Ethical Corp June 2012 Palm Oil Article and Cover, Contents

June 2012 www.ethicalcorp.com

Responsible business in BangladeshGarment industry gains ground

Ruggie principles +1A slow absorption process

Commercialised sustainabilityMake cash that counts

Thepalmoilchallenge

How global brands can secure more sustainable supply

ECM June_Layout 1 01/06/2012 11:38 Page 1

ContentsEthical Corporation • June 2012 3

Contents

31 NGOwatchBurger King and animal welfare

Strategy and management

32 Human rightsRuggie, one year on

35 Sustainability commercialisedJump out the niche

38 Social mediaWhen to tweet in a crisis

40 Impact assessmentThe interactive approach

44 China columnPaul French on Chinese brand acquisitions

Review

45 Academic news

46 Report: Shell

47 Report: Lowe’s

48 New books

49 People on the move

50 Toby WebbScale up!

5 From the editor

EthicsWatch

6 Asia Pulp and PaperIndonesia gets tough

7 FishingClimate chases stocks north

8 Toy supply chainsHotline helps

9 Rio+20Reporting on the table

10 Mallen BakerPicking the right fight

Country briefing: Bangladesh

11 People power

13 Slow-moving corporate sector

16 Social business

19 Top-down corruption?

p32 Ruggie rollout

p24 Don't get palmed off

p34 Sustainable products get moving

p11 People power

21 Peter KnightDiet debate

22 CRwatchBurma bounceback

24 Palm oilNew look supply chain

30 Jon EntineThe science of political divide

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Palm oil

Transformingbusinessmodels,slowlyBy Toby Webb

A complex, giant and growing industry needssome solutions to a lack of sustainability


Palm oil is an industry on the rise. Worth about £32bna year, it is catching up fast with the £60bn plus

annual global cotton industry. Think about the amountof cotton in the average western wardrobe and youget a sense of the reach of these commodities.According to WWF, more than 50m tonnes of

palm oil are used worldwide each year, in productsfrom food to cosmetics. From 2010 to 2020, thisvolume will increase by two-thirds, according toWWF, in a recent report – Palm Oil Investor Review2012. In the report, Darrel Webber, head of the

Roundtable on Sustainable Palm Oil, points out thatamong the 17 major oils and fats on the globalmarket, palm oil has emerged as the leader,accounting for about a third of the world’s edible oilproduction. That comes at a cost. Webber says: “Between 1990

and 2005 as much as 55-60% of palm oil expansionwas at the expense of natural forest.” And the forestsdestroyed and under threat as a result of oil palmmarket growth harbour some of the world’s greatestbiodiversity. More than £7bn of oil palm investment is

currently planned for west and central Africa alone,according to Michael Flint, a well-knownindependent palm oil consultant who has worked forthe UK government. Meanwhile, UK households consume 35kg of

palm oil a year, accounting for about 1% of globalpalm oil consumption, with a market value ofsomewhere between £500m and £650m. According to the UK’s under-secretary of state for

international development, Stephen O’Brien, whospoke at a recent conference on palm oil organisedby The Forest Trust, 43 from the 100 best-selling UKgrocery brands use palm oil. His numbers appear tohave come from a 2009 investigation by theIndependent newspaper in the UK.

Shrinking carbon sinksAs a result of both publicity and a greater under-standing of the environmental impacts of greater oilpalm plantation growth, companies now questiontheir role in the sustainability of the industry andthe remaining forests around the world. These giantcarbon sinks are being shrunk, with native forestcleared to become oil palm plantations, particularlyin Indonesia, elsewhere in Asia, South America andAfrica.According to the UK’s Department for

International Development, 13m hectares of forestare cleared annually. Deforestation is regarded asbeing responsible for up to 20% of global carbonemissions. Stopping it is finally becoming seriousbusiness.Flint, speaking at the recent Forest Trust

conference, argued that market demand must bemoved if these forests are to be saved. Flint said thatif 62% of UK consumption of palm oil was switched

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Companies nowquestion their role in thesustainability of the palm oil industry

Supply chains

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The RSPO innumbers

RSPO represents over 850member organisations frommore than 50 countries.Certification according toRSPO global standards beengranted to 30 plantationcompanies and 146 palmoil mills covering an area ofover 1.2m hectares withover 6m tonnes of certifiedsustainable palm oil (CSPO)in annual productioncapacity.

Total production of RSPOCSPO today is over 10% ofglobal palm oil production.The RSPO trademark is alsoaddressed at educating andinforming consumers of theirethical purchase choices – todate, the trademark hasbeen licensed to almost 60 companies in over 13 countries. Source: RSPO statement to Ethical Corporation


to sustainable sources by 2021-22, about 90,000hectares of forestry clearance might be avoidedworldwide. This would mean the prevention of 78mtonnes of CO2 emissions. These would have apresent value of £7.3bn, at a cost per tonne of C02e(avoided) of £3.60.“We can play around with numbers [on cost

benefit analysis] but it’s the financial markets andmarket demand [that will make the difference],” Flintsays. He developed the models that generated theabove data for the UK government, which hascommitted some £600m to an international climatefund over the next four years. The Department forInternational Development meanwhile, has said itwill stump up an additional £22m to help protectforestry specifically.

RSPO and Green PalmAmong large multinational companies, workingtowards more sustainable palm oil usually involvessupporting the certification work of the fast-growing Roundtable on Sustainable Palm Oil, aMalaysia-based non-profit organisation. RSPO’s certified sustainable palm oil programme

is complex, and often involves the use of Green Palmcertificates. These allow companies in Europe to buycertificates issued to show that they are supportingRSPO-certified palm oil businesses, bypassing theneed for segregated RSPO-certified palm oil in thesupply and transportation chain. This approach has come under criticism from

campaigners such as Greenpeace, which argues that

it fails to encourage the traceability that is essentialto ensure that palm oil from questionable sources isexcluded from the supply chain. Unilever, which buys about 3% of global palm oil

production, about 1.4m tonnes a year, helped foundRSPO in 2004. The company acknowledges thatcertification without traceability has a limited shelflife, but defends the RSPO method as an interim steptowards full traceability. Unilever will reach its targetof buying 100% of its palm oil from certifiedsustainable sources during 2012, three years ahead ofschedule.Unilever spokesman Trevor Gorin says the

company has already bought its first consignmentsof segregated palm oil. In 2011, 27,000 tonnes waslanded in Rotterdam and used across Unilever ’sEuropean manufacturing sites. Now the company has set a new target of, by

2020, tracing all the palm oil it buys right back to theplantations where it is grown. Unilever has alsoannounced the company is in advanced stages ofdiscussions with the Indonesian government forinvesting more than €100m in a large processingplant for palm oil derivatives in Sumatra. “This plantwill not only reduce transportation requirements andsave money but it will also start to make the palm oilwe use easier to trace,” Gorin says.So if the leading companies believe RSPO’s

current policies, principles and certification are a stepon the long journey to full sustainability for palm oil,where’s the problem?As one protagonist at The Forest Trust’s palm oil

conference in London in April put it: “We have tosort this before we run out of forest.” In 2007 the United Nations Environment

Programme predicted that for Indonesia,“calculations suggest that 98% of lowland forest maybe destroyed by 2022. Since mature forest is beinglost from such large areas, the supply of timber willdecline further. This means that the incentive to logprotected areas will grow.” (These numbers, now fiveyears old, are disputed by some experts as beingexaggerated.) The concern about a limited supply of forest

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Greenpeace arguesthat Green Palmfails to encouragetraceability

Supply chains Ethical Corporation • June 2012

Saving pristine forest is the aim

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Trouble at mill: Green Palm travails

Green Palm certificates have not seen widespread corporate take-up, despite the actions of leading companies such as Unilever, Nestlé, Shell and BP.

According to well-placed industry sources, back in 2009 and 2010, there was a great tension withfarmers in Malaysia and Indonesia who were also members of the Roundtable on Sustainable Palm Oil (RSPO).

Companies in Europe said they wanted sustainable palm oil, so farmers agreed to major changes aslong as they were paid extra for all the adaptations needed to comply with the RSPO’s principles. Once they were ready and audits passed, the Green Palm certificates started to be issued at a price of about$30/tonne.

But to the farmers’ surprise very few were bought. This may have been as a result of the financial crisisin the EU. As one expert puts it: “With palm oil at $800/tonne nobody wanted to pay an extra cent for asustainable product that does not get recognised by customers at the store.”

Sources say that after a fractious 2010 annual RSPO meeting, where disagreements about sales volumesand EU company commitment risked bringing down the scheme entirely, other EU companies began tocommit to buy Green Palm certificates and the system stabilised.

But Green Palm’s future is by no means guaranteed. One expert believes that all the Green Palmcommitments make a total of about 10m tonnes. That’s about 20% of total production. However, onlyabout 5m tonnes worth of Green Palm certificates are available. This means the price should be relativelyhigh. It isn’t and only 2.8m tonnes worth have been bought. In late May, a Green Palm certificate couldbe bought for $2.19.

One cited reason for EU company reticence in buying the certificates they had demanded is internaldisagreements within companies. While sustainability and procurement professionals understood thevalue of paying a small premium to move the industry forward, finance and marketing departments may have blocked early moves.


resources applies not just to Asia. Huge plantationsare on the cards for western Africa and SouthAmerica. Sime Darby, for example, is developing large

plantations in Liberia, amid grave concerns abouttheir social and environmental conditions. The BBC and other media outlets are now

beginning to cover Liberian palm oil. Nigeria andother states are likely to be in the spotlight next.Herakles Farms, a company investing inCameroonian palm oil, is increasingly in the mediaglare. Critics of RSPO say that to deliver sustainable

palm oil it must adopt a policy that excludesdeforestation from its standards. Currently it doesnot, and on top of that a number of producermembers seem intent on continuing “business asusual”, according to Greenpeace, meaning they willcarry on chopping down native forest. Rob McWilliam of The Forest Trust says

27Supply chains Ethical Corporation • June 2012

Four reasons companies don’t buy RSPO certified palm oil

RSPO certified oil continues to be bought below produced volumes for a number of reasons.

1. Downstream buyers are not buying the oil, as it can be significantly more expensive than conventional oil.

2. The crude palm oil in itself is not necessarily much more expensive (sometimes $20/tonne). But because companies mostly use refined oil, or fractions, and the premium weighs on those fractions,this amplifies the premium sometimes up to $300/tonne.

3. Segregating the RSPO oil from the plantation to the final user is extremely costly. As a commodity, palm oil works on a critical mass basis. When you try to segregate and create artificial flows it is likeswimming against the stream and the added costs are prohibitive. This applies particularly in China and India.

4. Businesses such as Cargill, Nestlé and Unilever have committed to sourcing RSPO certified sustainablepalm oil by 2015. As a result, change to the status quo is unlikely until 2014. For the time being businesses are snapping up Green Palm certificates, which do not require them to pay the full cost of certified oil or change their supply chain to buy the physical trade of RSPO certified oils.

Source: The Forest Trust

Extent of deforestation in Borneo 1900–2005, and projections towards 2020

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deforestation is being carried out “by both RSPOmembers and non RSPO members”. One of theproblems is the definition of deforestation, he says. Currently the RSPO standard includes protection

of High Conservation Value Forests. These aretypically primary forests but can be other foresttypes, such as secondary forest. McWilliam notes thatany forest not identified as HCVF can be cleared.This is resulting in the clearance of secondary forestsor the so-called “degraded forests”. Clearance ofthese, he claims, forms a large part of the 17-20% ofthe global carbon emissions generated bydeforestation.Darrel Webber, head of RSPO, acknowledges that

“there have been lapses in compliance and thecredibility of all standards”. RSPO remains a “workin progress”, he writes in the recent WWF investorreport. But he argues: “Boycotting or withdrawingfrom palm oil is not a solution. Given the high yieldof palm oil versus other edible oils, sustainable palmoil production can provide significant benefits.Global demand is growing and the key concern ishow palm oil is being developed.”Webber says that RSPO member companies must

commit to measureable targets to be heldaccountable against. He notes: “Initiatives fromRSPO members, such as WWF through their scorecard, help in encouraging more companies tocommit to the sourcing of sustainable palm oil.”

Beyond certificationWhile RSPO struggles with the “growth versuscredibility” conundrum that affects any successfulmulti-stakeholder working group on sustainability,a partnership between Golden Agri Resources (GAR– a leading palm oil supplier), Nestlé, and TheForest Trust claims to have created a new model forsustainable change. Nestlé, pushed by a hard-hitting Greenpeace

campaign in 2010, has committed to a global “no

deforestation” target, alongside other members of theConsumer Goods Forum, by 2020.The company’s partnership with its leading palm

oil supplier and The Forest Trust is an example ofhow sustainability collaboration can dramaticallychange operating practices and business models.Magdi Batato, group technical director at Nestlé

UK, says that long-term sustainability is abouttransformation. “Your suppliers are part of it,” heargues, adding that long-term partnerships areneeded to help suppliers change the way they work.“It’s very expensive for a supplier to run twobusiness models.” Batato says transformation around forest

conservation has led to a new sustainable businessarrangement between Nestlé and GAR while alsocreating competitive advantage for the GAR as aleading palm oil supplier. Total palm oil traceability isimportant to achieve trust, he says, and is achievable. Peter Heng, head of sustainability and corporate

communications at GAR, agrees. “GAR believes thatmultistakeholder collaboration is the only way toachieving solutions to sustainable palm oil,” he saidat the April palm oil conference. GAR has a forest conservation policy developed

in collaboration with The Forest Trust. It aims toensure it has a no deforestation footprint. The firmhas committed to zero palm oil development on peatand High Conservation Value forest land. GAR alsopromises no development on high carbon stockforest land, free prior and informed consent fromcommunities and compliance with all local andnational laws. In recent years the company hasimplemented a social and community engagementpolicy and a yield improvement policy incollaboration with The Forest Trust and others.“Conserved high carbon stock forest can revert

back to its natural ecological state,” Heng says. “GARis prepared to take a lead.” But in terms of wider impact, GAR is limited by

the actions of other stakeholders and companies.Nestle UK’s Batato agrees, saying: “It’s abouttransformation of the business models of suppliers,and bigger companies can lead the way.” The key difference between RSPO certification

and GAR’s work with Nestlé and The Forest Trust isthe closeness of collaboration between the threeplayers in monitoring progress and agreeing bothcutting-edge policies and the incentives needed onall sides to make it sustainable.RSPO focuses heavily on having plantations

certified to its detailed principles and criteria, anddoes not yet encompass some of the issues thatGAR’s work with The Forest Trust and Nestlé tackles,such as a commitment not to develop peat lands. According to Greenpeace: “Indonesia’s peatlands

represent just 0.1% of the Earth’s land mass, butcontribute a staggering 4% of global emissions”.While Indonesian law prevents the development ofpeat lands more than 3m deep, the law is widely

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"Global demand is growing and the key concern is how palm oil is being developed" Darrel Webber, RSPO


Controlling members

Some RSPO member companies are highly committed to sustainable palm oil and many of these areimplementing serious sustainability plans.

But other members are accused of being more interested in simply looking good and continuing theexpansion of palm oil onto forested land. Unless a grievance is lodged by activists, some experts argue, acompany can simply carry on its practices.

“It is difficult for RSPO as an organisation to control its members,” says one commentator. The challengefor RSPO is one encountered by industry or issue-based business groups on all sorts of sustainability chal-lenges. On one hand they need more members to gain critical mass and move markets, yet on the otherthey need to maintain credibility. Both Greenpeace and The Forest Trust voice sympathy to RSPO’s plight,but maintain it must move faster towards greater rigour.

Darrel Webber, head of the RSPO, says that the organisation is holding “a review of our principles andcriteria as required after five years of implementing certification on the ground”.

Webber points out that when it comes to accusations of non-compliance by member organisations,“RSPO has a structured grievance process in place that has taken the necessary actions and sanctions. RSPOemphasises the importance of organisations in upholding their commitment as a member. Despite thechallenges, significant progress and commitment has been made in addressing some of these issues.”


flouted by companies in the country. The RSPO’sWebber says peatlands are a complex issue, and thatin some cases degraded peatlands are best protectedby planting oil palm. The GAR/Forest Trust/Nestle collaboration works,

according to The Forest Trust’s executive director,Scott Poynton, by utilising networks of localgrassroots NGOs – which were once allied againstGAR – to provide early warning of when policy is notbeing properly put into practice. “Because GAR is listening and responsive, trust is

building,” he says. Peter Heng agrees. “Face to faceinteractions are so important,” he says.The GAR/Forest Trust collaboration on

sustainability beyond RSPO is one of the first largescale palm oil partnerships utilised by a largecompany. There are, however, other industryexamples of progressive and capacity-buildingprogrammes. Nestlé is keen to emphasise its small business

training and partnering programme in Malaysia.Nestlé’s Magdi Batato recently worked in Malaysiaand says the company has trained more than 1,000very small Malaysian companies in bettersustainability management. Following training, someof these have become suppliers to Nestlé.Another company offering full palm oil

traceability is New Britain Oils, albeit via verticalsupply chain integration, a very different model. Thecompany has had a policy of not planting on primaryforest since 1985 and says it does not plant onpeatlands.Andy Worrall, general manager at New Britain

Oils, believes that, ultimately, transparency in the fullsupply chain for palm oil will be essential, and mustbe part of competitive advantage for sustainably-minded companies in the industry. “It must be good for business,” he says. Worrall

believes, though, that “critical trigger points” in themarket for traceable palm oil need to be reached todrive sustainable change. While it is clear that RSPO has made great strides,

with its certified palm oil representing 10.2% ofglobal palm oil production, or 6m tonnes a year, inthe four years since certification began, NGOs suchas Greenpeace are worried that RSPO’s broadembrace of member consensus means it is notmoving fast enough.

The scale challengeThe long-term challenge for collaborative partner-ships may well be scale beyond certification. Thereare not many experienced forestry NGOs such asThe Forest Trust that can work on the ground acrosssizeable land areas. If a dozen other companies thesize of GAR suddenly wanted to emulate its model,these firms might struggle to find both the NGOcapacity and the big brand buyer support theywould need to make it happen. Greenpeace’s senior forestry campaigner, Andy

Tait, is keen to stress that he is by no means anti-RSPO and sees it as part of the solution to the scaleproblem. “The easiest way to deliver this [scale]would be [through] the RSPO. If we want totransform the palm oil industry, I think it’s criticalthat the RSPO responds to the challenge of strongerstandards and mainstreaming traceability. If itdoesn’t, things will get complicated with a likelyproliferation of alternative approaches,” he says. Rob McWilliam, a senior manager at The Forest

Trust, says the model his organisation has developedwith GAR and benchmarked with Greenpeace isscalable. Companies should simply make use of thework already done by Nestlé and “add to theirleverage” he says. “They all use the same suppliers anyway,”

McWilliam says. Scaling the GAR/Forest Trust/Nestlémodel is a matter of “aligning the sourcing guidelinesand asking for traceability first. It means investmentand serious commitment from the brands. It meansreally involving the sourcing departments.” And, McWilliam insists, it can be done. After all,

big business meets challenges like this regularly inother areas, so why not in palm oil? The outlook for genuinely sustainable, traceable

palm oil is becoming more positive. RSPO’s DarrelWebber points to what has been achieved since 2008. More than 6m tonnes of Certified Sustainable

Palm Oil has been produced since 2008. Major brandssuch as Nestlé, Unilever and others are pushingother palm oil suppliers hard, through channels suchas the Consumer Goods Forum, as they strive toreach their traceability and deforestation targets. If other big brands can begin to take a similar

approach, progress may accelerate quickly enoughto save what remains of the world’s tropical forestsfrom destruction. At least, that is, as far as a moresustainable palm oil industry can have an impact. �

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Big business meets challengeslike this regularly in other areas, so why not inpalm oil?


Hard-hitting campaigning makes a difference

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