How the World Bank Let 'Deal Making' Torch the Rainforests

The World Bank ignored its own environmental and social protection standards when it approved nearly $200 million in loan guarantees for palm oil production in Indonesia, a stinging internal audit has found.

The report, detailing five years of funding from the International Finance Corp. (IFC), the private-sector arm of the World Bank, lambastes the agency for allowing commercial pressures to influence four separate loans aimed at developing the industry.

“The IFC was aware for more than 20 years that there were significant environmental and social issues and risks inherent in the oil palm sector in Indonesia," auditors wrote. "Despite awareness of the significant issues facing it, IFC did not develop a strategy for engaging in the oil palm sector. In the absence of a tailored strategy, deal making prevailed."

The report (pdf) from the office of the Compliance Advisor Ombudsman comes as Indonesia prepares to enter the carbon markets by protecting its tropical forests. Working in partnership with Australia, the Indonesian government currently is working to design a national carbon accounting system. Australia is building a satellite to monitor deforestation in the Southeast Asian country, according to new U.N. submissions.

Indonesia is home to the world's second-largest reserves of natural forests and peat swamps, which naturally trap carbon dioxide -- the main greenhouse gas that causes climate change. But rampant destruction of the forests to make way for palm oil
plantations has caused giant releases of CO2 into the atmosphere, making Indonesia the third-largest emitter of greenhouse gases on the planet.