Indonesia's Sinar Mas – Environmental Outlaw?

The palm oil giant Sinar Mas, which was threatened last week with expulsion from the Roundtable on Sustainable Palm Oil for allegedly illegally clearing tropical rainforest and deep peatlands, is part of a Singapore-based agribusiness giant that has long had been accused wrecking the environment in several countries. It is controversial as well because in 2001 its forest products arm, Asia Pulp and Paper, staged the biggest debt default in Asian history.

The threat of censure by the RSPO, a relatively staid body made up of industry officials and environmentalists, is a signal victory for the environmental organization Greenpeace, which had been accused by a wide variety of sources of inflating its claims of Sinar Ma's environmental degradation. So far, under pressure from Greenpeace, consumer giants Unilever, Kraft Foods and Nestle have dropped Sinar Mas palm oil products, as has the Burger King hamburger chain.

Sinar Mas – Sinar Mas Agro Resources and Technology, or SMART – is controlled by one of Indonesia's oldest and richest Chinese families, who considerably enhanced their wealth through the friendship of the founder, Eka Tipta Wijaja, with the late Indonesian strongman Suharto. Asia Pulp and Paper is one of the world's 10 biggest suppliers of paper products. Sinar Mas is ranked the world's second-biggest palm oil producer. The conglomerate is a vertically integrated giant, processing and distributing essential commodities. Its mining division got underway in 2004.

The corporate entity moved its headquarters from Indonesia to Singapore in 1994. It has interests not only in palm oil and forest products but financial services, real estate development and cellular telephony. Geographically its reach spans China, Singapore and several other countries as well as Indonesia, often daring the wrath of environmentalists and industry watchdogs. Through Hong Kong Construction Co., it is operating a US$200 million hotel complex in the northern city of Tianjin as well as a similar project just north of the Bund in Shanghai.

Through Golden Agri-Resources, the conglomerate announced in early September that it would form a partnership with the government of Liberia to establish a US$1.6 billion joint venture to establish oil palm estates on 220,000 hectares in the southeastern part of the equatorial African country, raising serious concerns among environmentalists that it had found an entirely new continent to plunder.

Sinar Mas's forest products division, Asia Pulp and Paper, also headquartered in Singapore, staged a US$14 billion debt default after spectacular rounds of borrowing from western bankers following the Asian Financial Crisis of 1997-1998. Most of the debt was subsequently rescheduled at sharply lower values although some banks and other creditors simply wrote off their investment. Indah Kiat, an Indonesia-based pulp mill subsidiary, sued the underwriters and creditors in an Indonesian court and had the debt declared invalid in 2007, enraging the financial community. Asia Pulp and Paper has expanded extensively into the Yangtze and Pearl River Deltas, owning and operating 17 pulp and paper companies and employing 20,000 people.

Asia Pulp & Paper group has been accused by environmentalists of moving from country to country, extracting massive amounts of timber and paying off local officials, then getting out as quickly as it got in before environmentalists could bring pressure to bear against them. As with Sinar Mas, APP has run into trouble not only with environmentalists but with relatively staid industry stewards as well. In 2007, the Forest Stewardship Council revoked Asia Pulp and Paper's right to use the body's seal of approval on its timber after it was found to be logging illegally in China's Yunnan Province and a subsidiary, called Green Rich, was caught logging illegally in Cambodia.

Although APP signed a memorandum of understanding with the World Wide Fund for Nature in 2003, the WWF subsequently refused to approve the conglomerate's environmental management plan and began to tell APP's customers to boycott the timber operation's products. The Rainforest Alliance voided a similar agreement in 2007, saying that the company "has not demonstrated a comprehensive, consistent or dedicated approach toward conservation management necessary to maintain or enhance the forest ecosystems fundamental to the survival of the High Conservation Value Forests present there."

The US office supply retailers Staples and Office Depot and retail giant Walmart also cut their ties with APP over concerns at its environmental depredation, taking the company's paper supplies off their shelves. Cargill, one of the world's biggest food importers and exporters, said in March that it was seeking answers from Sinar Mas over the Greenpeace claims.

The latest blow from the Roundtable on Sustainable Palm Oil is thus a major setback for the conglomerate, which has campaigned through advertisements in the New York Times and other publications to demonstrate its environmental credentials.

In is especially embarrassing since the company in late August said an organization called Control Union Certification and the BSI group, a British audit organization, had done an independent probe and announced that its oil palm plantation operations were operating legally.

However, BSI later said it had discovered the company had launched operations on almost 38,000 hectares of land in Kalimantan before mandatory environmental studies had been completed and had violated Indonesian forest management standards.

It is also a major embarrassment to World Growth, an Arlington, Va. –based NGO chaired by Alan Oxley, formerly Australian Ambassador to the General Agreement on Tariffs and Trade before it became the World Trade Organization. Oxley and World Growth have been indefatigable defenders of the palm oil industry and particularly Sinar Mas. In August, he accused Greenpeace of "routinely" distorting the truth.

"BSI group found no evidence of the company of cutting down primary forest, cutting down orangutan habitat or undertaking burning – as is routinely claimed in Greenpeace propaganda," Oxley's group said. It described BSI's findings as "the more embarrassing for the major corporations such as Nestle and Unilever who took Greenpeace at its word and announced they would cease buying from PT Smart only to find they acted on a bogus case."

However, the Roundtable on Sustainable Palm Oil in a letter to Sinar Mas and Golden Agri-Resources, has now told the company to stop claiming it was in the process of obtaining RSPO certification for its operations and added that "there has been serious non-compliance with the RSPO code of conduct, specifically a failure by SMART to work toward implementation and certification of the RSPO principles and criteria."

"Members who have been found to not be in compliance and who continue to be in non-compliance with the RSPO regulations could ultimately face sanctions, including the suspension and, eventually, the termination, of their membership of the RSPO," the letter said.

On its website, Sinar Mas said contritely that "SMART is committed to sustainable palm oil production and will work towards the requirements of the RSPO. With regard to RSPO's requirement to show "A sufficiently challenging and time-bound plan for the certification of all SMART's production units," SMART will share a detailed and time-bound plan for RSPO certification of all of SMART's production units with all its stakeholders."