Shareholders of Japan’s largest bank Mitsubishi UFJ Financial Group (MUFG) will vote Tuesday on a resolution calling on the company to align its financing and investments with the goals of the Paris Climate Agreement. As Asia’s worst financier of fossil fuels –– $148 billion since the adoption of the Paris Agreement –– the resolution could have a significant impact on the world’s climate trajectory, and trigger other Asian banks to follow suit, including in my home country of Indonesia.

But MUFG’s climate footprint goes beyond fossil fuels, and this resolution could also have a long-lasting impact on the world’s remaining tropical forests and peatlands, which are critical to solving the climate crisis, not to mention global biodiversity and land rights.

The International Panel on Climate Change (IPCC) estimates that nearly a quarter of global emissions come from land use change, with around 11% resulting from deforestation and conversion of natural ecosystems for human use. Additional to this are carbon-rich peatlands, which alone account for 5.6% of global anthropogenic emissions. In short, it will be impossible to hit the 1.5 degree goal of the Paris Climate Agreement without halting deforestation and protecting other vital ecosystems like peatlands.

MUFG is highly exposed to sectors with major impacts on climate through deforestation and peatland degradation. These risks go undisclosed in its Task force on Climate-related Financial Disclosures (TCFD) reports, which are intended to provide financial markets with clear and comprehensive information on climate-related risks. According to the Forests & Finance database, MUFG is the largest banker of the palm oil industry based outside of Southeast Asia, ranking seventh globally, and a major funder of the pulp & paper industry in Indonesia and Brazil. Together, MUFG provided $2.3 billion in loans and underwriting (2016-2019) to these forest-risk sector operations alone.

In May, MUFG announced its commitment to achieve net zero financed emissions by 2050 and amended some of its policies on coal, palm oil, and forestry, presumably to address concerns raised by the shareholder resolution. Yet the 2050 pledge fails to provide any metrics or short or medium term targets for its financing of all fossil fuels or land use change. The changes to the financing safeguards aren’t even adequate to address the climate emergency, and contain loopholes allowing MUFG to continue business-as-usual. This should be a major concern for shareholders as it neglects the risk of stranded assets.

For instance, MUFG amended its financing safeguards for palm oil producers by requesting its clients to adopt a ‘No Deforestation, No Peatland, No Exploitation’ (NDPE) policy, which is the emerging international best practice standard being adopted by international brands and banks. Yet they’ve left out palm oil traders that play a critical role, and exempted their Indonesian bank subsidiary Bank Danamon from applying the bank policies, despite it being a major financier of the Sinar Mas Group –– Indonesia’s second largest palm oil producer that has destroyed vast areas of forests and peatland for its plantations.

In a similar fashion, their NDPE standard doesn’t apply to other sectors that threaten forests and peatlands, particularly the pulp & paper sector, where MUFG has channeled over a billion dollars in loans and credit since 2016. To get a sense of the climate impacts of MUFG’s pulp clients, consider Indonesia’s Royal Golden Eagle Group (RGE). MUFG is currently participating in seven syndicated loans totalling over USD $5.7 billion to RGE, three of which MUFG is serving as the lead arranger. While Forests & Finance only attributes USD $140 million of these loans to MUFG’s financing of RGE pulp sector operations, MUFG’s responsibility is far greater because of the role that it plays.

New data from online platform Trase provides geospatial estimates of RGE’s environmental impacts. RGE’s vast pulp mills are fed by wood fibre from plantations that have caused 67,740 ha hectares of deforestation (2015-2019). Around a third of RGE affiliate’s land bank is located on carbon-rich peatlands, with over a quarter of the land actually designated for protection by the Indonesian government. The climate impacts of draining peatlands for plantations are severe. A conservative estimate of the emissions from RGE affiliate plantations is around 101 million tonnes CO2e in the five years 2015-2019. Once cleared of trees and drained, peatland becomes highly flammable, resulting in recurring land fires across Indonesia’s peatlands, including the concessions of RGE affiliates, which turbo-charge GHG emissions, kicking off a further estimated 46 million tonnes CO2e. Together, RGE’s estimated emissions over five years are 138 million tonnes, equivalent to more emissions than the Czech Republic or around 14% of the annual emissions of the entire global aviation industry.

These figures illustrate the profound risks linked to land-use change emissions that are not being addressed by MUFG. Currently, MUFG’s policies do not prohibit its clients like RGE from deforestation or converting more peatlands into plantations. RGE plans to expand production by 50% through increasing the intensity of production on its peatland plantations, which will likely accelerate peatland subsidence and GHG emissions as well as the risk of fires. RGE also continues to source from suppliers that are involved in deforestation and peatland degradation in both its pulp and paper and palm oil operations.

If Indonesia is to tackle its growing CO2 emissions, it will have to protect and restore peatlands, and this process represents a serious risk to RGE’s business, making much of its plantation landbank “stranded assets” and representing a material financial risk to MUFG as its creditor.

To mitigate the climate risks of its financing, MUFG cannot continue to cherry-pick sectors to address, while sticking to business-as-usual in others. By supporting this climate resolution, shareholders can demand a coherent and comprehensive climate mitigation strategy from MUFG that assures alignment with the Paris Climate Agreement goals.

Edi Sutrisno is Executive Director of TuK Indonesia