Monitoring palm oil industry to protect people and planet

Marcus Colchester is director of the Forest Peoples Programme (FPP), a non-governmental organization (NGO) in the United Kingdom that supports the rights of those who live in forests and depend upon them for their livelihoods. FPP staff members help people secure their rights, control their land and decide their future. Charles Stewart Mott Foundation Communications Officer Maggie Jaruzel Potter conducted a phone interview with Colchester about the organization’s work, which is supported through the International Finance for Sustainability focus area of Mott’s Environment program. This is an edited transcript of that conversation.

Mott: How did FPP initially get involved in monitoring public lending for the palm oil sector?

Marcus Colchester

Marcus Colchester (MC): We were assisting Sawit Watch, an Indonesian NGO, by providing legal and technical advice. We had a history of working to safeguard human rights and had been advising Sawit Watch in the development of the standards for the Roundtable on Sustainable Palm Oil. I was on the Criteria Working Group that elaborated on the global standards for the sector.

Earlier, we had done an investigation, which led to a book called “Promised Land: Palm Oil and Land Acquisition in Indonesia.” For that book, we researched how companies were able to get hold of the land of indigenous people and take over their forests. We came across a case about a Wilmar International subsidiary taking over land in West Sumatra without consent from the affected communities.

Friends of the Earth-Holland had started looking at some other Wilmar subsidiaries, which were not only grabbing land from communities without consent, but also clearing land before they had the right permits and before they had the environmental impact assessments completed. An extremely well-documented case was coming out and we spotted that the IFC [International Finance Corporation, the private sector investment arm of the World Bank] was about … to make a loan to Wilmar called a “credit guarantee,” so FPP wrote to the IFC and said, “You shouldn’t make this loan because of all these violations.”

Mott: You followed that case and many others since then. Briefly discuss what FPP found out and why it monitors these cases.

MC: After reviewing many documents, we realized that this was not the first time that the IFC had given a loan to Wilmar, because they had given them a loan for a palm oil processing plant in Ukraine and a previous credit guarantee for their Singapore-based palm oil trading facility. So we began to assemble all the documents and talk with our partners in different parts of Indonesia, people on the ground. We then filed a complaint with the IFC Compliance Office because our analysis showed how the IFC was in violation of its own performance standards in the way it had allocated these monies to Wilmar.

They looked at our papers and agreed to look into the case in West Kalimantan, Indonesia. They said to us, “OK, what do you want?” We said, “We really want the IFC to change the way it does things. We want justice for people on the ground.”

There were really three issues we were talking about. First, the specific concerns of the impacted communities. The second was the wider operational practices of Wilmar. And the third was we were very concerned because the IFC was failing to maintain its own standards.

Mott: What are some of the concerns communities have when major local projects are targeted to get funding from international financial institutions (IFIs), such as the World Bank?

MC: In Indonesia, when a company gets a leasehold for a plantation permit, that land has to be stripped of rights. It becomes state land and, with the expiration of the lease, the land goes back to the state — not to the people. Virtually none of the communities understands this. The people are getting monetary compensation for what they think is use of that land for 35 years. But it turns out that they are actually extinguishing their rights and giving their rights to the state. That is just one example. There are loads more.

Mott: So once you learned what was happening on the ground with the local people, how was this information shared with the IFIs?

MC: That is what was so brilliant about the work that the [IFC’s] Compliance Advisor Ombudsman’s audit team did. They went through the whole history of the World Bank’s involvement in the palm oil sector, and they were able to show in much more detail than we had in our complaint that the World Bank jolly well knew of these things. Staff had even warned them in the preparation of these projects that there were considerations they shouldn’t be overlooking, so the audit team concluded that IFC staff had been negligent in applying its own standards. They had not done due diligence and they had allowed financial considerations to override their own performance standards. … The audit upheld virtually all the dozen or so issues we had bulleted as the substance of our complaint.

Mott: Would that audit have done anything on its own without FPP and other NGOs sending a follow-up letter to World Bank President Robert Zoellick?

MC: Well, no, but I think it was more than that. It was critical from our point of view that we did quite a lot of press work to ensure that there was publicity about our complaint and about the audit. There was a high level of press interest before the bank’s board meeting. Then, we sent a letter to President Zoellick because the bank really wasn’t adequately addressing the issues that had been raised by both our complaint and the audit. … To his credit President Zoellick said, “Yes, indeed, this is a very valid set of concerns ….” There are so many things going to the World Bank board — so many pieces of paper — that it requires this sort of highlighting through the media for attention to be paid to controversies like this one.

Mott: What resulted from the efforts of FPP and other NGOs?

MC: There was a suspension of funding worldwide to the palm oil sector, so now they have to develop a joint strategy between the World Bank and the IFC to address the sector.

The critical issue that came out of this case is the issue of supply chain. We had been complaining about IFC funding of a palm oil trading facility in Singapore that is getting credit from the IFC and there is also a factory in the Ukraine getting funding. We said, “Now look, you have to apply your standards to where you get the palm oil from.” So it is the whole supply chain that they are looking at. You can’t just look at one factory; you have to look at it from the whole perspective including the supply chain.

The audit found that is, indeed, what the performance standards call for and that has been quite a shock for the IFC. I don’t think the IFC realized they had to apply their performance standards to the supply chain, so this has huge implications for all the World Bank’s support for industrial developments that have extended supply chains.

This is a fundamental problem for the big trading bodies to work out. How do they apply due diligence to that whole supply chain? I think that is going to be very challenging.

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