HDL

About PT HILTON DUTA LESTARI

PT Hilton Duta Lestari (HDL) is an ambitious palm oil venture in the northern part of West Kalimantan, Indonesia. HDL owns and manages two adjacent blocks, which include 5,388 hectares of mature palm oil plantation. In 2022, &Green and HDL concluded a USD 12 Million, 8-year senior secured loan.

Supported by &Green’s financing, HDL is in the final stages of constructing a mill to process fresh fruit buches (FFB) into crude palm oil (CPO) . HDL has no plans to expand cultivated areas and instead intends to receive FFB from third parties, primarily smallholders, to meet the required feedstock of the mill. HDL will adopt a sourcing strategy that prioritizes the inclusion of local smallholder farmers and ensures a deforestation-free supply chain, thus preventing deforestation in the landscape.

The investment being made by HDL will generate significant transformational impact for the company, surrounding communities, and the ecosystems that support them.

The smallholder producers currently lack access to a nearby legitimate mill and are forced to sell their products to mills located 50km to 120km away. This leads to inefficient and costly supply chains, decreasing prices for the producers. Of greater significance is that these mills lack certification or sustainability requirements, making the region susceptible to deforestation.

HDL is committed to implementing a comprehensive sustainable sourcing strategy across its entire supply chain, in line with its No Deforestation, No Development of Peatlands, and No Exploitation (NDPE) Policy. This commitment benefits both the producers, by offering a shorter and more efficient supply chain and access to a sustainable market, as well as the forest in the landscape. &Green’s investment in HDL provides a replicable blueprint for financing independent mills across Indonesia, promoting sustainability in the industry.

Transaction Summary

NAME

PT Hilton Duta Lestari (HDL)

Jurisdiction

Indonesia

Sector

Palm Oil

&Green Investment

USD 12 Million

Investment Term

8 years

Financial Structure

&Green provided an 8-year senior secured loan

Impact Targets

> 7,500 hectares of forest protected in the landscape

472 hectares of forest restored

Full traceability and compliance in the supply chain

KEY PERFORMANCE INDICATORS

FOREST PROTECTED

960 ha

CLIMATE BENEFITS

17,227 tCO₂e

PEOPLE RESILENCE

26,557

ECOSYSTEM RESILIENCE

6,188 ha

PEOPLE BENEFITTING

28,380

CAPITAL MOBILIZED

USD 1 Million*

*Includes shareholder loan

INVESTMENT RATIONALE

Indonesia is the major player in global crude palm oil (CPO) production, accounting for nearly 60% of the global total in 2020. Although CPO is Indonesia’s largest export commodity, supply chains are fragmented and inefficient, which negatively impacts smallholders. These challenges lead to reduced prices for smallholders, limiting their ability to invest in crop productivity and often resulting in encroachment on forested areas.

The HDL model serves as a blueprint for the sustainable production and processing of palm oil by providing small producers with access to an efficient and sustainable supply chain, along with technical support to enhance their production processes. This not only improves livelihoods but also reduces pressure on forests through strict sustainability requirements at the mill gate. Additionally, the model helps improve the land tenure situation for smallholders and establishes legal forest protection areas managed by the community.

&Green believes that HDL’s approach can be replicated across Indonesia, shifting producers towards efficient, sustainable palm oil production.

HDL’s Landscape Protection Plan, developed together with &Green, targets:

Improved productivity for smallholders: HDL will implement a smallholder capacity building programme which includes gap assessment against relevant standards (NDPE, and the Roundtable on Sustainable Palm Oil, RSPO), improved land tenure and training on good agricultural practices.

RSPO certification: HDL’s operations will be fully certified against the RSPO standard by 2025. This will be implemented gradually, hand in hand with their compliance with the IFC Performance Standards . The first steps are the development of a robust Environmental & Social (E&S) Management System and the protection of HCV areas, as well as greenhouse gas monitoring and management. Forest conservation: HDL is committed to conserve all remaining forest within their estate, as well as in protected areas bordering their estate. Through the implementation of their sustainable sourcing strategy, HDL expects to conserve up to 7,000 hectares of forest in the landscape.

Sustainable Sourcing Strategy: Through its Landscape Protection Plan and partnership with &Green, HDL commits to adopting and implementing an NDPE policy that aims for 100% compliance at the start of the mill operation. The key principles of HDL’s policy align with &Green’s NDPE requirements and with international guidance on NDPE, such as RSPO and the RSPO and the AFi .

A YEAR IN REVIEW

HDL nearly completed the construction of their CPO mill in 2023. They recruited an experienced E&S Manager to take on the task of building a blueprint for the sustainable production of palm oil, and rolling that out across the sourcing landscape. This includes the development and implementation of their Environmental & Social Management System (ESMS), and the construction of a robust sustainable sourcing system, in preparation for the opening of the mill in 2024.

A Biodiversity Action Plan was drafted with support from an external expert in biodiversity and conservation management, and an Indigenous Peoples Framework was put in place to manage the majority indigenous communities in the sourcing landscape.

ESMS Development

In collaboration with an external expert on IFC Performance Standards , HDL completed their ESMS. This includes the company’s approach to grievance management, stakeholder engagement, emergency preparedness and monitoring and reporting. The ESMS provides toolkits and templates to guide HDL’s approach to risk management. A training for all relevant staff on the implementation of the ESMS will be provided in early 2024. Through annual E&S Verifications, the implementation of the ESMS will be tested continuously.

Conservation Management Plan

HDL committed to ambitious conservation and restoration targets, both in- and outside their estate, as well as in their supply chain. To realize these targets, HDL joined forces with a biodiversity expert to develop a comprehensive Conservation Management Plan. This plan consists of various components, including the protection of all forest and HCV areas within HDL’s concessions, the conservation of three hills within the landscape, with a customary land title (hutan adat), and the conservation of forest in the broader sourcing landscape, through conservation agreements with each of the 40 communities located in that landscape. A large focus is placed on community and stakeholder engagement to socialize these agreements and create a collaborative approach towards conservation management in the landscape. The plan will be fully implemented in 2024, including a monitoring system for both on- of off-concession conservation efforts.

Sustainable Sourcing Strategy

In 2023, HDL had advanced their work on a sustainable sourcing strategy for the FFB that will be sourced from third parties, mostly small-scale farmers. It is critical that this strategy is in place and the framework has been rolled out across the sourcing landscape before the opening of the CPO mill in 2024, to prevent deforestation driven by opportunistic farmers that are looking to supply to the new CPO mill. In 2023, HDL did a socialization across all 40 communities in the sourcing landscape to communicate the company’s NDPE commitments and the deforestation cut-off date. Their smallholder engagement team has worked together with a leading agritech company specialized in supply chain management and traceability to map and register a large number of palm oil farms in the landscape. The team established legal cooperatives in the communities and signed NDPE-compliant agreements with these cooperatives to enable the future sales of FFB to HDL’s new CPO mill. The strategy will be completed and ‘phased in’ over the course of 2024, as the CPO mill ramps up its production capacity.

2023 was an exciting year for us. We were able to complete the construction of our CPO mill ahead of schedule, so our focus has been on the implementation of our sustainable sourcing strategy. Our smallholder and sustainability teams have worked with the communities around our mill to establish cooperatives and socialize the concept of deforestation-free production. Taking a landscape approach, we look for conservation opportunities across our sourcing area, such as land custodianship by indigenous communities, or corridors between different protected areas. We are excited to implement the program next year, when we open the mill to smallholder supply!

BANDULA NISSANKA PELPOLA

General Manager at HDL

LOOKING FORWARD TO 2024

2024 will be an exciting year for HDL, and, by extension, for &Green, as we will see the first steps of our transformational change rationale being implemented. These are the highlights we foresee for this coming year:

Increase Production Capacity

HDL will open their CPO mill and gradually increase the production capacity, slowly allowing for externally sourced feedstock to enter the facility.

Sustainable Sourcing Strategy

As the mill ramps up production, the sustainable sourcing strategy will be tested, optimized and implemented over the course of the year. HDL is supported by supply chain specialist Daemeter throughout this process.

Conservation Management Strategy

HDL will roll out their conservation management strategy across the landscape, including within their own concession area.

ESMS implementation

The company’s ESMS will be fully implemented, staff trained and monitoring programs put in place to complete the Plan-Do-Check-Act cycle.

HDL