IFC Halts Funding to Palm-Oil Industry

The International Finance Corporation (IFC)--otherwise known as the private arm of the World Bank--has suspended funding in the palm oil sector.

This move is related to, and directly affects, Wilmar International (SIN:F34), the world's largest palm-oil producer, whose business practices in Sumatra and Kalimantan have come under harsh criticsm.

A Little Background:

In 2007, a group of 19 environmental groups, plantation smallholders, and local organizations representing indigenous people filed a complaint [pdf] to the IFC, claiming Wilmar International did not comply with prevailing laws in Indonesia, particularly concerning social and environmental impact assessments, and was not working in accordance with IFC operating procedures and due diligence requirements.

In a letter to Marcus Colchester, Director of the Forest Peoples Programme, World Bank President, Robert Zoellick, said IFC's ombudsman had conducted an audit following the NGO complaints and found that IFC funding of Wilmar International, listed on the Singapore Stock Exchange, had violated IFC's procedures and commercial concerns had been allowed to override IFC environmental and social standards.

How it Relates to Renewable Energy:

Palm-oil production is wrought with controversy. Used in almost every processed food item known to man, the versatile substance is often a component of  biodiesel production. The crops are cheap and the profits are huge. But the environmental impact is often disastrous when not carefully regulated. Deforestation, increased carbon emissions, endangered wildlife and plant species, and displaced forest communities are all on the list--especially in Wilmar's case.

Considering there are other, more efficient biofuel sources out there--ones that require very little land and negative environmental impact--using palm-oil seems redundant. But its versatility makes it a much-used commodity.

The IFC's move has succeeded in encouraging Wilmar and local community members to pursue a dialogue to help resolve local conflicts. As a result, Wilmar has instigated a moratorium on further land clearance and has agreed to compensate households for the appropriation of land. As it stands, the company runs more than 200,000 hectares of palm oil plantations in Indonesia and Malaysia.

In response to the audit findings, the IFC said it "recognizes the deficiencies identified in the ombudsman's report and that there are lessons to be learned for future investments in the palm oil sector".

Robert Zoellick's letter can be found here.