FSC CAPITULATES TO KORINDO, ASSISTS IN COVER-UP

Following a 2-year investigation by the Forest Stewardship Council (FSC) into Korindo, the FSC released on Monday 5th November a summary of its findings. It confirms Korindo was engaged in widespread deforestation and human rights violations. However, in a blow to the communities and forests devastated by the company, the FSC failed to apply its own rules and sanctions. Instead, it is allowing Korindo another 5 years before it must be in full compliance with FSC rules.

Korindo is a high risk forest-sector group with palm oil, pulpwood and timber operations – and is a major wood supplier to the Tokyo 2020 Olympics. From 2013-2016 it cleared around 30,000 hectares of natural rainforest in Papua and North Maluku to make way for oil palm plantations. It took land in violation of the rights of communities in North Maluku and Papua. In addition, satellite data and aerial photographs show that Korindo sourced timber clear-cut from critically endangered Orangutan habitat in Borneo.

Despite this, Korindo will remain a member of the Forest Stewardship Council (FSC), a certification body with a Policy for Association (PfA) that explicitly prohibits clearance of natural forest and requires certificate-holders to obtain the Free, Prior and Informed Consent (FPIC) of affected communities. In 2017, a complaint was filed with the FSC regarding Korindo’s clear breaches of FSC standards. FSC concluded that Korindo Group had indeed violated multiple FSC standards.

These included:

1. “Violation of Indigenous Peoples’ rights on the basis of clear and convincing evidence in Papua in the way in which it obtained access to land and timber resources”. The panel has also concluded that it is on the balance of probabilities that Korindo is supporting the “violation of traditional and human rights by directly benefiting from inability of communities to express dissatisfaction in relation to their operations due to the company’s deficient stakeholder engagement practices by failing to provide communities with sufficient information to enable making informed decisions” and “providing unfair compensation rates to communities”.

    

2. “Significant conversion of natural forests on the basis of evidence beyond reasonable doubt by carrying out large scale conversion.”

    

3. “Significant conversion of natural forests on the basis of clear and convincing evidence in that the forest conversion took place in High Conservation Value Forests.”

However, rather than disassociating Korindo, the FSC’s board decided that Korindo should retain its certificates and instead embark on a process of “remedy and improvement”, stating that the company “has already made a clear commitment…and has agreed to collaborate to improve their environmental and social performance and to provide remedy for the possible impacts caused”. Korindo responded by sending the FSC a ‘Cease and Desist’ letter to prevent it from publishing the full findings of its investigation.

On November 5th, the FSC demonstrated that Korindo’s bully tactics proved successful, when it decided not to publish the full findings of its investigation, as is standard practice following complaints. This has served to deny affected stakeholders the right to see the details of Korindo’s violations, including the communities in Papua and North Maluku whose lands were illegitimately grabbed by Korindo. Instead the FSC published a 1-page summary of its findings, together with a heavily redacted review of Korindo’s environmental and social impacts. At a time when FSC is trying to expand its Indonesia membership base, this episode sends a disturbing message that FSC simply won’t enforce its own standards, and will tolerate legal intimidation from its members.

One factor that might explain why the FSC is accomodating Korindo in this way is that it has a large joint-venture with Japanese paper-products company Oji Corporation – a major FSC certificate holder. The joint venture, called PT Korintiga Hutani (PT KTH), is a 100,000 ha pulpwood plantation in Central Kalimantan. PT KTH obtained its FSC Controlled Wood certificate in 2013, under a standard which was later substantially updated due to the concerns that it was not fit for purpose. FSC Controlled Wood does not certify that the forests were managed in compliance with FSC Forest Management Certification standards.

The FSC’s decision also has damaging impacts on financial sector efforts to identify and address risks in their lending practices, which often rely on third party certification schemes such as FSC as an indicator of sustainability in the forest sector. While Korindo’s financing is highly secretive, majority state-owned bank Bank Negara Indonesia (BNI) state that they have outstanding loans totalling USD 197 million to the group. Until 2017, Japan’s Sumitomo Mitsui Banking Corporation (SMBC) was also a financier of Korindo and Oji Corporation’s joint venture PT KTH, and remains Oji’s largest single lender.

In a separate but related development, Korindo’s Chairman, Seung Eun-Ho is currently facing a USD 85 million tax fine issued to him by South Korea’s National Tax Service relating to Korindo operations in Indonesia. A major component of this fine relates to the sale of shares in PT KTH to Oji. If Seung Eun-Ho’s appeals to the fine are unsuccessful, then he may be subject to additional criminal charges for tax evasion and/or money laundering. This underlines the significant governance failings associated with Korindo group companies operating in Indonesia and highlights the elevated risks of being associated with the group – a risk that FSC appears willing to ignore.