South East Asia’s first Corporate Sustainability Bond

Third party verification by ESG consultant, Vigeo Eiris.

  • A multi-tranche, long-dated Sustainability Bond arranged by BNP Paribas (BNPP) and issued by TLFF I Pte Ltd for RLU, a JV between Indonesia’s Barito Pacific Group and France’s Michelin. ADM Capital acts as facility and ESG manager for TLFF I
  • For climate smart, wildlife friendly, socially inclusive production of natural rubber in Jambi, Sumatra and East Kalimantan provinces
  • Out of a concession area of 88,000 hectares, 34,000 will be planted with commercial rubber, while more than half will be set aside for community livelihoods and conservation.
  • Includes a 9,700 ha Wildlife Conservation Area jointly managed with WWF, which is a project partner.
  • At maturity, the plantation will provide 16,000 jobs for local communities
  • Commercial plantations in Jambi serve as a buffer zone to protect the 143,000 ha Bukit Tigapuluh National Park, replete with important biodiversity and endangered species such as Sumatran elephants and tigers
  • Project will be monitored annually by a third-party consultant against an Environmental Social Action Plan

About The Project

Michelin And Barito Pacific JV USD 95 mm Loan (Indonesia’s First Sustainable Natural Rubber Plantation)

On February 26th, the Tropical Landscapes Finance Facility (“TLFF”) announced its inaugural transaction, a landmark US$ 95 million loan to help finance a sustainable natural rubber plantation in two heavily degraded landscapes. The transaction will incorporate clearly defined social and environmental objectives and safeguards.

A long-dated Sustainability Bond will fund PT Royal Lestari Utama (“RLU”), an Indonesian joint venture between France’s Groupe Michelin (49%) and Indonesia’s PT Barito Pacific (51%) for sustainable natural rubber plantations in Jambi, Sumatra and East Kalimantan provinces. In a total plantation size of 88,000 hectares, 70,000 sits in Jambi and 18,000 in East Kalimantan.

In all, only an estimated 34,000 ha will be planted in rubber, while the rest will be left for conservation, restoration and Community Partnership Programs. The project is designed to enhance the livelihoods of about 50,000 local people and create 16,000 fair-wage jobs. In Jambi, the plantation will function as an important buffer zone to stop further land speculation and encroachment in the biodiverse 143,000 ha Bukit Tigapuluh National Park (“BTPNP”) , which is one of the last places in Indonesia to see Sumatran elephants, tigers and orangutans.

The original and ecologically significant BTPNP Landscape is 400,000 hectares and includes two WWF ecosystem restoration concessions that will also benefit from the protection from encroachment the plantation will provide. Protection will come from “boots on the ground” plantation workers, smallholders and planted areas themselves. WWF is a project partner since 2015 and has worked with RLU to set aside HCV/HCS areas as “no-go” zones for planting.

At maturity, the plantation will represent 10% of natural global rubber purchased by Michelin. RLU, through its plantations and smallholder programs, is targeting a higher annual rubber yield per hectare of 1.7 tons, compared to Indonesia’s current 0.8 tons.

USAID has provided a credit guarantee on part of the transaction, which has been rated “Aaa” by Moody’s. Vigeo Eiris, the ESG consulting firm, has confirmed that the bonds are “Sustainability Notes” with positive contribution to sustainable development and are aligned with the Sustainability Bond Guidelines.

Hadiputranto, Hadinoto & Partners provided important pro bono support in the initial stages of the Transaction.

About The Project

Michelin And Barito Pacific JV USD 95 mm Loan (Indonesia’s First Sustainable Natural Rubber Plantation)

On February 26th, the Tropical Landscapes Finance Facility (“TLFF”) announced its inaugural transaction, a landmark US$ 95 million loan to help finance a sustainable natural rubber plantation in two heavily degraded landscapes. The transaction will incorporate clearly defined social and environmental objectives and safeguards.

A long-dated Sustainability Bond will fund PT Royal Lestari Utama (“RLU”), an Indonesian joint venture between France’s Groupe Michelin (49%) and Indonesia’s PT Barito Pacific (51%) for sustainable natural rubber plantations in Jambi, Sumatra and East Kalimantan provinces. In a total plantation size of 88,000 hectares, 70,000 sits in Jambi and 18,000 in East Kalimantan.

In all, only an estimated 34,000 ha will be planted in rubber, while the rest will be left for conservation, restoration and Community Partnership Programs. The project is designed to enhance the livelihoods of about 50,000 local people and create 16,000 fair-wage jobs. In Jambi, the plantation will function as an important buffer zone to stop further land speculation and encroachment in the biodiverse 143,000 ha Bukit Tigapuluh National Park (“BTPNP”) , which is one of the last places in Indonesia to see Sumatran elephants, tigers and orangutans.

The original and ecologically significant BTPNP Landscape is 400,000 hectares and includes two WWF ecosystem restoration concessions that will also benefit from the protection from encroachment the plantation will provide. Protection will come from “boots on the ground” plantation workers, smallholders and planted areas themselves. WWF is a project partner since 2015 and has worked with RLU to set aside HCV/HCS areas as “no-go” zones for planting.

At maturity, the plantation will represent 10% of natural global rubber purchased by Michelin. RLU, through its plantations and smallholder programs, is targeting a higher annual rubber yield per hectare of 1.7 tons, compared to Indonesia’s current 0.8 tons.

USAID has provided a credit guarantee on part of the transaction, which has been rated “Aaa” by Moody’s. Vigeo Eiris, the ESG consulting firm, has confirmed that the bonds are “Sustainability Notes” with positive contribution to sustainable development and are aligned with the Sustainability Bond Guidelines.

Hadiputranto, Hadinoto & Partners provided important pro bono support in the initial stages of the Transaction.

Investment

The TLFF Tranche 1 supports the first 19,000 ha of commercial rubber plantation across RLU’s concession areas. The TLFF Tranche 2 (in progress) will help to finance an additional ~15,000 ha of commercial rubber plantations established in the degraded areas of RLU’s concessions. Beyond direct employment, community livelihoods will be supported by the establishment of 7,000 ha of smallholder plantation with smallholder financing (in progress) and other livelihood programmes falling under a Community Partnership Program. This also includes training in best practice in rubber production and the purchase of rubber from community program participants at a slight premium.

Quick Facts:

TLFF Tranche 1: 

US$95million

Tranche 2 Projected: 

US$120million

includes Smallholder Financing:

US$35 million

2024 Target Breakdown of Concessions (As of July 2019)

2024 Target Breakdown of Concessions (As of July 2019) vs our total concessions area 88,762 ha as in permit. Proposed to consistently use 88,000 ha as in RLU today’s permit received by the government to avoid confusion. Since the 91,000 ha is based on RLU SLUS analysis from map & ground checking where’s still under the boundary licensing process by the government. Therefore the total (ha) is below:

  • PT Wanamukti Wisesa: 9,105 ha
  • PT Lestari Asri Jaya : 61,495 ha
  • PT Multi Kusuma Cemerlang: 18,045 ha

Environment and Social Impact

  • The project covers rubber plantings in two RLU concessions that together amount to 70,000 ha
  • The Jambi concessions form part of a wider Bukit Tigapuluh (Jambi and Riau provinces) landscape of 400,000 ha, including two PT Alam Bukit Tigapuluh (“ABT”) ecosystem restoration concession blocks held by WWF. Of the 400,000 only 230,000 ha still contain forest cover
  • The RLU and ABT concessions (~38,000 ha) form a contiguous and critical buffer to protect the 143,000 ha BTPNP from encroachers, many seeking to illegally plant oil palm and rubber to supply a wide range of mills in the wider landscape
  • The BTP landscape is home to 180 species on the IUCN Red List; three critically endangered flagship species including ~120 Sumatran elephants, ~30 Sumatran tigers & ~180 orangutans; and an important bird & biodiversity area
  • Human population approx. 50,000 across 22 villages and communities in and around the concessions, which are severly encroached. More can be read here about the landscape encroachment, much of it supported by wealthy individuals from North Sumatra and Jambi looking for profit

“The Jambi concessions include a total area of 71,888 of which only 28,026 ha (39%) will be used for nucleus planting on degraded land to create a buffer zone for high value landscapes. As of July 2 019, 15,431 ha is planted with 12,595 ha yet to be planted (55% completed). The total protected area is 17,660 (25%) in Jambi with 6,000 ha for smallholder plasma and 20,202 ha for other livelihoods. “

  • The ~19,000 ha MKC concession is situated across two blocks in the Nyapa Mangkalihat Mountains and Plains biogeographical region of central Borneo.
  • Forested areas and riparian zones within both blocks provide critical habitat for a range of protected and/or threatened flora and fauna
  • The landscape had suffered severe deforestation and degradation, facing threats from illegal harvesting of timber, clearance for slash & burn agriculture, expanding human settlement and illegal development of palm oil
  • Around 40% of intact forest remains within the 19,000 Ha concession and is home to a range of protected flora & fauna, including Bornean orangutan, sambar deer, sun bear and clouded leopard; as well as an important bird & biodiversity area
  • Human population approx. 8,000 in 4 villages, all outside the concessions

The East Kalimantan concessions include a total area of 19,639 of which only 5,974 ha (30%) will be used for nucleus planting on degraded land. As of July 2019, 4,592 ha is planted with 1,382 ha yet to be planted (77% completed). The total protected area is 9,983 ha (51%), alongside with 1,000 ha for smallholder plasma and 2,682 ha for other livelihoods.

TLFF Key Performance Indicators (KPIs)

(As of Sep, 2019)

TLFF has committed to track and disclose clear environmental and social (E&S) KPIs with external consultants reviewing the ongoing implementation, compliance and the progress of the E&S aspects of the project.

Core ObjectivesOutput and Impact IndicatorsValue (as provided by RLU or source)
Forest RetentionHectares of actively
managed HCV/HCS forest
Jambi - 2000 ha
East Kalimantan - 6500 ha
Improved Rural
Livelihoods
Number of smallholder
rubber farmers engaged
as part of the community
partnership program (part
time and full time).
Farmers, not employed by
RLU, but that have an
agreement which defines
some type of transaction
between services and
products (rubber)
Jambi: 18
Kalimantan: 300
Training: 266
Total: 584 (YTD)
Number of smallholder
households impacted by
RLU CPP (doesn’t include
direct employment of
local people)
584 out of estimated 10,000 families living in and
around the concessions
Number of jobs created
outside rubber under the
community partnership
program (to include those
jobs associated with local
suppliers).
Coming Soon
Number of farmers selling
into the RLU supply chain
300 in East Kalimantan
Coming Soon in Jambi
Number of direct jobs
created
Jambi: 3579
East Kalimantan: 851
Total: 4430
Salary range of direct RLU
employees
Above provincial minimum wage standard
Salary range:
IDR 2,423,889 - IDR 2,893,833
Reduced EmissionsNumber of trees planted
YTD 2018: 18,622 trees

1,100 trees among 11 species planted in priority riparian areas
Number of fires registeredJambi: 102 fires
East Kalimantan: 13 fires
Number of hectares burnt (if
any)
Jambi: 131 ha
East Kalimantan: 12 ha
(2018 data)
Carbon footprint (in
tCO2e)
12,836*
Greenhouse gas emissions
absorbed by protected
forest, planted trees (in
tCO2e)
Plantations: 365,106*
Forests: 123,286*
Total: 488,395*
Biodiversity ProtectionNumber of conservation
programmes
implemented
Four: 1 – Protection forest 2 – Wildlife
Conservation Area 3 – Human-wildlife conflict 4-
Wildlife monitoring
Number of species
protected in the
concessions
Three Critically Endangered Species: Elephant,
Tiger, Orangutan Two Endangered: Mitred
monkey, Malayan Tapir
Wildlife Conservation
Area (Jambi)
9,700 ha delineated Wildlife Conservation Area, including ~
8,200 ha of protected areas and 2,489 ha of baseline forest
cover. In the WCA 1,500 ha planted in rubber
Hectares of conservation
habitats protected within
the concessions
Protected area delineation:
Jambi: 18,370 ha
East Kalimantan: 9,983 ha
Protected areas under control by RLU:
Jambi: 2200 ha
East Kalimantan : 7900 ha
Patrol coverage and
reporting on illegal
activity findings overtime
Patrol Jan-Dec 2018:
Jambi – 125,892 Km
East Kalimantan – 84,286 Km
Illegal Activity (Jan-Dec 2018)
Jambi - 22 findings
East Kalimantan - 53 findings

* Source: PT RLU; USAID Green Invest Asia, 2018. Carbon assessment.

RLU Environmental and Social Action Plan (ESAP)

RLU has established an ESAP to further address the company’s E&S commitments.

Action
Expand grievance mechanism to all relevant stakeholders, including Indigenous People.
Board to finalize and approve full set of grievance mechanism policy, procedures and tools.
Monitor and review grievance mechanism implementation.
Develop a Sustainability Policy.
Action
Develop water management plan and monitor annually.
External E&S consultants to check compliance with land clearance and planting procedures. policy, procedures and tools.
Action
Expand and update existing land acquisition and resettlement approach to the satisfaction of the Lenders.
Action
Further develop the RLU Community Partnership Programme, including planning for smallholder inclusion options, such as a smallholder in-situ scheme and other smallholder schemes
Action
Develop Wildlife Conservation Area (WCA) Strategy and Plan, including participatory mapping and a mechanism for community-based framework agreements.
Patrols:
- Increase joint patrols with Bukit Tigapuluh National Park (BTNP) Authorities;
- Intensify WCA patrols, increase team size and complete demarcation in controlled areas.
Develop existing policies into a Wildlife Management Plan, including a Human – Elephant Conflict management approach.
Submit application to the relevant authorities for the WCA to be included into the National Elephant Conservation Plan.
Action
Develop an IP Framework aligned with the International Finance Corporation Performance Standards (IFC PS); and
Establish IP Plans, based on the RLU IP Framework and aligned with IFC PS, for:
- IP in the WCA; and
- Other IP groups affected by the project in Jambi and East Kalimantan.