Mighty Earth Urges Climate Bonds Initiative to Delist $95M Michelin “Green Bond” Amid Allegations of Industrial Deforestation

LONDON – Today, environmental campaign organization Mighty Earth announced that it had filed a formal complaint with the Climate Bonds Initiative (CBI) calling for Asia’s first corporate “Sustainability Bond” – which had been issued in 2018 for investors in French tire maker Michelin’s natural rubber joint venture in Indonesia – to be delisted from CBI’s booming global green bond markets.

The complaint argues that the $95 million bond, which financed Michelin’s RLU project, a 70,716-hectare natural rubber plantation in Jambi, Indonesia, should be ineligible for CBI listing because green investors were not informed of serious allegations of environmental destruction and social conflict around the project. Mighty Earth alleges that thousands of hectares of tropical rainforests and critical conservation habitat were industrially deforested by the local subsidiary of Michelin’s Indonesian partner prior to the start of their project, and that Michelin knew of the destruction but failed to provide this information to investors.

“We are urging the Climate Bonds Initiative to immediately investigate our complaint and – if evidence of large-scale deforestation is supported by our findings – to immediately delist this questionable bond,” said Mighty Earth Campaign Director Alex Wijeratna. “It’s inconceivable that a bond tied to the widespread, deliberate, and undisclosed industrial deforestation of thousands of hectares of precious rainforest and conservation habitat could ever be labelled as ‘green’ or ‘sustainable’.”

Michelin signed the RLU joint venture shareholder agreement with its Indonesian partner, Barito Pacific, in December 2014. Mighty Earth’s complaint includes new evidence showing that Michelin officials knew before that time that their partner’s key local subsidiary – a company called PT Lestari Asri Jaya (LAJ) – was independently identified as one of the main causes of land clearing and deforestation on its concessions in Jambi. However, this crucial information was not disclosed to green bond investors in any publicly available due diligence reports, nor was it disclosed in the Tropical Landscapes Finance Facility (TLFF I) Sustainability Bond “Offering Circular” which was arranged by French bank BNP Paribas, facilitated by ADM Capital, and offered to investors in March 2018.

Conforming to voluntary Green and Sustainability Bond Principles and Guidelines monitored and overseen by the CBI, bonds labelled as “sustainable” have exploded in popularity in recent months, with companies and governments expected to issue a record $650 billion in green debt this year, according to Moody’s. Other analysts predict the global green bond market could hit €2 trillion by 2023.

A second round of funding to finance the next phase of the RLU project – worth $120 million – is due to be offered to green bond investors imminently.

As part of the complaint filed with CBI, Mighty Earth included its recent satellite image-based report – Complicit, An Investigation into Deforestation at Michelin’s Royal Lestari Utama Project in Sumatra, Indonesia (2020) – which found 2,590 ha of irreplaceable tropical rainforest, biodiversity hotspots, and conservation habitat in Jambi – a huge area the size of central Paris – was industrially deforested in a key area (known as ‘LAJ 4’)  during a 33-month period prior to start of the joint venture in 2015. The report found this industrial deforestation was in areas identified by WWF Indonesia as home to two vulnerable forest-dependent Indigenous peoples,  and which form a critical habitat for endangered Sumatran elephants, tigers, and orangutans.

Key green investors such as &Green fund, Unilever, and PG Impact Investments have invested millions in the 15-year TLFF I Sustainability Bond, though it is unclear if they were told of these deforestation concerns prior to investing. “No green investor wants to invest in a sustainability or green bond project that failed to disclose large-scale industrial deforestation or the deliberate destruction of tropical rainforest that was once home to endangered Sumatran elephants, tigers and orangutans,” said Wijeratna. “The Climate Bonds Initiative should swiftly investigate and delist the TLFF I Sustainability Bond in order to restore trust and integrity in global green bond markets.”