The devil's in the details: Allegations of deforestation in Michelin’s natural rubber supply chain highlight the need for greater transparency in ‘green’ financing.
A new report from Mighty Earth — a global environmental NGO that does extensive work on sustainable supply chains — has called out a project led by Michelin for industrial deforestation in Jambi, Indonesia, just a few years after the tire giant made a bold commitment to reforesting the region.
In 2015, Michelin — one of the world’s top consumers of natural rubber — launched a joint venture to “produce natural, eco-friendly rubber” in Indonesia. The flagship project, undertaken with Barito Pacific Group — producer of plantation commodities and feedstocks for the plastics industry — was lauded to include the “reforestation of three concessions, representing a total surface area of 88,000 hectares, ravaged by uncontrolled deforestation” and touted a commitment to dedicate half of this area to “re-creating a natural environment and community crops.” In 2018, the project was backed by Asia’s first $95 million corporate “Sustainability Bond” and presented to global investors as a way to support Indonesia’s climate-change targets.
Mighty Earth’s report alleges that Barito and Royal Lestari Utama (RLU) — an integrated natural rubber company based in Indonesia and a joint-venture partner of Michelin — destroyed forests that were home to Indigenous peoples and endangered species, cleared land to make way for their rubber plantations, and then sought public recognition — and investment — for a project to restore half of it.
Particularly worrying is that the Sustainability Bond was backed by global financial institutions including BNP Paribas and ADM Capital; along with Norway’s International Climate and Forests Initiative, the Global Environment Facility and USAID. It also comes just a little more than a year after the launch of the Global Platform for Sustainable Natural Rubber (GPSNR) in 2019 — which counts Michelin as a member; and aims to help create a “fair, equitable and environmentally sound natural rubber value chain.”
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“We know that there is a lot of deforestation and degradation of natural resources in the global rubber supply chain,” Alex Wijeratna, Mighty Earth’s Campaign Director, told Sustainable Brands. “We’re advocating and campaigning to try and clean up this sector.”
Michelin contested the allegations in an email, but expressed openness to an investigation — and stated a desire “to uncover the truth behind Mighty Earth’s allegations. ... Michelin is committed to implementing any recommendations the panel may make.”
The report digs into documentation, media reports, field interviews and satellite data that provide striking evidence of industrial deforestation at the project site and an adjacent wildlife conversation area just before Michelin announced the joint venture. The natural rubber industry is expected to grow as demand for tires, medical use, and consumer goods all grows globally. Rubber trees grow in tropical regions that host some of the world’s most important biodiversity; if unchecked, this could lead to increased destruction of crucially important landscapes. If even a model “green” project is destroying forests, that’s a problem.
When compared to other incidences of deforestation in Southeast Asia, 2,800 hectares is relatively small. But this project was meant to be a model for sustainable supply chain management in the region. Back in 2018, the attention around it was markedly different than now: Partnerships for Forests lauded the initiative as a “pioneering sustainable natural rubber plantation,” while the United Nations Environment Program (UNEP) said the project demonstrates “a novel way to unlock private finance to support the Sustainable Development Agenda.”
Obviously, something went wrong. According to Wijeratna, it's something that’s often an issue when it comes to ethical supply chains – lack of transparency.
“When we looked into it, we couldn’t get access to the due diligence documents, and we found that really alarming,” Wijeratna said. What they did find were local media reports and community concerns about the projects — concerns that Michelin, and financiers, either ignored or were not aware of. There were other red flags, too.
“We were really surprised to find non-disclosure agreements on these reports. They need to have a much greater commitment to transparency,” Wijeratna asserted. “It is also unclear who has had access to the due diligence assessments during the key phase, between 2013-15, when the initiative was being set up and established.”
Attempts to reach the organizations that were pushing for this project — including Partnerships for Forests, an NGO that provides grant finance and technical assistance to propose alternatives to business as usual in the land use sector; and the Tropical Landscapes Finance Facility, which helped create the Sustainability Bond — were unsuccessful. UNEP pointed only to RLU’s response, in which the company clearly states that Mighty Earth’s findings are “without basis in fact” and denies any issues around transparency.
Mighty Earth is still awaiting responses from financial institutions, which it hopes will play a stronger role in pushing for better accountability around green funding. As Wijeratna says:
“We need the banks and the donors to call a time-out and say, let’s have an independent investigation, put all the documents in the public domain and determine what we should have known.”
Funders of this and future projects should be paying attention — as their reputation, and ‘green’ credentials, will likely be damaged if the allegations are proven true. They should be emphasizing proper due diligence, and ensure transparency at all stages of project design and implementation; otherwise, the risk of deforestation and human rights abuses will likely rise. If funders don’t take action, instances like this could taint the entire green bond and sustainable financing sector, where trust is key.
“We know that the Green Bond market has exploded in recent years,” Wijeratna says. “It’s really important that information around these projects is accurate, verifiable and complete.”
Mighty Earth says it released this report now so that the problem can be addressed before it becomes too big — something we’ve seen in other industries like the much-maligned palm oil and timber industries.
There’s still an opportunity to address these systemic issues when it comes to natural rubber. The existence of the GPSNR means there is a platform to push for sustainability — and, crucially, bring all the actors together: Mighty Earth and Michelin are both members of GPSNR. But the organization, for all its promise, is barely 1.5 years old; and has yet to even set up a grievance mechanism.
It’ll be worth seeing how Michelin, funders and the GPSNR all respond to this report. If anything, this is another reminder that just because something is promoted as ‘green,’ it doesn’t mean it is. The devil is in the details.