“By the time you get to the end of this story,” investigators at Voxeurop wrote, “your perspective on green finance should be as clear as a primeval forest razed by chainsaws.”
Green financing is described by the United Nations Environment Programme as investments by private, public, and nonprofit organizations in the name of sustainable development.
Three primary pillars of green financing are the environmental benefit, clear accountability, and a decent rate of return. However, as a November investigation by Voxeurop alleges, for Michelin, the world’s largest tire manufacturer, only the latter of these pillars mattered.
Michelin, which boasts its commitment to the planet with an “ambition of zero deforestation” and its “commitment to protecting biodiversity,” has a flagship project in Jambi, a province in Sumatra, Indonesia called the Royal Lestari Utama (RLU).
Created in 2015, the project was a joint venture between Michelin and its local partner Barito Pacific. This year, the tire giant became the sole owner of the so-called sustainable rubber project.
In 2020, the environmental NGO Mighty Earth released an alarming report detailing how Michelin covered up deforestation by its partner “within the Barito Pacific Group.”
According to the report, the Barito Pacific company already had a track record of deforestation, land grabbing, illegal logging, and offshore tax evasion using a complex network of companies involved in timber, pulp, and palm oil.
The industrial-scale deforestation occurred over 2,590 hectares of forest, or the size of seven New York Central Parks.
In making way for rubber plantations, the company destroyed nearly 1,300 hectares of Wildlife Conservation Area. The area and its adjacent Bukit Tigapuluh National Park is a nature-rich tropical rainforest, home to endangered Sumatran elephants, tigers, reintroduced orangutans, and the Indigenous communities, the Talang Mamak and Orang Rimba – the forest is their livelihood.
Michelin’s commercial, “Our commitment to Sustainable Natural Rubber,” paints a much different picture: one where the tire giant is developing responsible rubber plantations across two provinces in Indonesia — Jambi in Sumatra and Northeast Kalimantan in Borneo — ravaged by illegal logging and fires.
The commercial details their close collaboration with the World Wildlife Foundation (WWF), which reportedly provided expertise for protecting the region’s biodiversity as Michelin worked to restore 90,000 hectares of forest.
The commercial boasts jobs for the local population, landscape restoration, natural rubber tree plantations, rainwater harvesting, community livelihood, and conservation for endangered species.
Investors poured $95 million worth of “green” and “sustainability bonds” into the project in good faith, only to be asked for $120 million more so Michelin could restore the forest that its business partner destroyed.
“You can’t stop deforestation and land grabbing unless you know who’s responsible,” said the report author and Campaign Director at Mighty Earth, Alex Wijeratna, in a statement. “It’s part of a broader transparency problem with Michelin and the rubber industry as a whole. Michelin won’t even reveal what companies it sources its rubber from. If Michelin is to live up to its stated zero-deforestation and human rights aspirations, it needs to come clean about what happened in Jambi, and use its industry leadership position to become a champion for greater transparency across the whole rubber supply chain.”
After the 2020 report was released, Voxeurop began its own year-and-a-half investigation into Michelin with its partner Tempo magazine, published as a four-part series. As the report alleges, in addition to WWF, the United Nations Environment Programme (UNEP) and the United States Agency for International Development (USAID) were also involved in this project, as they presented it as a model for a sustainable value chain.
According to an anonymous WWF spokesperson, via Voxeurop, the foundation partnered with Michelin in an effort to undo the deforestation caused by the Barito Pacific Group, and transform the natural rubber market.
In recent years, Michelin has made massive efforts to green its image, signing a no-deforestation commitment in 2015 and receiving the highest score for corporate social and environmental responsibility among the companies audited by France's Duty of Vigilance law. The company has a robust commitment and 2030 roadmap to biodiversity and published data on the impact of its business on climate change.
In 2014, initially funding the $100 million Indonesia project themselves, Michelin and Barito Pacific could not find a bank willing to invest. A former RLU board member says it was because banks didn’t think it would be profitable enough. At the same time, Wijeratna points to the allegations of land grabbing and violent conflict with local communities in RLU’s pre-establishment phase. Voxeurop’s report details that Michelin was fully aware of the vast forest clearance initiated by Barito Pacific and RLU’s subsidiaries prior to the agreement, and ignored warnings from NGOs and local stakeholders.
When the French bank BNP Paribas co-founded the Tropical Landscapes Finance Facility (TLFF) with the support and oversight of the United Nations Environment Programme (UNEP) in 2016, the financier was looking for its first green project. Michelin and Barito Pacific seized the funding opportunity and BNP Paribas issued a loan to RLU funded through green bonds by unsuspecting European investors. Other key banks and financiers included ADM Capital and the &Green fund.
The RLU project has since destroyed and fragmented the conservation areas in the Indonesian region, which also resulted in the “highly vulnerable” Indigenous communities losing their ancestral lands, who say they did not give their prior and informed consent to the forest clearances.
Less than half of these forests were supposed to go to rubber plantations, with the majority conserved or protected for the community. Instead, Voxeurop’s report found that about a third of the rubber plantations financed by the green bonds were already deforested in Jambi before Michelin and Barito Pacific’s joint venture was even signed, committed by Barito Pacific between 2011 and 2014.
This information was not shared with investors, who instead were told their money was going to “Asia’s first green bond.”
Michelin’s failed sustainability scheme is emblematic of problems with the immature green finance movement: the “opacity of the certification mechanisms, non-binding voluntary commitments, [and] absence of independent audits,” the authors of the report write.
It highlights a need for more stringent regulation within the EU, and globally. The Union is currently working to regulate green bonds, and this month passed a law requiring importing companies to prove their forest-related products are not linked to deforestation. At the request of European lawmakers, and even endorsed by Michelin, rubber is included.
After acquiring RLU as the sole shareholder, Michelin quietly redeemed and paid investors back the $95 million in green bonds issued. Still, the key issue of lack of regulation remains.
“This is a major scandal and a classic example of how green bonds are fuelling corporate greenwashing,” Wijeratna said in a statement.
At COP27, United Nations delegates demanded tighter restrictions on voluntary green bond standards, which the report details RLU violated. In the United States, the federal government is moving to support developing countries in issuing green bonds through the Sustainable Banking Alliance.
Called Climate Finance+, in collaboration with USAID, the government will support climate-related financing in Indonesia, along with Mozambique and Zambia, with green bonds in at least five additional countries via public-private partnerships.
However, with immense worry that the market is still maturing, multi-million-dollar instances of green bond greenwashing have occurred by large corporations like Fannie Mae. As Grist reports, the company’s $95 million-worth of green bonds may have had zero positive environmental impact.
Still, the growth in the market is explosive. In 2021, the market for green bonds grew by 75%, topping $1 trillion. By 2025, this is expected to multiply to $5 trillion the Climate Bonds Initiative reports.
With COP27 ending once again with a lack of green bond regulatory structure, solely relying on voluntary disclosure, instances like Michelin’s may only be bound to happen again.