The Tropical Landscapes Finance Facility (TLFF) has announced its inaugural transaction, a landmark US$95 million Sustainability Bond to help finance a 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.
According to Tropical Landscapes Finance Facility (TLFF), a partnership between UN Environment, World Agroforestry Centre (ICRAF), ADM Capital and BNP Paribas, the US$95 million Sustainability Bond is the first corporate sustainability bond in Asia and the first sustainability bond in ASEAN.
TLFF consists of a lending platform managed by ADM Capital with BNP Paribas as structuring adviser and arranger, as well as a grant fund managed by the UN Office for Project Services (UNOPS) and it aims to bring long-term finance to projects and companies that stimulate green growth and improve rural livelihoods in Indonesia.
Fund rubber plantation joint venture
The multi-tranche Sustainability Bond arranged by BNP Paribas (BNPP) and issued by TLFF I Pte Ltd will fund PT Royal Lestari Utama (RLU), an Indonesian joint venture between France’s Michelin and a subsidiary of Indonesia’s Barito Pacific Group, for climate-smart, wildlife friendly, socially inclusive production of natural rubber in Jambi, Sumatra and East Kalimantan provinces.
Established in 2014, RLU operates three licenses covering 70 000 ha in Sumatra – PT. Wanamukti Wisesa (WMW) and PT. Lestari Asri Jaya (LAJ) as well as 18 000 ha in East Kalimantan, PT Multi Kusuma Cemerlang (MKC). All areas have been heavily deforested by mostly migrant encroachers.
Barito and Michelin joined their expertise in agronomy and re-milling and established RLU to better manage the area including reforestation and socially inclusive and/or wildlife-friendly rubber plantation development.
We are honoured to take this important step alongside TLFF towards establishing an impactful partnership for the development of a more sustainable rubber industry. This demonstrates our commitment to a thriving, sustainable rubber market for the country and our unwavering support for local communities, said David Sulaiman, President Director of RLU.
Set aside and buffer zones
The project involves collaboration with WWF, which has worked with Michelin and RLU to set aside remaining High Carbon Stock (HCS) and High Carbon Value (HCV) forest in the RLU concessions, as well as critical wildlife conservation and riparian areas. Out of a concession area of 88 000 hectares, roughly 45 000 hectares will be set aside for community livelihoods and conservation.
In Jambi Province, the two concession areas held by RLU and two WWF concessions form a contiguous buffer zone protecting the Bukit Tigapuluh National Park (BTP), which is one of the last places in Indonesia where elephants, tigers and orangutans co-exist. At maturity, the natural rubber plantation is expected to provide approximately 16 000 fair-wage jobs, providing a critical source of employment for local communities.
We highly support this positive drive from the private sector using an investment structure like the TLFF, which not only boosts economic development but also improves much-needed skills in the longer term, said H.E. Siti Nurbaya Bakar, Honorable Minister of Environment and Forestry, Republic of Indonesia.
Holistic approach
An initial 18 100 hectares of rubber were planted as of December 2017 and the TLFF bond issue will contribute to financing further development of the plantation. USAID has provided a partial credit guarantee on the transaction.
Dr Kuntoro Mangkusbroto, Chairperson of the TLFF welcomed the project’s alignment to achieving the Sustainable Development Goals (SDGs) through a holistic triple-bottom-line approach that puts people and planet at the heart of all TLFF projects.
Erik Solheim, Executive Director of UN Environment expressed his delight at the progress achieved since the MoU between UN Environment and BNP Paribas signed at the One Planet Summit in Paris in December 2017 to target innovative, sustainable finance of US$10billion by 2025 for projects that support sustainable agriculture and forestry in ways that help solve the climate crisis rather than accentuate it.
It is the role of banks today to make sure we can enable sustainable and impactful projects everywhere. While not without its own challenges, this transaction is proof that financial institutions can generate socially beneficial outcomes when we really work hard. This complex structuring arrangement also demonstrates that our institutional investor clients have the appetite to invest in projects and companies that combine commercial and financial performance with clear environmental and social purpose and impact, said Eric Raynaud, CEO, Asia Pacific and Member of Group Executive Committee at BNP Paribas.
ADM Capital co-founder and partner, Chris Botsford said that reversing the current adverse trends on deforestation and climate change will take “many billions” of dollars and that private sector capital “must be an essential part of the solution.”
We are delighted to be involved in this exciting and innovative funding approach. A new paradigm is emerging here with high-value investments that seek to contribute substantial environmental and social dividends alongside risk shared financial returns, said Tony Simons, Director General of the World Agroforestry Centre (ICRAF).
This transaction is the first corporate sustainability bond in Asia and the first sustainability bond in ASEAN. Vigeo Eiris, the Environmental, Social Governance (ESG) research agency, has confirmed that the Notes are ’Sustainability Notes’ with a positive contribution to sustainable development, aligned with the ICMA Sustainability Bond Guidelines.
