyon Agri says its sustainability and transformation plans were reviewed by Moody’s environmental, social and governance (ESG) solutions and are in line with sustainability-linked loan principles. Benchmarks such as these address pollution, community engagement and transparency. They do not include a plan to reverse the rainforest destruction linked to the company’s plantations, nor do they address any alleged land grabbing, Global Witness said.

Deutsche Bank provided a £75 million sustainability-linked loan facility to Halcyon Agri in 2020 to fund capex investments in its Cameroon and Malaysian rubber plantations.

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

In June, the chief executive at Deutsche Bank’s asset management arm stepped down after raids by German prosecutors following allegations that the company misled investors about green investments. Both DWS’ and Deutsche Bank’s Frankfurt headquarters were raided.

Halcyon Agri’s Sudcam plantation

Up until 2011, the area comprising Halcyon Agri’s Sudcam plantation in Cameroon remained mostly intact, Greenpeace said in a 2018 report. From 2011 until 2016 some 6,000 hectares were cleared, displacing the local people, known as Baka. Members of the Baka community told Global Witness they were not consulted or asked for consent when the plantation was established. Halycon Agri’s Sudcam plantation made it harder for Baka people to survive, they said.

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

A 2020 Greenpeace report linked Sudcam to Paul Biya, Cameroon’s president-for-life, saying his son, Franck Biya, holds a 20% stake in the company. A 2020 U.S. State Department report on Cameroon described a corrupt state where politically motivated killings and human rights abuses are common.

Billions loaned to high-risk Olam

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

“Between 2016 and 2020, Olam made credit deals worth over $1 billion with the Netherlands’ Rabobank and $768 million with French banking giant BNP Paribas. UK banks — including HSBC and Barclays — made deals totalling over $3 billion with Olam during the same period,” Global Witness’ report said.

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

The Forest Stewardship Council (FSC), which certifies forests’ sustainability worldwide, is investigating Olam International’s operations in Gabon, after an environmental group lodged a complaint alleging the company cleared “vast areas” of rainforest for oil palm and rubber plantation development there, violating the FSC Policy for Association. Olam International disputes the allegations.

Barclays, BNP Paribas, Rabobank and Deutsche Bank responded to Global Witness, which published responses in its report. HSBC did not comment.

Rubber threat

Rubber is now a greater threat to deforestation in Africa than palm oil, Global Witness said. A March 2022 paper, “African oil palm expansion slows, reputation risks remain for FMCGs”, said slow growth still brought environmental, social and supply chain risks to 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 with $39 million worth of palm oil, Global Witness said.

Rubber threatens Asian rainforests too. A May 2022 paper, “Hidden risks of deforestation in global supply chains: A study of natural rubber flows from Sri Lanka to the United States”, said 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 actors that hinder the traceability of rubber back to the plantations. This opacity increases the potential for unsustainably produced rubber to enter global supply chains of transnational corporations such as Loadstar (Michelin) and Nike,” U.S. academics wrote.

Supply chain due diligence

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

“Each of these sectors typically have very active lobbyists working to ensure that they’re not included in the scope of any kind of due diligence legislation that’s incoming, whether it’s in the human rights space, commodity specific initiatives, or a deforestation regulation writ large like the forthcoming EU law. And in the report, we draw attention to the false evidence and successful lobbying tactics that have been deployed by the tire industry in Europe to avoid rubber falling within the scope of the regulation so far,” Reid said.

These new laws are important, but the legal obligations are already well-established, Reid said. The United Nations’ guiding principles on businesses and human rights already establish that businesses have human rights obligations. Businesses do not always adhere to these principles, however.

The UK Modern Slavery Act 2015 features a provision concerning transparency in supply chains.

In February 2022, the European Commission adopted a proposal for a directive on corporate sustainability due diligence that will require companies “to identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, for example, pollution and biodiversity loss”.

Human rights abuses, people trafficking and forced labour are money laundering predicate crimes in many jurisdictions. Last year the Financial Action Task Force (FATF) published reports on money laundering from environmental crime and money laundering and the illegal wildlife trade.

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