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 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.