HSBC is bankrolling forest destruction

At a meeting last month organised by the Forest Stewardship Council, HSBC’s Francis Sullivan said that if a company doesn’t pass the bank’s sustainability risk tests, then it won’t get a loan.

Sullivan may be biased. He is after all Deputy Head of Global Corporate Sustainability at HSBC. I’ve transcribed what Sullivan said at the meeting (below), not because what he says is particularly interesting, but because what he doesn’t say is extremely revealing. (Note how he just ignores the suggestion from Greenpeace’s Daniel Mittler that HSBC should exclude companies drilling for oil in the Arctic from its lending.)

Sullivan talked about HSBC’s policies, including its forest policy, but didn’t mention a Global Witness report about HSBC’s loans to logging companies operating in Sarawak, Malaysia. In a November 2012 press release, Global Witness points out that,

HSBC has bankrolled logging companies causing widespread environmental destruction and human rights abuses in Sarawak, Malaysia, violating its sustainability policies and earning around US$130 million in the process.

Global Witness got comedian Bill Oddie to produce a film about HSBC and set up a petition to stop HSBC destroying rainforests.

Global Witness explains that HSBC’s 2004 forest policy requires its forest sector clients “to operate legally, not clear primary forests, and to have 70 per cent of operations certified as sustainable to Forest Stewardship Council (FSC) standards by 2009”. Global Witness found a 100% compliance failure – none of HSBC’s forestry clients in Sarawak hold a single FSC certificate. “Some clients also have close links to notoriously corrupt politicians,” Global Witness notes.

As a result of the Global Witness report, HSBC called in PricewaterhouseCoopers and forest consultants Proforest to review its activities. That was back in May 2013.

At the recent FSC meeting, HSBC’s Sullivan claims that if a company does not pass the HSBC sustainability tests, it doesn’t receive a loan:

“From a banking perspective, it’s a very binary process really. We either bank a client or we don’t… [A]longside a credit risk rating for those companies, we have a sustainability risk rating as well, within our central credit database. And this is an independent process, the two are not related. But in order to do business, or certain types of business with those customers, we need two green lights. They need to be credit worthy and they also need to pass sustainability tests.”

Sullivan’s claim is impossible to believe in the light of a report that came out this week. The Environmental Investigation Agency’s research reveals that HSBC is “a leading financier of the palm oil industry – and provides loans worth hundreds of millions of dollars to some of its worst elements”.

EIA looks at two case studies: Bumitama Agri Ltd and Triputra Agro Persada. Both companies are members of the Roundtable on Sustainable Palm Oil (RSPO) which HSBC relies on to show compliance with its forest policy. But as EIA points out, while the RSPO bans the clearance of high conservation value forest, the system, “relies almost entirely on self-reporting – the RSPO itself carries out no oversight prior to full certification.”

In a press release, EIA Forests Campaigner Jago Wadley says,

“In our experience, the RSPO lacks credible mechanisms to ensure its members protect High Conservation Value (HCV) forests, and even when such violations are brought to its attention its measures are insufficient to either compensate for the damage or serve as a disincentive.
 
“In effect, HSBC is delegating responsibility for its ethics to a broken system and that’s just not good enough when the future of some of the world’s last remaining precious rainforests and species are at stake.”

EIA’s report documents how Bumitama cleared forest that was home to orangutans. Even after Yayasan IAR Indonesia (IARI), a local NGO, reported the clearing to the RSPO, Bumitama continued clearing forest, despite the fact that the RSPO Complaints Panel upheld IARI’s complaint. Since 2010, HSBC has extended US$419 million to Bumitama in loans and financial services.

In July 2013, Triputra Agro Persada secured a US$470 million loan from a syndicate of banks led by HSBC. More than half of the money is to be used to finance plantation expansion.

In September 2013, EIA investigators visited one of the company’s concessions in Central Kalimantan (Indonesia’s pilot REDD province, remember?). Until 2012, the concession area was dense forest. Triputra has, over the past year, started clearing the forest.

As a member of RSPO, Triputra must submit a New Planting Procedure, which includes an assessment of high conservation value forest, before clearing forest. Since 2010, Triputra has expanded its area of plantations by more than 50,000 hectares – without submitting any New Planting Procedure documents to the RSPO. Although this is in breach of RSPO’s rules, Triputra was subject to no scrutiny by the RSPO. This all took place before the HSBC-facilitated loan.

Watch EIA’s video and download the report “Banking on Extinction”. “It’s up to HSBC now to clean up its act,” says EIA’s Faith Doherty. Just maybe, it’s time too for FSC to stop helping HSBC greenwash its act.

Transcript of Francis Sullivan speaking at FSC’s “In Good Company” meeting

 
October 2013
 
Franis Sullivan (Deputy Head of Global Corporate Sustainability, HSBC Holdings plc): I work with HSBC, which is a large international bank and some of you might be wondering why on earth I’m sitting here today as a result. What have banks got to do with the forests and FSC, etc? Well I think as the whole certification movement has moved forward, this has become more and more sophisticated. And it’s not just big banks, it’s a whole range of different banks that are now looking at a whole range of sustainability issues, including forest management as being critical for their business.
 
At HSBC we look at it in two ways. Firstly, it’s the sorts of customers that we will finance that may be in the forestry business, the trading business, the retailing business. But also it’s the sorts of paper products that we buy in our own business. And my job at HSBC has been to make sure we have the right policies and that we are consistent in what we do in our own business and what we expect of our customers.
 
Because it would be ironic for us to have a policy of expectation for our clients that we don’t then reflect in the purchasing policies that we have for our business, which is why I asked the question about purchasing policies because we use 15 billion sheets of paper a year in our bank.
 
So it’s large scale. We are a western bank, but we are in 18 countries, we are a large emerging markets bank in many of the sorts of countries that Daniel is talking about. So to position ourselves, we have to span the range of views between western companies, companies in emerging markets, and set a standard that we believe will contribute to sustainable development.
 
Now to get back to the main discussion here. NGOs have got an important role to play in helping to shape the policies that we write, as do our customers, as do regulations, laws, etc. But without certification schemes, such as the FSC, it’s very difficult for us to write policies and to have evidence that we’re implementing them, because we just don’t have the capacity to check what every customer, we’ve got three-and-a-half million commercial customers around the world, might be doing in their supply chain. It would literally be an impossible task to do that. And the only way that we believe that we can implement policies where we are checking to ensure that legality and sustainability is carried out in a forest management supply chain, is through independent certification, credible independent certification.
 
We wrote our first policy in 2004, we’re now in our third iteration, and each time we firstly go out to discuss current thinking with a range of NGOs, we’ll also talk to customers, we’ll talk to others, think tanks as well, etc. And then I think NGOs do have a role to play in making sure that companies have got the right policies and that they are implementing them, but that can be not necessarily in a campaigning way. It may be that this is an area we can talk about, because good relationships, if we are working towards the same goal here, we can have those conversations without all the resources going into campaigning and responding to campaigns because that is really quite time consuming. But actually spending that time discussing what the right policy is and how it can be implemented consistently across different businesses.
 
[ . . . ]
 
Daniel Mittler (Greenpeace): I agree with the need for serious policy discussions, but I don’t think a lot of these policy discussions would ever get off the ground if there wasn’t the campaigning pressure in the first place. And one example is, you’re still as a bank not excluding Arctic oil in your lending. So as an honour to our 30 jailed activists in Russia, maybe you want to come up with a policy for that in the next few weeks.
 
Moderator: Certainly not in the next few minutes Francis.
 
Francis Sullivan: It usually takes a bit longer than that.
 
I think you raise a really good point, which is would companies ever come up with policies voluntarily without NGO pressure? I can’t speak for all companies, but certainly HSBC, our entire sustainability risk framework was generated internally, without being sort of dragged into that by NGOs. It doesn’t mean to say it couldn’t happen. I think it would be a failure for that to be the case, because I think if sustainability teams internally in companies are doing the right thing, they find out where the issues are, they may well be behind the curve at times, but they should be trying to stay up to speed with developments in the outside world.
 
So we adopted the Equator Principles, which was a voluntary framework for project finance, and then, because we didn’t think that went far enough, rolled out a forestry policy, a chemicals policy, an energy policy, a metals and mining policy, and a freshwater infrastructure policy, which covers social and environmental issues. And we then review those every year and iterate it.
 
I think that if the relationship between companies and their stakeholders is right, and let’s not forget shareholders here with publicly listed companies they can ask some pretty sharp questions too, then that should be an iteritive process, it’s one which is about continuing development, improving the business, and seeing this as just a part of good management going forward.
 
But we have to bear in mind that you’ve got to balance commercial imperatives against sustainability objectives over time. And that is an important consideration.
 
[ . . . ]
 
Francis Sullivan: From a banking perspective, it’s a very binary process really. We either bank a client or we don’t. So when looking at those sorts of relationships, it’s not really about incentivising trade, the upside is not something that you would talk about in the same that you might if you were in a supply chain. So the process we go through for the companies we have in what we call the sensitive sectors, the ones I mentioned previously, is that we, alongside a credit risk rating for those companies, we have a sustainability risk rating as well, within our central credit database. And this is an independent process, the two are not related, but in order to do business, or certain types of business with those customers, we need two green lights. They need to be credit worthy and they also need to pass sustainability tests.
 
We assess commitment, capacity, and track record to implement our policies and that then frees up the ability to do business. And what it’s meant over the last few years for companies in all of these sectors, if they don’t measure up, they may be extremely credit worthy, but not match our requirements from a sustainability point of view, we have to close their accounts.
 
So, in the end, the ultimate sanction is no longer being able to do business with customers that we believe are no longer managing, or unable to manage their sustainability risks succesfully. Now that sounds like a tough thing to do, but we think it’s an essential thing to do to be able to evidence that we do implement our policies. And also, if companies aren’t implementing, or carrying out their business in a sustainable way, they probably do face reputational risks, they may face action from regulators, they may lose their customers as well. So we believe this is also a good risk management approach. So we’re always looking every year at least we are looking at those 41,000 customers to make sure that they meet our sustainability risk policies.