Palm oil issues

Palm oil production has exploded in the past two decades to become the world's most widely traded vegetable oil. Current production of more than 60 million tons is projected to double again in the next decade. As the palm oil tree only grows in the tropics, nearly 90% of global production comes from Indonesia and Malaysia. Palm oil plantations globally now cover around 15 million hectares and growing. Forest destruction for palm oil expansion is spreading quickly in SE Asia and to other rainforest regions in Central Africa and Latin America.

Palm oil and its derivatives are used in a wide array of packaged foods by consumer facing brand companies, including ice cream, cookies, crackers, chocolate products, cereals, breakfast bars, cake mixes, doughnuts, potato chips, instant noodles, frozen sweets and meals, baby formula, margarine, and dry and canned soups. About 76% of palm oil is used for foods, with the remainder used for industrial purposes including bio-diesel.

Palm Oil Impacts in SE Asia

Biodiversity
Indonesia’s rainforests are one of earth’s most biologically and culturally rich landscapes. With just 1 percent of the Earth’s land area, Indonesia’s rainforests contain 10% of the world’s known plants, 12% of mammals and 17% of all known bird species. As recently as the 1960s, about 80% of Indonesia was forested. Indonesia now has one of the highest levels of deforestation in the world, with just under half of the country’s original forest cover remaining. 

The rainforests of Borneo and Sumatra are the last stand for one of humankind’s closest relatives, the orangutan. Between 2004-08, the Critically Endangered Sumatran orangutan population fell by 14% to 6,600, largely due to loss of habitat for palm oil expansion. The Critically Endangered Sumatran tiger and Sumatran rhinoceros, both with populations of only hundreds left in the wild, are also urgently threatened by palm oil expansion. Recent studies in Borneo show only 12% of remaining habitat for the Endangered Borneo Orangutan are in protected areas, and palm oil expansion is the largest threat across their range.

Social impacts
Corporate land grabbing of Indigenous and community forests for palm oil plantations is responsible for serious human rights abuses and persistent conflicts between companies and rural communities. In Indonesia there are over 500 different language groups and between 60 and 110 million Indigenous peoples, many of whom depend on standing natural forests for their livelihoods. The Indonesian palm oil monitoring group SawitWatch has identified 663 ongoing land disputes between palm oil companies and rural communities. Private armies and paramilitaries have been deployed to take and maintain control over lands on behalf of palm oil companies, resulting in displacement, incarcerations, injuries and deaths. The palm oil sector employees several million persons, but labor conditions are often poor. Industrial palm oil plantations are reported to rely on the use of forced and child labor, both of which are believed to be widespread in the sector. 

Climate change
Peatlands are carbon-rich wet ecosystems that have sequestered billions of tons of carbon through thousands of years of accumulating leaf litter and organic material. Indonesia has 65% of the world’s tropical peatlands, and Malaysia an additional 10%, with combined carbon stocks of 60 billion tons of carbon, which is equivalent to nearly 7 years of global fossil fuel emissions. The conversion of peatland to palm oil plantations is already contributing hundreds of millions of tons of CO2 to the atmosphere each year, and expansion of palm oil plantations on peatlands is expected to double within a decade. This is having globally significant impacts on the climate, with emissions similar in scale to some of the world’s biggest coal and tar sands development projects. Indonesia is the world’s third largest emitter of greenhouse gases after the U.S. and China, with 85% of its emissions profile coming from rainforest and peatland destruction. Deforestation in Indonesia is responsible for some 5% of global greenhouse gas emissions, which is more than the combined emissions from all the millions of cars, trucks, trains, and buses in the U.S. each year combined.

The role of banks

In the past decade more than USD 50 billion has been invested in the Malaysian and Indonesian palm oil sectors, with half of this going to 27 of the largest palm oil companies. Banks are important sources of capital for the palm oil sector, providing an estimated 24% of the total financing needed. Leading banks for consolidated loans from 2002-2011 were HSBC, Mitsubishi UFJ, OCBC, Sumitomo Mitsui, ANZ, DBS, Bank Central Asia, Credit Suisse, Mizuho Financial, CIMB, BNP Paribas, Bank Mandiri, United Overseas Bank, Commonwealth Bank of Australia, Rabobank, Westpac Banking, Citgroup, Nationala Australia Bank, Bank Rakyat Indonesia, Standard Chartered, Barclays, Malayan Banking and Credit Agricole.

In 2000, Greenpeace and Friends of the Earth launched a campaign in the Netherlands, holding banks responsible for the deforestation caused by the palm oil industry. Due to the campaign, the palm oil sector became the first one on which Dutch banks adopted sector policies.

Close the Gap
In 2010, BankTrack conducted a research project on the quality of bank policies relevant for palm oil. You can see the resutls of this report here.

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