ECM June_Layout 1 01/06/2012 11:38 Page 1      June 2012                              Respons...
ECM June_Layout 1 01/06/2012 11:38 Page 3                               Ethical Corporation • June 2012                   ...
ECM June_Layout 1 01/06/2012 11:39 Page 24       Palm oil       Transforming       business models,       slowly       By ...
ECM June_Layout 1 01/06/2012 11:39 Page 25                                                                                ...
ECM June_Layout 1 01/06/2012 11:39 Page 26   26 Supply chains                                                             ...
ECM June_Layout 1 01/06/2012 11:39 Page 27       Ethical Corporation • June 2012                                          ...
ECM June_Layout 1 01/06/2012 11:39 Page 28   28 Supply chains                                                             ...
ECM June_Layout 1 01/06/2012 11:39 Page 29       Ethical Corporation • June 2012                                          ...
Upcoming SlideShare
Loading in …5

Ethical Corp June 2012 Palm Oil Article and Cover, Contents


Published on

Long feature from June 2012

Published in: Business, Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Ethical Corp June 2012 Palm Oil Article and Cover, Contents

  1. 1. ECM June_Layout 1 01/06/2012 11:38 Page 1 June 2012 Responsible business in Bangladesh Garment industry gains ground Ruggie principles +1 A slow absorption process Commercialised sustainability Make cash that counts The palm oil challenge How global brands can secure more sustainable supply
  2. 2. ECM June_Layout 1 01/06/2012 11:38 Page 3 Ethical Corporation • June 2012 Contents 3 Contents 5 From the editor EthicsWatch 6 Asia Pulp and Paper Indonesia gets tough 7 Fishing Climate chases stocks north 8 Toy supply chains Hotline helps 9 Rio+20 Reporting on the table p11 People power p24 Dont get palmed off 10 Mallen Baker Picking the right fight 31 NGOwatch 21 Peter Knight Diet debate Burger King and animal welfare Country briefing: Bangladesh 11 People power 22 CRwatch Strategy and management Burma bounceback 32 Human rights 13 Slow-moving corporate sector Ruggie, one year on 16 Social business 24 Palm oil 35 Sustainability commercialised 19 Top-down corruption? Jump out the niche New look supply chain 38 Social media When to tweet in a crisis 30 Jon Entine 40 Impact assessment The science of political divide The interactive approach 44 China column Paul French on Chinese brand acquisitions Review 45 Academic news 46 Report: Shell 47 Report: Lowe’s 48 New books 49 People on the move COVER IMAGE: JAMES MORGAN 50 Toby Webb p32 Ruggie rollout p34 Sustainable products get moving Scale up!
  3. 3. ECM June_Layout 1 01/06/2012 11:39 Page 24 Palm oil Transforming business models, slowly By Toby Webb A complex, giant and growing industry needs some solutions to a lack of sustainability
  4. 4. ECM June_Layout 1 01/06/2012 11:39 Page 25 Supply chains 25 JAMES MORGAN/WWF INTERNATIONAL alm oil is an industry on the rise. Worth about £32bn P a year, it is catching up fast with the £60bn plus annual global cotton industry. Think about the amount The RSPO in numbers of cotton in the average western wardrobe and you RSPO represents over 850 get a sense of the reach of these commodities. member organisations from According to WWF, more than 50m tonnes of more than 50 countries. palm oil are used worldwide each year, in products Certification according to from food to cosmetics. From 2010 to 2020, this RSPO global standards been volume will increase by two-thirds, according to granted to 30 plantation WWF, in a recent report – Palm Oil Investor Review companies and 146 palm 2012. oil mills covering an area of In the report, Darrel Webber, head of the over 1.2m hectares with Roundtable on Sustainable Palm Oil, points out that over 6m tonnes of certified among the 17 major oils and fats on the global sustainable palm oil (CSPO) market, palm oil has emerged as the leader, in annual production accounting for about a third of the world’s edible oil capacity. production. Total production of RSPO That comes at a cost. Webber says: “Between 1990 CSPO today is over 10% of and 2005 as much as 55-60% of palm oil expansion global palm oil production. was at the expense of natural forest.” And the forests The RSPO trademark is also destroyed and under threat as a result of oil palm addressed at educating and market growth harbour some of the world’s greatest informing consumers of their biodiversity. ethical purchase choices – to More than £7bn of oil palm investment is date, the trademark has currently planned for west and central Africa alone, been licensed to almost according to Michael Flint, a well-known 60 companies in over independent palm oil consultant who has worked for 13 countries. the UK government. Source: RSPO statement Meanwhile, UK households consume 35kg of to Ethical Corporation palm oil a year, accounting for about 1% of global palm oil consumption, with a market value of somewhere between £500m and £650m. According to the UK’s under-secretary of state for international development, Stephen O’Brien, who spoke at a recent conference on palm oil organised by The Forest Trust, 43 from the 100 best-selling UK grocery brands use palm oil. His numbers appear to have come from a 2009 investigation by the Independent newspaper in the UK. Shrinking carbon sinks As a result of both publicity and a greater under- Companies now standing of the environmental impacts of greater oil palm plantation growth, companies now question question their their role in the sustainability of the industry and role in the the remaining forests around the world. These giant sustainability carbon sinks are being shrunk, with native forest cleared to become oil palm plantations, particularly of the palm in Indonesia, elsewhere in Asia, South America and oil industry Africa. According to the UK’s Department for International Development, 13m hectares of forest are cleared annually. Deforestation is regarded as being responsible for up to 20% of global carbon emissions. Stopping it is finally becoming serious business. Flint, speaking at the recent Forest Trust conference, argued that market demand must be moved if these forests are to be saved. Flint said that if 62% of UK consumption of palm oil was switched
  5. 5. ECM June_Layout 1 01/06/2012 11:39 Page 26 26 Supply chains Ethical Corporation • June 2012 MAURI RAUTKARI/WWF-CANON 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 with farmers 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 as long 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 crisis in the EU. As one expert puts it: “With palm oil at $800/tonne nobody wanted to pay an extra cent for a sustainable product that does not get recognised by customers at the store.” Saving pristine forest is the aim Sources say that after a fractious 2010 annual RSPO meeting, where disagreements about sales volumes and EU company commitment risked bringing down the scheme entirely, other EU companies began to it fails to encourage the traceability that is essential commit to buy Green Palm certificates and the system stabilised. to ensure that palm oil from questionable sources is But Green Palm’s future is by no means guaranteed. One expert believes that all the Green Palm excluded from the supply chain. commitments make a total of about 10m tonnes. That’s about 20% of total production. However, only Unilever, which buys about 3% of global palm oil about 5m tonnes worth of Green Palm certificates are available. This means the price should be relatively production, about 1.4m tonnes a year, helped found high. It isn’t and only 2.8m tonnes worth have been bought. In late May, a Green Palm certificate could RSPO in 2004. The company acknowledges that be bought for $2.19. certification without traceability has a limited shelf One cited reason for EU company reticence in buying the certificates they had demanded is internal life, but defends the RSPO method as an interim step disagreements within companies. While sustainability and procurement professionals understood the towards full traceability. Unilever will reach its target value of paying a small premium to move the industry forward, finance and marketing departments of buying 100% of its palm oil from certified may have blocked early moves. sustainable sources during 2012, three years ahead of schedule. to sustainable sources by 2021-22, about 90,000 Unilever spokesman Trevor Gorin says the hectares of forestry clearance might be avoided company has already bought its first consignments worldwide. This would mean the prevention of 78m of segregated palm oil. In 2011, 27,000 tonnes was tonnes of CO2 emissions. These would have a landed in Rotterdam and used across Unilever ’s present value of £7.3bn, at a cost per tonne of C02e European manufacturing sites. (avoided) of £3.60. Now the company has set a new target of, by “We can play around with numbers [on cost 2020, tracing all the palm oil it buys right back to the benefit analysis] but it’s the financial markets and plantations where it is grown. Unilever has also market demand [that will make the difference],” Flint announced the company is in advanced stages of says. He developed the models that generated the discussions with the Indonesian government for above data for the UK government, which has investing more than €100m in a large processing committed some £600m to an international climate plant for palm oil derivatives in Sumatra. “This plant Greenpeace argues fund over the next four years. The Department for will not only reduce transportation requirements and that Green Palm International Development meanwhile, has said it save money but it will also start to make the palm oil will stump up an additional £22m to help protect we use easier to trace,” Gorin says. fails to encourage forestry specifically. So if the leading companies believe RSPO’s traceability current policies, principles and certification are a step RSPO and Green Palm on the long journey to full sustainability for palm oil, Among large multinational companies, working where’s the problem? towards more sustainable palm oil usually involves As one protagonist at The Forest Trust’s palm oil supporting the certification work of the fast- conference in London in April put it: “We have to growing Roundtable on Sustainable Palm Oil, a sort this before we run out of forest.” Malaysia-based non-profit organisation. In 2007 the United Nations Environment RSPO’s certified sustainable palm oil programme Programme predicted that for Indonesia, is complex, and often involves the use of Green Palm “calculations suggest that 98% of lowland forest may certificates. These allow companies in Europe to buy be destroyed by 2022. Since mature forest is being certificates issued to show that they are supporting lost from such large areas, the supply of timber will RSPO-certified palm oil businesses, bypassing the decline further. This means that the incentive to log need for segregated RSPO-certified palm oil in the protected areas will grow.” (These numbers, now five supply and transportation chain. years old, are disputed by some experts as being This approach has come under criticism from exaggerated.) campaigners such as Greenpeace, which argues that The concern about a limited supply of forest
  6. 6. ECM June_Layout 1 01/06/2012 11:39 Page 27 Ethical Corporation • June 2012 Supply chains 27 WWF, REPRODUCED IN UNEPS REPORT THE LAST STAND OF THE ORANGUTAN Extent of deforestation in Borneo 1900–2005, and projections towards 2020 resources applies not just to Asia. Huge plantations are on the cards for western Africa and South Four reasons companies don’t buy RSPO certified palm oil America. RSPO certified oil continues to be bought below produced volumes for a number of reasons. Sime Darby, for example, is developing large plantations in Liberia, amid grave concerns about 1. Downstream buyers are not buying the oil, as it can be significantly more expensive than conventional oil. their social and environmental conditions. The BBC and other media outlets are now 2. The crude palm oil in itself is not necessarily much more expensive (sometimes $20/tonne). But beginning to cover Liberian palm oil. Nigeria and because companies mostly use refined oil, or fractions, and the premium weighs on those fractions, other states are likely to be in the spotlight next. this amplifies the premium sometimes up to $300/tonne. Herakles Farms, a company investing in 3. Segregating the RSPO oil from the plantation to the final user is extremely costly. As a commodity, Cameroonian palm oil, is increasingly in the media palm oil works on a critical mass basis. When you try to segregate and create artificial flows it is like glare. swimming against the stream and the added costs are prohibitive. This applies particularly in Critics of RSPO say that to deliver sustainable China and India. palm oil it must adopt a policy that excludes deforestation from its standards. Currently it does 4. Businesses such as Cargill, Nestlé and Unilever have committed to sourcing RSPO certified sustainable not, and on top of that a number of producer palm oil by 2015. As a result, change to the status quo is unlikely until 2014. For the time being members seem intent on continuing “business as businesses are snapping up Green Palm certificates, which do not require them to pay the full usual”, according to Greenpeace, meaning they will cost of certified oil or change their supply chain to buy the physical trade of RSPO certified oils. carry on chopping down native forest. Source: The Forest Trust Rob McWilliam of The Forest Trust says
  7. 7. ECM June_Layout 1 01/06/2012 11:39 Page 28 28 Supply chains Ethical Corporation • June 2012 deforestation” target, alongside other members of the Controlling members Consumer Goods Forum, by 2020. The company’s partnership with its leading palm Some RSPO member companies are highly committed to sustainable palm oil and many of these are oil supplier and The Forest Trust is an example of implementing serious sustainability plans. how sustainability collaboration can dramatically But other members are accused of being more interested in simply looking good and continuing the change operating practices and business models. expansion of palm oil onto forested land. Unless a grievance is lodged by activists, some experts argue, a Magdi Batato, group technical director at Nestlé company can simply carry on its practices. UK, says that long-term sustainability is about “It is difficult for RSPO as an organisation to control its members,” says one commentator. The challenge transformation. “Your suppliers are part of it,” he for RSPO is one encountered by industry or issue-based business groups on all sorts of sustainability chal- argues, adding that long-term partnerships are lenges. On one hand they need more members to gain critical mass and move markets, yet on the other needed to help suppliers change the way they work. they need to maintain credibility. Both Greenpeace and The Forest Trust voice sympathy to RSPO’s plight, “It’s very expensive for a supplier to run two but maintain it must move faster towards greater rigour. business models.” Darrel Webber, head of the RSPO, says that the organisation is holding “a review of our principles and Batato says transformation around forest criteria as required after five years of implementing certification on the ground”. conservation has led to a new sustainable business Webber points out that when it comes to accusations of non-compliance by member organisations, arrangement between Nestlé and GAR while also “RSPO has a structured grievance process in place that has taken the necessary actions and sanctions. RSPO creating competitive advantage for the GAR as a emphasises the importance of organisations in upholding their commitment as a member. Despite the leading palm oil supplier. Total palm oil traceability is challenges, significant progress and commitment has been made in addressing some of these issues.” important to achieve trust, he says, and is achievable. Peter Heng, head of sustainability and corporate deforestation is being carried out “by both RSPO communications at GAR, agrees. “GAR believes that members and non RSPO members”. One of the multistakeholder collaboration is the only way to problems is the definition of deforestation, he says. achieving solutions to sustainable palm oil,” he said Currently the RSPO standard includes protection at the April palm oil conference. of High Conservation Value Forests. These are GAR has a forest conservation policy developed typically primary forests but can be other forest in collaboration with The Forest Trust. It aims to types, such as secondary forest. McWilliam notes that ensure it has a no deforestation footprint. The firm any forest not identified as HCVF can be cleared. has committed to zero palm oil development on peat This is resulting in the clearance of secondary forests and High Conservation Value forest land. GAR also or the so-called “degraded forests”. Clearance of promises no development on high carbon stock these, he claims, forms a large part of the 17-20% of forest land, free prior and informed consent from the global carbon emissions generated by communities and compliance with all local and deforestation. national laws. In recent years the company has Darrel Webber, head of RSPO, acknowledges that implemented a social and community engagement "Global demand “there have been lapses in compliance and the policy and a yield improvement policy in is growing and credibility of all standards”. RSPO remains a “work collaboration with The Forest Trust and others. in progress”, he writes in the recent WWF investor “Conserved high carbon stock forest can revert the key concern report. But he argues: “Boycotting or withdrawing back to its natural ecological state,” Heng says. “GAR is how palm from palm oil is not a solution. Given the high yield is prepared to take a lead.” of palm oil versus other edible oils, sustainable palm But in terms of wider impact, GAR is limited by oil is being oil production can provide significant benefits. the actions of other stakeholders and companies. developed" Global demand is growing and the key concern is Nestle UK’s Batato agrees, saying: “It’s about Darrel Webber, RSPO how palm oil is being developed.” transformation of the business models of suppliers, Webber says that RSPO member companies must and bigger companies can lead the way.” commit to measureable targets to be held The key difference between RSPO certification accountable against. He notes: “Initiatives from and GAR’s work with Nestlé and The Forest Trust is RSPO members, such as WWF through their score the closeness of collaboration between the three card, help in encouraging more companies to players in monitoring progress and agreeing both commit to the sourcing of sustainable palm oil.” cutting-edge policies and the incentives needed on all sides to make it sustainable. Beyond certification RSPO focuses heavily on having plantations While RSPO struggles with the “growth versus certified to its detailed principles and criteria, and credibility” conundrum that affects any successful does not yet encompass some of the issues that multi-stakeholder working group on sustainability, GAR’s work with The Forest Trust and Nestlé tackles, a partnership between Golden Agri Resources (GAR such as a commitment not to develop peat lands. – a leading palm oil supplier), Nestlé, and The According to Greenpeace: “Indonesia’s peatlands Forest Trust claims to have created a new model for represent just 0.1% of the Earth’s land mass, but sustainable change. contribute a staggering 4% of global emissions”. Nestlé, pushed by a hard-hitting Greenpeace While Indonesian law prevents the development of campaign in 2010, has committed to a global “no peat lands more than 3m deep, the law is widely
  8. 8. ECM June_Layout 1 01/06/2012 11:39 Page 29 Ethical Corporation • June 2012 Supply chains 29 APOORVA SALKADE/GREENPEACE flouted by companies in the country. The RSPO’s Webber says peatlands are a complex issue, and that in some cases degraded peatlands are best protected by planting oil palm. The GAR/Forest Trust/Nestle collaboration works, according to The Forest Trust’s executive director, Scott Poynton, by utilising networks of local grassroots NGOs – which were once allied against GAR – to provide early warning of when policy is not being properly put into practice. “Because GAR is listening and responsive, trust is building,” he says. Peter Heng agrees. “Face to face interactions are so important,” he says. The GAR/Forest Trust collaboration on sustainability beyond RSPO is one of the first large scale palm oil partnerships utilised by a large company. There are, however, other industry examples of progressive and capacity-building programmes. Nestlé is keen to emphasise its small business training and partnering programme in Malaysia. Hard-hitting campaigning makes a difference Nestlé’s Magdi Batato recently worked in Malaysia and says the company has trained more than 1,000 Tait, is keen to stress that he is by no means anti- very small Malaysian companies in better RSPO and sees it as part of the solution to the scale sustainability management. Following training, some problem. “The easiest way to deliver this [scale] of these have become suppliers to Nestlé. would be [through] the RSPO. If we want to Another company offering full palm oil transform the palm oil industry, I think it’s critical traceability is New Britain Oils, albeit via vertical that the RSPO responds to the challenge of stronger supply chain integration, a very different model. The standards and mainstreaming traceability. If it company has had a policy of not planting on primary doesn’t, things will get complicated with a likely forest since 1985 and says it does not plant on proliferation of alternative approaches,” he says. peatlands. Rob McWilliam, a senior manager at The Forest Andy Worrall, general manager at New Britain Trust, says the model his organisation has developed Oils, believes that, ultimately, transparency in the full with GAR and benchmarked with Greenpeace is supply chain for palm oil will be essential, and must scalable. Companies should simply make use of the be part of competitive advantage for sustainably- work already done by Nestlé and “add to their minded companies in the industry. leverage” he says. “It must be good for business,” he says. Worrall “They all use the same suppliers anyway,” Big business believes, though, that “critical trigger points” in the McWilliam says. Scaling the GAR/Forest Trust/Nestlé market for traceable palm oil need to be reached to model is a matter of “aligning the sourcing guidelines meets challenges drive sustainable change. and asking for traceability first. It means investment like this regularly While it is clear that RSPO has made great strides, and serious commitment from the brands. It means in other areas, with its certified palm oil representing 10.2% of really involving the sourcing departments.” global palm oil production, or 6m tonnes a year, in And, McWilliam insists, it can be done. After all, so why not in the four years since certification began, NGOs such big business meets challenges like this regularly in palm oil? as Greenpeace are worried that RSPO’s broad other areas, so why not in palm oil? embrace of member consensus means it is not The outlook for genuinely sustainable, traceable moving fast enough. palm oil is becoming more positive. RSPO’s Darrel Webber points to what has been achieved since 2008. The scale challenge More than 6m tonnes of Certified Sustainable The long-term challenge for collaborative partner- Palm Oil has been produced since 2008. Major brands ships may well be scale beyond certification. There such as Nestlé, Unilever and others are pushing are not many experienced forestry NGOs such as other palm oil suppliers hard, through channels such The Forest Trust that can work on the ground across as the Consumer Goods Forum, as they strive to sizeable land areas. If a dozen other companies the reach their traceability and deforestation targets. size of GAR suddenly wanted to emulate its model, If other big brands can begin to take a similar these firms might struggle to find both the NGO approach, progress may accelerate quickly enough capacity and the big brand buyer support they to save what remains of the world’s tropical forests would need to make it happen. from destruction. At least, that is, as far as a more Greenpeace’s senior forestry campaigner, Andy sustainable palm oil industry can have an impact. I