01 / TRACEABLE, INCLUSIVE AND DEFORESTATION-FREE PALM OIL SUPPLY CHAIN
PT Hilton Duta Lestari (HDL)
&Green is working with HDL to reduce deforestation across four districts in the province of West Kalimantan and improve incomes for up to 85,000 inhabitants in the area. The loan from &Green will be specifically utilized to construct a Crude Palm Oil (CPO) mill. The mill will capture production from a 30km radius around HDL’s estates and will obviate the need for ca. 5,000 farmers in the landscape as well as in HDL plantations to transport palm fruit (“FFB”) up to 100km (at great commercial and environmental cost) to other non-RSPO* certified and non-NDPE** mills. Through HDL’s NDPE-compliant mill, the project offers a replicable blueprint to sustainably finance independent mills across Indonesia.
* The Roundtable on Sustainable Palm Oil (RSPO) is the leading global palm oil certification that aims to make sustainable palm oil the norm.
** NDPE stands for No Deforestation, No development of Peatlands, and No Exploitation and is a policy commonly used to ensure sustainable operations.
* The Roundtable on Sustainable Palm Oil (RSPO) is the leading global palm oil certification that aims to make sustainable palm oil the norm.
** NDPE stands for No Deforestation, No development of Peatlands, and No Exploitation and is a policy commonly used to ensure sustainable operations.
Project summary
| COUNTRY | Indonesia |
| PROVINCIAL JURISDICTION | West Kalimantan |
| INVESTEE COMPANY | PT Hilton Duta Lestari (HDL) |
| SUPPLY CHAIN | Palm Oil |
| TOTAL &GREEN INVESTMENT | USD 12 million |
| EFFECTIVE DATE | 31 March 2022 |
| LOAN TERMS | 8-year tenor |
02 / blended finance
INVESTMENT RATIONALE
Nearly 60% of the CPO produced globally in 2020 originated from Indonesia, making the palm oil industry the largest export commodity for the country. These palm oil supply chains are highly fragmented, opaque, and result in steep price deductions for smallholders; the resulting limited capacity to invest into the productivity of their crops often leads smallholder farmers to encroach other forested areas.
Green’s loan demonstrates that collaboration among supply chain and landscape participants can drive rural economic development, create jobs and safeguard resources and biodiversity. Within Indonesia, HDL’s blueprint has the potential to shift the narrative for destructive land-use by adopting transparent models of sustainable and inclusive supply chain sourcing at scale. HDL’s success and replication of the model enables smallholders to achieve higher yields, higher incomes and inclusion in best practice supply chains that are deforestation-free. This enables more robust and diverse supply chains, with a greater climate resilience due to maintenance of forest resources.
03 / the action plan
ENVIRONMENTAL RETURN & SOCIAL INCLUSION
HDL’s commitments have been detailed in two documents developed together with &Green: the Landscape Protection Plan (LPP) and the Environmental and Social Action Plan (ESAP). These are the key documents which &Green uses to work towards transformational impact with HDL. The LPP describes HDL’s landscape and the context of its operations in West Kalimantan, providing an overview of the strategies needed to achieve the expected environmental and social impacts over the loan term. The Environmental and Social Action Plan (ESAP), a contractually binding part of the LPP, sets specific targets for the implementation of strategies on the ground, as well as performance indicators for the impacts.
Environmental and social targets for the project include:
(i) sustainable intensification of oil palm production;
(ii) inclusion of smallholders in the landscape;
(iii) forest conservation and restoration.
In addition, HDL commits to comply and maintain compliance to international standards (IFC Performance Standards) and establish itself as an integrated palm oil producer with an RSPO certified estate and mill by 2025, and fully NDPE compliant supply chain by the first half of 2023.
ENVIRONMENTAL RETURN
The new mill will attract production from at least a 30km radius around HDL’s estates, which include 37,000 ha of smallholder palm oil. Smallholders will have to be NDPE compliant to supply FFB to HDL’s operations and the commitments assumed by HDL under the LPP and ESAP have the potential to drive the transformation of a landscape that includes 85,000 inhabitants. By empowering smallholders, the &Green investment will in turn reduce the threat of deforestation in the landscape that has heretofore experienced accelerating rates of forest and other land cover clearing. The mill will be NDPE-compliant from start of the operations in 2023 and HDL’s palm oil estate will be RSPO certified by 2025.
Through direct forest protection programs, community-based programs, and by extending its NDPE policy to FFB suppliers, HDL will conserve up to 7,500 hectares of forest. Additionally, more than 472 hectares of forest will be restored through direct intervention.
FOREST COVER MAP
SOCIAL INCLUSION
As HDL commits to building a supply chain that is 100% traceable and 100% NDPE-compliant, inclusion of smallholders is at the core of this project. Through the optimization of FFB production across its landscape, HDL will support around 5,000 smallholders in the area, potentially improving the livelihoods of up to 85,000 inhabitants. HDL commits to support smallholders in the landscape through technical agronomical trainings, land regularisation services as well as to improve and maintain infrastructure for the villages in and adjacent to HDL’s concession. The company will also support individuals through its plasma profit sharing scheme, which will include up to 2,055 individuals.
04 / ASSESSING RISKS
ENVIRONMENTAL & SOCIAL RISK ASSESSMENT
Various expert consultants have conducted E&S due diligence and gap analyses of HDL’s supply chain and main operations.
More specifically:
- HDL’s existing operations and impacts of its future mill have been assessed against the IFC PS, through a Gap assessments and E&S Impact Assessment. An HCV-HCS assessment, based on RSPO’s guidelines was also carried out.
- Additional studies were commissioned to assess HDL’s future supply chain, the risks associated with it and to develop NDPE-compliant sourcing strategies centred on smallholder inclusion.
- In combination, reviews of documentation and first-hand site visits provided a comprehensive picture of the project situation and its E&S impacts and risks.
Since 2019 and following the results of initial E&S Due Diligence studies, HDL has demonstrated noticeable commitments and efforts for improving its E&S performance.
