The pulp industry is planning a dramatic expansion of capacity in the South. The result will be increased poverty, loss of livelihoods and environmental destruction. Banks funding the pulp industry must be held accountable.
By Chris Lang. Published in WRM Bulletin no 119, June 2007.
The entrance to the bank has nothing to do with human scale. Built of steel and glass, the building towers over visitors like a spotlessly cleaned, giant machine. A machine for swallowing people and making money, perhaps.
I visited the bank headquarters last week as part of a meeting organised by the German NGO Urgewald to discuss banks’ financing of the pulp industry. Up on the 50th floor, where the meeting took place, the view is spectacular. The sun was shining, glistening off the river as it curves through the city. It didn’t feel like being in the belly of the capitalist beast. About a dozen bankers, from seven major banks, turned up to listen to presentations from six NGOs. (The meeting took place under the “Chatham House Rule”, which means that I can use the information from the meeting, but I can’t tell you who said what, or who else was at the meeting.)
Before the meeting, I’d calculated that the pulp industry has plans to build about 25 million tonnes of new capacity over the next five years. The vast majority is planned for Brazil, Uruguay, Russia, China, Australia and Indonesia. Even allowing for more closures of pulp mills in the North, this is a dramatic increase in capacity. Over the past decade, the industry has expanded at about one million tones a year. It is now planning to expand at five times this rate. During the meeting it became clear that my figure of 25 million tonnes was an underestimate. Three new pulp mills are planned in Russia and one in Malaysia, none of which I’d included in my calculations.
The pulp industry’s boom and bust cycle is directly linked to the industry’s overcapacity. The industry expands when the price of pulp is high. When all the new capacity comes on stream the price collapses. It’s happened before (repeatedly) and it looks like it’s about to happen again.
During the meeting, the bankers heard about the promises given 20 years ago in Indonesia. The pulp industry would bring prosperity. It would provide jobs and it would save the forests, by providing an economic use for wood. The reality is that the industry has brought pollution, few jobs, social conflicts, land rights conflicts and destruction of vast areas of forests. Even where plantations have been established they have replaced forests. Today, pulp companies in Sumatra are clearcutting peat swamp forest and draining the swamps to establish plantations. In the process they are releasing large amounts of carbon stored in the peat to the atmosphere.
The pulp industry’s reliance on wood as a raw material means that large areas of industrial tree plantations are required to feed today’s million tonnes-a-year pulp mills. This inevitably leads to land rights conflicts, because such large tracts of land are not simply lying around unused. Land rights conflicts in Brazil are increasing, and the Movement of Landless Peasants (MST) has repeatedly targeted the pulp industry’s eucalyptus plantations in its land occupations.
The bankers heard about the impact of industrial tree plantations on water. How wells dry up, ground water levels fall, seasonal streams become permanently dry, swamp areas dry out, water sources for washing and drinking water dry out, and how it becomes impossible to grow staple crops such as rice in fields that are surrounded by plantations.
The bankers also heard suggestions for how they could draw up standards in order to avoid investing in the worst pulp and plantation projects. They heard about a mapping project which delineates old-growth forests. They heard about the range of mechanisms under international law that could be applied in cases of human rights abuses linked to pulp mills, for example. They heard how several commercial banks in the US, the Netherlands and the UK have drawn up forest policies, partly as an attempt to avoid getting involved in destructive projects such as those of APP and APRIL in Indonesia. ABN Amro is working on applying its forest policy to all bank activities and not just project financing – which is crucial in the pulp sector, because most pulp mills are financed through bonds, shares, equity and general corporate loans.
The banks told us they don’t have enough capacity to develop their own forest policies. Even carrying out due diligence, it seems, is difficult. Some of the banks said that if a project is covered by the German credit insurer Euler Hermes, they’d invest without too much further analysis. This is extremely worrying news to the NGOs who have campaigned for years to get Euler Hermes to develop meaningful standards to exclude socially and environmentally destructive projects. In 2004, Euler Hermes provided export credit insurance for APP China despite the problems APP has caused in Indonesia. Greenpeace China has documented how APP China has illegally logged forest in Yunnan and established tree plantations inside protected areas in Hainan.
We pointed out the problems with relying on Euler Hermes. Well, there’s the World Bank’s forest policy replied the banks. Or there’s the OECD’s common approaches for export credit agencies. Or the Equator Principles. Anything, it seems, rather than the banks admitting that they must look critically at their involvement in the massive problems caused by the pulp industry and its industrial tree plantations. Coming from banks that employ tens of thousands of people and generate billions of Euros profit each year, this is a little difficult to take.