Yesterday, Goldman Sachs announced a new palm oil financing policy as part of its updated The policy was written as if the smart folks at Goldman Sachs were in hibernation over the last several months as irresponsible palm oil companies lit massive fires across Indonesia, creating 2015’s worst environmental disaster….or that they hadn’t noticed in the past couple of years while the vast majority of the palm oil industry adopted significantly improved forest conservation and human rights standards.
Goldman Sachs could have chosen to encourage this transformation by requiring all companies it finances to adopt “No Deforestation, No Peat, and No Exploitation” policies, the new benchmark for responsible agriculture already being implemented around the world. Instead, the bank chose a set of requirements that significantly lags the standards adopted by the vast majority of private sector palm oil companies.
The greatest environmental disaster of the 21st century
The most glaring weakness of the policy is that instead of requiring companies to adhere to a strict no burning policy, it only commits not to knowingly finance companies that “utilize illegal or uncontrolled fires”.This, at a time when the stark consequences of forest burning couldn’t be more evident as Indonesia and its neighbors are blanketed in haze and hazardous air quality for weeks on end as a result of companies torching forests to make way for palm oil and paper plantations. Even the Indonesian government is considering outlawing all burning.
“A great tract of Earth is on fire. It looks as you might imagine hell to be. The air has turned ochre: visibility in some cities has been reduced to 30 metres. Children are being prepared for evacuation in warships; already some have choked to death. Species are going up in smoke at an untold rate. It is almost certainly the greatest environmental disaster of the 21st century – so far…It is hard to convey the scale of this inferno, but here’s a comparison that might help: it is currently producing more carbon dioxide than the US economy.”
Should be part of the solution
Goldman Sachs is far from the only culprit behind the fires – the Indonesian government should have done way more, way faster to fight the fires, and many other companies were silent in the face of political pressure. But, companies like Goldman Sachs should be part of the solution to the crisis, not throwing money at the people holding the match.
Here are some of the other major shortcomings of Goldman Sachs’ policy:
– It requires companies to obtain Roundtable on Sustainable Palm Oil Certification (RSPO), which doesn’t protect secondary forests – which represent more than 2/3 of Asian forests! In contrast, most of the major palm oil companies and NGOs have adopted the that sets a reasonable threshold for forest protection while still allowing development to go forward on degraded land.
– It requires companies to commit to “no net deforestation.” That might sound good, but the “net” is the key word. It means that companies are permitted to destroy ancient, pristine forests in one area so long as they replant little saplings in another. It’s a concept that comes from plantation forestry, where managed plantation crops are harvested and then an equivalent or greater amount is replanted. But it is not applicable to natural forests, particularly in the tropics, where destroying a forest kills off the wildlife that live there and releases a massive amount of carbon into the atmosphere. In contrast, the major palm oil companies and their customers have agreed to “no deforestation” which protects forests everywhere.
It makes no difference to orangutans, indigenous communities, or the climate if a forest is being cleared for palm oil, soy, rubber, paper, or something else
– It only applies to palm oil when it should apply to all commodity drivers of deforestation around the world. It makes no difference to orangutans, indigenous communities, or the climate if a forest is being cleared for palm oil, soy, rubber, paper, or something else. Global companies like ADM, Bunge, Wilmar, Kellogg, and General Mills are all already implementing cross commodity no deforestation, no peat, and no exploitation policies for other crops; Goldman Sachs and other banks should join them.
Development can happen without deforestation and burning
On the positive side, Goldman Sachs does require companies it finances not to clear ultra carbon rich peat, and avoid human rights violations, both of which are very welcome, but could benefit from further definition.
Importantly, Goldman Sachs is not only lagging most of the private sector palm oil companies, but it is lagging some industry peers.Though not perfect, a far stronger palm oil policy was adopted by BNP Paribas, which requires companies it finances to have a no burning policy and a policy to use degraded land or young scrub for new developments rather than forested land.BNP Paribas’ policy also requires traceability and includes significantly more detail on its human rights requirements, such as requiring companies to obtain Free, Prior, and Informed Consent (FPIC) from local communities, banning forced and child labor, and having a grievance mechanism in place.
It is time for Goldman Sachs to wake up to the new reality in the palm oil industry and in global agriculture more broadly: Development can happen without deforestation and burning. We have shared these suggestions with Goldman Sachs in the past, and this critique with them today, and they have offered to meet with us.
Goldman Sachs will be facing a lot of scrutiny for its actions in the lead-up to the Paris Climate Summit.The bank should use that opportunity to strengthen its policy. Consistent with its commitment to addressing climate change and championing environmental stewardship, Goldman Sachs should be leading the way on responsible agriculture rather than trailing the industry.