World Bank arm ready to back palm oil if ban goes

JAKARTA (Reuters) - The World Bank’s private sector lender will focus more on palm oil firms pursuing green standards if a suspension on financing the sector is lifted by its president, an official said on Wednesday.

The International Finance Corp (IFC) stopped financing the industry in 2009 after social and environmental complaints by smallholders and local communities in Indonesia, prompted a internal review of its lending practices.

The IFC has since taken inputs from nearly 3,000 stakeholders to create a new strategy of engagement with the $30 billion palm oil industry that will be forwarded to World Bank President Robert Zoellick by the first quarter of 2011 for approval.

Part of the new strategy involves supporting the Roundtable on Sustainable Palm Oil (RSPO) -- a grouping of planters, green groups and consumers that formulated green standards for the industry, said IFC’s Director of Global Manufacturing, Agribusiness and Services Atul Mehta.

“On our performance standards, we already encourage our clients to also aspire to internationally recognized certification very much along the lines of what the RSPO is promoting,” Mehta told Reuters in an interview.

“That is something we are proposing for companies that are primary producers of palm oil,” he said, speaking on the sidelines of the RSPO meeting in Jakarta.

Formulating new methods of assessing the palm oil industry’ social and environment impacts and favoring investments in firms that depend on small farmers for supply also feature in the new strategy, Mehta said.

Although IFC’s involvement in the sector is small, having invested $132 million in palm oil projects in Asia, central America, Ukraine and West Africa, the new guidelines may help more potential clients become more eco-friendly, Atul said.

“There is increasing interest in operating this business sustainably, so we have had a lot of clients come to see what is our timetable and what is our approach and how we might help them take their business on a sustainable path,” he said.

If palm oil clients violate commitments to keep forests standing and engage with local communities, the IFC will work with them to ensure they meet standards. Exiting investments will only be a last resort.

“If we reach a point which we don’t think they have the commitment or they don’t meet it, we can invoke contractual requirements to exit,” Mehta said.

Reporting by Niluksi Koswanage, editing by William Hardy