The green image of one of Malaysia’s largest conglomerates suffered a major blow on Friday with its suspension from the world’s largest association for ethical palm oil production, the RSPO.
IOI Group was one of the founding members of the Roundtable on Sustainable Palm Oil, but it has been suspended over its operations in the Ketapang area of Indonesian Borneo, where three of its subsidiaries are alleged to have violated a raft of RSPO standards meant to prevent rainforest destruction and social conflict, and some laws.
During that time, IOI has been one of the biggest suppliers of RSPO-brand “Certified Sustainable Palm Oil,” or CSPO, to the consumer goods giant Unilever, another roundtable member. IOI’s ability to sell palm oil as CSPO has been suspended, too.
The move could affect IOI’s business, according to Hong Leong Investment Bank Research. “Its customers, especially those in the European Union and the United States, might switch to other suppliers in order to comply with their sustainability policies,” the research house said.
Earlier this week, the firm’s stock price on the Bursa Malaysia dropped on the possibility of a suspension.
IOI submitted an action plan to the RSPO on Wednesday, and a senior manager, Yeo Lee Nya, said the company’s sales of palm oil that has not been certified as sustainable would continue apace. “The only effect is that IOI will not be able to earn CSPO premium on our oil which represents only a very small percentage (less than 0.5%) of our revenue,” Yeo Lee Nya said.
A different IOI subsidiary in Sarawak, Malaysia, has been accused of land grabbing and is the subject of an RSPO complaint there. That grievance has gone unresolved for five years.
IOI has generally denied the allegations against it, which include uprooting trees without the proper government permits, flouting the RSPO’s procedures, operating on deep peat and using fire to clear land.
The suspension is especially significant because while RSPO members often violate the roundtable’s standards, they are rarely penalized for it.
Eric Wakker, of the consultancy Aidenvironment, which filed a recent complaint against IOI, welcomed the decision.
“For six years, RSPO allowed IOI to abuse its systems in attempts to sweep serious non-compliance with law and RSPO standards and procedures under the carpet,” he told Mongabay. “It was incredibly hard work just to see RSPO fully suspend IOI, based on its own formal rules.”
IOI’s suspension was only the beginning, he added. Instead of lobbying the RSPO to lift the suspension as quickly as possible, the company should give its sustainability teams in Kuala Lumpur and the Netherlands a stronger mandate to control operations.
“The other thing is that IOI needs to give up some land to local communities and work with them as smallholders instead of trying to occupy their land for higher profit,” Wakker said. “It also needs to accept that consumers will not accept sustainability certificates on products that came from land that ultimately was stolen from ordinary Malaysians and Indonesians.”
Aidenvironment believes IOI “can easily become an industry forerunner,” he concluded. “In fact, we desperately need them up there in a common effort to transform the whole industry towards sustainable practices.”
This story was published with permission from Mongabay.