World Bank's IFC suspends palm oil investments

WASHINGTON (Reuters) - The International Finance Corp (IFC), the World Bank’s private sector lender, said on Wednesday it had suspended investments in palm oil businesses until after a review of its practices in the sector.

The review follows social and environmental complaints in 2007 by smallholder and indigenous groups in Indonesia related to IFC's investments in two subsidiaries of major palm oil producer Wilmar WLIL.SI.

An independent complaints advisory ombudsman found that IFC did not have a specific strategy for dealing with the Indonesia palm oil sector, despite being aware of social, environmental and governance problems in the country’s palm oil industry.

The audit also found shortcomings in IFC’s assessments of the Wilmar projects. The probe did not evaluate Wilmar’s performance nor any environmental and social impacts of IFC’s projects with the company.

In a statement e-mailed to Reuters, IFC said it would develop the strategy over the next few months to guide its involvement in the palm oil sector and will not approve any new palm oil projects until it was completed.

“The strategy will define the basis and manner in which IFC intervenes through its investments and advisory work to support implementation of more sustainable practices among firms engaged in the palm oil business,” IFC said.

IFC currently has $132 million invested in palm oil projects in Asia, central America, Ukraine and West Africa.

Palm oil comes from the fruit of the tropical oil palm tree, which originated in West Africa, and is grown for its multiple clusters of fruit called fresh fruit bunches.

Responding to concern about IFC investments in Wilmar and conditions in the Indonesian palm oil sector, World Bank President Robert Zoellick said the independent audit highlighted important deficiencies in IFC’s practices.

“Therefore, I have directed IFC management to take all necessary steps to ensure that the problems identified in the CAO audit are not repeated,” Zoellick said in an August 28 letter.

Reporting by Lesley Wroughton; Editing by David Gregorio