The RSPO’s suspension of IOI in April has forced even laggard companies to take a closer look at the ‘carbon bombs’ in their supply chains
The recent suspension of Malaysian palm producer IOI by the Roundtable on Sustainable Palm Oil (RSPO) after satellite pictures showed it had been involved in deforestation has intensified the debate over the scrutiny of palm supply chains. Even the fast moving consumer goods companies that have been least proactive on this issue have begun to “take their heads out of the sand”, as one NGO observer put it.
This will intensify after this month’s news that Swiss-based PanEco, which runs the Sumatran Orangutan Conservation Programme in Indonesia, quit the RSPO, the first NGO to do so. PanEco said RSPO has failed to rein in an industry tainted by environmental destruction and human rights abuses
To understand why FMCGs are under increasing pressure to evolve more meaningful goals around palm oil it is useful to look at the history. Palm oil seemed like a godsend when fast-moving consumer goods (FMCG) companies started using it en masse just over a decade ago. Consumers were clamouring for a substitute for dreaded trans fats, which were thought to play a role in coronary disease and were present in many snack foods. Palm oil, squeezed from bright orange, fast-growing palm fruit, was trans-fat free yet had all the best qualities for trans fats: it was cheap, neutral-tasting, shelf-stable. By 2012 the US was importing seven times as much palm oil as it had in 1999, when the Food and Drug Administration first proposed mandatory labelling.
Swift and widespread palm oil production started devastating tropical rainforests and animal – especially orangutan – habitats in Indonesia and Malaysia, as huge new corporations and smallholders alike cut and burned tropical forests to plant palm fruit trees.
A $50bn industry developed, while the cutting and burning scarred the land, belched hazardous smoke and climate-changing gas, and started underground peat fires (known as “carbon bombs” for their intense emissions releases), almost impossible to extinguish.
After a few memorable activist NGO campaigns (such as Greenpeace’s series of Kit-Kat advertisements), the largest palm-oil-using brands, led by Unilever, Nestlé and Ferrero Rocher, began to make goals around the sustainability of palm oil in their supply chains.
At the same time, the RSPO became the industry’s standards and governing body. Formed in 2004, with input from WWF and Unilever, among others, RSPO promised to provide oversight. Soon it launched the GreenPalm certificates programme (now administered by the UK’s Book & Claim company) so that palm oil producers certifying their oil to RSPO standards could receive certificates, and manufacturers buying them could claim they were using sustainable palm oil. Producers are tasked to spend GreenPalm certificate revenue on initiatives to create more sustainable supplies.
Criticisms of RSPO
RSPO has helped increase the amount of sustainable oil get into the market: by the end of 2015, 21% of the global supply of palm oil was RSPO-certified. But GreenPalm and RSPO have both been harshly criticised: buying GreenPalm certificates is not the same as a company buying physically verified sustainable palm oil. And a late 2015 report by the UK’s Environmental Investigation Agency (EIA) pointed to weaknesses in RSPO’s certifications and auditing system. EIA says the auditing firms that monitor palm oil companies’ operations are colluding with the companies to hide violations, while RSPO is slow to respond to NGO complaints.
And RSPO’s efforts haven’t slowed palm oil’s role in deforestation. Indonesia has become the fastest forest-clearing nation in the world, ahead of Brazil - a situation that became impossible to ignore in 2015 when horrendous round of forest fires in Indonesia spread haze beyond its borders and made this island-nation the fourth-largest global emitter of greenhouse gases in addition to its position as the world’s largest palm producer.
Nearly all big FMCG companies have sustainable palm oil policies. In general they have partnered with groups such as the Consumer Goods Forum and the Forest Trust to set goals. But, as the activist NGO Rainforest Action Network (RAN) notes, most of the policies have too much wiggle-room.
“Most companies figure out lots of ways to include loopholes,” says Emma Lierly, RAN’s forest communications manager. “What we are instead pushing companies, urging companies, to do is to take responsibility for the entire supply chain and have it audited and verified by a legitimate third party.”
Scoring the food brands
Because snack and other convenience foods play such a huge role in the negative impacts of palm oil production, both Greenpeace and RAN have devised scorecards so that consumers can see how their favourite food brands are doing. In Greenpeace’s Palm Scorecard, Nestlé and Ferrero Rocher (maker of the popular spread Nutella) are rated highest in getting to the goal of healthy rainforests by continually improving sourcing, and in Ferrero’s case, helping to reform the industry through partnerships, while Nestlé is applauded for the transparency of its reporting. They beat Unilever, which only scores “decent” marks for responsible sourcing and transparency.
Greenpeace says Colgate-Palmolive, Johnson & Johnson and PepsiCo cannot sufficiently trace the palm they use and rely too much on GreenPalm certificates, though in the wake of the scorecard, Colgate-Palmolive announced a phase-out of GreenPalm certificates.
RAN’s Snack Food 20 Scorecard, launched in 2015, also lauded Nestlé as a frontrunner, with a palm oil policy that had early commitments through a supplier code that goes beyond RSPO principles.
RAN and Greenpeace agree that true leaders among FMCG companies are still emerging. Ivy Schlegel, Greenpeace’s commodity research specialist, says thus far no large company has published a time-bound sustainable palm implementation plan that achieves verified traceability, cuts bad producers, and maintains transparency in reporting in a way that shows a 100% responsible palm oil supply.
“The goals should be strong and binding and include zero deforestation, no peat disturbance, and no exploitation of local communities and workers,” says Schlegel.
RAN and Greenpeace also agree that among the big snack food companies PepsiCo is currently the biggest laggard on palm oil/deforestation policies.
RAN in particular has not let up on Pepsi. An ad it produced on how Doritos chips may contain “traces of rainforest” went viral in 2015. PepsiCo spokesman Dan Strechay says the company takes palm responsibility “very seriously” and will be tracing its palm “all the way to the mill” by the end of this year .
Must go further
But that is not enough to satisfy RAN. “The policies just lack enough detail to make every level of the supply chain accountable,” said RAN’s Lierly, adding that tracing to the mill instead of the plantation is problematic, as is not applying the palm oil policy to joint venture partners. PepsiCo’s partner Indofoods is Indonesia’s third-largest palm oil producer, and also one of the country’s biggest food conglomerates.
In April RSPO’s unexpected move suspending the certification of IOI, a founding member of the organisation, supercharged the debate. Satellite images and investigation by the near-real-time forest mapping service Global Forest Watch showed there was deforestation on IOI lands considered of high importance for conservation and for carbon storage. Investigations on the ground also documented the draining and burning of peatlands.
The impact of RSPO’s action was immediate. IOI’s share price fell sharply. Unilever, Nestlé, Hershey’s, Kellogg’s, Colgate-Palmolive, Johnson & Johnson, Procter & Gamble, and SC Johnson quickly cancelled contracts with IOI. IOI retaliated by saying it would sue RSPO in a Swiss court – though it later said it would withdraw the lawsuit.
The RSPO move also had an impact on another major palm oil producer. Malaysia’s Felda Group voluntarily withdrew 58 of its mills’ RSPO certificates, saying it would now address sustainability issues along its supply chain, a move that caused its shares to rise on the Kuala Lumpur stock exchange.
“That move [by RSPO] created a lot of disruption of procurement,” says Ignacio Gavilan, sustainability director for the Paris-based Consumer Goods Forum, which in 2015 put together sustainable palm sourcing guidelines for its 400 members, building on its 2010 commitment to net zero deforestation in supply chains by 2020. “A few of our members were caught by surprise. This move shows RSPO's leadership at a point when the organisation needed to show its teeth."
Perhaps sensing leverage, a group of 31 NGOs most active in reducing deforestation and other negative impacts of palm cultivation drafted a letter to all the other brands using palm asking them to cut ties with IOI. This is important, because, as Gavilan noted, while snack food and consumer goods companies have been in the NGO activist spotlight, thousands of companies don’t pay any attention to responsibly sourcing their palm oil.
For example, Rizhao Changhua Aquatic Food, which processes imitation crabmeat, is among the largest importers of palm oil to China from Indonesia and Malaysia. It has no sourcing policy for palm oil or soya, no deforestation policy, and does no reporting.
The RSPO’s powerful move may be emboldening those beyond the corporate sphere: in late May, the Indonesian government rejected 61 requests by palm oil companies to expand plantations into forested land.
Not everyone is convinced of RSPO’s new-found toughness: since its 2004 formation just 15 members from the organisation, mostly palm oil traders, have been terminated for not submitting reports on progress for three consecutive years, and just two, including IOI, have had plant certifications suspended.
Meanwhile RSPO has more than 2,800 members, and the disastrous environmental, health, and social impacts of palm plantations continue.
RSPO has worked on an upgrade and overhaul of its principles, called RSPO Next, launched in February 2016, but it is a voluntary addition for members ready to take next steps. Those next steps are around zero deforestation, no planting on peatlands, and enhanced human rights obligation goals. IOI has now promised to bring itself into line with Next by the end of this year, though has not given details of how it will do so.
Bright spot amid the palm oil haze
Greenpeace, meanwhile, said RSPO should follow the lead of the Palm Oil Innovation Group. POIG, formed in 2013 by WWF, RAN and Greenpeace, and three companies, Brazil’s Agropalma, New Britain Palm Oil of Papua New Guinea, and Colombia’s Daabon Organic, in March released a set of verification indicators to be used by independent third parties to ensure that palm actors are really breaking the link to deforestation.
There are other bright spots in the peat fire haze. All the major palm oil producers – Wilmar International, Cargill, Golden Agri Resources, Asian Agri, Musim Mas and Astra Agro Lestari – have signed the 2015 Indonesia Palm Oil Pledge (IPOP) for “no deforestation, no peat, no exploitation”.
The top 50 largest palm producers are also assessed for their social and environmental commitments through the UK-based Zoological Society of London’s SPOTT scorecard.
But as activist groups make clear, transformational change will not happen overnight. Even those FMCG companies rated best are just beginning to eradicate bad palm oil from their supply chains. Only Ferrero Rocher can now trace 100% of its palm oil to Malaysian plantations, while Nestlé says it hopes to trace 80% of its palm oil to mills by the end of 2017, with just less than half (46%) traceable to plantations.
Nestlé spokeswoman Nina Caren Kruchten says the company is focusing its current efforts on technical assistance to smallholders through a Forest Trust partnership. This, she says, “will be a more effective and direct way of improving our responsible sourcing and [will] make a bigger difference to the livelihoods of farmers”.
Nestlé’s focus on farmers also highlights what activists say will be the next bar for FMCG companies to clear, as consumer awareness around the social and labour issues in palm oil production grows.
The challenges ahead
Pablo Pacheco, principal scientist at the Center for International Forestry Research, based in Bogor, Indonesia, says all the players in the palm oil trade will need to “embrace collaboration” as never before to make the world’s palm oil supplies sustainable and responsible, something he admits will be a hugely challenging.
This view is shared by Nigel Sizer, president of the Rainforest Alliance, which has its own palm oil certification scheme and has been working with companies, including Unilever, to trace their palm oil supply chains.
He wasn’t concerned that Unilever had been outpaced by Nestlé and Ferrero on deforestation in Greenpeace’s report card. “These rankings are difficult to do. You can weigh different variables in different ways so you come out with slightly different results,” Sizer says. “The key thing isn’t the order of the top 10, but that there’s a top 10 doing a lot and an awful lot more doing very little or nothing at all. For some it is harder than others. Unilever is a huge company and it’s challenging for them, but they are investing a lot in it and we know they are making real progress.”
Slippery ‘sustainable’ palm
What is sustainable palm oil? For the Roundtable on Sustainable Palm Oil, a membership organisation of producers and users, it means palm oil grown on plantations managed and certified according to RSPO principles such as traceability, minimizing the use of hazardous chemicals, and reducing greenhouse gas emissions.
Sustainable palm oil isn’t necessarily deforestation-free. RSPO instead refers to reducing fires and preserving “high conservation value” forests. There are also multiple levels within the RSPO system, with segregated being the highest category, in which palm oil is fully traceable to RSPO-certified suppliers, while one step down, in the mass balance model, there is traceability but the resulting oil is a mixture of sustainable and conventional oil. Book and claim is a category in which companies simply buy Green Palm certificates. It was designed as an interim measure while traceability was established.RSPO Palm Oil supply chains sustainability FMCG environmental destruction Human rights carbon bombs GreenPalm Greenpeace deforestation transparency traceability
October 2016, London
Over 150 leading supply chain, sustainability and sourcing professionals will meet to share insights and practical tips to address key issues such as; human rights, environmental management, lifecycle assessments, supplier partnerships and more