Sustainability

Just four commodities are responsible for this – cattle (beef and leather), soy, palm, and timber have the highest impacts on tropical forests and associated ecosystem services. The value chains of each commodity are extremely complex; each involves multiple actors and a variety of industrial and consumer end products. This is one of the reasons why deforestation is so difficult to tackle.

Of the four commodities, beef and soy production are driving more than two-thirds of recorded habitat loss in Brazil. The majority of soybeans don’t go into your local uncle’s tau foo fah, but are used as animal feed in large-scale battery farms to produce the chicken, fish and other meat that we eat (70% to 75% of soybeans produced becomes animal feed).

These statistics are presented not to take the spotlight away from palm oil in Malaysia and Indonesia, but are meant to put it in perspective on a global scale. However, even though palm oil isn’t the biggest “culprit” when it comes to deforestation, we should still scrutinise the industry and seek to understand the palm oil industrial complex.

The palm oil industry in Malaysia and Indonesia should be conceptualised as a complex network with different but connected parts: they fit into regional and global value chains which produce various economic, social and environmental outcomes over time. Indeed, palm oil has been key to the economic development of both countries, and each government has played an active role. Though there are a few large private Malaysian conglomerates (IOI Corporation, Kuala Lumpur Kepong, Genting Plantations, to name a few), the government plays a central role in shaping the industry through its control over key corporations (eg, Sime Darby, Kulim, Felda).

The development of the Indonesian palm oil industry was much affected by the long period of authoritarian rule under President Suharto. This period was characterised by a system of predatory capitalism and led to the emergence of a few wealthy, family-based conglomerates with privileged access to concessions via connections to the political elite and military. These oligarchies remain powerful today and the systems of property rights and production that developed during the Suharto era remain the same.

The dynamics among the actors in the oil palm complex are key to understanding the barriers to tackling sustainability issues in the region. The oil palm complex in Malaysia and Indonesia is analogous to big pharma and the gun lobby in the US. There are very obvious economic incentives associated with investment in these industries, and governments value and need such benefits. But is that such a bad thing?

The conflict between environmental protection and economic development is a decades-old debate. The right to development was recognised as an “inalienable human right” by the United Nations in 1986 in the Declaration on the Right to Development. This was later formalised in 1992 in the context of climate change and environmental protection at the Earth Summit in Rio de Janeiro. The concept that formalised this right is called “Common But Differentiated Responsibilities” and acknowledged two important factors, namely that there is economic disparity between developed and developing countries, and critically, developed countries contributed more to environmental degradation and should have greater responsibility than developing countries. Yet this hasn’t translated into increasing equity and developed countries have largely ignored the imbalance in responsibility.

Neocolonialism.

Global media continues to vilify Malaysian and Indonesian governments and plantation companies for their continued “exploitation” of the environment. Many argue that this is a form of neocolonialism – Western countries still seek to influence developing countries through capitalism, globalisation, and cultural imperialism. But nowadays it’s indirect, through trade sanctions rather than direct military force. In 2017, the EU (which was then Malaysia’s third-biggest palm oil customer) voted to ban the use of palm oil in biofuels by 2020.

Malaysian and Indonesian palm oil companies are often the targets of Greenpeace campaigns, painting them as dirty cowboys using slash and burn techniques to cut down rainforest to plant palm oil. While some of this may be true, it is not the focus of this commentary. Instead, we seek to answer the question – if Sime Darby or Wilmar are willing sellers, who are willing buyers? Palm oil is a key ingredient in a wide range of consumer end-products, from food and cosmetics to detergents and biodiesel. It is the most efficient source of vegetable oil: it is 6 to 10 times more productive than other oilseed crops like rapeseed, soybean, olive, and sunflower. In fact, boycotting palm oil and opting for substitutes could have worse effects on the environment. Much more land would need to be converted to produce the same volume of oil.

So, which companies produce the toothpaste, medicine, chocolate, pizza, cookies and ice cream that contain the palm oil driving deforestation? You guessed it. They are largely companies from developed countries, household names like Nestlé, General Mills, Kellogg, Unilever, Procter & Gamble, Campbell Soup, Danone, Colgate-Palmolive, the list goes on.

Hypocrisy.

This reveals the hypocrisy of Western media. In the past, only Malaysian and Indonesian plantation companies were “named and shamed” as deforestation bad-guys. Only recently has scrutiny turned towards companies further along the supply chain. One such example of an initiative scrutinising the entire value chain is the Forest 500, an initiative under Global Canopy, a forest think tank based in the UK.

It identifies and ranks the 500 most influential companies and financial institutions in forest risk commodity supply chains to facilitate the move towards a deforestation-free economy. In 2018, the Forest 500 ranked 350 companies (including Nestlé and Unilever) and 150 financial institutions (including Blackrock, Bank of China, Prudential, Temasek, ABN AMRO, Citigroup, Deutsche Bank, HSBC, UBS, Morgan Stanley, Aviva Group) on their policies addressing deforestation risk embedded in their supply chains, investments and/or lending. It is the first platform that puts the spotlight on these actors which account for two-thirds of deforestation.

Detractors may doubt that a ranking can make a difference in the fight to save our trees. Of course, on its own, it is not a mechanism as powerful or instant as the S&P 500, for example. The Forest 500 is just one of the ways in which we are starting to think institutionally, rather than individually, about addressing one of the many environmental problems of today.

Though in its infancy, “Environmental, Social and Governance” (ESG) ratings like the Forest 500 and similar benchmarks are being integrated by global institutional investors and investment managers. A recent article in the Harvard Business Review entitled The Investor Revolution lays out how ESG has gone mainstream in the investment community and it lists seven common ways in which sustainability is integrated into investments. Performance in the Forest 500 can most easily be integrated into two of them: positive/best-in-class screening (selecting companies with especially strong ESG performance) and ESG integration (including ESG factors in fundamental analysis).

The anti-palm oil campaign will lead you to believe that you are responsible for saving the trees. Western media will lead you to believe that Malaysian and Indonesian palm oil companies are responsible. The Forest 500 will lead you to believe that 500 stakeholders are responsible. EU policies and many others will lead you to believe that Malaysian and Indonesian governments are responsible. So, who is responsible? The answer is all of the above. The enormity and complexity of the task is daunting. It’s scary. Most of the issues we face today are.

What can you do about it?

Stay informed and take a balanced view. Read beyond the headlines and seek to understand. As with any environmental problem, dig down and find out who are the actors that really hold power before you vilify any actor (including yourself).

Hold the big guys (companies, investors and regulators) to account. In the supermarket, buy certified palm oil products. If you have investments, ask your investment managers what companies are in their portfolios. If there are companies in the palm oil supply chain, ask the investment managers how they engage these companies.

What has the palm oil industry done?

The Roundtable for Sustainable Palm Oil (RSPO) is a certification body made of industry players that was founded in 2004. It developed a standard for plantations and six other sectors in the industry to adopt in order to be certified sustainable. Currently, about 20% of the world’s palm oil is RSPO-certified. The standard was developed and is reviewed regularly using a consensus voting system. The criteria that are agreed upon, therefore, are those that appeal to the lowest common denominator.

Certified palm oil: How does it work?

The certification model is based on the premise that customers and consumers will pay more for certified sustainable products, and that premium will incentivise plantations to develop sustainably instead of cheaply and unsustainably. It’s very similar to MSC-certified fish and FSC-certified paper.

What have Malaysian and Indonesian governments done?

As mentioned earlier, these two governments play a central role in the oil palm complex. It’s a lucrative industry, so there is no incentive to halt palm oil production altogether. After many years of resistance, however, it seems the governments are becoming more open to solutions. One of them being certified sustainable palm oil.

Both governments have developed their own set of mandatory sustainability standards: the Malaysian Sustainable Palm Oil (MSPO) standard and the Indonesian Sustainable Palm Oil (ISPO) standard.

The way forward.

But do we really need three sets of standards? Or do we need a better standard or better coordination? There are overlaps and differences across the three standards set by the three certification bodies. Both the government-led MSPO and ISPO are stronger than the RSPO because they are mandatory while the industry-led RSPO is merely voluntary.

While all three include “environmental management”, “environmental protection” or “environmental responsibility”, the RSPO criteria are stronger on a number of issues: The RSPO has a requirement to maintain High Conservation Value (HCV) areas. It does not certify plantations that were developed after 2007 and replaced primary forest. It encourages members not to develop on peatland.

However, they all fall short on a main issue: none of them takes a strong stance on deforestation. RSPO Next is a voluntary effort that engages member companies to avoid deforestation, among other issues. But the operative word here is “voluntary”. Instead of duplicating efforts, harmonisation is critical. The enormity and complexity of the task has already been made clear. We don’t need three sets of standards – this just confuses the market.

In the absence of policy and strong standards, what is desperately needed is better mechanisms and better technology to track, monitor activity and more importantly, better enforcement of higher standards so that industries are held accountable. It’s one thing to be certified and another to be verified. It’s clear that there is a long way to go to uplift the standards but whether there is political appetite is the big question.

This article is an excerpt from UNRESERVED’s June 2019 issue from the article DEFORESTATION IN SOUTHEAST ASIA.

Related: What’s Driving Deforestation in Southeast Asia?