Despite longstanding scrutiny over its lack of transparency in addressing deforestation risks across its supply chains, agri-food giant Japfa’s latest sustainability-linked loan (SLL) omitted targets on forest-risk commodities and human rights, environmental groups say.
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Instead, Japfa’s US$150 million loan, coordinated by Singapore lender DBS and Dutch bank Rabobank, is focused on reducing freshwater and coal use, as well as improving access to nutrition through a corporate social responsibility programme – which were deemed “key material topics” in its press release.
Citing confidentiality of deal-specific details, the Singapore-headquartered firm did not state whether an external reviewer was appointed to assess how ambitious and relevant these chosen key performance indicators (KPIs) are to its overall business.
In response Eco-Business’ query on why transitioning away from coal – which only made up 1 per cent of Japfa’s energy consumption in 2024 – was one of the selected KPIs for its SLL, a spokesperson said that the KPI will “[help] accelerate the transition, encouraging the group to achieve its [zero coal] target ahead of the 2040 timeline.”
The Japfa spokesperson clarified that the “cleaner energy” it will be transitioning to includes agricultural biomass, such as palm kernel shells, and on-site solar installations, adding that it aims to cut overall fossil fuel use through “efficiency upgrades and improved energy management”.
Japfa, which is one of the largest poultry producers in Indonesia and the rest of Asia, has set a target to half its Scope 1 emissions – those under its direct control – from poultry production and coal by 2040, with the goal to reach net zero emissions by 2050.
The agri-food firm has, however, yet to set targets for its Scope 1 and 2 emissions, which refer to its indirect emissions from electricity usage and value chain emissions, respectively. Based on its latest sustainability report, Scope 3 accounts for the bulk of Japfa’s greenhouse gas emissions, where it put out over 6 million tonnes of carbon dioxide equivalent into the atmosphere in 2024.
When asked whether it has plans to set targets for its Scope 3 emissions, Japfa’s spokesperson told Eco-Business that they are “largely out of [its] direct control.”
“That said, we are engaging with key suppliers through surveys, ongoing dialogue and alignment with our Supplier Code of Conduct. We continue to assess other relevant areas as part of our evolving environmental, social and governance roadmap,” the spokesperson stated.
In a press release announcing the loan, Adrian Chai, group head of global industries for institutional banking at DBS, said that the SLL leverages the bank’s “deep industry expertise and sustainability advisory capabilities” to help Japfa “further its sustainability agenda.”
Rabobank’s general manager for Southeast Asia Gregory Vandeler said that it is proud to co-facilitate the loan for one of its longstanding clients. “Japfa’s commitment to food security and sustainability across the agri-food value chain aligns with our mission of growing a better world together,” he stated.
Eco-Business reached out to DBS and Rabobank to clarify how the KPIs were chosen to ensure they addressed material topics for Japfa, but both banks declined to comment on their roles in negotiating the selected KPIs.
Rabobank, however, added that the bank’s “sustainability policies set requirements for [its] own activities and those of [its] clients and business partners worldwide.” A DBS spokesperson also said that it “remains fully committed to driving sustainable and transition financing to enable sustainable development across the region.”
Japfa’s Scope 3 emissions, which include emissions from farmers across its supply chain and waste management in aquaculture, cattle fattening and other operation units, are about 72 times of its Scope 1 emissions. Source: Japfa Comfeed Indonesia Tbk’s 2024 sustainability report
SLLs hit by credibility concerns
SLLs offer a lower cost of borrowing for firms that meet certain sustainability goals, like cutting carbon emissions or improving gender diversity.
Japfa has secured two SLLs to date – its first being a Rp1.42 trillion (US$95 million) credit facility focused on reducing water withdrawal for subsidiary Japfa Comfeed Indonesia Tbk in 2022. In 2021, the same entity also issued a sustainability-linked bond to construct nine water recycling facilities at its poultry operations, which it successfully completed within the set timeframe last year.
The latest SLL “demonstrates the growing importance of sustainability-linked financing in driving positive environmental and social change within the agriculture sector,” said Tan Yong Nang, chief executive of Japfa.
However, the financial instrument – which has remained popular in Asia – has come under increasing scrutiny in recent years, given the private nature of loan markets compared to bond markets.
In January, an investigation into US$1.5 trillion worth of SLLs issued between 2018 and 2023 found that banks poured over US$286 billion into corporations linked to deforestation and polluting industries. Last year, Japanese megabank MUFG came under fire for lending millions in SLLs to Singapore-based palm oil and paper firm Royal Golden Eagle (RGE) while deforestation was allegedly being carried out in its concessions. Rabobank’s backing of palm oil giant Musim Mas’ first SLL without finalising external verifiers to track progress against its selected targets also raised questions about what constitutes “best practice” in the opaque market.
Japfa has consistently scored poorly in environmental non-profit Global Canopy’s annual Forest 500 assessment, which evaluates the strength of deforestation policies among the 500 most influential companies across the beef, leather, palm oil, soy, timber, pulp and paper, cocoa, coffee and rubber commodities.
In this year’s Forest 500 report, Japfa’s scored 9 out of 100 when assessed for its exposure to four forest-risk commodities: beef, palm oil, pulp and paper and soy.
With no public commitments thus far to end deforestation, peatland degradation and exploitation in its supply chains, Japfa policies are “weaker… than many regional and international agri-food companies, including Wilmar and Musim Mas, Chinese food groups like China Mengniu and Yili Group, or Japanese food groups like Nissin and Kao,” observed Alex Helan, senior researcher at environmental campaign group Rainforest Action Network.
“There are major loopholes and issues about the implementation of these companies’ policies, but at least they have public commitments,” he said.
The fact that none of the KPIs in the SLL green lit by DBS and Rabobank address Japfa’s deforestation risk also calls into question the credibility of both banks’ own commitments to deforestation-free financing, Helan added.
Referencing a major investor-led initiative called the Finance Sector Deforestation Action, which published its inaugural expectations for banks to end deforestation and human rights abuses in their loans and investments, Helan called the SLL “a missed opportunity from both banks to use their financial leverage to end deforestation.”
“The positive news is that after years of ignoring its exposure to deforestation, Japfa has started to act by setting a deforestation commitment for soy, though this commitment is limited to some of its aquafeed products,” Emma Thomson, Forest 500 and tracking lead, Global Canopy, told Eco-Business. “Japfa needs to go further and set a deforestation commitment for all of its powerbroker commodities [with significant forest risk] including beef and palm oil.”
Thomson said that Japfa still lacks targets in three of the six human rights criteria included in Forest 500’s assessment: securing the free prior and informed consent (FPIC) of Indigenous peoples and local communities, respecting the customary rights of Indigenous peoples to land, resources and territory, and adopting a zero tolerance approach to violence and threats against environmental and human rights defenders.
Beyond making commitments, Japfa also needs to start implementing processes to eliminate deforestation and associated human rights abuses from its supply chains, she said. “Commitments are meaningless without credible implementation.”
Amendment note (18 June): The story has been updated to reflect that the quotes from Rabobank and DBS representatives in Paragraphs 10 and 11 were from a press release announcing the loan. Additional responses from their spokesperson in response to Eco-Business queries have also been included in Paragraph 13.
