World Bank agrees to suspend funding for palm oil sector in response to NGO critique - update

In response to a complaint made to the World Bank's International Finance Corporation (IFC) by a coalition of international NGOs, the World Bank's president, Robert Zoellick, has agreed to suspend further investment in the oil palm sector, pending the development of a revised strategy for dealing with the troubled sector.

In July 2007 Forest Peoples Programme, together with 19 Indonesian civil society and indigenous organisations, including SawitWatch and Gemawan, submitted a complaint to the IFC Compliance Advisor Ombudsman asking the ombudsman to investigate concerns about IFC's financing of the palm oil trading company, Wilmar Trading/Wilmar International. The complaint expressed concerns that Wilmar is party to serious and long term-social and environmental impacts which are at odds with the IFC's standards. Following the complaint, an internal audit was conducted which revealed that the IFC had allowed commercial interests to override its social and environmental standards in making major loans to the palm oil sector in Indonesia.

Oil palm has become synonymous with widespread clearance of forests and peatlands, massive CO2 emissions and the theft of indigenous peoples' lands.

Although the IFC knew about all these risks, due to its experience with prior projects and the warnings of non-governmental organisations, it went ahead with loans to the Wilmar palm oil trading group, in violation of its own standards, according to the highly critical internal audit. The IFC failed to assess the supply chains or look into the damaging impacts of the company's subsidiary plantations that were taking over community lands and forests in Borneo and Sumatra.

In a letter to the complainants in August 2009, World Bank President, Robert Zoellick, accepts that IFC procedures need tightening and that socially and environmentally sensitive projects in the sector need to be re-categorised to ensure that staff apply due diligence.

He also announced an intensive six-month review of how the IFC should engage in the palm oil sector in the future which should be developed through open and extensive consultations. This review would look at the broader legal and institutional barriers to good practice in Indonesia. An assessment will be carried out of Wilmar Group's social and environmental procedures.

Lely Khainur of the Indonesian NGO, Gemawan, said in response to the audit:

 

Development is meant to prioritise the needs and rights of local communities. The IFC's standards require this. Yet they put business interests first and allow peoples' lands to be stolen for the sake of cheap palm oil in the international market. Our peoples and our forests are being ruined to no good end, and ultimately the whole planet is suffering.