Indigenous leader sues over Borneo natural capital deal

  • An Indigenous leader in Sabah is suing the Malaysian state on the island of Borneo over an agreement signing away the rights to monetize the natural capital coming from the state’s forests to a foreign company.
  • Civil society and Indigenous organizations say local communities were not consulted or asked to provide input prior to the agreement’s signing on Oct. 28.
  • Further questions have arisen about whether the company, Hoch Standard, that secured the rights under the agreement has the required experience or expertise necessary to implement the terms of the agreement.

Adrian Lasimbang, an Indigenous leader in Malaysian Borneo, is suing the state of Sabah, contesting a recently signed agreement selling the rights to carbon and other natural capital from 2 million hectares (4.9 million acres) of forest to a foreign company for the next 100 years.

The deal allows Hoch Standard Pte. Ltd., a Singaporean holding company, to sell credits for carbon and other natural capital, such as the provision of clean water, on the global market. It also calls for the protection and restoration of forests that would make these credits possible. And it stipulates that Sabah’s 70% share of the revenues, which according to the agreement’s backers, would go to funding employment, education and health care set forth by guidelines such as the U.N. Sustainable Development Goals.

The remaining 30% of revenues would go to Hoch Standard.

Tawai Forest Reserve in Sabah, seen from the air. Image © LEAP.
Tawai Forest Reserve in Sabah, seen from the air. Image © LEAP.

Civil society and Indigenous communities have criticized the agreement, which was signed by representatives of the state government and a Singapore-based company on Oct. 28. They say it bypassed substantive input and consent from the people living in and around Sabah’s forests. And, until recently, the framers of the agreement have shared scant information about the company (or companies) involved in the agreement and who they are led by.

Lasimbang, who is a technical adviser for the Indigenous Peoples Network of Malaysia (JOAS) and a former Malaysian senator, filed the lawsuit with the High Court in Sabah and Sarawak on Nov. 30.

“My hope is to get a little bit more transparency about this particular deal,” he said in an interview with Mongabay, “and we want to have access to that signed document.”

Lasimbang is a member of the Kadazan-Dusun ethnic group. The lawsuit, however, represents the interests of all of Sabah’s Indigenous communities, he said, because the agreement threatens their influence over what happens to the state’s forests. The suit, first reported by the Daily Express newspaper on Dec. 12, names Sabah’s chief conservator of forests and the Sabah state government as defendants.

“It is actually selling our sovereignty, our control [of] our forest, which is very important for Indigenous people,” Lasimbang said. “As a citizen of Sabah, I’m very concerned about it.”

An initial hearing before High Court Judge Ismail Ibrahim is scheduled for Jan. 3, 2022.

A water catchment system for micro hydropower generation. Image by John C. Cannon/Mongabay.
A water catchment system for micro hydropower generation. Image by John C. Cannon/Mongabay.
A solar-micro-hydro hybrid system in Kota Marudu district. Image © Forever Sabah.
A solar-micro-hydro hybrid system in Kota Marudu district. Image © Forever Sabah.

Though proponents of the deal have not yet shared the signed document, a Reddit user known as phoenixed123 posted the full, though unsigned, agreement online on Dec. 11. Mongabay confirmed that the document is genuine with a source who has knowledge of the agreement.

Frederick Kugan, Sabah’s chief conservator of forests, is listed as a signatory representing the Sabah state government. Jeffrey (spelled “Geoffrey” in the agreement) Kitingan, Sabah’s second chief minister, is named as a witness to Kugan’s signature, along with Sabah’s chief minister, Hajiji Noor. Singaporean Ho Choon Hou, Hoch Standard’s director, is listed as the signatory for the company. Stan Golokin, identified as a corporate adviser for Hoch Standard, was to have witnessed Ho’s signature on the agreement.

Mongabay contacted Kugan, Kitingan, Ho and Golokin with requests for interviews, but none responded prior to publication of this article.

The agreement was not made public prior to its finalization, and the negotiations and signing took place behind closed doors. Mongabay confirmed with Peter Burgess, CEO of the consultancy Tierra Australia Pty. Ltd. who was involved in the negotiations, that the agreement had been signed in late October.

Since Mongabay’s reporting on Nov. 9, Kitingan has emerged as the agreement’s main proponent. But he has not provided substantive information on Hoch Standard, why it was selected as a partner to monetize Sabah’s natural capital, and how the company is funded, despite requests from the media and Sabah civil society to do so.

“I think this deal is a scam,” Lasimbang said. “Only a thief works secretly.”

Tawai Forest Reserve in Sabah provides clean water to the town of Telupid. Image © LEAP.
Tawai Forest Reserve in Sabah provides clean water to the town of Telupid. Image © LEAP.

Questions of expertise and due diligence

The text of the agreement states that Hoch Standard’s role will be to “develop nature conservation management plans to slow, halt or reverse forest loss and degradation.” But there is little information about what qualifies the company for this task.

Civil society and Indigenous groups have asked Kitingan whether the state carried out adequate due diligence on Hoch Standard before the document was signed. Standard protocol in most financial agreements, the questions and verifications that are part of the due diligence process are meant to ensure that a company engaged in the agreement has sufficient financial backing. The process would also establish whether the company has the skills and experience required to profitably monetize the natural capital rights from more than half of Sabah’s forest estate for at least the next 100 years.

Apparently, however, some or all of the routine investigation prior to signing was blocked during negotiations. According to documents and WhatsApp exchanges seen by Mongabay, key figures in favor of finalizing the agreement actively discouraged probes into the people and firms involved as early as mid-2021.

Roads through Sabah’s forests. Image by Rhett A. Butler/Mongabay.
Roads through Sabah’s forests. Image by Rhett A. Butler/Mongabay.

Kitingan said Hoch Standard was funded by global private equity firms that manage billions of dollars, according to The Vibes, an online news site. But that assurance has not convinced Lasimbang.

“If they are going to have these so-called billions of capital, they have to show the proof,” he said. “At the moment, it’s just hearsay.”

According to financial documents obtained by Mongabay from Singapore’s Accounting and Corporate Regulatory Authority (ACRA), Hoch Standard lists a single shareholder, a British Virgin Islands-registered company called Lionsgate Ltd.

The agreement says that Hoch Standard “carries on the business of implementing and managing programs for the sustainable management of natural assets, including biodiversity, forestry, and nature capital,” in addition to carbon offset projects. But no publicly available information verifies the company has this expertise.

Corporate registration information obtained by Mongabay indicates that Hoch Standard’s “principal activity is other holding companies.”

Ho Choon Hou, listed as a director of Hoch Standard on the agreement, is also a managing director and the majority shareholder of Singapore-based Southern Capital Group. Southern Capital is a private equity firm that focuses on buyouts of companies worth between $20 million and $200 million, according to its website. Its own profiles do not mention climate-related or natural capital investing.

Mongabay contacted Ho, but he did not respond. Instead, Mongabay received an unsolicited email from Benjamin Ng a short time later. Ng is a director of both Hoch Standard and Singapore-registered Global Nature Capital Pte. Ltd., according to financial documents from ACRA, the Singapore government’s business registry.

In his email, Ng answered the questions that Mongabay had asked of Ho, saying that Southern Capital “is not related and has no affiliation to” Tierra Australia, Hoch Standard or Global Nature Capital Sdn. Bhd.

“In addition, at this point, Southern Capital Group is also not the funder of the transaction contemplated,” Ng said, referring to the Sabah natural capital agreement. But, he added, the private equity firm may choose to invest in the agreement “if the terms are tenable.”

Hill rice growing in Sabah with the forest in the background. Image by John C. Cannon/Mongabay.
Hill rice growing in Sabah with the forest in the background. Image by John C. Cannon/Mongabay.

A lack of consent

In another email to Mongabay, Ng said the needs of Indigenous communities would be a priority when the agreement is carried out.

“We are totally aligned with protecting the interest of the local indigenous people when we are designing the conservation plan,” Ng said in an email, presumably speaking in his capacity as a director of Hoch Standard. But “the engagement and securing of those interests” would be the responsibility of local governments, he said.

The agreement itself does not address the role of Indigenous communities in the project.

Tierra Australia’s Burgess said community members were not involved in negotiations in an early November interview with Mongabay.

“They actually don’t know that their jungles have been conserved,” Burgess told Mongabay at the time.

Later, in a follow-up interview for Mongabay’s initial story on the agreement, Burgess said that every “Indigenous person that needs to be consulted” had been, and that obtaining the consent of every impacted community was an unrealistic expectation.

A man fishes in the Crocker Range of Sabah. Image by John C. Cannon/Mongabay.
A man fishes in the Crocker Range of Sabah. Image by John C. Cannon/Mongabay.

In early November, Burgess also told Mongabay that Golokin, who is from Sabah and signed the agreement as a corporate adviser to Hoch Standard, was his “business partner.” Since news of the agreement broke, however, representatives of the Sabah government have distanced themselves from Tierra Australia in statements to the media.

Burgess did not respond to requests for an interview for this article.

In early November, Kitingan had told Mongabay via WhatsApp that Indigenous communities shouldn’t be concerned about the agreement and that it “will not affect them and their way of lives.”

Kitingan’s comments provide Lasimbang with little solace.

“I am not convinced,” Lasimbang said. In the agreement, he said, “There is no assurance of that.”

Lasimbang works with local communities to set up small-scale, micro hydropower systems at the village level. These projects require access to free-flowing forest streams, the force of which spins turbines and generates electricity for the communities. But because of the opacity of the agreement and the lack of details that have been shared, Lasimbang said it’s not clear whether communities will continue to have the control they need of these watersheds.

“What sort of resources is going to be covered under this?” Lasimbang asked.

A community in Sabah’s Crocker Range. Image by John C. Cannon/Mongabay.
A community in Sabah’s Crocker Range. Image by John C. Cannon/Mongabay.

He and other leaders in Sabah argue that the companies involved in the agreement should be held to the free, prior and informed consent (FPIC) principle outlined in the U.N. Declaration on the Rights of Indigenous Peoples.

“It should conform with all the international principles of transparency,” Lasimbang said.

In an interview on the Mongabay Newscast in early December, Cynthia Ong, chief executive facilitator and founder of the Sabahan NGO Land Environment Animals People (LEAP), said it’s clear that consultation beyond a few government leaders in Sabah was not a priority for the framers of the agreement.

“Of course, the Indigenous native rights and free prior and informed consent were not seen as relevant,” she told podcast host Mike Gaworecki. She also noted that the deal was kept secret from all levels of leadership, even at the federal level.

News of the agreement in Sabah has reportedly spurred the Malaysian federal government into fast-tracking compensation for the preservation of forest under the states’ control, according to the New Straits Times newspaper. National leaders say that if credits for the carbon from state-controlled forests is sold, it will no longer be available for the federal government to count toward its emissions reductions pledges, or “nationally determined contributions” (NDCs) as defined under the 2015 Paris Agreement.

Ong pointed out that Malaysia committed to its NDCs at the COP26 climate summit in November and has also promised to be carbon neutral by 2050.

“I think it would need all of the forests that are in Malaysia, including Sabah’s, to achieve our NDCs and the 2050 carbon neutrality target,” she said on the podcast.

Degraded forest in Sabah. Image by John C. Cannon/Mongabay.
Degraded forest in Sabah. Image by John C. Cannon/Mongabay.

Sabah’s way forward

Kitingan said during a Nov. 18 press conference that the 2 million hectares covered by the agreement would cover the parts of Sabah’s forest estate designated as totally protected areas, known as “Class I” forests. He used this provision to explain that consultation with local communities wasn’t required for this agreement because the communities had already given their consent when these Class I forests had been designated. (No information on where the forests are geographically located has yet been made public.)

But critics question where the carbon will originate that’s going to be sold on international markets.

Ong said she was surprised to hear from Kitingan that the totally protected areas would be involved since it’s not clear how the agreement could augment carbon savings from these forests. Among civil society organizations, “We’ve grappled ourselves with the whole concept of additionality within the carbon realm,” she said.

“Additional” carbon sequestered by forests typically comes from restoring degraded forests or planting new ones in places where they’ve been clear cut. In other instances, the carbon found in a forest that had been slated for clearance but later protected could also be sold in the form of credits. Calculating the carbon that can be sold from forests is a complex and contentious issue. What’s more, it doesn’t seem logical that the mature forests found in Sabah’s Class I forests, which are presumably “saturated” with carbon, would offer much in the way of surplus carbon that can then be sold, Lasimbang said.

A drone shot of the village of Sosogon Paliu in the district of Kota Marudu. Image © PACOS Trust.
A drone shot of the village of Sosogon Paliu in the district of Kota Marudu. Image © PACOS Trust.

Palm oil production and timber harvesting have taken their toll on Sabah. The state lost 1.67 million hectares (4.13 million acres) of its forest cover between 2001 and 2020, according to data from the University of Maryland and Global Forest Watch. But reforestation projects have taken place in degraded forests found in the district of Kota Marudu in northern Sabah, Lasimbang said, leading to carbon sequestration that would not have occurred without this rehabilitation.

“That is where we can actually have very clear additionality,” he said.

The fact that these questions weren’t raised prior to hammering out the agreement is yet further evidence for leaders like Ong and Lasimbang that Hoch Standard may not have sufficient expertise and experience in carbon and natural capital markets to make good on the promises outlined in the agreement.

Perhaps, they suggest, Sabah itself might be better placed to take the lead in monetizing its own resources, rather than bringing in a foreign company.

“Sabah … has the best experience in dealing with forests,” Lasimbang said. “We’ve been managing forests for millennia.”

More broadly, Ong said on the Mongabay podcast and in a commentary that Sabahans want to be a part of decisions about their forests, for their own sake and the sake of those who depend on the services the state’s forests provide.

“We want to have a transparent carbon future,” she said. “We want to be part of the global community in bringing emissions down, and we want to be the pathway … in which we built equity in this new economy.”

Related listening from Mongabay’s podcast: Sabahan community leader Cynthia Ong recently discussed the issues raised by this deal from the communities’ perspective on Mongabay’s podcast. Listen here:

Banner image of an aerial shot of a village in the district of Kota Marudu, Sabah, © PACOS Trust.

John Cannon is a staff features writer with Mongabay. Find him on Twitter: @johnccannon

Correction: Ho Choon Hou is listed as a managing director of Southern Capital Group, not its sole managing director.

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