WWI’s program on Forest Industries, Financial Institutions, and Fiscal Governance promotes more equitable and sustainable management of forests and peatlands, with particular focus on Indonesia’s commercial forestry sector, by working to achieve:

  • Greater accountability for environmental, social, and governance (ESG) risks by corporate actors;

  • Improved due diligence and risk assessment by financial institutions;

  • Stronger fiscal governance and rule of law by national governments.

Forest Industries, Financial Institutions, and
Fiscal Governance

Context and Rationale

Much of the world’s forests and carbon-rich peatlands are controlled by corporations engaged in commercial logging, wood processing, and agro-industrial commodity production. In these landscapes, corporate decisions and practices often determine whether these resources are managed in an equitable and sustainable manner. In recent years, a growing number of companies have committed to meet standards of social and environmental responsibility in their operations and supply chains. Yet as markets continue to globalize, the expanding footprints of forest industries and agro-industrial commodity producers continue to drive deforestation, peatland destruction, and conflicts with local communities.

In many countries, government land-use policies and weak forest fiscal systems create incentives for corporate actors to engage in rent-seeking behavior, often involving unsustainable and/or illegal logging, land-grabbing, and avoidance/evasion of taxes and resource royalties. Such practices are facilitated by the use of complex corporate structures, often involving entities registered in offshore jurisdictions characterized by low corporate tax rates and limited requirements for corporate reporting and transparency. Banks, investment funds, and other financial institutions frequently facilitate such practices by conducting inadequate due diligence and by failing to assess the risks associated with these industries.

Indonesia’s commercial forestry sector – and particularly its pulp and paper industry – is an arena where many of these issues converge. Since the late-1990s, the Government of Indonesia has promoted the development of mega-scale pulp mills, providing fiscal incentives, heavily discounted royalties on wood fiber, and millions of hectares of plantation concessions with minimal land rental fees. The sector’s leading producers have invested billions of dollars to build some of the world’s largest pulp mills, and the industry currently consumes over 40 million cubic meters of wood annually. The expansive operational footprints of these mills place long-term structural pressures on forests and peatlands, and historically Indonesia’s pulp industry has been a major driver of deforestation, carbon emissions, fire and haze, and conflict with rural communities.

Over the past decade, each of Indonesia’s major pulp producers has adopted a voluntary commitment to “zero deforestation” in their supply chain. Yet each producer has also used complex corporate structures to distance themselves from wood suppliers engaged in controversial practices. The development of new mega-scale pulp mills, now underway, is expected to significantly increase pressures on Indonesia’s forests and peatlands and to exacerbate conflicts with communities.

Recent Projects

  • MapBiomas Indonesia: WWI has provided technical support for the development of the MapBiomas Indonesia platform by a network of Indonesian civil society partners in collaboration with the MapBiomas Global Initiative. MapBiomas uses innovative techniques involving machine learning and high-speed processing of Landsat satellite imagery to produce annual maps of land-cover at low cost. MapBiomas Indonesia launched its first collection of 20 annual land-cover maps for all of Indonesia for the period 2000-2019 in November 2021. These maps, which are publicly accessible online, provide effective tools for analyzing changes in land-cover and land-use at any scale from the national to the local level. Collaborators include: MapBiomas Global Initiative; Yayasan Auriga Nusantara; HAKA Aceh; GENESIS Bengkulu; HAKI Sumsel; SAMPAN Kalimantan; Save Our Borneo; Green of Borneo; KOMIU; Mnukwar Papua Barat; and JERAT Papua.

  • Indonesia pulp supply chain mapping: WWI collaborates with the Trase Initiative to map the supply chains of Indonesia’s kraft pulp mills. Using data from official wood utilization reports and shipment-level trade data, this analysis traces the flows of wood fiber from individual forestry concessions to specific pulp mills and maps the flows of bleached hardwood kraft pulp (BHKP) and dissolving pulp from these mills to destination countries. The initial version of the Indonesia pulp supply chain map was launched on the Trase platform in 2021, covering 2015-2019. Collaborators include: Stockholm Environment Institute; Global Canopy; the Conservation Economics Lab at University of California, Santa Barbara; and Yayasan Auriga Nusantara.

  • Pulp capacity expansion and wood supply: In Indonesia, WWI collaborates with civil society partners to raise corporate accountability on issues related to wood supply, plantation development, and risks associated with the expansion of mega-scale pulp mills. Reports published with the Koalisi Anti Mafia Hutan and others have documented the risks and anticipated impacts of Asia Pulp & Paper’s OKI mill in South Sumatra; deforestation and peatland conversion in forestry concessions supplying wood to APP and APRIL pulp mills; and carbon emissions and public health impacts of fires in Indonesia’s pulpwood plantation concessions. WWI and partners are now analyzing the wood fiber requirements and anticipated pressures on forests and peatlands posed by mega-scale pulp mill investment projects currently underway by APP and APRIL.

  • Trade misinvoicing in Indonesia’s pulp sector: In partnership with Indonesia’s Tax Justice Forum, WWI and a coalition of international CSOs published a detailed study of trade misinvoicing in Indonesia’s pulp sector in November 2020. The coalition’s report – “The Macao Money Machine: Profit Shifting and Tax Leakage in Indonesia’s Pulp Exports” – documented the case of PT Toba Pulp Lestari Tbk, a pulp producer in North Sumatra that, according to a media investigation in February 2020, mis-reported the grade of its pulp apparently so it could reduce its corporate tax bill. The civil society report estimates that over a ten-year period (2007-2016), Toba Pulp understated revenues by US$ 426 million and avoided potentially paying an estimated US$ 108 million in tax. The report reveals that Toba Pulp’s affiliated companies under APRIL Group apparently started using similar methods in 2016 that understated revenues by US$ 242 million and reduced their potential tax bill by an estimated US$ 60 million in only three years (2016-2018), according to the analysis.

  • Corporate ownership analysis: In collaboration with CSO partners, WWI analyses the complex corporate structures used by the major conglomerates operating in Indonesia. A 2018 study published with the Koalisi Anti Mafia Hutan analyzed the ownership and management structures of APP’s 33 declared pulpwood suppliers – which control 2.6 million hectares of HTI plantation concessions – and of two companies that APP had recently named as prospective suppliers. Of the 27 forest plantation companies (holding 31 HTI concession licenses) that APP has described as being “independent” partners, at least 24 companies (holding 29 HTI concession licenses) showed apparent close links with the Sinar Mas Group. With such analyses, WWI supports Indonesian civil society efforts to strengthen laws and regulations related to corporate reporting of beneficial ownership.

Select Publications

  • Yayasan Auriga Nusantara et al. (2024) “Deforestation Anonymous: Rainforest destruction and social conflict driven by PT Mayawana Persada in Indonesian Borneo.” March. Jakarta, Indonesia. Download PDF.

  • Environmental Paper Network et al. (2023) “Pulping Borneo: Deforestation in the RGE Group’s supply chain and RGE’s hidden links to a new mega-scale pulp mill in North Kalimantan, Indonesia.” May. Jakarta, Indonesia. Download PDF.

  • Environmental Paper Network et al. (2022) “Papering Over Corporate Control: Paper Excellence’s relationship with Asia Pulp & Paper and the Sinar Mas Group.” October. Jakarta, Indonesia. Download PDF.

  • Forum Pajak Berkeadilan et al. (2020) “The Macao Money Machine: Profit shifting and tax leakage in Indonesia’s pulp exports.” November. Jakarta, Indonesia. Download PDF.

  • Koalisi Anti Mafia Hutan et al. (2020) “Sustaining Deforestation: APRIL’s links with PT Adindo Hutani Lestari undercut ‘no deforestation’ pledge.” October. Jakarta, Indonesia. Download PDF.

  • Koalisi Anti Mafia Hutan et al. (2019) “Perpetual Haze: Pulp production, peatlands, and the future of fire risk in Indonesia.” November. Jakarta, Indonesia. Download PDF.

  • Koalisi Anti Mafia Hutan et al. (2019) “Borneo Deforestation Update: Asia Pulp & Paper and APRIL Groups continued in 2018 to source wood from controversial supplier owned by Djarum Group.” October. Jakarta, Indonesia. Download PDF.

  • Koalisi Anti Mafia Hutan et al. (2019) “APP acknowledges links to controversial suppliers, but fails to release an auditor’s report: Seven takeaways from a new report by Asia Pulp & Paper on links to its pulpwood suppliers in Indonesia.” May. Jakarta, Indonesia. Download PDF.

  • Koalisi Anti Mafia Hutan et al. (2019) “More Peatland Fire Disasters for Indonesia? Pulp companies and government not transparent with restoration plans for fire-prone peatlands.” February. Jakarta, Indonesia. Download PDF.

  • Koalisi Anti Mafia Hutan et al. (2018) “Removing the Corporate Mask: An Assessment of the Ownership and Management Structures of Asia Pulp & Paper’s Declared Wood Suppliers in Indonesia.” Download PDF.

  • Koalisi Anti Mafia Hutan et al. (2018) "APP and APRIL Violate No-Deforestation Policies with Wood Purchases from Djarum Group Concessions in East Kalimantan.” Download PDF.

  • Koalisi Anti Mafia Hutan et al. (2016) “Will Asia Pulp & Paper Default on its ‘Zero Deforestation’ Commitment?: An assessment of wood supply and plantation risk for PT OKI Pulp and Paper Mills’ mega-scale project in South Sumatra, Indonesia.” Download PDF.