Environmental campaign organisation Mighty Earth recently filed a formal complaint with the UK-based investor-focused not-for-profit body Climate Bonds Initiative (CBI) calling for Asia’s first corporate “Sustainability Bond”, which had been issued in 2018 for investors in French tyre maker Michelin’s natural rubber joint venture in Indonesia, to be delisted from CBI’s global green bond markets.
The complaint argues that the US$95 million bond, which financed Michelin’s RLU project, a 70,716-ha natural rubber plantation in Jambi, Indonesia, should be ineligible for CBI listing because green investors were not informed of serious allegations of environmental destruction and social conflict around the project. Mighty Earth alleges that thousands of hectares of tropical rainforests and critical conservation habitat were industrially deforested by the local subsidiary of Michelin’s Indonesian partner prior to the start of their project, and that Michelin knew of the destruction but failed to provide this information to investors.
Read RJA’s related article on the Michelin-RLU project here
“We are urging the Climate Bonds Initiative to immediately investigate our complaint and – if evidence of large-scale deforestation is supported by our findings – to immediately delist this questionable bond,” said Mighty Earth Campaign Director Alex Wijeratna. “It’s inconceivable that a bond tied to the widespread, deliberate, and undisclosed industrial deforestation of thousands of hectares of precious rainforest and conservation habitat could ever be labelled as ‘green’ or ‘sustainable’.”
Michelin signed the RLU joint venture shareholder agreement with its Indonesian partner, Barito Pacific, in December 2014. Mighty Earth’s complaint includes new evidence showing that Michelin officials knew before that time that their partner’s key local subsidiary – a company called PT Lestari Asri Jaya (LAJ) – was independently identified as one of the main causes of land clearing and deforestation on its concessions in Jambi. However, this crucial information was not disclosed to green bond investors in any publicly available due diligence reports, nor was it disclosed in the Tropical Landscapes Finance Facility (TLFF I) Sustainability Bond “Offering Circular” which was arranged by French bank BNP Paribas, facilitated by ADM Capital, and offered to investors in March 2018.
The second round of funding worth US$120 million to finance the next phase of the RLU project is due to be offered to green bond investors.
Key green investors such as &Green fund, Unilever, and PG Impact Investments have invested millions in the 15-year TLFF I Sustainability Bond, though it is unclear if they were told of these deforestation concerns prior to investing. “No green investor wants to invest in a sustainable or green bond project that failed to disclose large-scale industrial deforestation or the deliberate destruction of tropical rainforest that was once home to endangered Sumatran elephants, tigers and orangutans,” said Wijeratna. “The Climate Bonds Initiative should swiftly investigate and delist the TLFF I Sustainability Bond in order to restore trust and integrity in global green bond markets.”