Issue Briefing - Palm Oil

Sectors & Issues

February 1 2019 - ,

On Friday January 18th, Ethical Screening welcomed Zoological Society of London (ZSL) representatives Eleanor Spencer and Clara Melot to discuss sustainability in the palm oil supply chain. With awareness of the social and environmental impacts of palm oil cultivation increasing, and retailers such as Iceland choosing to boycott the commodity in their own-brand products, we were keen to learn more about the issues and potential responses.

Impacts of Palm Oil

The environmental and social risks of palm oil cultivation are well-known. Deforestation, habitat destruction, child labour and lands-rights issues have been widely reported, while forest fires and haze episodes linked to land clearance for palm oil have caused chronic health impacts, and thousands of deaths. Palm oil cultivation has also been linked to climate change, with tropical deforestation now accounting for around 10% of all global warming emissions. Besides these clear ethical concerns, palm oil presents a financial risk for investors. Intense scrutiny of the sector by the media and NGOs has led to reputational damage, and pressure on certain companies to improve or cease operations. This has led to documented cases of companies losing clients or experiencing drops in share prices.

Invest, Engage, or Divest?

In ZSL SPOTT's opinion, engagement with responsive companies generally provides more leverage for positive change than divestment, and is thus crucial for industry progress, a viewpoint supported by other conservation charities such as the WWF. There are several reasons for this;

From a pragmatic viewpoint, palm oil is unlikely to disappear soon, with demand for vegetable oils expected to approximately double by 2050.
Palm oil is a versatile and efficient crop; up to 9X more productive than other major oil crops, meaning that switching to alternatives could actually lead to greater overall impacts on forests and biodiversity. It is used in around 50% of all supermarket products, from food to cleaning products and cosmetics.
When cultivated sustainably, palm oil can make an important contribution to developing economies, with over 85% being grown in Indonesia and Malaysia.

Nevertheless, ZSL are keen to point out that critical and informed engagement is key. At present, voluntary certification schemes such as the RSPO are one of the main methods of addressing the social and environmental risks of palm oil cultivation. The RSPO is seen as the most robust, especially now that revised Principles and Criteria have been introduced, which include complete exclusion of deforestation. However, varying standards between different schemes, variable stringency of auditing, and cases of poor implementation on the ground mean that certification should not be viewed as infallible.

An understanding of the technical details of certification is also necessary to evaluate the strength of a company's progress. For instance, in the RSPO there are multiple supply chain options for certification, ranging from 'identity preserved' (where certified palm oil from a single source is kept separately throughout the supply chain), to 'book and claim' (whereby companies simply purchase credits rather than physical certified palm oil), and thus certification through the former route is much stronger than through the latter.

With these considerations in mind, ZSL SPOTT have suggested several additional indicators to assess the sustainability credentials of palm oil growers, traders and buyers. These include;

The existence of a 'No deforestation, No peat, No Exploitation' policy, implemented across the supply chain.
Time-bound commitments and policies, including to full traceability and certification of the palm oil supply chain.
Reporting on progress of implementation, and explanations if targets are not met.
Supplier verification programmes designed to assess compliance.
The existence of grievance mechanisms, accessible to all stakeholders.
Engagement with NGOs and the wider palm oil industry.

The SPOTT Initiative

In 2014, ZSL launched SPOTT, an open-access online platform providing ESG assessments of soft commodity producers and traders. The platform currently assesses 70 palm oil companies, using a framework of 119 indicators across 10 different themes. By the end of 2019 SPOTT assessments will cover over 200 companies across the palm oil, timber and pulp, and rubber sectors. The framework is designed to support stakeholders in the financial sector in identifying where palm oil companies are reporting transparently, and what concerns still need addressing. The platform can be accessed here.

Conclusions

Palm oil is a complex commodity, and our guests from ZSL were keen to emphasise that there is no 'silver bullet' for addressing its environmental and social impacts. While the RSPO certification scheme is currently one of the most robust measures of sustainability available, certification is not infallible. As such, considering a range of indicators, including time-bound commitments, progress reports and sector-wide engagement, can provide a fuller picture of palm oil companies' sustainability credentials. Given the increasing importance of palm oil as an issue for investors, Ethical Screening will be using the guidance from ZSL, as well as other major conservation organisations, to inform our future research into the sector.