The International Finance Corp (IFC) has
breached standards on palm oil financing in providing loans and guarantees to
one the world’s biggest palm plantation owners, according to an audit by the
organisation’s own ombudsman.

The
audit
report, released earlier this month, focuses on four financing facilities
made by the IFC between 2003 and 2008 to Singapore Exchange-listed Wilmar
International, which runs palm plantations in Indonesia and Malaysia and is a
leading global producer and trader of palm oil.

IFC, the private investment arm of the World Bank, provided $33.3m (£20.3m)
in investment guarantees and $17.5m in loans during the five-year period.

In 2007 a coalition of 19 green groups, smallholders and organisations
representing indigenous Indonesians filed a complaint to IFC’s ombudsman over
Wilmar’s business activities. It claimed that Wilmar did not comply with
applicable national laws in Indonesia, lacked publicly available social and
environment impact assessments and had inadequate compliance with IFC operating
procedures and due diligence requirements.

The complaint further alleged that Wilmar illegally used fires to clear land
in Indonesia and seized land of local indigenous people without due process. It
also purportedly failed to carry out or wait for official approval on legally
required environmental impact assessments before expanding plantations and had
cleared tropical peat and forests without legally required permits.

The ombudsman concluded that "despite extensive documentation of social and
environmental issues in the oil palm sector in Indonesia, as well as IFC’s own
experiences with several other investments in the sector in Indonesia, IFC took
a de minimis approach so as to exclude assessments of the supply chains
".

The approach was "counter-productive to IFC’s mission of reducing poverty and
improving lives", it said.

In response to the audit findings, the IFC said it "recognises the
deficiencies identified in the [ombudsman’s] report and that there are lessons
to be learned for future investments in the palm oil sector". It added that it
was "already moving to improve its practices".

The ombudsman said it had succeeded in encouraging Wilmar and community
members to hold talks in a bid to resolve the conflicts. As a result, Wilmar has
instigated a moratorium on further land clearance and agreed to compensate
households for appropriation of land, said the ombudsman.

However, the signatories of the initial complaint are unhappy at the fact
that "no comprehensive action plan [has been] presented to clarify what IFC
staff will actually do to ensure future compliance with standards".

In a
letter
sent to IFC president Robert Zoellick last week, the group called on the
multilateral finance institution to freeze financing for all Indonesian palm oil
projects until a number of "deficiencies" in its policies are addressed.