August Spotlight on: Sinar Mas Group

Transcription

1 August 2012 Spotlight on: Sinar Mas Group

2 Sinar Mas heads a group of companies that operate in the paper and agriculture industries. It is often linked to controversies involving its well-known business units and affiliates such as Asia Pulp & Paper, PT SMART and Golden Agri Resources. The Group also has operations in the real estate and financial services sectors, and plans to branch out into telecommunications, mining and mineral water production. Sinar Mas has regularly appeared in the media spotlight over the past few years with controversies ranging from its palm oil production methods to the alleged illegal use of endangered timber species. RepRisk has also detected criticism on the Group and its companies in relation to impacts on protected areas and high conservation value forests, illegal logging, and the effects of its activities on indigenous communities. It has come under fire for its alleged contribution to climate change and the destruction of key habitats for several of the world s endangered animal species, such as the Sumatran tiger, elephant and rhino. While most infamously associated with projects in Indonesia, Sinar Mas has also faced criticism in a host of other global locations including Cambodia, Canada, Ghana and Liberia. This Spotlight report focuses on the negative stakeholder sentiment published about Sinar Mas, its companies and affiliates over the past two years. The RepRisk Index (RRI), which quantifies a company s exposure to controversial ESG issues, indicates that Sinar Mas was at its most controversial in 2010 when its Peak RRI was 65. This relates to the Greenpeace campaign, conducted that same year through viral advertisements, social media and on-the-ground activism against Sinar Mas, which resulted in companies such as Nestle, Burger King, and Kraft pledging to sever ties with their palm oil supplier, and HSBC selling its stake in the company. However, Sinar Mas companies and operations remain controversial and have continually been plagued by similar accusations related to the impacts of rainforest destruction up until the present time. For more information on our methodology, see: All information has been taken from the RepRisk database, which objectively monitors the level of criticism related to environmental, social and governance issues to which a company is exposed in the media and other public sources. It also quantifies the negative news collected through its RepRisk Index (RRI). For more information about our methodology, please refer to page 4. RepRisk is a registered trademark RepRisk AG, August of 4

3 Sinar Mas subsidiary Asia Pulp & Paper (APP) is considered highly controversial for its alleged destruction of rainforest areas in Indonesia. The company has been the focus of numerous environmental activist campaigns and has appeared in several NGO reports. Allegations address the impacts of its activities on indigenous and local farming communities, on climate change, and in particular, the loss of habitat crucial to the survival of endangered Sumatran tigers and elephants. Increasing scrutiny of supply chains has seen NGOs target major brands in recent years, urging them to stop sourcing from APP and forcing them to focus on sustainable suppliers. Companies that have been accused of doing business with APP include KFC, Pizza Hut, Tesco, Paperlinx, Barnes and Noble, Krispy Kreme, and Wal-Mart. A 2011 report by Greenpeace entitled How APP is Toying with Extinction criticized toy manufacturers such as Mattel, Disney, Hasbro and Lego for sourcing packaging paper containing mixed tropical hardwood from Indonesian rainforests and specifically from APP and its suppliers. The NGO claims that the practice of deforestation in deep peat areas is banned under Indonesian law and affects critical defenses against climate change. The Bukit Tigapuluh Forest, a designated tiger conservation priority region, and the Kerumutan Peat Swamp Forest in Riau were named as affected areas. Sinar Mas has itself been accused, alongside companies including Cargill, Wilmar and Unilever, of poor supply chain management following accusations that it sources from companies such as Astra Agro Lestari, which operates in the Tripa Forest. Reportedly, this peat reserve, which is located within a UNESCO World Heritage Biosphere zone, is regularly subjected to illegal fires and logging to make way for palm oil and plantation timber production, thereby threatening already endangered species including orang-utans, and causing the release of significant amounts of carbon dioxide. Another major criticism is the threat this poses to the traditions and livelihoods of forestdependent communities. It is alleged that some of the concessions were given to the companies by the Indonesian government without consultation and in violation of relevant laws protecting peat forests. The company also stands accused of breaches of the Roundtable on Sustainable Palm Oil standards. A report released earlier this year by NGO Eyes on the Forest, suggested that APP had destroyed 12,000 hectares of the Pulau Muda forest, considered a conservation landscape for tigers. The NGO claimed the company thus breached a legally binding environmental covenant, which it signed as part of a debt restructuring deal with creditors a number of years ago. As part of this deal, APP committed to protecting 34,000 hectares of high conservation value forest and to aim for full sustainability in its operations by Another Sinar Mas Group company, PT Arara Abadi was also linked to activities in Pulau Muda. It reportedly converted at least 250 hectares of tropical rainforest into pulpwood plantation. Furthermore, in July 2011, WWF Indonesia condemned the company for failing to secure its concession against illegal activities after a Sumatran tiger was found dead in a trap. In addition to such practices, APP came under intense scrutiny after it was accused in a Greenpeace report of illegally mixing an internationally protected species, Ramin, among rainforest logs at its Indah Kiat Perawang mill. This mill, together with the Lontar Papyrus Pulp & Paper mill, have further been criticized for the continual expansion of their activities, causing the destruction of almost 700,000 hectares of critically endangered forest and serious loss of Sumatra s biodiversity. Another subsidiary, Pindo Deli s paper mills also came under fire by NGO FERN after it won a EU Ecolabel Award. The NGO called for an audit of its mills and a revision of the Award s criteria. RepRisk is a registered trademark RepRisk AG, August of 4

4 While the majority of criticism focuses on activities in Indonesia, there have been reports of allegedly destructive practices by Sinar Mas Group companies across the globe. Greenpeace accused APP of logging in a national park in Cambodia, reportedly causing the destruction of the habitat of endangered species. An alleged APP shell company, Paper Excellence, caused concern in 2011 when it began rapidly acquiring pulp mills in Canada, including several accused of previously polluting natural waterways. Sinar Mas is also one of the major players in the palm oil industry that has begun seeking concessions in Africa. It has reportedly been linked to land deals in Liberia, Gabon and Ghana. There has been concern expressed about the concept of land grabbing on the continent, in relation to which the UN special rapporteur for the right to food and the International Institute for Environment and Development found that agribusinesses, government agencies and investment funds were gaining long-term rights to land and water sources, often with little benefit to the local community or general public. Sinar Mas has faced ongoing accusations of greenwashing. Most recently, these arose after it appeared at the Durban climate talks in South Africa despite its allegedly significant contribution to the creation of greenhouse gas. Activists view its activities as one of the reasons that Indonesia has reportedly become the world s third largest producer of carbon dioxide emissions. This is reminiscent of allegations in 2010, when the Group commissioned an unbiased audit of operations following a Greenpeace campaign against it. The NGO dubbed the findings greenwashing and questioned the auditors independent status. Concern has been expressed about the legalities involved in gaining forest clearance permission and concessions for land. APP has been linked to allegations of corruption and to dealings with two government officials who were later investigated and subsequently jailed for issuing concessions illegitimately. In 2011, the Presidential Judicial Mafia Eradication Task Force urged police to reopen a logging case that was closed in 2008 involving licenses granted to APP affiliates, among others. In the Jambi Province of Indonesia, Sinar Mas Lontar Papyrus paper factory reportedly causes conflict with local villagers. It fails to inform them about the areas it intends to clear and erects signs without warning in areas that they have traditionally managed. Villagers claim that when they tear such signs down, they are arrested for vandalism. These types of disputes over land have reportedly been ongoing for some time and have led to violence in some cases. In 2009, villagers occupied and planted fruit on land that KDA, a subsidiary of Sinar Mas s agribusiness unit SMART, had failed to return to them. Six people were shot with rubber bullets in the ensuing conflict. RepRisk is a registered trademark RepRisk AG, August of 4

5 Methodology RepRisk special reports are compiled using information from the RepRisk database, which consists of negative news on companies environmental, social and governance performance. The RepRisk database currently contains criticism on more than 25,000 companies and holds news from thousands of sources, ranging from commercial newspapers and online media to NGO websites, blogs and newsletters. Once the negative news has been identified with advanced search algorithms and analyzed for its novelty, relevance and severity, risk analysts enter it into the database and link it to the companies in question. No news is entered twice unless it has been escalated to a more influential source, contains additional information, or has not appeared for the past 6 weeks. This helps to ensure the balanced and objective rating and weighting of the negative news, and thus the company s quantitative measure of risk exposure, the RepRisk Index (RRI). The RRI measures the risk to a company s reputation, not its actual reputation in general. RepRisk objectively monitors the level of criticism to which a company is exposed. All data is collected and processed through a strictly rule-based approach; it is not the result of an assessment, rating or verdict from our analysts. About RepRisk RepRisk is the leading provider of dynamic data on environmental, social and governance risks for an unlimited universe of companies and projects. The company s web-based tool, RepRisk, allows you to identify and assess the environmental, social and governance issues which may present financial, reputational, and ethical risks. It is used by investment professionals, financial institutions, supply chain managers, multinational corporations, and compliance managers, and includes a variety of features enabling clients to monitor risk trends over time, create customized watch lists, tailor alert services, and more. The tool plays an integral role in increasing transparency and ensuring compliance with internal and international standards, thereby helping reduce risk exposure. RepRisk s comprehensive and relevant database enables you to meet the risk management and compliance challenges in an increasingly complex world. On a daily basis, RepRisk tracks a company s or project s environmental and social risk exposure by monitoring independent third-party sources such as all major print media, the newsletters and websites of thousands of NGOs and governmental agencies, and blogs. Controversial issues covered include environmental footprint and climate change, human rights and community relations, labor conditions and employee relations as well as corruption and money-laundering. In particular, all principles of the UN Global Compact are addressed. RepRisk covers all major business languages (English, Chinese, Japanese, Korean, French, German, Spanish, Portuguese, and Russian) as well as Danish, Finnish, Swedish and Norwegian. Disclaimer The information herein (other than disclosed information relating to RepRisk) was obtained from various public sources. RepRisk AG does not guarantee its accuracy. The information contained in this report is not intended to be relied upon as, nor to be a substitute for, specific professional advice. No responsibility for loss occasioned to any persons and legal entities acting on or refraining from action as a result of any material in this publication can be accepted. Contact Information For more information about the RepRisk tool or this Spotlight on Sinar Mas Report, please contact media@reprisk.com or visit our website: RepRisk is a registered trademark RepRisk AG, August of 4