HSBC climate change fund linked to deforestation

Campaign group asks HSBC to close investment fund loophole in bank's forest ethics policy.

Environmental charity Greenpeace has made claims that HSBC's asset management arm is sidestepping the bank's environmental guidelines by holding shares in a company accused of destroying Indonesian forests and peatland.

The Greenpeace campaign points to the bank's Global Investment Funds 2009 annual report as evidence that its Global Climate Change Fund is investing in Golden Agri-Resources Ltd, the palm oil arm of Sinar Mas.

Late last year, the charity released a report on Sinar Mas' activities in Indonesia, claiming that it has been selective in complying with requirements of the Round Table on Sustainable Palm Oil, and that its subsidiaries were flouting legal requirements in developing land for palm oil production.

The report estimated that the annual CO2 emissions from the company's palm oil concessions in Indonesia's Riau province amount to 2.5m tonnes.

Greenpeace raised the alarm on the investment as part of its effort to stop companies from doing business with Sinar Mas. The charity has already persuaded Nestlé to cut the palm oil producer out of its supply chain.

Although HSBC has an ethical forestry policy, which states that the bank "will not finance plantations converted from natural forest since June 2004", the rule currently does not apply to its asset management funds.

Francis Sullivan, the bank's adviser on the environment, told Guardian Sustainable Business: "I can confirm that neither Sinar Mas nor any of its subsidiaries are clients of HSBC, which would be consistent with the forest policy that we do have." But he added that the policy was not extended to HSBC's Global Investment Funds.

The Global Cimate Change Fund is described on the bank's website as "an innovative fund that invests in carefully selected companies that are considered best placed to benefit from addressing the challenges presented by climate change".

Sullivan said the fund had singled out palm oil as a promising raw material for producing low carbon biofuels. It has began to invest in the most profitable companies in the palm oil sector, including Golden Agri-Resources.

The fund's selection method had, according to Sullivan, sifted out companies producing biofuels from corn and rapeseed after calculating that the net carbon emissions of the process were too high for the product to be considered a low carbon alternative to fossil fuels.

But he claimed HSBC "could not find specific scientific evidence" to quantify the carbon emissions from deforestation by individual companies.

HSBC is due to review the company selection criteria for the fund in September, but Sullivan said the company cannot guarantee it will find enough scientific evidence to change the way it selects palm oil companies for investment.

The Renewable Fuels Agency, the UK government's biofuels regulator, reviewed the net carbon emissions of palm oil grown in deforested and peatland areas in a report, published in January.

It stated: "If palm oil expansion causes loss of natural forest, the carbon release associated will negate any potential carbon savings from the use of palm biodiesel." The land use change emissions from deforestation would take "130 years to repay" in carbon benefits from palm oil biodiesel, and the "carbon payback for biodiesel feedstock produced on peatland can be measured in millennia".

Greenpeace predicts that, compared with levels in 2000, palm oil demand will more than double by 2030 and triple by 2050. In January 2007 Golden Agri-Resources made one of the biggest single biofuel investments worldwide, signing a deal to invest $5.5bn over eight years to develop biodiesel based on palm oil and bioethanol based on sugar cane or cassava.