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Pushing for sustainable palm oil production

Home / Hermes EOS Blog / Pushing for sustainable palm oil production

Sachi Suzuki,
04 November 2015
EnvironmentSocial

What do shampoo, ice cream, washing powder and chocolate have in common? Palm oil.

The versatile commodity is found in numerous products we consume every day. But the high demand for palm oil has brought with it some serious environmental and social issues.

Controversies
The popularity of palm oil has led to a rapid increase in its production in recent years. It has become the world’s most widely used vegetable oil, accounting for 65% of all vegetable oil traded internationally. The vast majority of palm oil is produced in Malaysia and Indonesia, where large areas of forests have been cleared to make way for palm oil plantations. In many cases, the process involves the burning down of primary forests, resulting in increased emissions of green house gases as well as the destruction of biodiversity.

In 2009, a report by Greenpeace alleged that a Southeast Asian palm oil giant was contributing to large-scale deforestation in Indonesia. The report also named a number of international consumer brands that had been sourcing palm oil from this grower. The companies subsequently cancelled their contracts with the grower.

Palm oil production has also been linked to a number of social controversies. Several growers have been accused of land grabbing and repeatedly had disputes with local communities when developing new plantations. Others have faced accusations of forced labour and other poor working practices in their supply chain.

Progress
The good news is that a number of organisations and initiatives have been trying to tackle these issues. The Roundtable for Sustainable Palm Oil (RSPO), a multi-stakeholder forum, offers a certification scheme for growers to prove that their palm oil is produced in a sustainable manner. Growers are required to meet a number of criteria on environmental impact including on biodiversity and carbon emissions, as well as on social matters, for example the rights of workers and local communities. Today 20% of global palm oil is certified by the RSPO. While questions have been raised about the RSPO’s work and robustness of its certification criteria, we believe that the organisation has helped raise awareness about the challenges of palm oil production and made meaningful changes to the way the industry operates.

Over the past few years we have engaged with buyers and growers to address these issues and seen significant progress. The grower accused of bad practice in the Greenpeace report has been working with NGOs and demonstrated its effort in making its palm oil production sustainable. Not only has it recovered the trade with the buyers it lost previously, the company is now widely considered to be an industry leader on palm oil. Other growers have followed suit. In 2014, some of the world’s largest palm oil growers and traders published the Sustainable Palm Oil Manifesto, which commits them to refrain from the deforestation of high carbon stock forest, to create traceable and transparent supply chains and to protect peat areas. The manifesto also requires companies to ensure continuous economic and social benefits for the local communities where palm oil is grown. This was followed by the announcement of a moratorium on the development of potential high carbon stock areas, while a grower-funded high carbon stock study is underway.

Smallholders
One of the key challenges now is to extend the practice to smallholders, who are not necessarily as incentivised to make their production as sustainable as larger, more international growers. Small-scale growers typically supply to local customers who may not be interested in sourcing sustainable palm oil. They also lack investors who pressure them on sustainability. This makes it difficult for smallholders to see the potential economic benefit of producing sustainable palm oil. The recent – and recurrent – haze in Southeast Asia has been caused by burning forests and smallholders are believed to be largely responsible for this. We continue to engage with the large palm oil growers, while seeking to put pressure on the regulators to raise industry standards.

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    Sachi Suzuki Sachi Suzuki is sector lead for industrials and responsible for engagement activities mainly in Japan and southeast Asia. Prior to joining Hermes EOS, she worked as a senior research analyst at EIRIS where she was responsible for the assessment of the ESG performance of Japanese companies, as well as research on bribery and corruption. Sachi graduated from Keio University in Japan with a degree in Economics and holds an MSc in Development Studies from the School of Oriental and African Studies, University of London. She holds the CFA Institute’s Investment Management Certificate.
    Read all articles by Sachi Suzuki

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