Japanese banks enabling destruction of Indonesia’s National Park

Located almost at the center of the island of Sumatra, Indonesia, Tesso Nilo National Park is an important habitat for iconic Sumatran wildlife like the Sumatran elephants and Sumatran tigers. It is said to have greater diversity than the Amazon in South America (Gillison 2001). But it is being encroached upon by illegal palm oil plantations producing 'conflict palm oil'. At least four Japanese companies are suspected to be using this ‘conflict palm oil’, and are linked to Bank of Mitsubishi UFJ, Mizuho Bank, Sumitomo Mitsui Banking Corp., Sumitomo Mitsui Trust Bank and/or Norinchukin Bank, reports Fair Finance Japan.

Some palm oil plantations managed by the residents of the park have existed in this area from before the establishment of the park. There have, however, been no measures taken to relocate or close these plantations after the establishment of the park due to insufficient management by the central government. On the other hand, some of the growers, many of them who came from outside for farmland acquisition, received valid land ownership deeds (such as Surat Kepemilikan Tanah: SKT) from influential people such as customary local leaders and village chiefs. 

Additionally, companies like Riau Andalan Pulp and Paper (a pulp and paper company), have been planting and harvesting acacia trees around the park for wood pulp, with many illegal palm oil plantations surfacing in the park in recent years. These palm oil plantations with questionable origins are known as ‘conflict palm oil’. While the government has mobilized the military and other forces to tackle this problem, the effectiveness of its measures will depend on how it perceives the existence of “forced squatters” (Sasaoka, 2019).

Field investigations by several civil society organizations tracing the supply chains of these ‘conflict palm oil’ plantations have found that some major companies from Japan and other developed countries, who are the final users of palm oil, are failing to comply with raw material procurement policies. Local NGOs and the media have recently been able to put the spotlight on cases regarding farmland acquisition that demonstrate collusion and criminal nexus between community leaders, high-ranking officials and politicians.

In August 2020, JATAN carried out several field visits, primarily in several communities around the national park. It found that most of the fruit bunches shipped from palm oil plantations, which were apparently located in the park, have actually been transferred to Royal Golden Eagle (RGE), and four other major Japanese companies-Fuji Oil, Kao, Nisshin OilliO, and Itochu Corporation. 

In other words, at least these four Japanese companies may have been using this ‘conflict palm oil’. These companies were confirmed to have transactions with the Bank of Mitsubishi UFJ, Mizuho Bank, Sumitomo Mitsui Banking Corp., Sumitomo Mitsui Trust Bank and/or Norinchukin Bank. Sources, including the Indonesian media, pointed out that Mitsubishi UFJ Financial Group (MUFG) has financed the RGE group. Although these financial institutions have sector specific policies to finance palm oil plantation growers, only Sumitomo Mitsui Trust Bank has a policy that covers the manufacturing companies that purchase palm oil and checks whether they hold certification and have any problems with the local community.

Other banks do not have such policy, and thus are not able to address palm oil transactions from areas facing risks of illegality and/or land conflicts. Addressing environmental and social issues, such as deforestation and human rights violations associated with palm oil, may require banks to set and implement policies not just for growers but also for purchasers of palm oil.

It is important that clear policies are developed, which include FPIC (Free, Prior, Informed Consent) provisions to respect the rights of indigenous peoples, and ensure that in the case of disputes over land rights, conflict situations must be resolved by ensuring that the rights of local residents are protected.

The full Fair Finance Japan report (in Japanese) is available here.