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Green Finance / Treasury & Capital Markets
ADB signs sustainability-linked loan for Indonesia agroforestry
Proceeds will be used to implement energy-efficient processes, support cultivation of native trees to prevent deforestation
The Asset 27 Jan 2023

The Asian Development Bank (ADB) signed a US$15 million sustainability-linked loan facility with PT Dharma Satya Nusantara Tbk (DSNG) to help the company expand sustainable wood processing, rural livelihood development, and climate-resilient agroforestry in Java, Indonesia.

Proceeds of the loan will finance capital expenditure to implement energy-efficient and water-saving processes, and procurement of cultivated native Indonesian Sengon and Jabon trees. Farmed native trees can be a sustainable alternative to natural timber, preventing deforestation and supporting biodiversity.

DSNG sources timber from Central, East, and West Java. The majority of Sengon and Jabon trees are cultivated by smallholder farmers and are intercropped with a variety of other crops including coffee, corn, and rice. As well as enabling the utilization of otherwise unproductive land, intercropping trees with food crops can reduce erosion, enhance soil health, and in many cases improve crop yields.

“The region faces increasing climate shocks, impacting livelihoods, food, water, and health for millions of people with women disproportionately affected,” says ADB’s private sector operations department senior investment specialist Carine Donges. “ADB’s assistance will promote sustainable and inclusive agroforestry, preventing deforestation and supporting biodiversity, while demonstrating how the private sector can improve rural livelihoods and climate resilience through innovative sourcing models and by providing training to farmers.”

A US$500,000 technical assistance grant administered by ADB will provide capacity building in climate-resilient agricultural practices for complex agroforestry systems and financial literacy to about 4,000 farmers, at least 1,200 of them women.

The loan is DSNG’s first sustainability-linked financing, with adjustments in pricing upon achieving pre-defined annual sustainability targets, including training farmers to obtain forest management certification from the Forest Stewardship Council. It has received an independent second-party opinion, consistent with industry principles.

“This sustainability-linked loan with ADB dovetails with our vision to be a business that is responsible for our people, our planet and our common prosperity,” says DSNG director Jenti Widjaja. “By incorporating sustainability metrics through key aspects of our business, from our supply chain and operations to financing, we aim to strengthen the alignment between creating value and delivering positive impacts for all of our stakeholders in our wood business.”

Established in 1980, DSNG is listed on the Indonesia Stock Exchange. In the wood segment of its business, the company operates two wood processing plants in Central Java with an installed capacity of 150,000 square metres a month for engineered flooring and 9,000 cubic metres per month for panels. DSNG is one of Indonesia’s leading forestry companies and its largest exporter of wood products to Japan.

Photo by ADB

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