East Asia & the Pacific
Indonesia / Wilmar Group-01/West Kalimantan
The Wilmar Group is a large agribusiness conglomerate specializing in the production and trade of palm oil, operating in Asia, eastern Europe, and Africa. Since 2003, IFC has undertaken four investments in the Wilmar Group. In July 2007, 19 signatories from community groups, and local and international NGOs lodged a complaint with the CAO raising the following concerns about adverse environmental and social impacts of Wilmar Group operations with particular reference to Indonesia:
1. Land clearance without appropriate community approvals, legally required permits, or completion of Environmental Impact Analysis (EIA) processes;
2. Violation of national regulations and laws as well as the Principles and Criteria of the Roundtable on Sustainable Palm Oil;
3. Inadequate compliance with IFC operating procedures and due diligence requirements.
CAO Ombudsman conducted an assessment of the issues raised in the complaint and encouraged Wilmar and community members to agree to a dialogue process to help resolve the conflict. A moratorium on further land clearance was announced by Wilmar Group, and the CAO team worked with the communities and Wilmar to build capacity for representation and negotiation. A settlement agreement was announced in late 2008 which contained the following provisions:
• Agreement for community access and use of land that had not been converted to plantations;
• Compensation for households for appropriation of land;
• Enhanced community investment funds for collective benefits and access to development opportunities for the broader community.
A joint Monitoring and Evaluation (M&E) team has been established to ensure implementation of these agreements.
Questions relating to IFC’s due diligence were transferred to CAO Compliance for appraisal. In September 2008, based on the findings of the appraisal, the CAO determined that an audit of IFC was merited to examine whether IFC had complied with its standards and procedures.
The CAO released its audit report in August 2009, together with IFC's official response. The audit concluded that IFC had failed to apply its own standards, and that its actions were counterproductive to its mission and mandate and to its commitment to sustainable development. With regard to IFC's Wilmar Group investments, the CAO found that IFC applied a de minimis approach toward assessing each project‘s supply chain, and that commercial pressures were allowed to prevail and overly influence the categorization of the project, as well as the scope and scale of IFC’s environmental and social due diligence.
IFC acknowledged the shortcomings identified by CAO in its official response, and communicated an action plan to CAO on how to address them. As part of the action plan, IFC committed to develop a comprehensive strategy for oil palm investments, with specific focus on Indonesia. In September and October 2009, the World Bank Group President instructed IFC and the World bank Group to suspend financing of oil palm projects until such a strategy had been developed.
Subsequently, in March 2010, IFC embarked on a global consultation to inform its strategy and its future involvement in the oil palm sector. IFC also immediately changed its procedure for processing single commodity trade finance, embarked on re-assessing its exposure in Indonesian Oil Palm, and committed to report back to CAO on a quarterly basis on progress toward address the shortcomings identified by the CAO audit.
In April 2010, CAO released a monitoring and update of IFC's response to the audit. The CAO also participated in IFC’s global strategy consultations as an observer until IFC concluded the consultation process in February 2011.
In April 2013, CAO released a final monitoring report based on information provided by IFC as of March 2013. CAO finds that IFC’s commitments and actions constitute a substantial approach to addressing the conclusions reached in the CAO Audit Report. CAO finds that, at this stage, it has seen evidence that the adopted strategic approach is implementable, that IFC has reviewed its involvement in the Indonesian palm oil sector, that Advisory Services projects have been defined, and that IFC is following through on its commitment to resolve the identified shortcomings regarding its categorization process. CAO has determined that the audit can therefore be closed.
CAO closed the compliance audit of IFC with regard to this case in April 2013. The audit monitoring and closure report is available under "View Documents" below in English and Bahasa.
CAO's Ombudsman team remains engaged to support monitoring and implementation of agreements by the parties. The M&E team carried out its fifth field visit in April 2013. A further meeting of the M&E team is planned for May 2013. Once the final agreement has been fully implemented, CAO also expects to close this case through its Ombudsman function.
Updated: April 24, 2013
- Project Name & Number
- Wilmar Group 25532 & 26271
- Wilmar Trading Pte. Ltd.
- Agriculture and Forestry
- East Asia & the Pacific
- Environmental Category
- $33.3 million (Guarantee) & $17.5 million (Loan)
- Eligible: Completed
- Assessment Period: Completed
- Facilitating Settlement: Completed
- Monitoring/Close-out: In Process
- Under Appraisal: Completed
- Under Audit: Completed
- Monitoring: Closed