Fighting haze and deforestation in our own backyard

Many palm oil producers and buyers are sited in Singapore. Hit them where it hurts, by mandating banks and investors to have codes that prevent loans to or investments in firms that aid deforestation and land burning.

Air pollution brought about by illegal fires raging in Indonesia hit new hazardous records in Southeast Asia this past week and even triggered the closure of schools in Singapore for the first time last Friday.

Apart from rising temperatures, the current haze crisis has raised tempers among political leaders and the public, and there is significant political pressure on governments to resolve the issue once and for all.

Residents in the affected areas - even those previously unconcerned about environmental issues - have felt the impact so acutely that they’ve begun asking questions about who’s responsible and what we can do about it.

The question of who is responsible is highly complex, involving a wide range of socio-political factors and a multitude of actors. But if you had to distil the reason down to one thing, it’s plain economics.

Where the buck stops

Global demand for cheap palm oil and paper products has driven the conversion of Indonesian and Malaysian forest land into plantations and fuelled air pollution in the region for decades.

Local elites manage land transactions and mobilise local communities or smallholders to clear land by burning. Timber and oil palm planted on cleared land are supplied to large firms and, throughout the supply chain, many benefit from the burning - still the cheapest way of clearing land - and turn a blind eye to it.

These commodities make their way to you and me via consumer giants that use palm oil in everything from cosmetics to biscuits to shampoo, while timber is turned into paper and tissue products.

These groups form complex social networks that undermine government efforts to allocate land resources efficiently and enforce the rule of law.

In recent years, environment and civic groups have focused their campaigning efforts on this wide spectrum of stakeholders. Greenpeace and Forest Heroes have led high-profile campaigns targeting producers and traders such as Golden Agri-Resources, Wilmar International, Asia Pulp and Paper (APP), Cargill, Musim Mas and April Group to buyers like Kellogg, Nestle and Unilever.  

Civic groups say the buck stops with these firms as they reap handsome profits from the crops cultivated through illegal burning. They also have the resources and influence to meaningfully change industry practices.

Who could forget that Greenpeace video in 2010 that went viral, showing a bored office worker who bites into a Kit Kat that turns out to be the bloody digit of an orangutan? It drove home the price paid for that pleasure  - deforestation and habitat destruction.

Nestle, which makes Kit Kat, had to suspend sourcing its palm oil from Sinar Mas, the Indonesian conglomerate whose business interests include pulp and paper, palm oil, property, financial services and energy among others.

Under immense pressure in recent years, Sinar Mas-controlled firms such as Golden Agri and APP, and other industry players such as Wilmar and Cargill have declared zero deforestation policies which they say also apply to their suppliers.

NGOs which function as watchdogs say these claims can’t be taken at face value. The proof is in how transparent these firms are in, say, releasing maps of their suppliers’ concessions, and how willing they are in having external parties audit and verify their processes.

Singapore is a major palm oil trading hub and many of its banks are major financiers of agricultural companies in the region. None of these banks however have any policies relating to the environmental, social and governance standards of the companies it gives loans to. 

Unprecedented legal action

The stakes have gone up, with Singapore’s National Environment Agency (NEA) - in its first invocation of the country’s Transboundary Haze Pollution Act passed just last year - sending legal letters last week to five Indonesian firms it believes are responsible for the burning.

Of the five, the most well-known is APP, whose Paseo tissue packets and A One photocopy paper are ubiquitous in Singapore. It has been ordered by NEA to supply information on its Singapore and Indonesian subsidiaries and its measures to fight fires.

APP says it is preparing its response, and adds that it has halted forest clearance but cannot control “unauthorised third parties” who continue burning on their suppliers’ concessions. It points to overlapping concessions with other businesses and illegal encroachment as complicated issues that require other stakeholders to resolve.

APP also says that the problem of illegal fires is further exacerbated by an Indonesian ruling, called Law 32, which allows communities to burn 2ha of land per family. These fires then spread in particularly dry weather. This highlights the crucial role of the Indonesian government in ensuring its own legal frameworks do not undermine its wider fire-fighting efforts.

To be fair, APP also has since last year released its suppliers’ mapping data to the Indonesian government and to independent organisations such as the World Resources Institute.

Wilmar is another company that earlier this year started disclosing names and locations of its suppliers via an online dashboard, following a 2013 campaign by Forest Heroes accusing it of deforestation.

Too few forestry companies have such a level of disclosure - all should make their maps public, even if this means generating extra scrutiny.

It is true that the problem of illegal burning can’t be tackled by companies alone, but industry observers say they also can’t pass the buck to others, since the companies holding the concession permits are ultimately responsible for preventing and extinguishing fires on their land, regardless of who started it.

NEA’s legal action against the five firms - if it proceeds further - will be a litmus test of the effectiveness of the Transboundary Haze Pollution Act, which punishes errant companies that cause haze pollution in Singapore with fines of up to $2 million.

As consumers and shareholders, we can all play a part - not just in speaking up on our expectations of how companies and financial institutions should behave, but also taking the effort to equip ourselves with the knowledge whether the products we purchase are leading to the air pollution that we are all suffering from.

If it manages to have enough evidence to secure a conviction, a harsh sentence - and reputational damage - might be the wake-up call the industry needs.

Looking at our own backyard

Singapore, where I live, should also look at its own backyard when it comes to the haze and deforestation problem.

Research by the non-profit Centre for International Forestry Research (Cifor) shows that oil palm plantations - owned by Indonesian, Malaysian and Singaporean firms - reaped revenues of US$18.4 billion last year.

It notes that just as Singapore and Malaysia share the profits of Indonesia’s palm oil, so must they share the responsibility for fire and haze.

Singapore is a major palm oil trading hub and many of its banks are major financiers of agricultural companies in the region. None of these banks however have any policies relating to the environmental, social and governance standards of the companies it gives loans to. This means that they have indirectly financed deforestation activities and, as a result, are also indirectly responsible for the haze.

Last week, Singapore’s Minister for the Environment and Water Resources Vivian Balakrishnan mentioned green procurement as a way for the Government to influence the supply chains . This is long overdue.

In the absence of any leadership from the local banks, the Monetary Authority of Singapore should also introduce mandatory stewardship codes to promote responsible investment practices. Its current stance that the industry should regulate itself just does not cut it.

Cifor says that besides banks, the second-largest financier is equity investors - this group contributes 59 per cent of the capital of Indonesia’s 10 largest palm oil companies. Sovereign wealth funds such as Singapore’s Temasek Holdings and Malaysia’s Employees Provident Fund, and individual shareholders all help finance the activities of some of these publicly traded companies.

As consumers and shareholders, we can all play a part - not just in speaking up on our expectations of how companies and financial institutions should behave, but also taking the effort to equip ourselves with the knowledge whether the products we purchase are leading to the air pollution that we are all suffering from.

Unless all these factors are consistently addressed, this haze crisis certainly won’t be the last.

A version of this column was first published in The Straits Times.

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