Japanese financial institution disregards peatland protection commitment by financing contentious Indonesian palm oil company, according to research
In a shocking revelation, environmental campaign group Rainforest Action Network (RAN) has accused Japanese financial services giant Mitsubishi UFJ Financial Group (MUFG) of breaching a commitment to stop financing companies that develop carbon-rich peatlands.
The investigation, conducted by RAN, found that MUFG provided financial support to a resource company, Tunas Baru Lampung (TBLA), which converted large peatlands in South Sumatra, Indonesia, for palm oil and sugarcane plantations from 2020 to 2023. This activity contravenes MUFG's 'No Deforestation, No Peat and No Exploitation' (NDPE) policy, a commitment made in 2021.
Satellite analysis by RAN identified 7,800 hectares (ha) of peatlands converted by TBLA during this period. The conversion of peatlands by TBLA has been a cause for concern, with major palm oil traders such as Musim Mas ceasing sourcing from the company due to its poor environmental track record.
RAN's analysis also showed that between 2015 and 2019, 28,903 ha of peatlands burned in TBLA's concessions. The biggest area that burned was in 2015, one of the worst years for transboundary haze air pollution in recorded history. TBLA's subsidiary, PT Dinamika Graha Sarana (PT DGS), was sued by the Indonesian government for US$41.5 million for the ecological damage and economic losses the fires caused in 2023.
The loans provided to TBLA, which totalled US$281 million, were funded by MUFJ through its Indonesian subsidiary, Bank Danamon. RAN's latest investigation questions the adherence of Bank Danamon to MUFG group policies on NDPE.
This is not the first time MUFG's sustainability practices have come under scrutiny. Eight months ago, RAN questioned millions of dollars worth of sustainability-linked loans provided by MUFG to Apical's parent company, Royal Golden Eagle (RGE). RAN labeled these loans as "sustainable finance greenwashing."
MUFG and RGE have responded to explain their performance targets' verification and auditing processes. However, the RAN study raises serious questions about the effectiveness of these processes in ensuring compliance with MUFG's NDPE policy.
Interestingly, none of the four largest banks in Indonesia, Bank Mandiri, BRI, BCA, and BNI, have adopted NDPE policies. The withdrawal of MUFG from the Net Zero Banking Alliance was reported last month, along with Mitsui Financial Group and Nomura Holdings.
In response to the allegations, Bank Danamon has issued a statement, confirming their commitment to MUFG's NDPE policy and stating that they are reviewing their relationship with TBLA. The story has been updated with this comment from Bank Danamon, which came in after the story was published.
This investigation underscores the importance of financial institutions adhering to their sustainability commitments and the need for transparency in their lending practices. As the world grapples with the impacts of climate change and biodiversity loss, the role of the financial sector in driving sustainable development cannot be overstated.
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