On Feb 26, 2018 the Tropical Landscapes Finance Facility (“TLFF”) announced its inaugural transaction, a landmark US$ 95MM loan to help finance a sustainable natural rubber plantation in two heavily degraded landscapes. The transaction incorporates clearly defined social and environmental objectives and safeguards.
A long-dated sustainability bond will fund PT Royal Lestari Utama (“RLU”), a joint venture between France’s Michelin Group (49%) and Indonesia’s PT Barito Pacific (51%) and Indonesia’s first sustainable natural rubber plantation.
Of the total concession size of 88,000 ha, 70,000 sits in the Jambi province and 18,000 sits in the East Kalimantan province of Indonesia. In all, only an estimated 34,000 ha will be planted in rubber, while the rest will be left for conservation, restoration and community programs.
At maturity, the plantation will represent 10% of natural global rubber purchased by Michelin, and is designed to enhance the livelihoods of about 50,000 local people and create 16,000 fair-wage jobs.
RLU, through its plantations and smallholder programs, is targeting a higher annual rubber yield of 1.7 tons per ha, compared to Indonesia’s current 0.8. tons per ha.
The 70,000 ha Jambi concession forms part of a wider Bukit Tigapuluh (Jambi and Riau provinces) landscape of 400,000 ha, including two PT Alam Bukit Tigapuluh (“ABT”) ecosystem restoration concession blocks. Of the 400,000 ha, only 230,000 ha still contain forest cover.In Jambi, the plantation will function as an important buffer zone to stop further land speculation and encroachment in the adjacent biodiverse 143,000 ha Bukit Tigapuluh National Park (“BTPNP”), which is one of the last places in Indonesia to see Sumatran elephants, tigers and orangutans. The ecologically significant BTPNP Landscape is 400,000 hectares and will benefit from encroachment protection the plantation will provide, coming from “boots on the ground” plantation workers, smallholders and planted areas themselves.
The RLU and ABT concessions (~38,000 ha) form a contiguous and critical buffer to the 143,000 ha BTPNP from encroachers, many seeking to illegally plant oil palm and rubber to supply a wide range of mills in the wider landscape.
The ~18,045 ha East Kalimantan concession is situated across two blocks in the Nyapa Mangkalihat Mountains and Plains biogeographical region of central Borneo. The landscape had suffered severe deforestation and degradation, facing threats from illegal harvesting of timber, clearance for slash & burn agriculture, expanding human settlement and illegal development of palm oil.
USAID has provided a credit guarantee on part of the transaction, which has been rated “Aaa” by Moody’s. Vigeo Eiris, the ESG consulting firm, has confirmed that the bonds are “Sustainability Notes” with positive contribution to sustainable development and are aligned with the Sustainability Bond Guidelines.
Hadiputranto, Hadinoto & Partners provided important pro bono support in the initial stages of the Transaction.
The Jambi concessions include a total area of 70,716 ha of which only 28,026 (39%) will be used for nucleus planting on degraded land. Conservation area takes up 26% of total area, creating an important buffer zone around the Bukit Tigapuluh National Park (BTPNP).
The BTP landscape is home to 180 species on the IUCN Red List, including the critically endangered Sumatran elephants, Sumatran tigers, orangutans, and various other ungulates, birds, reptiles and flora.
Forested areas and riparian zones within the East Kalimantan concession provide critical habitats for a range of protected and/or threatened flora and fauna.
Around 40% of intact forest remains within the concession and is home to a wide range wildlife such as Bornean orangutan, sambar deer, sun bear and clouded leopard.
Beyond the direct environmental conservation and restoration efforts, this project is expected to generate positive impact for approximately 50,000 people at maturity, offering direct employment, expanded livelihood opportunities, improved welfare (housing, healthcare and education) and other multiplier effects. At plantation and remilling maturity, it is estimated that approximately 16,000 people will benefit from direct employment. An additional 3,500 smallholders are also slated to benefit from the Community Partnership Program through hands-on trainings and diversified market opportunities.
The ESAB was established to implement RLU’s sustainability strategy. The ESAB consists of key stakeholders and independent experts to provide guidance and evaluation of the progress of RLU’s Environmental Social Monitoring System (“ESMS”) and Environmental and Social Action Plan.
The ESAB conducts quarterly meetings and reports on ESG related matters and progress. An independently-audited ESG report is also published annually.
RLU’s sustainability policy is guided by both Michelin Group’s and Barito Pacific Group’s values.
The project received recognition from the Jambi Provincial Government in regards to its contribution to the welfare improvement of the Jambi community, particularly to the Suku Anak Dalam (SAD). The recognition plaque was handed by Jambi Governor H. Fachrori Umar to RLU representatives.
RLU was awarded the Gold Flag in Safety and Health Management System (SMK3) by the Ministry of Manpower of the Republic of Indonesia. A gold flag is awarded to Companies that score beyond 85% in the assessment.
The CECT Sustainability Award (Project-based Business and Sustainability category) was presented to RLU for its Integrated Farming Program, designed to provide alternative livelihood for the community through the optimization of land for food security in a sustainable manner.
On October 22, 2019, RLU received the Indonesia Green Company Award from SWA Magazine and Indonesian Biodiversity Foundation (KEHATI) for the second year in a row. The Green Company Award is awarded to companies that have strong leadership and commitment in sustainability practices. Chief of the Jury, Professor Emil Salim, highlighted that there are three assessment criteria, namely the CEO’s commitment, compliance, concept, and strategy, the implementation and program, as well as the concrete results and impacts.
RLU’s subsidiary PT Multi Kusuma Cemerlang (MKC) has passed the 2019 EcoVadis Assessment to identify areas of strength, areas of improvement, and measures necessary to enhance RLU’s Environment, Social, and Ethical performance. EcoVadis is an independent assessor whose methodology is supervised by an international committee consisting of recognized experts in sustainable development.
Environmental Finance presented the Award for Innovation – Bond Structure to BNP Paribas, as part of TLFF, for issuing the multi-tranche, sustainability-labelled series of project bonds to provide a 15-year amortizing loan facility to RLU. The awards are particularly prestigious as the winners were decided by an independent panel of judges made up of some of the biggest investors in the green, social, and sustainability bond market.
Green Notes Purchase Press Release
Press Release (English)
Press Release (Bahasa)
Second Party Opinion (Bond Issuance)
TLFF I Overview
Have Michelin and Barito made NDPE Commitments?
Michelin has made public its NDPE commitment to deliver sustainable natural rubber under a Natural Rubber Procurement Policy, established in 2016. Barito, meanwhile, Put forth its NDPE commitments under a Responsible Plantation and Forest Policy in March 2015.
How many hectares of land is RLU protecting?
Following RLU’s Landscape Protection Plan (2019) and the current land uses, a total of 18,370 ha in Jambi, including the remaining natural forest and non-forested area, has been set aside for protection. The non-forested area will be restored through enrichment planting with communities starting in 2020. For East Kalimantan, 9,983 Ha of land (comprising of mainly natural forests) will be conserved as planned.
Is it legal to plant rubber on RLU concession?
Is it legal to plant rubber on RLU concession?
The RLU concession is an HTI concession issued by the Ministry of Environment and Forestry under Indonesian forestry law (41/1999), this provides the concessionaire with a permit to use the land accordingly and in this case industrial forestry for planting rubber.
What are the headline goals for the RLU project?
What are the objectives of the RLU project?
RLU is aiming to develop a best-in-class project for sustainable land use in its Jambi and East Kalimantan rubber concessions, which are largely degraded and encroached. This has involved identifying set-aside and conservation areas; engagement of communities under a Community Partnership Program; restoration and protection of critical habitat; and shared responsibility with other parties in the landscape, which includes the critically endangered 143,000 ha Bukit Tigapuluh National Park (BTPNP). The vision for the project was to take a troubled and degraded landscape and produce, using safeguards, programs and partnerships, a sustainable rubber supply chain of better quality and yield that integrates people and conservation.
What is the timeline for the RLU project?
The vision of a protected landscape is for the lifetime of the concessions, which are around 60 years but renewable. This is expected also to occur in conjunction with the extended rubber development period of around 25 years. It is only by swiftly developing the commercial rubber plantations and engaging communities, however, that the encroachment will be stalled and the HCV/HCS areas in the landscape, including the National Park, protected.
Why is it important for RLU to adopt sustainable practices?
RLU recognizes that it operates in a tropical forest landscape which in its natural state provides high levels of biodiversity. The RLU Jambi concessions, however, were highly degraded before the company was established. A main feature for project partners is that the commercial plantations provide protection via a buffer zone to help safeguard the BTPNP, which risked degradation from encroachment from the southern border without the boots-on-the ground protection afforded by the plantations. Surveys have shown that the park and adjacent concessions are home to at least 51 IUCN Red List species.
Can you provide an objective, independent third-party view on RLU?
According to a Daemeter and consortium E&S due diligence document undertaken in the concessions and completed in July 2017, over the last three decades, “RLU’s Jambi (LAJ, WMW) and East Kalimantan (MKC) concessions have followed the typical development pathway… Originating as natural forest selective logging estates, they have since experienced an extended phase of uncontrolled ‘open access’ and encroachment, only recently being returned under forest plantation license. While from both an ecological and social perspective the concessions are undoubtedly complex, they represent an important opportunity to practice and promote sustainable landscape development.”
How was the concession managed prior to RLU?
The Concession conducted its activities based on the Environmental and Social Impact Assessment (ANDAL) from the Indonesian Government dated August 2009 in compliance with the prevailing Indonesian Law and Regulations.
What are the key pillars of RLU’s sustainable business practice?
These challenges in the landscape highlight the critical need for RLU to apply new business practices that support sustainable use of the land across all three key pillars: Social, environmental and commercial.
What are the main challenges for RLU when managing the landscape?
What is RLU’s attitude towards managing this challenging landscape?
RLU understands the complexity of the landscape in which it is operating and has, over the last four years, been investing to establish capacity and to develop procedures to appropriately manage the environmental and social components according to IFC Performance Standards (IFC PS). Annual sustainability audits highlight the challenging historical context of encroachment and illegal logging in the landscape that RLU has been working to address, and document the pathways to building an integrated rubber project that delivers “win-win” outcomes for the company, communities and biodiversity.
What was the landscape like before RLU was established?
The landscape within the Concession area is challenging, with severe deforestation and degradation from illegal encroachment, slash & burn practices & illegal development of oil palm plantation and illegal logging over many years prior to the creation of RLU. That meant when LAJ (now an RLU subsidiary in Jambi) received a concession in 2010, it did so with significant historical challenges.
Does RLU have a partnership with its adjacent national park?
On May 15, 2018, RLU and BTPNP signed a Cooperation Agreement before the Directorate General of Natural Resources and Ecosystem Conservation (Dirjen KSDAE) at the Indonesian Ministry of Environment and Forestry Office. The 3-year agreement is expected to improve existing protection efforts through more intensive joint patrols and team capacity building through experience and expertise sharing between BTPNP rangers and LAJ officers. The scope of partnerships includes protection of the buffer zone between BTPNP
and LAJ concession, biodiversity conservation, ecosystem restoration and community empowerment.
How does RLU know that its forest protection efforts are effective?
RLU has started on-concession satellite monitoring in 2020 to systematically track any forest cover changes.
How does RLU manage its HCV/HCS areas?
RLU manages a specific conservation team including rangers who are responsible for protecting and monitoring the High Conservation Value (HCV) and High Carbon Stock (HCS) areas in its concession. In its Jambi concession, up to 25% of its total area is designated HCV and HCS. Meanwhile, in its East Kalimantan concession, the number exceeds 50%. The well-trained rangers carry out daily patrols in the concession, including the buffer zone of Bukit Tigapuluh National Park (BTPNP) to prevent illegal activities such as illegal logging and poaching. As of end of 2019, a total of 248,333km were patrolled over 5,979 man-days.
Is RLU worried about forest fire?
RLU is committed to proactively mitigating forest and land fires by establishing an Emergency Preparedness and Response Team (TPKD) in its concessions and providing them with proper fire prevention equipment. The team regularly monitors ground condition and conducts early fire detection. Hotspot monitoring is also regularly carried out. Capacity building and training programs have been conducted in partnership with Manggala Agni Task Force and the Ministry of Environment and Forestry of the Republic of Indonesia.
What is the Wildlife and Biodiversity Protection Plan?
The Biodiversity Management Plan was drafted to provide the overall context of topography and habitat on the RLU concessions; identify habitat goals for endangered target species and guide the conservation and management of ecological communities; outline actions and measures necessary for the effective biodiversity management in the protected areas of RLU’s concessions; address management limitations such as capacity challenges and knowledge gaps; and establish a foundation for evaluating the effectiveness of habitat management. It is currently under review by an independent third-party for alignment with international standards and, once approved, a progress report based on the plan will be produced every 2 years.
What is the Wildlife Conservation Area?
The WCA is a ±9,700ha set aside zone adjacent to the BTP National Park established to allow for the transit of animals from the protected areas through the concessions. It includes previously identified HCV- HCS areas and written off rubber planted area for natural regeneration as well as ±1,200 rubber production area that had been previously planted. It is also the area where the majority of Indigenous Peoples in the concessions are residing.
A decision to create the WCA area was made following WWF’s recommendation on efforts to support conservation of Sumatran elephants in Bukit Tigapuluh Landscape. The establishment of the WCA also aims to align with the government program Ecosystem Essential Area (KEE), initiated by Natural Resources Agency (BKSDA) of Jambi Province, for an elephant corridor in Bukit Tigapuluh National Park.
In the WCA, RLU focuses on the following outputs:
Which international standard does RLU follow?
RLU has committed to manage its rubber plantations in Jambi and East Kalimantan towards compliance with IFC Performance Standards. These are covered by the company’s Environmental and Social Monitoring System (ESMS), which includes an Environmental and Social Action Plan (ESAP) created in collaboration with TLFF and then with active participation from notes purchaser, &Green Fund. Performance against the ESAP and a Landscape Protection Plan are audited and reported upon annually and as part of the company’s transparency to its stakeholders. The results are made available on RLU, TLFF and &Green Fund websites.
Who else is behind RLU’s social and environmental commitments?
Besides working with national, international and local stakeholders, experts and consultants have been appointed to support the company through work with indigenous people groups in the concessions, to build the Community Partnership Program, to provide carbon assessments and environmental studies of the concessions. Project partners are fully committed to helping RLU towards compliance with its obligations under IFC PS.
Are there any Indigenous People on RLU concession?
In 2019, a comprehensive study was conducted by independent experts from Rimba Bungaron Indonesia (RBI), which found three indigenous Orang Rimba (Suku Anak Dalam) groups residing within the WCA. An Indigenous Peoples Engagement Framework and Community-based Framework Action Plan is currently under review by an independent third-party for alignment with IFC PS.
Does RLU engage with the local community?
227 community and stakeholder dialogues have been facilitated as part of an ongoing discussion forum between RLU and the 23 communities in and around the concessions.
Does RLU have a grievance procedure?
A comprehensive grievance procedure has been established as part of the company’s commitment to transparency and improving social inclusion. A grievance management facilitator is hired to be in charge of grievance submission and verification while the grievance committee, led by the publics affair general manager and consisting of legal general managers, sustainability general managers, government relations general managers and communication specialists, is in charge of coming up with action plans and developing resolution recommendations.
This procedure has been socialized internally with the employees and is currently under review by an independent third-party reviewer. It has also been socialized externally to 227 community members through 11 formal forums and 61 informal forums. So far, resolution rate is 100% with 11 grievances received and all verified and processed with documented agreements.
How is the working environment at RLU?
As part of RLU’s commitment towards providing safe and decent working environment to its employees, RLU has developed an infrastructure improvement master plan as one of its major programs in 2019 and 2020. The master plan includes improvement in employees’ residential area and supporting facilities such as roads, Water Sanitation and Hygiene (WASH), waste management, and other employee facilities. To date, 146 units of housing and supporting facilities, 2 clinic units and 1 medical room have been built.
How many jobs has the RLU project created?
As of end of 2019, 4,320 people are employed across the concessions and in the East Kalimantan re-milling facility, of which 30.28% are women.
How should an organization address land resettlement issues?
IFC’s Performance Standard 5 Land Acquisition and Involuntary Resettlement (PS5) requires that people affected by involuntary land acquisition should: 1. Receive replacement value for their assets. 2. Be presented with alternatives. 3. Have their livelihood restored or improved. 4. Have access to a grievance mechanism. A DEG guidance document on Legacy Land issues recognizes that, “Given the nature of Legacy Land issues, meeting the first requirement would be a very rare circumstance. PS 5 would not actually have required compensation for land where the users did not hold legal title or a customary title recognised under national law. What this guidance seeks to achieve is meeting the second to fourth requirements, with the modification that livelihood should be improved, not just restored. Achieving improvement is both the risk mitigation measure for the company and the desired outcome for the community. The second principle should be met through the stakeholder engagement process that could result in a multi-year community development programme. Finally, in putting in place an effective grievance mechanism, the project may also meet the UN Guiding Principles on Business and Human Rights.”
Is there any continue education opportunity for RLU workers?
RLU and YBB, in collaboration with Reach Out Foundation (ROF), conducted an Early Childhood Teacher Workshop in September 2019. The workshop was attended by 60 participants, 25% of whom have a Bachelor’s degree while 75% were high school graduates who work in rubber plantations. The workshop aimed to enhance the competency of participants to become professional Early Childhood Education (PAUD) teachers.
What are RLU’s efforts in education?
Tunas Lestari is part of Royal Lestari Utama’s commitment to provide better quality early childhood education in its operational areas. Currently, RLU, through Berdaya Lestari Utama Foundation (YBLU), YBB, and ROF has constructed 3 Daycares (TPA) and 3 Early Childhood Education (PAUD) facilities in its operational areas. PAUD establishment in RLU’s operational areas is expected to provide children with proper education for a more competitive future generation.
In Sungai Karang Village, 500+ digital schoolbooks, 1,000+ class videos, 17,000+ exam training modules and 150+ educational literatures are provided for local children.
What are RLU’s main actions to address land conflicts?
What are RLU’s policies on the land return process?
There is a clear no-conflict policy by RLU as guidelines in handling the stakeholder engagement process for land return, with any grievances being elevated through a clear grievance process and where necessary, be managed through the courts for larger plots of land that are disputed. As outlined in RLU’s CSR Report 2015-2017, beyond the approaches regarding social conflicts are:
What has CPP accomplished in East Kalimantan?
In East Kalimantan, a total of 300 smallholders have been involved in RLU’s supply chain. They provide rubber for RLU’s mill managed by PT Multi Kusuma Cemerlang (MKC), the first and only rubber mill in Samarinda. The smallholders via agents are also involved in the Rubberway Program which aims to identify risks in social, labor, safety and environment. An initiative sponsored by Michelin, the Rubberway Program started in 2019 and plays an important role in MKC’s supply chain. The smallholders are also provided with technical capacity support on how to improve rubber quality and productivity.
What has CPP accomplished in Jambi?
In Jambi, the CPP Smallholders In-situ is a long-term program that was developed as one of the social inclusion efforts to empower communities in and around the forest by providing access to manage land in forest areas that have been burdened with permits. It is also one of the conflict resolution approaches to forest resources that occurs between permit holders and communities that have used the forest area. As of end of 2019, the smallholder in-situ program occupied 124 ha in Jambi. In 2020, RLU began to conduct a baseline socio-economic study, with plans to expand the program to 4 villages, 150 farmers, and 400 ha by 2021. The goal is that the CPP should eventually cover over 7,000 ha.
What is the Community Partnership Program (CPP)?
RLU’s vision for a CPP is a social-economic inclusion program that generates benefits to both employees and surrounding communities while addressing environmental issues.
RLU’s policy on community partnership is guided by four objectives:
A. Generate a “social licence to operate” and community consensus on RLU activities.
B. Create positive impact from RLU activities in the area and build a mutually beneficial relationship between RLU and the neighbouring communities.
C. Resolve land claim issues.
D. Provide alternative economic opportunities to reduce illegal logging, encroachment and hunting.
What is the Conflict Resolution Task Force (CRTF)?
RLU has worked with the local government in Tebo to establish a multi-stakeholder, independent task force comprised of provincial and district government representatives, NGOs, and research institutions. The purpose is to help settle any disputes relative to the concessions or land claims. The CRTF has also facilitated the distribution of Personal Identification Card (e-KTP) for the Orang Rimba indigenous group.
What is the Integrated Farming Program (IFP)?
Also in Jambi, the Integrated Farming Program (IFP) is part of the CPP in-situ program, with 256 beneficiaries as of end of 2019. The IFP was established in partnership with Bakti Barito Foundation (YBB) and Joglo Tani, a Yogyakarta-based agricultural learning center and Indonesia’s leading integrated farming organization. Initiated in 2018, the Integrated Farming Program applies the concept of Sustainable Food House Area (KRPL) to provide alternative livelihood opportunities and strengthen the food security of the community. By optimizing the unproductive area, the community can save on expenses often spent on vegetables and fruits. The community can also sell the fruits and vegetables from their own backyard in the market.
Where can I find out more information about RLU’s sustainability efforts?