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Govt Calls for Bank Prudence when Financing Plantation Projects

Thursday, June 05, 2014  
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Fathan Qorib, Robert Sidauruk
 
Banks are being advised to be actively involved in supporting sustainable environmental development through the application of prudential principles including so called green banking. This stance is considered particularly important for financing related to plantation projects in peat lands.
 
According to Hermono Sigit, Deputy for Damage Control of Terrestrial Ecosystems at the Minister of Environmental Affairs, the high demand for palm oil is the reason for accelerated investment in the plantation sector.
 
As a consequence, further large scale clearing projects in peat land areas, including conversion of peat swamp forests into industrial and palm oil plantations, has become an issue.
 
“One of the main causes for destruction and fire on peat land is investment in the plantation sector, especially for palm oil estates,” explained Mr. Sigit in Jakarta on Tuesday.
 
To address these issues, Mr. Sigit hopes that all stakeholders in plantation investments including investors, the public and banks will properly consider the environmental benefits and risks of proposed projects. For banks in particular, Mr. Sigit explained that positive action can be taken by granting credit to investments in the plantation sector in a prudent manner, also known as green banking principles.
 
“To preserve the environment, all stakeholders should consider the benefits and risks of the investment to the environment,” said Mr. Sigit.
 
Likewise, Nyoman Suryadiputra, Director at Wetlands International-Indonesia, contends that palm oil and acacia plantations on peat land have inherent burdens on the environment. Therefore, banks need to be prudent prior to granting loans or financing investments in plantations.
 
“This prudent action can be taken by performing field verification for the Mandatory Environmental Impact Assessment (AMDAL), especially on the location of proposed investments,” said Mr. Suryadiputra.
 
Responding to the issue, Felia Salim, Vice Director of Bank Negara Indonesia (BNI), says that due consideration to the spirit of green banking should be given when granting loans. Mrs. Salim admitted, however, that the implementation of green banking principles is not easy, especially when it involves large debtors.
 
It is often the case that prospective debtors have a poor record on environmental issues, but on the other hand have a strong reputation for community development.
 
“Therefore, beside consideration of the environment, we must also take into account social and community circumstances. I have to be realistic,” concluded Mrs. Salim
 
(hot/kc)

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