December 2, 2008 / 1:24 PM / 11 years ago

HSBC to curb palm oil lending, review oil sands

POZNAN, Poland (Reuters) - Environmental concerns have caused HSBC to scale back lending to forestry schemes in Malaysia and Indonesia and review links with Canadian oil sands, the British company told Reuters.

Workers collect oil palm fruits at a plantation in Sepang outside Kuala Lumpur December 2, 2008. REUTERS/Bazuki Muhammad

HSBC will cut ties with a third of forestry clients in Malaysia and Indonesia, including palm oil, soy and timber, said Francis Sullivan, the bank’s adviser on the environment.

The bank was criticized recently by a development group, the Forest Peoples Program, for not disclosing the names of its palm oil banking clients.

Some indigenous peoples in Indonesia have said that logging companies and palm oil developers take forested land where tenure is disputed without compensating them.

HSBC will terminate relationships by the end next year with clients where there are suspicions they are involved in illegal or unsustainable logging, for example destroying pristine rainforest.

“We’re planning to exit 30 percent of client relationships in the forest land and forest products sector in high-risk countries, including Malaysia and Indonesia, (because) they don’t meet our forestry policy,” Sullivan said.

The bank’s forest products sector includes logging, timber, pulp and paper, palm oil, soy and rubber.

HSBC will also review lending to Canadian oil sands developers, on the grounds that tougher climate regulations may make such energy-intensive activities commercially unviable, it said on the day several banks signed up to a series of climate principles.

“The (oil sands) policy is under review,” said Sullivan.

“We continue to review it. A carbon price can radically change the viability of oil sands projects. We look at carbon, water, biodiversity and social aspects.”

Extraction of oil from sand requires high-pressure injection of steam, and so involves more energy and higher carbon emissions, as well as water use, compared to conventional oil drilling.


Plans both in Canada and the United States for cap and trade schemes, which force energy companies to buy carbon emissions permits, could significantly add to the cost of oil sands projects.

It was “too early to say” whether HSBC may in future halt lending to such projects or exit relationships with existing oil sands clients. “It’s a hypothetical question at this stage, that’s why it’s under review,” said Sullivan.

On Tuesday the London-based Climate Group launched a set of “Climate Principles” for financial institutions aiming to identify best practice in cutting carbon emissions arising from investments, lending and insurance.

“There hasn’t been a focus on reviewing how organizations are implementing commitments,” said Emily Farnworth, director of corporate leadership at The Climate Group.

The focus was to inform, rather than issue sanctions against adopters which initially included HSBC, Credit Agricole Munich Re and Swiss Re.

“There are reporting processes,” said Farnworth. “Once we’ve got a monitoring process we’ll see an increase in action, tightening up disclosure. When the Climate Group is concerned, we’ll make a recommendation. The idea is to be collaborative.”

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