World Bank arm halts financing to palm oil industry

The International Finance Corp (IFC) has halted investments in palm oil companies while it reviews internal funding practices for the industry.

The move by the World Bank investment arm, announced yesterday, follows the recent release of an internal IFC audit which concluded that standards on palm oil financing were breached in providing loans and guarantees to Wilmar International, one the world’s largest palm plantation owners.

As a result of the findings, a coalition of 19 green groups last month wrote a letter to IFC president Robert Zoellick, which urged that the multilateral finance institution freeze financing for all Indonesian palm oil projects until a number of “deficiencies” in its policies are addressed.

In a reply letter dated 28 August, Zoellick informed the coalition that “until we have a new strategy in place, IFC will not approve any new investments in palm oil. I have also asked IFC to review the environmental and social performance of all portfolio investments in palm oil”.

Zoellick said IFC is formulating a “comprehensive strategy to guide its involvement in the palm oil sector” within six months.

He told the coalition: “I share your concerns about the detrimental effects of palm oil development when sound environmental and social practices are not followed. While sustainable palm oil production can help meet the livelihood needs of the world’s poorest people, and some progress has been made in putting the industry on a more sustainable footing, major challenges remain.”

Zoellick added that "IFC has the potential to help improve the industry’s environmental performance under the right conditions”.

IFC provided $33.3m (£20.3m) in investment guarantees and $17.5m in loans to Wilmar between 2003 and 2008.

The coalition in 2007 filed a complaint to IFC’s ombudsman over Wilmar’s business activities, claiming that Wilmar did not comply with applicable national laws in Indonesia, lacked publicly available social and environment impact assessments and had inadequate compliance with IFC operating procedures and due diligence requirements.

To date, IFC has invested $132m in palm oil projects in Asia, Central America, Ukraine and West Africa. Its funding freeze will add to the woes of an already beleaguered industry, which has long been accused by green groups of being a major contributor to tropical rainforest degradation which, in turn, endangers wildlife.

Cadbury New Zealand last month said it would exclude palm oil from its chocolate bars following an uproar by consumers, who cited environmental concerns.

Meanwhile, sustainable palm oil has proved to be a hard sell, with retailers shunning the product due to its higher price over unsustainable oil.