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December 3, 2008

UK banks considers curbing palm oil lending

Environmental concerns have caused HSBC to scale back lending to forestry schemes in Malaysia and Indonesia and review links with Canadian oil sands, the British company told Reuters.

HSBC will cut ties with a third of forestry clients such as palm oil, soy and timber companies, operating in countries where illegal logging and social conflicts are a problem, including Malaysia and Indonesia, the bank said.

The bank was criticised recently by a development group, the Forest Peoples Programme, for not disclosing the names of its palm oil banking clients.

Some indigenous peoples in Indonesia have said that logging companies and palm oil developers take forested land where tenure is disputed without compensating them.

HSBC will terminate relationships by the end next year with clients where there are suspicions they are involved in illegal or unsustainable logging, for example destroying pristine rainforest.

"We're planning to exit 30 percent of client relationships in the forest land and forest products sector in high-risk countries, including Malaysia and Indonesia, (because) they don't meet our forestry policy," said Francis Sullivan, the bank's adviser on the environment.

The bank's forest products sector includes logging, timber, pulp and paper, palm oil, soy and rubber.

HSBC will also review lending to Canadian oil sands developers, on the grounds that tougher climate regulations may make such energy-intensive activities commercially unviable, it said on the day several banks signed up to a series of climate principles.

"The policy is under review," said Sullivan, referring to the bank's energy sector policy.

"We continue to review it. A carbon price can radically change the viability of oil sands projects. We look at carbon, water, biodiversity and social aspects."

It was "too early to say" whether HSBC may in future halt lending to such projects or exit relationships with existing oil sands clients. "It's a hypothetical question at this stage, that's why it's under review," said Sullivan.

On Tuesday the London-based Climate Group launched a set of "Climate Principles" for financial institutions aiming to identify best practice in cutting carbon emissions arising from investments, lending and insurance.

"There hasn't been a focus on reviewing how organisations are implementing commitments," said Emily Farnworth, director of corporate leadership at The Climate Group.

The focus was to inform, rather than issue sanctions against adopters which initially included HSBC, Credit Agricole Munich Re, Swiss Re  and Standard Chartered.

"There are reporting processes," said Farnworth. "Once we've got a monitoring process we'll see an increase in action, tightening up disclosure. When the Climate Group is concerned, we'll make a recommendation. The idea is to be collaborative."

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