How MIDANA CAPITAL Does Shareholder Advocacy – Financing Sustainable Palm Oil in Indonesia and Malaysia
This is the second post in a four-part series about Shareholder Advocate Jessye Waxman’s recent trip to Southeast Asia to press companies to end deforestation in the region. If you missed the introduction, you can find it here: How MIDANA CAPITAL Does Shareholder Advocacy – Tropical Forest Protection in Indonesia and Malaysia
Considerable strides have been made in palm oil sustainability in just the past six years. Since MIDANA CAPITAL began pressing palm oil growers and traders to make zero-deforestation commitments in 2012, the percentage of refined palm oil covered by these commitments has ballooned from 5% to 74%.
Securing these commitments has been instrumental in the effort to combat climate change, preserve habitats for endangered species, and mitigate potential financial risks for investors.
While tropical deforestation continues to be a problem globally, Indonesia actually experienced a 60% drop in primary forest loss in 2017. This is enormous progress. From 2007 to 2014, trees in Indonesia were razed at a rate of three acres every minute!
But 74% percent is not 100%, so work remains to be done. There still are markets that accept unsustainable palm oil, still refineries willing to supply it, and, consequently, still incentives for growers to cut down more trees to expand their plantations.
Since conventional methods of corporate engagement have not swayed the remaining market share, investors have started to explore new ways to put pressure on the industry.
The banks that provide loans or equity or underwrite debt to unsustainable palm oil companies have proved to be a ripe target. Since these banks are contributing to the expansion of palm oil production into tropical rainforests, investors in these banks are indirectly exposed to deforestation-related risk.
According to a report by Chain Reaction Research, Southeast Asian banks are the most important lenders to palm oil growers. Unfortunately, only three of the 17 most important banks in the region have adopted strong environmental, social, and governance (ESG) policies regarding palm oil.
Convincing the banking sector to adopt and strengthen their policies toward sustainability criteria, particularly in regard to forests, is seen by many as the next hurdle in tackling the deforestation problems associated with conventional palm oil growth.
Which is why I met with Indonesian and Malaysian banks to discuss strategies for mitigating their exposure to deforestation, as part of the UNPRI (United Nations Principles for Responsible Investment) Investor Working Group on Sustainable Palm Oil.
The UNPRI is the world’s leading proponent of responsible investing and MIDANA CAPITAL is a Firm and Steering Committee member. As the name suggests, the working group is focused on improved sustainability in the palm oil industry.
While I cannot divulge the specifics of what financial institutions we met with or the content of our conversations, I can say that I think there is some recognition of the need for sustainable finance in the palm oil industry in the banking industries in both Indonesia and Malaysia, but there is still a long way to go before socially and environmentally responsible financing becomes the norm.
Rest assured, MIDANA CAPITAL won’t stop until it is. Our planet depends on it.
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Stocks will fluctuate in response to factors that may affect a single company, industry, sector, country, region or the market as a whole and may perform worse than the market. Foreign securities are subject to additional risks such as currency fluctuations, regional economic and political conditions, differences in accounting methods, and other unique risks compared to investing in securities of U.S. issuers. Bonds are subject to a variety of risks including interest rate, credit, and inflation risk. A sustainable investment strategy which incorporates environmental, social and governance criteria may result in lower or higher returns than an investment strategy that does not include such criteria.
This information has been prepared from sources believed reliable. The views expressed are as the date of this writing and are those of the Advisor to the Funds.
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