With clock ticking on 2020 deforestation pledges, 5 ideas for sourcing palm oil sustainably
Time-bound commitments and better ways to monitor suppliers will play a central role
Progress towards sustainable palm oil production is slowly moving forward, even as reports of labor and human rights abuses, devastating loss of rainforest and peatlands, and critically endangered species dominate the news headlines about the world’s No. 1 vegetable oil.
Today, about 20 percent of palm oil products worldwide are certified sustainable by the Roundtable for Sustainable Palm Oil (RSPO), the recognized industry standard for food and chemical products. In November, the RSPO adopted sweeping new standards that include a complete ban on deforestation and planting on peatlands, alongside new certification procedures for smallholders, among other steps.
Clearly, more work is urgently needed to increase sustainable palm oil production, but compared to other major food commodities, such as soybeans or beef, 20 percent sustainable is progress.
Among the bright spots on palm oil, a new report (PDF) shows that 74 percent of palm oil imported into the European Union for food is certified sustainable palm oil (CSPO). Moreover, 99 percent of that is traceable to the mill level. True, Europe consumes only 12 percent of the world’s palm oil, but its progress shows that collaborative action (PDF) among industry stakeholders can move the needle.
Elsewhere, the world’s largest palm oil trader, Wilmar International, announced in December a partnership with Aidenvironment to use satellite monitoring to prevent any potential deforestation by its 900 suppliers.
Yet even with this positive momentum, many manufacturing companies and retailers lag behind their sustainable palm and no deforestation by 2020 pledges. Such lack of ambition is not lost on investors, who are "getting to the point where they really want to see these policies in action" said Siobhan Collins, senior manager of food and capital markets at Ceres, noting repeat shareholder resolutions filed with Restaurant Brands International, Yum Brands and Mondelez, as well as dozens of dialogues on implementation of deforestation policies.
GreenBiz spoke with experts from the RSPO, Zoological Society of London (ZSL) and Wilmar International to get their take on the most effective strategies companies can use — and are deploying — to meet their sustainable palm oil pledges. Here’s what they had to say:
1. Buy 100 percent RSPO-certified palm oil globally
Very few manufacturing companies actually do this. In fact, demand for sustainable palm oil isn’t even meeting current production levels. Only half of the world’s CSPO is sold as sustainable palm oil.
Some companies are sourcing 100 percent RSPO-certified palm oil for their European and North American markets, but that leaves about 80 percent of the world not covered, according to Michael Guindon, palm oil technical advisor at ZSL, who said global sourcing "can help to incentivize change in markets where there is currently limited demand," such as India and China.
Companies sourcing 100 percent (or near) RSPO-certified palm oil in all of their manufacturing regions, according to 2017 RSPO reports or their websites, include Ferrero, Mars, Danone, General Mills and Kellogg Company. With the exception of Kellogg, all are sourcing 100 percent of their palm products through what’s known as "mass balance" (a combination of certified, segregated sustainable palm oil, conventional and often sustainable palm oil produced by smallholders) and/or fully segregated sustainable palm oil. Kellogg was offsetting about 30 percent of its palm oil with credits as of 2017.
Price is often a barrier for companies, said Daphne Hameeteman, sustainability manager at Wilmar Europe. Certified oil can cost $20 to $30 more per ton, but at the consumer level, those costs are often negligible. Palm oil supplier Moi Foods, for example, states on its website that, for a hypothetical pie manufacturer, the cost of segregated sustainable palm oil amounts to about 1 cent for a 450-gram family apple pie.
"At the end of the day, quite honestly, it’s not a material cost," said Dan Strechay, interim director of outreach and engagement and the U.S. representative for outreach and engagement at RSPO. "A consumer is not going to feel the impact of moving from a conventional material to a sustainably sourced alternative for palm oil. [Companies] may not want to pay it, and I understand that, but I think it’s actually beholden on companies to do the right thing. It has to be a cost of business, has to be a shared responsibility in assuming these costs and if a grower is going to take the time to implement these programs, you have to reward the good companies that are trying to make this transformation."
2. Make time-bound commitments to purchase 100 percent physically certified sustainable palm oil
Some manufacturers aren’t yet purchasing 100 percent RSPO-certified palm products because they say they’re focused on moving the industry toward physically certified sustainable palm oil.
BASF, for example, purchased 70 percent of its palm kernel oil as RSPO-certified mass balance in 2018, and has committed to purchasing all its palm products as RSPO-certified by 2020. "BASF does not use the ‘Book & Claim’ option to cover its existing gap in the certified palm product supply chain because we focus on physical transformation," said Prerna Chatterjee, marketing manager, sustainability at BASF, in an email.
Hameeteman, however, believes that credits still play an important role, particularly for companies not yet buying any CSPO, and that over time such companies can move into mass balance or physically segregated RSPO. Strechay additionally said that "credits will play an extremely important role in motivating smallholders to implement best management practices to improve the sustainability of their farms" under the new RSPO rules.
3. Map and monitor suppliers
Major food companies such as Colgate Palmolive, Ferrero, General Mills, Mars, Mondelez, P&G and Unilever have taken steps to identify and publish their palm oil supply chains. Some have included both their direct suppliers and the mills that indirectly supply them. BASF, which relies in part on palm oil derivatives with supply chains up to 15 to 20 actors, has been able to trace 79 percent of its global supply chain of over half a million metric tons.
Guindon said that mapping one’s supply chain is a vital step for identifying high-risk regions, and for helping companies move beyond paper commitments to monitoring deforestation within their supply chains, working with their suppliers to see where noncompliance problems are, and prioritizing areas to act in their supply chain.
Wilmar has taken this approach, mapping all 900 mills within its supply chain and ranking certain risk criteria, such as whether the mill and its supply base were adjacent to a primary forest. Next, it did deep dive assessments for the top 10 percent riskiest mills, and anonymized and shared the results with the full refinery supply base to spur change in practices.
Mars has acted similarly, stating in its 2017 RSPO report, "Experience shows that we cannot drive change across all origins and must focus on selected refineries and supply sheds. We are working with our suppliers to minimize the number of refineries we source from, which will enable us to use our resources more effectively and bring about more rapid transformation."
4. Participate in smallholder impact programs and landscape initiatives
RSPO’s creation of a more simplified certification standard for smallholder farmers should make it easier for smallholders, who produce 40 percent of the world’s palm oil, to participate in certified sustainable markets. Sustainability certification can be costly and difficult to achieve.
That’s why participating in smallholder education programs, or working with provinces or jurisdictions to codify best management practices into local regulations, is a key way companies can help drive change on the ground, Strechay said. Many of the largest companies and traders do this, including Cargill, Kellogg Company, Mars (PDF), Nestle, Unilever and Wilmar.
The landscape approach, which brings together companies, local communities, NGOs, the government and other stakeholders to develop sustainable land use plans and robust governance mechanisms, is critical for ensuring that smallholders don’t move into other crops such as rubber or cocoa if the rules for palm oil become too onerous, and ultimately can make it easier for sourcing sustainable palm oil.
5. Focus on engagement and collaboration
Many companies have found stakeholder engagement to be key for both advancing their own efforts and helping shift the industry writ large towards sustainable palm production.
Collaboration through the RSPO, and the High Stock Carbon Approach and other mechanisms is also critical for addressing issues such as leakage of conventional palm oil into the market. Hameeteman said that supplier suspensions due to non-compliance with Wilmar’s No Deforestation, No Peat, No Exploitation policy (PDF) have resulted in annual supply loss of about 1 million tons, but those volumes often are absorbed by others that don't support similar policies. "This is a challenge we need to address collectively," she said.
"I can’t emphasize enough the importance of the downstream players getting involved, implementing their sourcing policies and also looking for impact projects on the ground with smallholders or others to support efforts. It has to be a holistic approach to how we solve these issues," Strechay said.
Sustainable palm oil sourcing and responsible supply chain strategies were part of this week's GreenBiz 19 conference, from Feb. 26 to 28 in Phoenix. Register for the GreenBiz 19 virtual event, which will be available on demand.
This story was updated March 12 to add BASF's partners in the farmer training program.