June 18, 2025 • 38 mins
"Exiting or reducing financing for palm oil is something we're absolutely not trying to do. Instead we're trying to support sustainable palm oil, without deforestation and planting on peat or exploitation," says Luanne Sieh, group chief sustainability officer at Malaysia's CIMB Group. On this ESG Currents episode, Sieh and Conrad Tan, Bloomberg Intelligence ESG integration analyst for APAC, explore the bank's efforts guided by science to curb destructive practices and bad actors in the palm industry while supporting its key role in providing jobs, food security and dietary access in the developing world. They also discuss the importance of uplifting smallholders at risk of being cut out of global supply chains.
This episode was recorded on May 30, 2025.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:09):
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social NEGA trends, mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo. We aim to break these down with industry experts.
(00:31):
Welcome to ESG Currents, your guide to navigating the evolving
ESG space, one topic at the time, brought to you
by Bloomberg Intelligence, part of Bloomberg's research department with five
hundred analysts and strategists working across all major world markets.
I'm Conrad tan ESG integration Analyst for APEC at Bloomberg Intelligence,
(00:53):
and I'm your host for today's episode. Now, today, we're
talking about decarbonization in Southeast Asia through the lens of
one of its biggest banks, with unique insights on palm
oil and the agriculture sector that are significant contributors to
the regent's economies, and how human rights and why their
social considerations influence their business strategy. Joining me today is
(01:16):
Luenzia Group, Chief Sustainability Officer at cimb One. Of Malaysia's
biggest banking groups with a deep footprint across Asian In
addition to her role as cimb's Chief Sustainability Officer, Luen
is also a steering group member of the Net Zero
Banking Alliance. Luenn is based in Singapore and I'm delighted
(01:36):
that she's agreed to join me in our Bloomberg office here. Luenn,
I'm really glad to have you with us now. You've
been working in sustainability for a long time. Could you
give us a brief background about your involvement in sustainability
that brought you here today.
Speaker 2 (01:50):
Hi, Conrad, I'm really happy to be here. Thank you
for inviting me. Now. I've always been interested in sustainability
to a certain extent, even when I was young. But
what really triggered me, and you know, I wish I
could say something highly intellectual, like I read a research
paper or something like that. Unfortunately, or fortunately it was
(02:11):
because actually of a Netflix documentary, and that Netflix documentary
is called conspiracy, so it's a like conspiracy but with
a W. And that really showed open my eyes, you know,
really to the severe impacts of the agricultural industry, especially
cattle farming, and from there also so happened that one
(02:32):
of the senior leaders at CMB went on stage and
he was talking about this something called sustainability. And back
at that time, this was twenty seventeen, I think, you know,
I was wondering what was this and how is this
relevant to banking. So I decided to kind of just
put up my hand and said, hey, I want to
do this because this looks really interesting. And at that
(02:52):
time I was running transformation for the group, and I
did this as a special project. But from a special
project it became a strategic roadmap, It became a couple
of foundational policies, and we set up a department and
I guess the rest is history.
Speaker 1 (03:08):
Thank you. I'd like to dive straight into the tough
issues now. CIMB has significant financing exposure to the agriculture
sector and palm oil in particular. The sector is a
big contributor to economies in Southeast Asia, with Malaysia and
Indonesia the world's largest palm oil producers, but it's also
been linked over the years to environmental and social issues
such as deforestation and land conflicts. I understand CIMB was
(03:31):
the first bank to set a decarbonization target for palm
oil based on SBTi guidance. Could you share your strategy
on curbing financed emissions in palm oil and the wider
agricultural sector and how do you balance this with social considerations.
Speaker 2 (03:46):
Thanks for asking about our net zero targets. We were
actually the first Asian member of the Net Zero Banking
Alliance when it was set up, and as part of that,
we have committed to net zero by twenty fifty across
all scopes of our emissions. We've also already set twenty
thirty targets, which is kind of interim two getting to
(04:07):
net zero by twenty fifty, and that's for six key
sectors and those cover sixty percent of our total portfolio,
which includes lending, includes investments, as well as the entire
consumer book. So we're pretty committed to sustainability. I know
every company you interview probably says the same thing, but
(04:27):
I hope this demonstrates some of that. So coming to
palm is really a key commodity in the region, and
it contributes about three to five percent to GDP in
Indonesian Malaysia, which actually collectively make up about eighty five
percent of global palmmel production. On top of that, it
employs around four million people and supports about twelve million
(04:49):
people indirectly in these two countries. So it's one of
the six sectors where we've set net zero targets, not
just because of the carbon emissions, but also because of
our large exposure to that. Now it's important to note, though,
that our emissions target is an emission intensity target, where
it's measured by tons of CO two per ton of
(05:12):
crude palm oil produced, and our target there is to
reduce emissions intensity of our palm oil portfolio by sixteen percent,
that's one six by twenty thirty. Now, how do we
do this right? First, we need to understand the palm
oil sector a little bit, where emissions come from, et cetera.
I have to say, and you'd mentioned this, that palm
(05:34):
has a bad reputation as a leading cause of deforestation, biodiversity, lass,
et cetera. And this is not unfounded. Palm oil cultivation
actually drove large scale deforestation in Malaysia and Indonesia starting
in the I guess eighties and nineties, but ramping up
through to the twenty tens. And at the stage I
(05:54):
think it will be a good time to introduce four
very important letters, a very important acronym. It's called NDPE
that stands for no deforestation, no planting on pete, no
exploitation NDPE. And we will we will actually go through this,
and I hope you remember these four letters because they're
(06:16):
very important as we go through this. So let's start
with D in NDPE. So D is deforestation and this
is where we look at the above ground cover, yeah,
of what was on the land prior to planting. And
there's a really big difference depending on what the land
(06:36):
was used for before. If it was mature forests, that
could actually contribute up to seventy percent of the total
emissions of the palm oil. The second bit is what
we see below ground or we don't see below ground,
and this is from the peat and that's your P
in NDPE. Now what is pt actually, So pete is
(07:00):
all the organic matter or the leaves or trunks or
things that die and fall to the forest floor. But
because of water and these are typically water logged areas
or swamps, there is only partial decomposition and there's a
lot of carbon that is sequestered in this peat. And
this peat actually can be meters and meters deep. Now,
(07:23):
what happens when you drain this peat swamp for palm oil,
Essentially a lot of this dries out, and any spark,
any lightning, can cause for fires and uncontrolled burning for
implantations and around plantations. So from this that of course
releases a lot of emissions. And actually the emissions of
(07:47):
palm planted on peat can be ten times compared to
palm planted on mineral soils.
Speaker 1 (07:54):
That's amazing.
Speaker 2 (07:55):
So unsurprisingly, the industry has been very much focused on
halting deforestation and also preventing new development on peat, and
we've been seeing results. Right in Indonesia and Malaysia. Deforestation
rates have really dropped sharply in the recent years. Taking
Indonesia for example, primary forest loss fell by sixty four
(08:18):
percent between twenty twenty and twenty twenty two compared to
twenty fifteen to twenty seventeen. In Malaysia, similarly, deforestations dropped
by fifty seven percent from its peak in twenty fourteen
to twenty sixteen. Interestingly, taking Malaysia as the example, the
land area and the palm cultivation has been relatively flat
(08:39):
for the last ten years. But what we do see
is the production continues to increase, and that's because the
industry has been focusing on how to increase yields from
and existing from existing plantations without needing to open up
new plantations. The second bit about peat I think many
of you may have heard of the a r SPO,
(09:02):
and that's Round Table for Sustainable Palm Oil. So that's
really the kind of a global association that looks at
how to surign palm oil to be sustainable. There's also MSPO,
the Malaysian version, and ISPU the Indonesia local version. So
RSPO and MSPO both prohibit new peatland development, and in
(09:23):
Indonesia there is now a permanent moratorium on the conversion
of primary forests and peatlands. So taking the whole you know,
the what I talked about above ground forest cover and
below ground forest cover. What if you strip out those impacts?
What if you plant palm oil without deforestation and without
(09:43):
planting on peat. So if you look at conventional palm
oil emissions per ton is actually about the same as
other vegetable oils like so i bean, and its slightly
higher than rape seed oil. But if you have sustainably
planted palm that actually emits about eighty percent less than
conventional palm oil, and that makes it even lower intensity
(10:07):
than sunflower. On top of that, palm oil is super
super productive, right, so on the same area of land,
you can actually get four to ten times the amount
of oil from palm compared to things like soybean, sunflower,
or rape seed. I think this is clearly illustrated by
the fact that if you look at what's happening in
(10:29):
the world today, you can see that palm oil is
about forty percent, actually more than forty percent of the
world's vegetable oil, but it's planted on less than ten
percent of the land which is devoted to vegetable oil.
So that's a huge difference. Now, one thing I want
to bring up actually, and this is quite interesting and
not many people actually talk about this, but under the
(10:53):
GHG protocol, which is I guess, the globally accepted protocol
for carbon accounting, the emissions from land use change, for example,
in agriculture, they're amortized over a period of twenty years.
And so what happens is it makes the first generation
of palm oil plantations much higher emitting than second generation ones. Now, interestingly,
(11:14):
and this is not something that many people actually know
or talk about under the GHG protocol, and that's kind
of the global the globally accepted GHG accounting protocol, the
emissions from land use change, especially from agriculture, are amortized
over a period of twenty years. So what happens is
(11:37):
that it makes first generation palm oil plantations much higher
emitting than replanting on existing plantations I see. Also, this
makes emissions from first generation planted crops much higher than
crop that were planted on historically deforested land. So depending
on who you speak to, you may get a sense
(11:58):
of a bit of ingestice is that you know, just
because in Malaysia and Indonesia the palmel plantations are much
younger and more recently established, this makes palmel much higher
emitting like for like than say crops planted and developed
countries where the deforestation also took place, but just that
it took place centuries ago.
Speaker 1 (12:20):
Nice.
Speaker 2 (12:21):
So on the flip side, you know, there is the
upside there is that since many of the palmel plantations
in these two countries are now mature and due for
a planting, this would actually lead to a natural decline
of emissions over time.
Speaker 1 (12:38):
Super interesting. So the key here is to more sustainable
palm oil is really to stop deforestation and planting on peat.
And how about the social aspect of this?
Speaker 2 (12:49):
Ah, great, So that comes to the E in NDP
E and E stands for exploitation, so it's no exploitation. Yeah,
plenty of social issues in palm oil, you know, things
like human rights issues, labor issues, especially in the past.
Of course, with you know, implementation of certification schemes like
(13:13):
RSPO or MSPO, this is now becoming a lot stricter
or it has become a lot stricter. So for example,
another acronym here, sorry, before large scale planting or land
conversion can be done, this thing called f PICK is required.
(13:33):
F PICK is fpi C and it stands for free
prior informed consent, So this is now required under the
certification schemes. Also there's prohibition of practices of things like
you know, withholding passports, payment of recruitment fees, which are
all actually kind of part of modern slavery. So yeah,
(13:57):
talking about the economic issues now, I think palm oil
it's significantly more affordable than other major vegetable oils, and
that's made it a staple in low and middle income countries.
And by the way, palm oil is not just used
for food and biodiesel. It's really in everything from soap
(14:18):
to shampoos, to lipstick to I don't know, pizza and
ice cream. Right, that's right. And because it's so affordable,
it really enables palm oil to play a critical role
in food security and dietary access across the developing world.
Speaker 1 (14:35):
Given what you've just said, I would think that the
Bank isn't looking at reducing financing for palm oil, but
rather trying to reshape its growth trajectory. So what's your
strategy there in how do you balance the negative impacts
with the benefits you mentioned?
Speaker 2 (14:49):
Absolutely, the global demand for palm oil is going to
increase because population is still increasing, so there is that
exiting or REDI using financing for pomel is something that
we're absolutely not trying to do. Instead, what we're trying
to do is to support sustainable palm oil that's without
deforestation or planting on pete and without expectation. And the
(15:13):
question is how do we curb these destructive practices? And also,
I guess not support the bad actress because there are
in every situation, there always be some bad actress out there.
And we look at this really from two perspectives. One
is how do we reduce harm? How do we reduce
(15:34):
negative impacts? On the other side, we try and see
how we can create as much positive impact as possible, right,
and that's our overall philosophy. How do we achieve a
net positive impact? So looking at harm, CIMB has established
our MDPE policy back in twenty twenty one, and we
(15:55):
also require our palmerl clients to be certified with either
MSPO our i PO, and we highly encourage our SPO
adoption as well. Now, aside from deforestation and pete, which
I've talked about, the other major emission factor for palm
oil is what we call POME. Sorry, it's another acronym.
(16:17):
It's POME and it stands for palm oil mill affluent.
And this is really coming out from the affluent that
comes out of the palm oil mills. So after the
palm oil is crushed and the oil comes out, there
is affluent that I guess sits in sedimentation ponds and
and methane is released from that. So what we do
(16:38):
here is we try and encourage and also support our
clients by through financing, for example, to put in place
bioguests capture facilities at their mills. Now coming to the
E again, So we talked about human rights, and this
is what we've we've started doing. We've implemented human rights
requirements to ens sure that fpic processes are respected for
(17:03):
new developments. We also have a human rights policy and
that's where we ask our clients in sensitive sectors and
sectors with high human rights risk to conduct a human
rights due diligence and establish a grievance mechanism for ourselves. Actually,
we have just implemented a public grievance mechanism, which I'm
(17:24):
actually really proud of. So what this means is that
let's say we are financing a client who has made
some human rights violations and disturbed the local community, for example,
then that community can actually reach out to us directly
(17:44):
to raise a grievance I see. So the other thing
is looking at livelihoods. Right, the palm oil industry employees
around three million smallholders in Malaysia, and in these are
small farmers and very in very rare rural areas, so
there are significant part of the supply chain. Depending on
(18:08):
which country is up to forty percent of palm all
area is I guess cultivated by these smallholders. So one
of the things we're grappling with is how we support
the millions of smallholders because when standards increase, when we
have traceability requirements, they're really at risk of being left
(18:30):
out or cut out of supply chains as part of
that green transition.
Speaker 1 (18:35):
I'm really glad you mentioned the challenge of working with smallholders.
I think it's a reality that sometimes overlooked when discussing
how best the effect change at scale And could you
elaborate more on your experience here?
Speaker 2 (18:47):
Oh, challenges so many. I can talk all day about this,
but I'll focus on a few key ones.
Speaker 1 (18:54):
Well.
Speaker 2 (18:55):
First of all, they're really really small plantations, right, so
the average size of a smallholder farm is around two
to six hectors and well depending on location. But if
two to six hectors is the average size, that means
that many, many, many of them are much smaller than
the size. The other thing is that small holders operate.
(19:19):
Of course, they're they're very fragmented geographically, but also the
value chains could be highly informal and are also super complex, right,
so it goes through a network of intermediaries and and dealers,
et cetera before it actually makes it to the mill
and the refinery. So this makes tracing where the palm
(19:43):
oil comes from and to to ascertain whether you know
that that I guess that graham or palm oil you're
you're using comes from a source that is where there's
no deforestation and where it's planted sustainably. And yeah, because
the dealers, what they tend to do is to to
mix the fresh fruit bunches from different sources, so that
is a huge challenge. There are other challenges as well,
(20:05):
so for example, land tenure uncertainty. A lot of smallholders
don't have formal land titles and they don't have clear
legal documentation. So coming from a perspective of a bank,
this makes it almost impossible to finance because they can't
prove that the land belongs to them. Of course, they
(20:25):
have limited collateral, they have low financial literacy, and they're
really vulnerable to market fluctuations and yield variability. So it's
really really challenging to bank them because they're very high risk.
That said, though, we're still working really hard to try
(20:47):
and figure out how to you know, tackle some of
these really key issues because we're talking about a large
number of people and a really important crop. So what
we're doing is that we were working with partners to
do things like you know, blended finance to reduce risk,
also looking for partners who can provide technical assistance. So
(21:11):
recently we partnered with wild Asia and they've been working
on the ground for the last decade or so or
probably more to uplift smallholders and improve their sustainability practices.
Now we're still actively looking for partners who can work
with us on small holders and so if you are,
(21:34):
if you happen to be interested in this area as well,
especially if you can come and be a blended finance
partner with us, please do reach out. But be warned
it's very challenging. So switching to you know, broader stakeholders right,
one of the challenges that we have is that there's
still a huge misconception about palm oil and that palm
(21:56):
oil is all around bad. So let me give you
an example. I was at cop and this is the
I guess largest gathering of climate experts in the world.
This was a few years ago, maybe two to three
years ago, and I was having this conversation some person
on a panel, very highly educated, and I was telling
him about cimb's net zero target for palm oil, and
(22:20):
the first reaction he gave me was, oh, does that
mean you're exiting palm oil completely? And you know, I
was really taken aback because the whole conversation about exiting
or boycotting palm oil, it was something that was I
guess discussed maybe about ten years ago. But civil society,
(22:40):
scientists and the and the scientific community have really realized
that it's not about not consuming or using palm oil,
but it's about supporting sustainable palm oil. Now that in
itself comes with more challenges so producing sustainable palm oil
(23:00):
and it's I guess it's logically so because you know,
you have to put in place traceability mechanisms, you have
to improve agricultural practices. There are some set of sides
for areas that you don't plan on because of the
high carbon stock or things like that. So really what
we need is buyers and countries that are willing to
(23:22):
buy this sustainable palm oil, which, by the way, even
with a small premium, is still more affordable than other oils.
And yeah, so they need to be willing to I guess,
pay a little bit of premium for that. So, just
to give you an illustration, in twenty twenty three, of
all all the certified palm oil produced and this is
(23:44):
certified under RSPO, about thirty percent of that certified palm
oil had to be sold as conventional palm oil because
we just didn't have enough buyers that we're willing to
pay the small premium. So really what we need is
a greater commitment from downstream bias. So that's individuals, it's retailers,
(24:05):
it's FMCG to buy sustainable palm oil. Because you know,
if there isn't sufficient demand and willingness to pay the premium,
the producers a very little incentive to transition to sustainable practices.
Speaker 1 (24:23):
Well, thanks a lot for that. I think that there's
a lot to digest that I did want to expand
the conversation as well beyond palm oil. And one of
the things that Southeast Asia is widely recognized to be
is it's exceptional richness in biodiversity and natural capital, certainly
Malaysia where CIMB is headquartered, as well as Indonesia island,
(24:46):
where you have a large footprint. So I'm curious to
know how this influences your sustainability strategy and how you're
incorporating biodiversity and natural capital protection more generally into your
work life impact.
Speaker 2 (25:01):
Absolutely so, countries like Malaysia and Indonesia what we call
mega diverse. That means they're home to globally critically important
systems things like peatlands, rainforests, mangroves, and there a high
number of endemic species which are not found anywhere else
(25:21):
in the world. Now, economic activities and infrastructure development, they've
been key drivers of deforestation and nature loss, and that
in turn is a leading driver of both GHG emissions
and ecosystem degradation in the region. And you know what, Conrad,
I'm so happy that you're asking me about protection of
(25:43):
natural capital, because while there is an interest in programs
like tree planting, it's super important to note that protecting
the intact ecosystems that we have is so much more
important and so much more effective and urgent in both
(26:05):
protecting nature and climate change.
Speaker 1 (26:07):
I couldn't agree more that.
Speaker 2 (26:09):
So, you know what, once once your primary forests are
cleared or peatlents are cleared, it's virtually impossible to fully
restore the original ecological functions or the biodiversity in that ecosystem.
So just putting it really simply, you can't rebuild what's
already lost, so please don't just try it in the
(26:30):
first place. So yeah, So how we approach this is
at CIMB we look at natural capital kind of an
integrated way, so looking at both climate, nature and people
together and hand in hand and all this is kind
of looked at holistically within our internal processes and our
(26:54):
and our risk screens, because you know, when we protect nature,
we're also addressing emissions but also safeguarding livelihoods. So I
talked about our MDPE policy earlier, and by the way,
we've recently expanded that policy to include third party suppliers,
(27:16):
and we've also started introducing traceability requirements to ensure that
the supply chain is the forestation free right now, when
we look at financing, especially for new clients, we do
what we call a nature I guess risk screening, and
we've only started doing this fairly recently, and we do
(27:38):
this especially for clients or projects that operate in key
biodiversity areas or water stressed zones. I guess. One of
the challenges there is that it's not difficult to do,
but it's really difficult to scale. So let me just
give you an example. Right, So, if we have a
client having some land news change project, what we'll first
(28:01):
need to do is to get the full map and
coordinates from them. Then we need to plug it into
a tool to create a shape file, and then using
that shape file, we will then need to plug it
into a different tool to kind of look at the
overlay between biodiversity key areas, et cetera, and then into
another tool to look at the risk of it. Although
(28:22):
it's not rocket science, but the tools that we have
today and the data granularity today doesn't really help and
it's not enough. We've also published a nature statement and
you can take a look at that on our website,
and that kind of sets our intent to align with
t NFD more acronyms and to integrate nature risk across
(28:44):
our operations. What we're doing now is that we're working
on our leap analysis, so that's trying to assess the
nature risks within our portfolio. But there are many challenges,
for example in obtaining locations civic data, and we are
really struggling to figure out what kind of targets that
(29:05):
that we can set because of the diverse geographies and sectors.
So you know, I can't even count the number of
times I have said the word challenge. So it's really challenging.
So why do we keep trying? Right? Well, okay, to
be honest, are kind of push for to to look
(29:27):
at nature risk and impacts was initially driven by reputational risk.
You know, we've had civil society calling us out for
funding specific projects, but increasingly we are looking more and
more at credit risk. Right through the risk analysis that
(29:47):
we've been doing. What we're we found is that many
of our clients are not only impacting nature, but they're
also dependent on nature in ways that pose financial vulnerabilities.
So we've talked a lot about palmel and agriculture, and
those are very obvious, right, deforestation, land, US change. But
let me, I guess, talk about two sectors that are
(30:10):
maybe less obvious. First is oil and gas, right, so
offshore and coastal operations of all gas companies are dependent
on healthy marine ecosystems, so things like mangroves, seagrasses, because
what these do is they stabilize coastlines and they protect
(30:30):
infrastructure from things like storm searchers. Right. So, when these
ecosystems are degraded, and it could be through direct impact
or adjacent industructivity, the risk of physical damage to assets
from erosion or from storms or rising sea level increases
(30:50):
a lot. And what this does, in turn is to
raise insurance costs, and it increases the risk and replacement
costs of the physical assets and infra that is damaged.
Maybe another example is hydro power plants, right. So quite
apart from the emissions from construction as well as the
emissions or the carbon released when values are flooded, hydro
(31:13):
power plants are also highly dependent on a stable upstream
water flow, right, And this depends on guess what forest cover.
So forest deforestation in catchment areas can actually well make
water flow highly unstable. It can silt up the reservoirs
and that would impact the generation efficiency and increase maintenance
(31:36):
costs and of course impacts P and L. So really,
through this analysis, right, it's become increasingly clear that ecosystem
degradation undermines both climate goals through emissions as well as
nature as well as kind of the sectors that depend
on them and the communities themselves.
Speaker 1 (31:57):
That makes a lot of sense, I suppose from an
investor point of view, what I've noticed is that there
has been a fair amount of interest in nature based solutions,
and I'm curious to know what you see as the
opportunities in some of the markets you're operate in.
Speaker 2 (32:16):
Yeah. Actually, thanks for this question, Conrad, because when I
was doing research for this podcast, what I found was
some really interesting stats. There's a study that shows that
Asian accounts for almost a quarter of all global nature
based solutions potential, and Malaysian and Indonesia alone make up
(32:40):
eighteen percent. So there's really a high concentration of potential
in these two countries and huge opportunities. So let's talk
about why it's important and why we're focusing on nature
based solutions and carbon credits that are generated as a
result of this. First of all, carbon credits can be
(33:00):
an alternative revenue stream, right, So we talked about things
like palm oil and and where they need to to
deforce to plant that palm oil, So the carbon credits
can potentially be an alternative source of revenue. Secondly, it
also helps to make projects more financially viable where they
(33:21):
may not have been before, but more than that, you know,
there's also a lot of opportunity to involve the local
and indigenous communities for social, economic uplift, employment, et cetera.
And of course there's a there's a whole huge, kind
of a wider and broader impact where you know, it
helps to protect and and even increase the ecosystem services,
(33:46):
so ecosystem services like you know, water provisioning, pollination, et cetera.
This is for the surrounding communities and the businesses that
depend on them. So I'm glad to say that, you know,
we we have some project done in the region, but
there's still very few and far in between. So some
(34:06):
examples recently, we've had the Kuamored Rainforest Conservation project that's
in Sabah in East Malaysia, and there we had about
eighty three thousand hectares of tropical forests and that that
generated or generates I think about eight hundred thousand verified
carbon units a year. There's also cutting a Mandaya project
(34:30):
that's in Indonesia. I think it's in Kalimantan, Central Kalimantan,
and very similar. There are a lot of carbon credits
being generated, actually even more because This project has a
lot of peatland in it and they're benefiting through that
project about forty five thousand local community members in addition
(34:53):
to you know, whatever carbon credits they generate, right.
Speaker 1 (34:55):
And these would be from avoided emissions.
Speaker 2 (34:58):
Absolutely absolutely. Yeah. So, although you know, we do see
some projects here and there, there are still huge financing
gaps for nature, for nature protection, nature restoration. In Malaysia,
we're looking at a gap of four and a half
billion USD from twenty eighteen to twenty twenty five. In
(35:21):
Indonesia is even more, it's a ten point six billion
over a six year period. Now globally, taking a step
back and looking at global stats depends on which slasha
looking at. Numbers are always big, but always different. The
nature financing gap is about four hundred billion dollars a year.
Four hundred billion. Now this seems like a crazy huge number, right,
(35:44):
but let me just put it into context. Four hundred
billion is less than what the world spends on soft
drinks in a year. So it's really not insurmountable if
you think about it from that perspective.
Speaker 1 (35:57):
Could you talk a bit about the gaps and how
we might bridge those.
Speaker 2 (36:02):
Yeah, So pricing is a gap. There's high uncertainty in pricing.
But importantly, you know, if you're going to use carbon
credits to kind of displace another activity, another harmful activity,
the price of the common credit needs to be high
enough for it to be reviable alternative. Right. So coming
back to the example of palm oil, there's a study
(36:24):
that shows that in order for it to be equivalent,
the price of carbon needs to be between seventy to
one hundred US dollars per ton, right, And there are
very few carbon tax schemes that are at that level,
especially in Asienes. But there's also limited local demand. We
(36:44):
don't have compliance markets in most Asian countries, so local
demand is really limited. And so that's why it's really
important that the carbon projects in this region adopt globally
accepted and credible st andrews and methodologies. Yeah, otherwise you
won't be able to sell to other countries. Right. So
(37:07):
what we're trying to do here, and we are actively
discussing this with a bunch of clients. We've got a
pipeline of projects that we're trying to finance and make happen.
We're actively talking about carbon markets and trying to figure
out how to overcome some of these barriers at for example,
at COPP we also partner with Carbon Exchange to develop
(37:29):
the carbon market ecosystem and Malaysia, and we also support
ig X with a similar thing in Indonesia.
Speaker 1 (37:38):
Well, Lwan, thank you so much. I'd love to continue
our conversation, but we are almost out of time for today,
and once again, thank you very much for sharing your
time and your insights to all our listeners. I hope
you enjoyed my conversation with Lewen as much as I have,
and you can find out more information about how companies
and industries globally responding to ESG related risks and opportunities
(38:00):
by going to bispace ESG go on any Bloomberg terminal.
If you have an ESG quandary or burning question you
would like to ask bi's expert analysts, please send us
an email at ESG Currents at Bloomberg dot net. Thank
you for tuning in, and do join us again next
time
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social NEGA trends, mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo. We aim to break these down with industry experts.
(00:31):
Welcome to ESG Currents, your guide to navigating the evolving
ESG space, one topic at the time, brought to you
by Bloomberg Intelligence, part of Bloomberg's research department with five
hundred analysts and strategists working across all major world markets.
I'm Conrad tan ESG integration Analyst for APEC at Bloomberg Intelligence,
(00:53):
and I'm your host for today's episode. Now, today, we're
talking about decarbonization in Southeast Asia through the lens of
one of its biggest banks, with unique insights on palm
oil and the agriculture sector that are significant contributors to
the regent's economies, and how human rights and why their
social considerations influence their business strategy. Joining me today is
(01:16):
Luenzia Group, Chief Sustainability Officer at cimb One. Of Malaysia's
biggest banking groups with a deep footprint across Asian In
addition to her role as cimb's Chief Sustainability Officer, Luen
is also a steering group member of the Net Zero
Banking Alliance. Luenn is based in Singapore and I'm delighted
(01:36):
that she's agreed to join me in our Bloomberg office here. Luenn,
I'm really glad to have you with us now. You've
been working in sustainability for a long time. Could you
give us a brief background about your involvement in sustainability
that brought you here today.
Speaker 2 (01:50):
Hi, Conrad, I'm really happy to be here. Thank you
for inviting me. Now. I've always been interested in sustainability
to a certain extent, even when I was young. But
what really triggered me, and you know, I wish I
could say something highly intellectual, like I read a research
paper or something like that. Unfortunately, or fortunately it was
(02:11):
because actually of a Netflix documentary, and that Netflix documentary
is called conspiracy, so it's a like conspiracy but with
a W. And that really showed open my eyes, you know,
really to the severe impacts of the agricultural industry, especially
cattle farming, and from there also so happened that one
(02:32):
of the senior leaders at CMB went on stage and
he was talking about this something called sustainability. And back
at that time, this was twenty seventeen, I think, you know,
I was wondering what was this and how is this
relevant to banking. So I decided to kind of just
put up my hand and said, hey, I want to
do this because this looks really interesting. And at that
(02:52):
time I was running transformation for the group, and I
did this as a special project. But from a special
project it became a strategic roadmap, It became a couple
of foundational policies, and we set up a department and
I guess the rest is history.
Speaker 1 (03:08):
Thank you. I'd like to dive straight into the tough
issues now. CIMB has significant financing exposure to the agriculture
sector and palm oil in particular. The sector is a
big contributor to economies in Southeast Asia, with Malaysia and
Indonesia the world's largest palm oil producers, but it's also
been linked over the years to environmental and social issues
such as deforestation and land conflicts. I understand CIMB was
(03:31):
the first bank to set a decarbonization target for palm
oil based on SBTi guidance. Could you share your strategy
on curbing financed emissions in palm oil and the wider
agricultural sector and how do you balance this with social considerations.
Speaker 2 (03:46):
Thanks for asking about our net zero targets. We were
actually the first Asian member of the Net Zero Banking
Alliance when it was set up, and as part of that,
we have committed to net zero by twenty fifty across
all scopes of our emissions. We've also already set twenty
thirty targets, which is kind of interim two getting to
(04:07):
net zero by twenty fifty, and that's for six key
sectors and those cover sixty percent of our total portfolio,
which includes lending, includes investments, as well as the entire
consumer book. So we're pretty committed to sustainability. I know
every company you interview probably says the same thing, but
(04:27):
I hope this demonstrates some of that. So coming to
palm is really a key commodity in the region, and
it contributes about three to five percent to GDP in
Indonesian Malaysia, which actually collectively make up about eighty five
percent of global palmmel production. On top of that, it
employs around four million people and supports about twelve million
(04:49):
people indirectly in these two countries. So it's one of
the six sectors where we've set net zero targets, not
just because of the carbon emissions, but also because of
our large exposure to that. Now it's important to note, though,
that our emissions target is an emission intensity target, where
it's measured by tons of CO two per ton of
(05:12):
crude palm oil produced, and our target there is to
reduce emissions intensity of our palm oil portfolio by sixteen percent,
that's one six by twenty thirty. Now, how do we
do this right? First, we need to understand the palm
oil sector a little bit, where emissions come from, et cetera.
I have to say, and you'd mentioned this, that palm
(05:34):
has a bad reputation as a leading cause of deforestation, biodiversity, lass,
et cetera. And this is not unfounded. Palm oil cultivation
actually drove large scale deforestation in Malaysia and Indonesia starting
in the I guess eighties and nineties, but ramping up
through to the twenty tens. And at the stage I
(05:54):
think it will be a good time to introduce four
very important letters, a very important acronym. It's called NDPE
that stands for no deforestation, no planting on pete, no
exploitation NDPE. And we will we will actually go through this,
and I hope you remember these four letters because they're
(06:16):
very important as we go through this. So let's start
with D in NDPE. So D is deforestation and this
is where we look at the above ground cover, yeah,
of what was on the land prior to planting. And
there's a really big difference depending on what the land
(06:36):
was used for before. If it was mature forests, that
could actually contribute up to seventy percent of the total
emissions of the palm oil. The second bit is what
we see below ground or we don't see below ground,
and this is from the peat and that's your P
in NDPE. Now what is pt actually, So pete is
(07:00):
all the organic matter or the leaves or trunks or
things that die and fall to the forest floor. But
because of water and these are typically water logged areas
or swamps, there is only partial decomposition and there's a
lot of carbon that is sequestered in this peat. And
this peat actually can be meters and meters deep. Now,
(07:23):
what happens when you drain this peat swamp for palm oil,
Essentially a lot of this dries out, and any spark,
any lightning, can cause for fires and uncontrolled burning for
implantations and around plantations. So from this that of course
releases a lot of emissions. And actually the emissions of
(07:47):
palm planted on peat can be ten times compared to
palm planted on mineral soils.
Speaker 1 (07:54):
That's amazing.
Speaker 2 (07:55):
So unsurprisingly, the industry has been very much focused on
halting deforestation and also preventing new development on peat, and
we've been seeing results. Right in Indonesia and Malaysia. Deforestation
rates have really dropped sharply in the recent years. Taking
Indonesia for example, primary forest loss fell by sixty four
(08:18):
percent between twenty twenty and twenty twenty two compared to
twenty fifteen to twenty seventeen. In Malaysia, similarly, deforestations dropped
by fifty seven percent from its peak in twenty fourteen
to twenty sixteen. Interestingly, taking Malaysia as the example, the
land area and the palm cultivation has been relatively flat
(08:39):
for the last ten years. But what we do see
is the production continues to increase, and that's because the
industry has been focusing on how to increase yields from
and existing from existing plantations without needing to open up
new plantations. The second bit about peat I think many
of you may have heard of the a r SPO,
(09:02):
and that's Round Table for Sustainable Palm Oil. So that's
really the kind of a global association that looks at
how to surign palm oil to be sustainable. There's also MSPO,
the Malaysian version, and ISPU the Indonesia local version. So
RSPO and MSPO both prohibit new peatland development, and in
(09:23):
Indonesia there is now a permanent moratorium on the conversion
of primary forests and peatlands. So taking the whole you know,
the what I talked about above ground forest cover and
below ground forest cover. What if you strip out those impacts?
What if you plant palm oil without deforestation and without
(09:43):
planting on peat. So if you look at conventional palm
oil emissions per ton is actually about the same as
other vegetable oils like so i bean, and its slightly
higher than rape seed oil. But if you have sustainably
planted palm that actually emits about eighty percent less than
conventional palm oil, and that makes it even lower intensity
(10:07):
than sunflower. On top of that, palm oil is super
super productive, right, so on the same area of land,
you can actually get four to ten times the amount
of oil from palm compared to things like soybean, sunflower,
or rape seed. I think this is clearly illustrated by
the fact that if you look at what's happening in
(10:29):
the world today, you can see that palm oil is
about forty percent, actually more than forty percent of the
world's vegetable oil, but it's planted on less than ten
percent of the land which is devoted to vegetable oil.
So that's a huge difference. Now, one thing I want
to bring up actually, and this is quite interesting and
not many people actually talk about this, but under the
(10:53):
GHG protocol, which is I guess, the globally accepted protocol
for carbon accounting, the emissions from land use change, for example,
in agriculture, they're amortized over a period of twenty years.
And so what happens is it makes the first generation
of palm oil plantations much higher emitting than second generation ones. Now, interestingly,
(11:14):
and this is not something that many people actually know
or talk about under the GHG protocol, and that's kind
of the global the globally accepted GHG accounting protocol, the
emissions from land use change, especially from agriculture, are amortized
over a period of twenty years. So what happens is
(11:37):
that it makes first generation palm oil plantations much higher
emitting than replanting on existing plantations I see. Also, this
makes emissions from first generation planted crops much higher than
crop that were planted on historically deforested land. So depending
on who you speak to, you may get a sense
(11:58):
of a bit of ingestice is that you know, just
because in Malaysia and Indonesia the palmel plantations are much
younger and more recently established, this makes palmel much higher
emitting like for like than say crops planted and developed
countries where the deforestation also took place, but just that
it took place centuries ago.
Speaker 1 (12:20):
Nice.
Speaker 2 (12:21):
So on the flip side, you know, there is the
upside there is that since many of the palmel plantations
in these two countries are now mature and due for
a planting, this would actually lead to a natural decline
of emissions over time.
Speaker 1 (12:38):
Super interesting. So the key here is to more sustainable
palm oil is really to stop deforestation and planting on peat.
And how about the social aspect of this?
Speaker 2 (12:49):
Ah, great, So that comes to the E in NDP
E and E stands for exploitation, so it's no exploitation. Yeah,
plenty of social issues in palm oil, you know, things
like human rights issues, labor issues, especially in the past.
Of course, with you know, implementation of certification schemes like
(13:13):
RSPO or MSPO, this is now becoming a lot stricter
or it has become a lot stricter. So for example,
another acronym here, sorry, before large scale planting or land
conversion can be done, this thing called f PICK is required.
(13:33):
F PICK is fpi C and it stands for free
prior informed consent, So this is now required under the
certification schemes. Also there's prohibition of practices of things like
you know, withholding passports, payment of recruitment fees, which are
all actually kind of part of modern slavery. So yeah,
(13:57):
talking about the economic issues now, I think palm oil
it's significantly more affordable than other major vegetable oils, and
that's made it a staple in low and middle income countries.
And by the way, palm oil is not just used
for food and biodiesel. It's really in everything from soap
(14:18):
to shampoos, to lipstick to I don't know, pizza and
ice cream. Right, that's right. And because it's so affordable,
it really enables palm oil to play a critical role
in food security and dietary access across the developing world.
Speaker 1 (14:35):
Given what you've just said, I would think that the
Bank isn't looking at reducing financing for palm oil, but
rather trying to reshape its growth trajectory. So what's your
strategy there in how do you balance the negative impacts
with the benefits you mentioned?
Speaker 2 (14:49):
Absolutely, the global demand for palm oil is going to
increase because population is still increasing, so there is that
exiting or REDI using financing for pomel is something that
we're absolutely not trying to do. Instead, what we're trying
to do is to support sustainable palm oil that's without
deforestation or planting on pete and without expectation. And the
(15:13):
question is how do we curb these destructive practices? And also,
I guess not support the bad actress because there are
in every situation, there always be some bad actress out there.
And we look at this really from two perspectives. One
is how do we reduce harm? How do we reduce
(15:34):
negative impacts? On the other side, we try and see
how we can create as much positive impact as possible, right,
and that's our overall philosophy. How do we achieve a
net positive impact? So looking at harm, CIMB has established
our MDPE policy back in twenty twenty one, and we
(15:55):
also require our palmerl clients to be certified with either
MSPO our i PO, and we highly encourage our SPO
adoption as well. Now, aside from deforestation and pete, which
I've talked about, the other major emission factor for palm
oil is what we call POME. Sorry, it's another acronym.
(16:17):
It's POME and it stands for palm oil mill affluent.
And this is really coming out from the affluent that
comes out of the palm oil mills. So after the
palm oil is crushed and the oil comes out, there
is affluent that I guess sits in sedimentation ponds and
and methane is released from that. So what we do
(16:38):
here is we try and encourage and also support our
clients by through financing, for example, to put in place
bioguests capture facilities at their mills. Now coming to the
E again, So we talked about human rights, and this
is what we've we've started doing. We've implemented human rights
requirements to ens sure that fpic processes are respected for
(17:03):
new developments. We also have a human rights policy and
that's where we ask our clients in sensitive sectors and
sectors with high human rights risk to conduct a human
rights due diligence and establish a grievance mechanism for ourselves. Actually,
we have just implemented a public grievance mechanism, which I'm
(17:24):
actually really proud of. So what this means is that
let's say we are financing a client who has made
some human rights violations and disturbed the local community, for example,
then that community can actually reach out to us directly
(17:44):
to raise a grievance I see. So the other thing
is looking at livelihoods. Right, the palm oil industry employees
around three million smallholders in Malaysia, and in these are
small farmers and very in very rare rural areas, so
there are significant part of the supply chain. Depending on
(18:08):
which country is up to forty percent of palm all
area is I guess cultivated by these smallholders. So one
of the things we're grappling with is how we support
the millions of smallholders because when standards increase, when we
have traceability requirements, they're really at risk of being left
(18:30):
out or cut out of supply chains as part of
that green transition.
Speaker 1 (18:35):
I'm really glad you mentioned the challenge of working with smallholders.
I think it's a reality that sometimes overlooked when discussing
how best the effect change at scale And could you
elaborate more on your experience here?
Speaker 2 (18:47):
Oh, challenges so many. I can talk all day about this,
but I'll focus on a few key ones.
Speaker 1 (18:54):
Well.
Speaker 2 (18:55):
First of all, they're really really small plantations, right, so
the average size of a smallholder farm is around two
to six hectors and well depending on location. But if
two to six hectors is the average size, that means
that many, many, many of them are much smaller than
the size. The other thing is that small holders operate.
(19:19):
Of course, they're they're very fragmented geographically, but also the
value chains could be highly informal and are also super complex, right,
so it goes through a network of intermediaries and and dealers,
et cetera before it actually makes it to the mill
and the refinery. So this makes tracing where the palm
(19:43):
oil comes from and to to ascertain whether you know
that that I guess that graham or palm oil you're
you're using comes from a source that is where there's
no deforestation and where it's planted sustainably. And yeah, because
the dealers, what they tend to do is to to
mix the fresh fruit bunches from different sources, so that
is a huge challenge. There are other challenges as well,
(20:05):
so for example, land tenure uncertainty. A lot of smallholders
don't have formal land titles and they don't have clear
legal documentation. So coming from a perspective of a bank,
this makes it almost impossible to finance because they can't
prove that the land belongs to them. Of course, they
(20:25):
have limited collateral, they have low financial literacy, and they're
really vulnerable to market fluctuations and yield variability. So it's
really really challenging to bank them because they're very high risk.
That said, though, we're still working really hard to try
(20:47):
and figure out how to you know, tackle some of
these really key issues because we're talking about a large
number of people and a really important crop. So what
we're doing is that we were working with partners to
do things like you know, blended finance to reduce risk,
also looking for partners who can provide technical assistance. So
(21:11):
recently we partnered with wild Asia and they've been working
on the ground for the last decade or so or
probably more to uplift smallholders and improve their sustainability practices.
Now we're still actively looking for partners who can work
with us on small holders and so if you are,
(21:34):
if you happen to be interested in this area as well,
especially if you can come and be a blended finance
partner with us, please do reach out. But be warned
it's very challenging. So switching to you know, broader stakeholders right,
one of the challenges that we have is that there's
still a huge misconception about palm oil and that palm
(21:56):
oil is all around bad. So let me give you
an example. I was at cop and this is the
I guess largest gathering of climate experts in the world.
This was a few years ago, maybe two to three
years ago, and I was having this conversation some person
on a panel, very highly educated, and I was telling
him about cimb's net zero target for palm oil, and
(22:20):
the first reaction he gave me was, oh, does that
mean you're exiting palm oil completely? And you know, I
was really taken aback because the whole conversation about exiting
or boycotting palm oil, it was something that was I
guess discussed maybe about ten years ago. But civil society,
(22:40):
scientists and the and the scientific community have really realized
that it's not about not consuming or using palm oil,
but it's about supporting sustainable palm oil. Now that in
itself comes with more challenges so producing sustainable palm oil
(23:00):
and it's I guess it's logically so because you know,
you have to put in place traceability mechanisms, you have
to improve agricultural practices. There are some set of sides
for areas that you don't plan on because of the
high carbon stock or things like that. So really what
we need is buyers and countries that are willing to
(23:22):
buy this sustainable palm oil, which, by the way, even
with a small premium, is still more affordable than other oils.
And yeah, so they need to be willing to I guess,
pay a little bit of premium for that. So, just
to give you an illustration, in twenty twenty three, of
all all the certified palm oil produced and this is
(23:44):
certified under RSPO, about thirty percent of that certified palm
oil had to be sold as conventional palm oil because
we just didn't have enough buyers that we're willing to
pay the small premium. So really what we need is
a greater commitment from downstream bias. So that's individuals, it's retailers,
(24:05):
it's FMCG to buy sustainable palm oil. Because you know,
if there isn't sufficient demand and willingness to pay the premium,
the producers a very little incentive to transition to sustainable practices.
Speaker 1 (24:23):
Well, thanks a lot for that. I think that there's
a lot to digest that I did want to expand
the conversation as well beyond palm oil. And one of
the things that Southeast Asia is widely recognized to be
is it's exceptional richness in biodiversity and natural capital, certainly
Malaysia where CIMB is headquartered, as well as Indonesia island,
(24:46):
where you have a large footprint. So I'm curious to
know how this influences your sustainability strategy and how you're
incorporating biodiversity and natural capital protection more generally into your
work life impact.
Speaker 2 (25:01):
Absolutely so, countries like Malaysia and Indonesia what we call
mega diverse. That means they're home to globally critically important
systems things like peatlands, rainforests, mangroves, and there a high
number of endemic species which are not found anywhere else
(25:21):
in the world. Now, economic activities and infrastructure development, they've
been key drivers of deforestation and nature loss, and that
in turn is a leading driver of both GHG emissions
and ecosystem degradation in the region. And you know what, Conrad,
I'm so happy that you're asking me about protection of
(25:43):
natural capital, because while there is an interest in programs
like tree planting, it's super important to note that protecting
the intact ecosystems that we have is so much more
important and so much more effective and urgent in both
(26:05):
protecting nature and climate change.
Speaker 1 (26:07):
I couldn't agree more that.
Speaker 2 (26:09):
So, you know what, once once your primary forests are
cleared or peatlents are cleared, it's virtually impossible to fully
restore the original ecological functions or the biodiversity in that ecosystem.
So just putting it really simply, you can't rebuild what's
already lost, so please don't just try it in the
(26:30):
first place. So yeah, So how we approach this is
at CIMB we look at natural capital kind of an
integrated way, so looking at both climate, nature and people
together and hand in hand and all this is kind
of looked at holistically within our internal processes and our
(26:54):
and our risk screens, because you know, when we protect nature,
we're also addressing emissions but also safeguarding livelihoods. So I
talked about our MDPE policy earlier, and by the way,
we've recently expanded that policy to include third party suppliers,
(27:16):
and we've also started introducing traceability requirements to ensure that
the supply chain is the forestation free right now, when
we look at financing, especially for new clients, we do
what we call a nature I guess risk screening, and
we've only started doing this fairly recently, and we do
(27:38):
this especially for clients or projects that operate in key
biodiversity areas or water stressed zones. I guess. One of
the challenges there is that it's not difficult to do,
but it's really difficult to scale. So let me just
give you an example. Right, So, if we have a
client having some land news change project, what we'll first
(28:01):
need to do is to get the full map and
coordinates from them. Then we need to plug it into
a tool to create a shape file, and then using
that shape file, we will then need to plug it
into a different tool to kind of look at the
overlay between biodiversity key areas, et cetera, and then into
another tool to look at the risk of it. Although
(28:22):
it's not rocket science, but the tools that we have
today and the data granularity today doesn't really help and
it's not enough. We've also published a nature statement and
you can take a look at that on our website,
and that kind of sets our intent to align with
t NFD more acronyms and to integrate nature risk across
(28:44):
our operations. What we're doing now is that we're working
on our leap analysis, so that's trying to assess the
nature risks within our portfolio. But there are many challenges,
for example in obtaining locations civic data, and we are
really struggling to figure out what kind of targets that
(29:05):
that we can set because of the diverse geographies and sectors.
So you know, I can't even count the number of
times I have said the word challenge. So it's really challenging.
So why do we keep trying? Right? Well, okay, to
be honest, are kind of push for to to look
(29:27):
at nature risk and impacts was initially driven by reputational risk.
You know, we've had civil society calling us out for
funding specific projects, but increasingly we are looking more and
more at credit risk. Right through the risk analysis that
(29:47):
we've been doing. What we're we found is that many
of our clients are not only impacting nature, but they're
also dependent on nature in ways that pose financial vulnerabilities.
So we've talked a lot about palmel and agriculture, and
those are very obvious, right, deforestation, land, US change. But
let me, I guess, talk about two sectors that are
(30:10):
maybe less obvious. First is oil and gas, right, so
offshore and coastal operations of all gas companies are dependent
on healthy marine ecosystems, so things like mangroves, seagrasses, because
what these do is they stabilize coastlines and they protect
(30:30):
infrastructure from things like storm searchers. Right. So, when these
ecosystems are degraded, and it could be through direct impact
or adjacent industructivity, the risk of physical damage to assets
from erosion or from storms or rising sea level increases
(30:50):
a lot. And what this does, in turn is to
raise insurance costs, and it increases the risk and replacement
costs of the physical assets and infra that is damaged.
Maybe another example is hydro power plants, right. So quite
apart from the emissions from construction as well as the
emissions or the carbon released when values are flooded, hydro
(31:13):
power plants are also highly dependent on a stable upstream
water flow, right, And this depends on guess what forest cover.
So forest deforestation in catchment areas can actually well make
water flow highly unstable. It can silt up the reservoirs
and that would impact the generation efficiency and increase maintenance
(31:36):
costs and of course impacts P and L. So really,
through this analysis, right, it's become increasingly clear that ecosystem
degradation undermines both climate goals through emissions as well as
nature as well as kind of the sectors that depend
on them and the communities themselves.
Speaker 1 (31:57):
That makes a lot of sense, I suppose from an
investor point of view, what I've noticed is that there
has been a fair amount of interest in nature based solutions,
and I'm curious to know what you see as the
opportunities in some of the markets you're operate in.
Speaker 2 (32:16):
Yeah. Actually, thanks for this question, Conrad, because when I
was doing research for this podcast, what I found was
some really interesting stats. There's a study that shows that
Asian accounts for almost a quarter of all global nature
based solutions potential, and Malaysian and Indonesia alone make up
(32:40):
eighteen percent. So there's really a high concentration of potential
in these two countries and huge opportunities. So let's talk
about why it's important and why we're focusing on nature
based solutions and carbon credits that are generated as a
result of this. First of all, carbon credits can be
(33:00):
an alternative revenue stream, right, So we talked about things
like palm oil and and where they need to to
deforce to plant that palm oil, So the carbon credits
can potentially be an alternative source of revenue. Secondly, it
also helps to make projects more financially viable where they
(33:21):
may not have been before, but more than that, you know,
there's also a lot of opportunity to involve the local
and indigenous communities for social, economic uplift, employment, et cetera.
And of course there's a there's a whole huge, kind
of a wider and broader impact where you know, it
helps to protect and and even increase the ecosystem services,
(33:46):
so ecosystem services like you know, water provisioning, pollination, et cetera.
This is for the surrounding communities and the businesses that
depend on them. So I'm glad to say that, you know,
we we have some project done in the region, but
there's still very few and far in between. So some
(34:06):
examples recently, we've had the Kuamored Rainforest Conservation project that's
in Sabah in East Malaysia, and there we had about
eighty three thousand hectares of tropical forests and that that
generated or generates I think about eight hundred thousand verified
carbon units a year. There's also cutting a Mandaya project
(34:30):
that's in Indonesia. I think it's in Kalimantan, Central Kalimantan,
and very similar. There are a lot of carbon credits
being generated, actually even more because This project has a
lot of peatland in it and they're benefiting through that
project about forty five thousand local community members in addition
(34:53):
to you know, whatever carbon credits they generate, right.
Speaker 1 (34:55):
And these would be from avoided emissions.
Speaker 2 (34:58):
Absolutely absolutely. Yeah. So, although you know, we do see
some projects here and there, there are still huge financing
gaps for nature, for nature protection, nature restoration. In Malaysia,
we're looking at a gap of four and a half
billion USD from twenty eighteen to twenty twenty five. In
(35:21):
Indonesia is even more, it's a ten point six billion
over a six year period. Now globally, taking a step
back and looking at global stats depends on which slasha
looking at. Numbers are always big, but always different. The
nature financing gap is about four hundred billion dollars a year.
Four hundred billion. Now this seems like a crazy huge number, right,
(35:44):
but let me just put it into context. Four hundred
billion is less than what the world spends on soft
drinks in a year. So it's really not insurmountable if
you think about it from that perspective.
Speaker 1 (35:57):
Could you talk a bit about the gaps and how
we might bridge those.
Speaker 2 (36:02):
Yeah, So pricing is a gap. There's high uncertainty in pricing.
But importantly, you know, if you're going to use carbon
credits to kind of displace another activity, another harmful activity,
the price of the common credit needs to be high
enough for it to be reviable alternative. Right. So coming
back to the example of palm oil, there's a study
(36:24):
that shows that in order for it to be equivalent,
the price of carbon needs to be between seventy to
one hundred US dollars per ton, right, And there are
very few carbon tax schemes that are at that level,
especially in Asienes. But there's also limited local demand. We
(36:44):
don't have compliance markets in most Asian countries, so local
demand is really limited. And so that's why it's really
important that the carbon projects in this region adopt globally
accepted and credible st andrews and methodologies. Yeah, otherwise you
won't be able to sell to other countries. Right. So
(37:07):
what we're trying to do here, and we are actively
discussing this with a bunch of clients. We've got a
pipeline of projects that we're trying to finance and make happen.
We're actively talking about carbon markets and trying to figure
out how to overcome some of these barriers at for example,
at COPP we also partner with Carbon Exchange to develop
(37:29):
the carbon market ecosystem and Malaysia, and we also support
ig X with a similar thing in Indonesia.
Speaker 1 (37:38):
Well, Lwan, thank you so much. I'd love to continue
our conversation, but we are almost out of time for today,
and once again, thank you very much for sharing your
time and your insights to all our listeners. I hope
you enjoyed my conversation with Lewen as much as I have,
and you can find out more information about how companies
and industries globally responding to ESG related risks and opportunities
(38:00):
by going to bispace ESG go on any Bloomberg terminal.
If you have an ESG quandary or burning question you
would like to ask bi's expert analysts, please send us
an email at ESG Currents at Bloomberg dot net. Thank
you for tuning in, and do join us again next
time
Host
Eric Kane
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