World Bank breaks rules in lending to palm oil companies

| 27th August 2009
Palm oil seeds
The palm oil industry in Indonesia has been linked to illegal deforestation

The palm oil industry in Indonesia has been linked to illegal deforestation

Campaign groups call for a suspension on lending to palm oil plantation developers after critical internal audit

The World Bank has admitted errors in its procedures for lending money and safeguarding against social and environmental abuses.

An internal audit found the World Bank's International Finance Corporation (IFC) had mis-categorised loans to the Wilmar Group, one of the world's largest producers of palm oil and based in Indonesia.

Loans that should have been classified as higher risk were listed as 'low-risk' thereby avoiding more comprehensive social and environmental checks.

The Palm Oil industry has been linked to the large-scale destruction of forests in Indonesia - endangering wildlife and increasing greenhouse gas emissions.

Suspension on lending

Campaign groups including the indigenous rights organisation, The Forest Peoples Programme, are now calling for a suspension on lending to palm oil plantation developers.

'IFC staff knew of the environmental and social risks in the palm oil sector, including unresolved land disputes and non-compliance with its social and environmental standards, but chose to ignore the risks,' said Marcus Colchester of the Forest Peoples Programme.

'It is clear to us, and the audit confirms this, that IFC suffers a systemic problem whereby the pressure to lend and to support business interests overcomes prudence, due diligence and concern for social and environmental outcomes.'

The IFC said that it was now reviewing its procedures.

'It is anticipated that in future, programmes such as Wilmar Trading would be categorised as higher risk,' said a management response to the audit.

Useful links
Forest Peoples Programme

See also
World Bank unfit to manage global climate funds

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