South East Asia’s first Corporate Sustainability Bond

Third party verification by ESG consultant, Vigeo Eiris

  • A multi-tranche, long-dated sustainability bond arranged by BNP Paribas (BNPP) and issued by TLFF I Pte Ltd for RLU, a JV between Indonesia’s Barito Pacific Group and France’s Michelin Group. ADM Capital acts as facility and ESG manager for TLFF I
  • For climate smart, wildlife friendly, socially inclusive production of natural rubber in Jambi and East Kalimantan provinces in Indonesia
  • Out of a concession area of 88,000 hectares, 1.25 times the size of Singapore, 34,000 will be planted with commercial rubber, while more than half will be set aside for community livelihoods and conservation purposes
  • Includes a 9,700 ha Wildlife Conservation Area
  • At maturity, RLU will employ 16,000 locals and improve the livelihoods of 50,000 community members
  • Commercial plantations in Jambi serve as a buffer zone to protect the 143,000 ha Bukit Tigapuluh National Park, replete with important biodiversity and endangered species such as Sumatran elephants and tigers
  • Project will be monitored annually by a third-party consultant against an Environmental and Social Action Plan (“ESAP”)

The Project

Indonesia’s First Sustainable Natural Rubber Plantation

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.

ESG Impact

2019 Environment Highlights

628,846 tCO2e

GHG absorbed by protected forest and planted areas
Projected net emissions reduction of over

8.27million tCO2e

during 2014-2030

10,000,000

Rubber trees planted over a total area of 20,970 Ha

1,200

Native trees planted for restoration activities

7,000 +

Seedlings in nursery for restoration

28,000 ha

Protected area delineated

9,700 ha

Wildlife Conservation Area

The East Kalimantan concessions

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).
Spotting of vulnerable bearded pigs (Sus barbatus) on RLU concession

BTP Landscape

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.

Patrols

RLU rangers carry out daily patrols in the concession, including the buffer zone of BTPNP to prevent illegal activities such as illegal logging and poaching.
2019
3,902daysmany-days
166,566 km

Wildlife Spotlight

Managing Elephant-Human Conflict Effort to Establish Pathways for the Endangered Elephant

INTRODUCING FREDA

Freda, a female Sumatran Elephant (Elephas maxiums sumatranus), is the head of the herd of around 30 elephants. Freda’s herd is one of the five elephants herds that roams the landscape of Bukti Tigapuluh National Park. Its home range intersects with human settlements and plantation areas.
Weight
2-5
tons
Population
1,700
elephants
Home Range
275
km2
Meals & Drink pre Day
10%
of total body weight
Pregnancy Period
18-22
months

The East Kalimantan concessions

The East Kalimantan concessions include a ​total area of 18,045 of which only 5,974 ha (30%)​ will be used for nucleus planting on degraded land. Half of the concession is set aside as conservation areas, with the remainder allocated for the Community Partnership Program and the Indigenous People Program.
Caladi Batu (Meiglyptes tristis) on RLU concession

BTP Landscape

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.

Patrols

RLU rangers carry out daily patrols in the concession, including the buffer zone of BTPNP to prevent illegal activities such as illegal logging and poaching.
2019
2,077 daysmany-days
81,767 km

Wildlife Spotlight

A Journey to Save Borneo’s Orangutans

RLU partnered with Ecology and Conservation Center for Tropical Studies (Ecositrop) to conduct an orangutan and wildlife study in its East Kalimantan concession. The study surveyed ​orangutan distribution and population, assessed habitat quality and resources and recommended orangutan conservation and conflict mitigation strategy for RLU.

The study found that RLU’s East Kalimantan concession includes:

  • Good quality habitat with a density of 150 trees/ha with a basal area of 27.1m2/ha
  • Sufficient natural food resources for orangutan
  • Orangutan nests are scattered across the forest, indicating a strong presence of orangutan
RLU has the largest, highest quality, and most well-populated orangutan habitat within the High Conservation Area (HCV) of MKC. Working within the conservation area of MKC’s Industrial Forest Plantation feels like working in a National Park.
Testimony of Dr. Yaya Rayadin
(Orangutan Expert and Head of Ecositrop)

2019 Social Highlights

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.

  • 333 Smallholder rubber farmers engaged in Community Partnership Program
  • 804 Farmers trained

Employee Indicator based on Gender
  • 1Male (70%)
  • 1Female (30%)
Employee Indicator based on Gender
58,000
Estimated Direct Employment at Maturity
16,000
Estimated Direct Employment at Maturity
4,320
(As of December 2019)

JAMBI

  • In 2019, the Community Partnership Program was implemented across two farmer groups in RLU’s Jambi concession.
  • A total of 33 farmers managing 124 ha were trained to sustainably improve rubber production quality and yield.
  • An Integrated Farming Program was initiated as part of the Community Partnership Program. RLU trained members of the community to utilize their own backyard to provide economic benefits through eco-friendly agriculture practices. To date, the Integrated Farming Program has been carried out in nine villages in Jambi and trained over 260 people, educating communities on the concept of food independence and kitchen independence.
  • RLU has provided access to educational services through a digital learning platform in Sungai Karang Village. To date the platform has provided access to 2,500+ digital school books, 1,000+ class videos and 17,000+ exam training modules.

Local Population
50,000
Estimated Direct Employment at Maturity
13,200
Current Level of Employment (As of December 2019)
3,256
Employee Indicator based on Gender
  • 1Direct employment total at Maturity(Mills + Plantation)
  • 1Current level of employment (As of December 2019)

EAST KALIMANTAN

  • A total of 300 smallholders have been involved in RLU’s supply chain in East Kalimantan, providing rubber for RLU’s mill in Samarinda.
  • The smallholders are also involved in the Rubberway Program, which aims to enhance supply chain traceability and identify risks in social, labor, safety and environment areas. The smallholders are also provided with technical capacity support on how to improve rubber quality and productivity.
  • RLU’s milling facility has received the Gold Flag/ Satisfactory Category in the Safety and Health Management System by the Ministry of Manpower of the Republic of Indonesia.

Local Population
8,000
Estimated Direct Employment at Maturity
2,800
Current Level of Employment (As of December 2019)
1,013
Employee Indicator based on Gender
  • 1Direct employment total at Maturity (Mills + Plantation)
  • 1Current level of employment (As of December 2019)

ENVIRONMENTAL AND SOCIAL ADVISORY BOARD (“ESAB”)

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 SUSTAINABILITY POLICY

RLU’s sustainability policy is guided by both Michelin Group’s and Barito Pacific Group’s values.

RLU’S CODE OF ETHICS

Working with Diversity
Employing a minimum of 30% women and indigenous people
Environmental Stewardship
Bribery and Facilitation Payment
Respecting Safety
Representing the Company
Supplier Ethical Principles and Fair Treatment
Respecting National Laws, Regulations, and Human Rights
Minimum age of employment: 18+ (Check identification cards against school record to ensure employees are not underage)
We believe that every employee should be treated equally, fairly, and respectfully. In practice, we comply to the applicable laws and regulations as well as relevant international standards, which cover issues such as freedom of association, decent wage and working hours, non-discrimination policies, and the elimination of child and forced labor.

Awards and Recognitions

TLFF Key Performance Indicators (KPIs)

(As of Dec, 2019)

TLFF has committed to track and disclose clear environmental and social (E&S) KPIs with external consultants reviewing the ongoing implementation, compliance and the progress of the E&S aspects of the project.

RLU Environmental and Social Action Plan (ESAP)

RLU has established an ESAP to further address the company’s E&S commitments

The ESAP is based on the International Finance Corporation (IFC) 2012 Performance Standards (PS) on Environmental and Social Sustainability and associated Environmental Health and Safety (EHS) sector specific guidelines.
Key ESAP Items Completed to Date
  • Stakeholder Engagement Framework and Plan
  • Community Partnership Program (Smallholders In-Situ) documents
  • Water and Waste Management Plan
  • Community Development Program report of the Land Return Framework
  • WCA Management Plan
  • Indigenous Peoples Framework and Plan
  • Updated HCV/HCS integrated study (final report anticipated in 2020)
  • Participatory Social Mapping
  • Finalised version of external Grievance Mechanisms
  • Land Return Procedure
  • Employee Medical Check-up Procedure
  • Concession and WCA demarcation
  • Increased ranger patrol capacity
  • Establish and implement Grievance Mechanism policy, procedures and tools
Current Key ESAP Progress
  • Independent third party assessment on adherence of key documents with IFC Performance Standards
  • Streamline documentation process
  • Completing over 20 SOP (Standard Operating Procedures) and SOP-related training plans
  • Transport Safety and Traffic Management Plan
  • Storage plan for chemicals and class II pesticides
  • Implement annual medical check-ups for all employees
  • Community Health, Safety, and Security Program
  • Social Impact Assessment and Report
  • Field verification for boundary demarcation
  • Provide employee PPE based on Hazard Identification Risk Assessment and in accordance to job functions
  • Improve details regarding wildlife management and human-wildlife conflict management

Questions & Answers

A multi-tranche Sustainability Bond was issued in 2018 by TLFF I for PT Royal Lestari Utama (RLU), an Indonesian joint venture between France’s Michelin and Indonesia’s Barito Pacific Group to develop sustainable natural rubber plantation on heavily degraded land in two provinces in Indonesia. The project incorporates extensive social and environmental objectives and safeguards. Planted areas will serve as a buffer zone to protect a threatened national park from encroachment. The transaction represented the first corporate sustainability bond in Asia and the first sustainability bond in ASEAN. VigeoEiris, the Environmental, Social Governance (ESG) research agency, has confirmed that the Notes are “sustainability Notes” with positive contribution to sustainable development, aligned with the ICMA Sustainability Bond Guidelines. The RLU JV was established in 2015.