Sustainable Palm Oil: An Environmental and Human Rights Imperative

2017-11-08T20:12:02+00:00

By Aaron Ziulkowski, CFA
From the Summer 2015 Edition of Values

Public discourse on the forces driving climate change often focuses on the supply and demand for fossil fuels. Rightly so. The International Energy Agency estimates that in 2014 nearly 32 gigatons of carbon dioxide equivalent (GtCO2e) were emitted into the atmosphere from burning fossil fuels to drive our vehicles, heat and cool our buildings, and to produce and transport the goods used every day in the modern economy. Yet, this is not the whole story. The burning of fossil fuels accounts for only approximately 60 percent of global human-made emissions. The balance comes from deforestation, land clearing for agriculture, emissions associated with agriculture itself, waste, and wastewater.

Palm oil is a culprit here. Palm oil and its derivatives are found in nearly half of all packaged products sold in the supermarket, ranging from shampoo and toothpaste to baked goods and processed foods. Palm oil accounts for 65 percent of all vegetable oil traded internationally. While palm oil is produced in Africa, Latin America, and Southeast Asia, nearly 90 percent of global supply is sourced from Indonesia and Malaysia.

The production of this ubiquitous if inconspicuous product is associated with many environmental and social challenges. To start, it is a significant driver of greenhouse gas emissions. Eighty-five percent of Indonesia’s emissions come from deforestation and the degradation of peatlands as uncultivated land is converted into palm oil plantations. In 2012 alone, Indonesia is reported to have lost 840,000 hectares of forest (twice the deforestation in Brazil), equivalent to about one-third the acreage of the State of Vermont. Deforestation is also putting pressure on a wide variety of flora and fauna. The destruction of critical habitat for endangered species such as rhinos, elephants, tigers and orangutans has pushed them to the verge of extinction.

Lastly, palm oil production is associated with human rights abuses including forced and child labor, trafficking of migrant workers, dangerous working conditions, non-payment or underpayment of wages, and land eviction. The U.S. Department of Labor has identified the palm oil industry as one of the most notorious for forced labor and child abuse. Malaysia is estimated to have between 72,000 and 200,000 stateless children working on palm oil plantations.

To address the climate, human rights, and biodiversity challenges of palm oil production, the Roundtable on Sustainable Palm Oil (RSPO), a multi-stakeholder group, was established more than a decade ago. The RSPO set out to create a supply of palm oil that would provide buyers at all stages of the value chain assurance that the palm oil was produced sustainably. While the RSPO has made some progress, many stakeholders have recently observed that the RSPO does not sufficiently address many of the objectives it hoped to achieve. For example, Rainforest Action Network (RAN) characterized the RSPO standards as “inadequate since they certify and endorse both deforestation and peatland expansion as sustainable.” It goes on to note the RSPO has a “poor track record of resolving land conflicts between companies and impacted communities and enforcing its criteria regarding human rights violations.”

Recognizing the RPSO’s shortcomings, in 2013 a group of international NGOs, including Greenpeace, RAN, and WWF launched the Palm Oil Innovation Group, which “aims to support the Roundtable on Sustainable Palm Oil by demonstrating that innovation and leadership in sustainable palm oil production and use is possible and can be adopted into the mainstream.” At the same time, advocacy organizations mounted new campaigns publicly targeting Campbell Soup Company, ConAgra, Heinz, and PepsiCo, among others, while investors led by Ceres, Green Century Capital Management, and New York State Common Retirement Fund also continued to press companies to address the issue. We are starting to see these efforts bear fruit.

Over the past year, commitments have been made throughout the palm oil value chain. Top palm oil–consuming companies including ConAgra, Kellogg, and Smucker committed to purchase palm oil only from suppliers that adhere to no clearance of high carbon stock and high conservation value forests. Other top palm oil consumers, such as Colgate-Palmolive, Mondelez, and Procter & Gamble, have also made commitments. Responding to the demand from these companies, palm oil traders representing 60 percent of the world’s palm oil, including Bunge, Cargill, Golden Agri-Resources, and Wilmar, have committed to ensuring zero deforestation across their supply chains. Likewise, Walden is pleased to report successful engagement with both International Flavors and Fragrances (IFF) and Sysco, which resulted in both companies updating their policies on sourcing palm oil and increasing their commitments to its sustainable production. IFF told us that taking these steps was both the right thing to do and would create a valuable business opportunity in providing certified palm oil to its customers.

Companies are working with renewed focus to map their supply chains to better understand which products contain palm oil and its derivatives, and where those products come from. This is no small task, as the supply chain contains numerous links between the rainforest of Indonesia and our shopping carts. NGOs and other groups are working on the ground to build the capacity of local actors to meet newly raised expectations. And investors and companies alike are pressing the RSPO to improve its standards and bring along the entire industry.

The success to date on palm oil is emblematic of work on many ESG priorities. It has been the result of tireless work spanning more than a decade, efforts of countless stakeholders, and leading companies willing to demonstrate what can be done. Walden is optimistic that lessons learned from the past decade and increased commitments from major companies will lead to significant progress despite the challenges ahead.