Benjamin Hulac, E&E
Tuesday, June 2, 2015
An international group of more than 110 investors managing more than $5 trillion in assets is concerned about a small substance found in many household goods: palm oil.
The Roundtable on Sustainable Palm Oil (RSPO), a coalition of palm oil extraction companies, processors and traders, as well as consumer goods manufacturers, financial firms and environmental groups, provides certification for the industry, ruling on the sustainability of palm oil production practices.
The forum’s role is to verify that palm oil is produced sustainably. But signatories to a letter published yesterday don’t think the organization is moving fast enough.
“Expectations for sustainable palm oil production have evolved rapidly with growing recognition of the sustainability challenges facing the industry,” the letter reads, addressing the Malaysia-based RSPO. “Investors and companies recognize that protecting forests and upholding human rights are essential for long-term business models and, consequently, investments that depend on a resilient, sustainable natural capital base.”
Current RSPO standards for palm oil sourcing don’t include protection for peatlands or “high carbon stock” forests, and the RSPO inconsistently enforces its guidelines, several investors and businesses that signed the letter said.
The RSPO is lagging behind many corporations’ sustainable sourcing policies, according to the signatories.
Palm oil is found in about half of all packaged consumer goods, according to the sustainable investors’ network Ceres, including candy, margarine, shampoo, soap, pizza dough and cosmetics. Produced in tropical climates — Indonesia and Malaysia are the biggest source nations — palm oil is a vegetable oil.
The office of New York State Comptroller Thomas DiNapoli and Green Century Capital, a mutual fund provider that focuses on sustainable investment, organized the letter, which urges RSPO to implement stricter requirements next year and boost its monitoring practices.
Worries about ‘brand damage’
The goal of RSPO is to “transform the markets by making sustainable palm oil the norm,” according to its website.
“We are calling on the RSPO to provide the assurance that strong protections are being upheld throughout the palm oil supply chains, and to maintain its credibility in the marketplace by strengthening its standards to align with best practices that many of its member companies have already adopted,” Lucia von Reusner, shareholder advocate at Green Century Capital, said in a statement.
In an interview, von Reusner said the letter came from concerned investors and companies that tap into the palm oil value chain. Unsustainable sourcing can lead to “brand damage,” she said.
Aggressive deforestation, the ensuing greenhouse gas emissions and questionable labor practices are all environmental and social concerns, she added.
“They have a pretty weak track record of enforcement,” von Reusner said of the RSPO.
After public backlash to negative developments connected to the palm oil industry, such as harsh labor conditions and clearcutting, companies that use palm oil can suffer from public relations blowback.
Under public pressure and scrutiny from green groups, McDonald’s announced in April a commitment to end the destruction of natural forests connected to company products, such as beef, coffee and palm oil (ClimateWire, April 22).
Archer Daniels Midland Co., an agricultural firm, and Wilmar International Ltd., a palm oil trader, have revealed similar pledges in the past year.
“Palm oil is so ubiquitous,” said Danielle Ginach of Sonen Capital, a sustainable investing company.
Many companies connected to the industry, she said, have set their own aggressive standards, bringing down the value of the RSPO stamp of approval.
“There’s no way that more stringent information isn’t in everyone’s best interest,” she said. “We’re looking to invest in companies that are kind of leading that charge,” she added, referring to companies that have adopted robust standards. “That signals that this is a company that has a really good grip on their supply chain.”
Critics from Wal-Mart to Starbucks
Ken Jacobs, the owner of Colorado Sustainable Asset Management, who signed the letter, too, said traceable, sustainable palm oil is widely available, but some companies buy carbon-offsetting credits to counterbalance their palm oil purchases.
“The central red flag is that under the RSPO rubric, it’s possible for a company to in essence buy certificates offsetting the fact of deforestation related to palm oil,” he said in a call from Golden, Colo. “You have a few companies that are still laggards here.”
At Dana Investment Advisors, which offers some social impact investing options, ESG factors — environmental, social and governance factors — have been part of some of the company’s products for about 15 years.
Ann Roberts, an ESG analyst for the firm, also signed the letter.
“Consumers more and more are wanting sustainable products,” she said, noting that there’s a reputational risk for companies connected with palm oil and deforestation controversies. “Our social portfolio products are our fastest-growing products.”
Some of the biggest U.S. consumer goods and food companies also signed the letter, including five of the top 10 biggest corporate palm oil buyers — Colgate-Palmolive Co., Kao Corp., PepsiCo Inc., Procter & Gamble Co. and Johnson & Johnson. Other big brand signers include Albertsons-Safeway, ConAgra, Dunkin’ Brands, General Mills, Mars Inc., Starbucks, Kellogg Co. and Wal-Mart Stores Inc.
According to the Center for International Forestry Research, deforestation due to palm oil has wiped out more than 34,000 square miles of forest in Indonesia and Malaysia, pushing Indonesia to be one of the world’s top emitters as the country loses valuable carbon-trapping vegetation.