Revealing Bank Complicity in the Environmental and Social Crisis of the Pulp and Paper Industry in Indonesia: Research Findings The PRAKARSA

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Jakarta, The PRAKARSA – On Tuesday (10/09/2024), the research and policy advocacy institute The PRAKARSA held a webinar entitled “Study of Bank Involvement Behind Environmental, Social, and Governance Problems in the Pulp and Paper Industry in Indonesia”. This event is part of the launch of The PRAKARSA which explores the role of banks in the context of environmental, social and governance (ESG) issues in pulp and paper industry in Indonesia.

The pulp and paper industry in Indonesia faces a range of challenges, from damaging environmental impacts to social conflicts with local communities. This research aims to explore how bank involvement in financing the industry contributes to these problems.

The Executive Director PRAKARSA, Ah Maftuchan in his speech said that the agriculture, forestry, and land use sectors in Indonesia are one of the sectors that have a major contribution to increasing emissions. Therefore, improving this sector can play an important role in reducing emissions in Indonesia.

"The Jokowi government has tried to overcome dependence on raw material businesses through downstreaming programs. However, this downstreaming still has problems, because it focuses more on increasing economic added value without considering deeper sustainability aspects," said Maftuchan.

PRAKARSA in his research, according to Maftuchan, he also considered expanding the research to other sectors. "Previously, PRAKARSA has conducted research in the plantation sector, especially palm oil, to look more deeply into the palm oil industry's commitment to social aspects. PRAKARSA examines how the palm oil industry is committed to implementing aspects of decent work (decent work) for its workers how to fulfill their basic rights. This is in line with what the ResponsiBank Coalition did in developing a palm oil sector investment guidebook with the Financial Services Authority (OJK), where PRAKARSA consistently include aspects of labor protection," he explained.

Furthermore, The Researcher PRAKARSA Eksanti Amalia Kusuma Wardhani in her presentation explained the existence of damaging environmental impacts and social conflicts with local communities caused by the pulp and paper industry in Indonesia based on the granting of Industrial Plantation Forest (HTI) permits which in 2018 had reached 11,17 million hectares, spread across 336 concessions in Kalimantan, Sumatra, Papua, Sulawesi, and other regions.

Forest and land fires (karhutla) in 2019 caused damage to 1,65 million hectares, causing state losses of up to IDR 72,91 trillion, which is equivalent to 0,5% of total GDP in the same year (Kompas, 2023).

"In addition, conflicts between communities and companies still occur, Forest Watch Indonesia in 2014 recorded 2.585 conflicts in 27 provinces in Indonesia during the period 1990-2010," said Eksanti. 

Meanwhile, according to Eksanti, banking as a party providing financing to companies has not fully prioritized environmental aspects and Human Rights (HAM) due diligence as the main prerequisites in providing credit.

Sustainability issues, including Environmental, Social, and Governance (ESG) aspects, which have been regulated in international agreements and various conventions, have not been comprehensively integrated into banking credit policies. As credit providers in the pulp and paper sector, banks indirectly contribute to negative impacts in the field. "Based on the results of the assessment PRAKARSA, the five largest banks that finance the pulp and paper sector, namely BRI, Mandiri, BCA, BI, and Mizuho, ​​have relatively low commitment to policies related to climate change, human rights, natural resources (SDA), and forestry," Eksanti explained. 

Eko Cahyono, researcher and activist of Sayogjo Institute as a research respondent emphasized the importance of social and ecological dimensions in educating economic actors, especially banks. He said, "The Industrial Plantation Forest (HTI) regime aimed at pulp and paper in Indonesia, is essentially only to serve itself and the oligarchy behind it, and there is no welfare for the people and ecological sustainability," he said.

The research identified continued political support and funding for the pulp and paper sector, despite the many problems that come with it. Eko added, “Corrupt practices are often the root cause of socio-ecological damage,” referring to a number of cases where corruption and bribery hamper sustainability.

Rizkiasari Yudawinata, Sustainable Finance Lead WWF Indonesia, who was also present as a respondent discussed WWF's analysis related to banking and the integration of environmental, social, and governance aspects. He stated, "Of the 11 banks identified, 8 of them have developed sectoral policies. For example, Bank BRI which has a specific policy related to the pulp and paper industry."

However, Rizkiasari also noted the challenges faced by banks in implementing the policy, "The bank's bargaining position is not as strong as expected in practice, especially in interacting and communicating with clients," he concluded.

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