To prevent haze, financial players, smallholders have outsized role to play

Signs warn that haze may soon return to the skies of South-east Asia. Fires have already broken out in Riau and a state of emergency declared earlier this month. Yet, while some fear the worst, the declaration shows the urgent attention that the Indonesian President Joko Widodo is bringing to the issue.

Rather than wait until fires rage out of control, the emergency was declared early to activate more resources and respond swiftly on the ground. This is pivotal. As the severe haze suffered last year demonstrates, timely action by governments is critical.

In these past months, the Jokowi administration has demonstrated considerable political will to lead on the challenge. His government further took an unprecedented decision to revoke the licences of three companies that were implicated in the fires. In Singapore, the National Environment Agency also triggered the first use of the 2014 Transboundary Haze Pollution Act to conduct investigations of companies that were reasonably thought to have a role in the fires.

Yet, while governments must lead, no one should expect a silver bullet or short cut to the long-recurring problem.

There are diverse actors in the long supply chain in the resource sector. Closest to the ground are the small-scale farmers in distant provinces as well as major producers with giant plantations — some bigger in area than Singapore. There are also manufacturers, retailers and consumers as well as the financial institutions that fund businesses in these sectors. Each must be duly addressed with the right mix of rules as well as incentives.

Take the case of small-scale farmers, who are often singled out for clearing land using slash-and-burn methods. Some say that they have no alternative to this long standing practice. Yet, this may now be changing.

In mid March, the Singapore Institute of International Affairs visited Central Kalimantan, the worst-hit province in last year’s haze crisis, and noted steps being taken to support smallholders moving towards sustainable production. This includes not causing deforestation or degrading peatlands as well as no burning when clearing land or seizures of indigenous peoples’ lands.

Institutions such as the Institut Penelitian Inovasi Bumi and Earth Innovation Institute are collaborating with the provincial government to ensure that all palm oil produced and processed in the province should be certified as sustainable.

At the Seruyan district, smallholders repeatedly raised cost concerns as they seek to increase their productivity. The seeds and fertilisers they need are expensive, relative to their limited income, and these small-scale farmers often have little or no access to capital and loans. Schemes by governments and also by larger companies who buy from these small-scale farmers are in place but need to be ramped up.

Further assistance should be expected by those at the other end of the spectrum that supports the resource industry — the large institutions of finance and trade in Jakarta, Kuala Lumpur and Singapore. Their lending decisions can be levers to steer large companies and their suppliers to more sustainable practices. While many international banks have already taken environmental concerns into account when approving loans, this remains rare in our region.

PREVENTION NOT IMPOSSIBLE

Initial steps are now being taken. In February, Bank Mandiri — the largest in Indonesia — announced that they will no longer approve any credit proposals to finance development of new oil palm plantations on peatlands, which have often been the source of the worst and most persistent fires and haze. While this is positive, few other banks give sufficient consideration to sustainability.

A 2015 survey by Responsibank, a coalition of Indonesian environmental groups, revealed that only two of the 12 banks examined apply sustainability principles as an integral part of their decision-making. This can be accelerated.

The Indonesian Financial Services Authority (OJK) is driving efforts to green the financial sector, with a roadmap for the development of the sustainable finance sector.

The effort is being taken in tandem with key government ministries in the resource sector, including the Ministry of Forestry and Environment and the Ministry of Energy and Mineral Resources. One effort made by the OJK’s initiative is to provide easier and quicker access to finance for renewable energy projects.

At home too, Singapore’s financial sector has recently demonstrated more interest in sustainable financing. The Association of Banks in Singapore released a set of guidelines on responsible financing while the Singapore Exchange will soon make it mandatory for listed companies to publish their sustainability reports on a “comply or explain” basis.

Yet, even as financial regulators take a first step, they cannot act alone.

The relevant government ministries as well as major financial players and investors must be engaged. More dialogue is needed amongst stakeholders to promote greater trust and also the understanding and capacity in the financial sector to deal with issues of sustainability in the resource sector.

The major resource producers must do their part. So must the major manufacturers who buy and use these resources. New efforts are however required now for small-scale farmers on one hand and, at the other end of the spectrum, the major financial institutions and regulators.

Preventing a recurrence of the worst haze, as suffered in the last two years, is not impossible. The resource sector in our region can be greened. But the challenges are complex and will require consistent and persistent actions at different levels and by very different actors and institutions.

ABOUT THE AUTHORS: Simon Tay is chairman of the Singapore Institute of International Affairs (SIIA) and Lau Xin Yi is policy research analyst in the SIIA’s Sustainability Program. The SIIA will host the Singapore Dialogue on Sustainable World Resources on April 15, with specific discussions on smallholders, the financial sector, major producers and governments.