Report: The Palm Oil Sector Isn't Living Up To Its Promises

Conventional palm oil production is a known social and environmental blight. For years, we've read about producers destroying biodiverse rainforests and peatlands, displacing vulnerable and endangered wildlife, mistreating local populations, and exploiting labor. The impacts of this ingredient are multiplied by its ubiquity. 

In the last few decades, palm oil farms have proliferated rapidly. Production is cheap, and palm oil is now a key raw material used in food, makeup, detergent, biodiesel and much more. But as unsustainable production has increased, so has the destruction of the ecosystems where oil palms grow best. The Amazon, its communities and its diverse wildlife have seen the brunt of this devastation.

In October, the Zoological Society of London (ZSL), an international conservation charity, published a deep-dive into the world’s most significant palm oil companies. The ZSL frequently publishes investigations into the transparency of business action via SPOTT, the Society’s “Sustainability Policy Transparency Toolkit.” The results of this study showed that most of the producers, processors and traders of palm oil are not living up to their environmental promises.

Of the 99 companies analyzed, the ZSL found that 65 percent have committed to zero deforestation and 58 percent have committed to respecting the rights of local communities. Yet only 22 percent of the companies say they can trace 100 percent of their raw materials to the plantations where they were grown. No company can trace 100 percent of its supply. 

Tracing agricultural commodities is notoriously difficult, but it's a challenge worth taking, especially if companies want to honor their public commitments.

"Achieving 100 percent traceability in the palm oil sector is difficult, as palm oil supply chains are extremely complex, with palm oil moving between several intermediaries before it makes its way into a product on supermarket shelves,” Michael Guindon, a palm oil technical advisor with ZSL, said in a press statement.

Guindon recommends companies that deal in palm oil survey their sources and consider whether they are supporting farms that align with their corporate values.

“Understanding one's supply chain is a critical step. However, it's only one piece of the puzzle,” he continued. “More importantly, companies should not only understand their supply chain thoroughly—they also need to use their buying power and work intensely to enforce the highest sustainability standards in every palm oil provider they do business with.”

Sustainable palm oil is vastly underutilized

Not every palm oil farm displaces biodiverse ecosystems or mistreats people. Around 20 percent of the world’s palm oil is sourced responsibly and sustainably. That may seem like a proportion that wouldn’t be able to meet global demand, but only half of the certified sustainable palm oil produced today is actually sold as sustainable, with the proper price premiums. Supply greatly exceeds demand. 

“Buyers don’t want to pay for it,” Simon Lord, chief sustainability officer at Sime Darby, the world’s largest producer of Certified Sustainable Palm Oil, told the Business Times from Kuala Lumpur. “There is increasing resentment among growers that the other actors in the supply chain are not stepping up.”

Palm oil that isn’t sold as sustainable gets pooled with non-certified oil. Consequently, farmers that are doing the right thing are losing out.

Misalignment of values and actions can cause mistrust amongst investors and customers

Consumer action has ripples across the supply chain. And on-pack messaging such as the green Certified Sustainable Palm Oil label allows customers to see when companies are taking the time and effort to deliberately source from sustainable farms.

For most companies, though, there is a misalignment between messaging and action. The ZSL found that only around a quarter of companies assessed have adopted transparent practices concerning their supplies. As an example, only 26 percent have programs that help high-risk suppliers become compliant with company sustainability policies. 

The ZSL emphasizes that supporting responsible palm oil production is the best way to achieve sustainability, to support farming communities and to protect wildlife.

In fact, turning away from palm to another vegetable oil could exacerbate environmental and social problems, the Society found. If grown in the right way, it insists, palm oil can be a highly sustainable commodity.

Oil palms use up to 10 times less land than other plants used for vegetable oil. They also require less fertilizer and pesticides and produce higher yields. 

Long story short: Companies need to step up and make sure they are supporting the right farmers, advocates say.

"Companies have a responsibility to ensure the products they're supplying are deforestation-free, preserve biodiversity, and respect the rights of workers and local communities,” Peter van der Werf, senior engagement specialist in the asset management firm Robeco's active ownership team, said in a press statement.

As the ZSL has proven time and again in its reports, industry transparency is lagging in many commodities markets. Since this summer, the ZSL has published three reports on three different industries using the SPOTT analysis. Each of these reports—on timber and pulp, palm oil and, most recently, rubber—revealed a notable lack of transparency about production practices. 

This should be a wake-up call to any company involved in palm oil or that uses palm oil—which includes half of the packaged items on supermarket shelves. The ZSL's advice: Trace to the source, whenever and wherever you can. If you don’t like what you find, begin investing in sustainable palm oil. Not taking action may hurt your brand image and your bottom line.

Investors, for one, are perking up to the problem. “Robeco has been engaging with the palm oil sector for nearly 10 years, and we have drawn a line for companies who are not willing to step up their game toward more sustainable practices by excluding them from our investable universe,” Van der Werf said. “At the same time, we are actively engaging with those we believe are capable of reaching the sustainability objectives we set by 2021."

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