How do companies benefit from sustainable palm oil certification?

Companies that use palm oil in their products have much to gain from ensuring their brand is truly certified sustainable—here’s how.

In Southeast Asia, the heartland of the palm oil trade, firms of all sizes and sectors face scrutiny from consumers and environmental groups to prove that this cheap, versatile ingredient found in half of all supermarket products was not grown at a cost to people or the planet.

In the sustainability reports that publicly listed companies must increasingly write for the market and their investors, evidence of ethical business practices is as important as profit growth, particularly for companies with ties to palm oil, the world’s most controversial crop.

But as more companies try to show that the palm oil they use is conflict-free, some companies are claiming to use sustainable oil without genuine grounds for doing so.

There have been some cases where companies have been buying certified sustainable palm oil, but have not been certified as sustainable themselves. To make accurate “eco-friendly” claims, a company’s entire supply chain needs to be audited by auditors accredited by the Roundtable on Sustainable Palm Oil (RSPO), the palm oil industry’s largest standard setting body.

“If companies claim that they use a RSPO-certified supplier, who’s verifying that the supplier is actually selling them sustainable oil?” asks Sara Cowling, communications manager for RSPO.

“As they’re not audited, consumers would not know if they decide to switch back to conventional oil,” she says, pointing out that six companies in Singapore and Malaysia were found to be using RSPO certification claims incorrectly. “This is why companies have to be members of RSPO before they make sustainability claims.”

RSPO-certified palm oil is cultivated on land that has not been slashed and burned—an agricultural practice that has caused haze air pollution across the region since the 1980s—and is not considered of high conservation value (HCV).

Being seen as green

The temptation for companies to claim that their palm oil ingredients are free from deforestation and labour abuses—two issues that continue to dog the industry—is growing as green groups become bolder in their efforts to police the system.

A campaign by World Wide Fund for Nature (WWF) in September last year was the first time homegrown Singaporean and Malaysian brands such as Polar Puffs & Cakes and Khong Guan Biscuits were called out for using palm oil that could have come from land linked to forest loss, climate-changing haze and human rights abuses.

WWF’s research found that, of 47 retailers, manufacturers and food service providers, only a third of them declared the palm oil that they used. Only two used sustainable palm oil and were RSPO members.

Since the report was published, 10 more companies have become RSPO certified, and have joined the Southeast Asia Alliance for Sustainable Palm Oil, a sustainable sourcing alliance launched in response to the worst peatland fires Southeast Asia has ever seen in 2015, which were partly caused by the expansion of palm oil plantations.

People power is working too. A petition signed by 8,000 Singaporean students in February this year pressured popular snack retailer Old Chang Kee to switch to sustainable palm oil suppliers and join as an RSPO member. Others like vegan burger chain NomVnom and popular pastries shop Polar Puffs are not yet members, although both publically claimed to have converted to sustainable palm oil earlier this year.

The consequences of stretching the truth

Companies that do not become RSPO members may be missing out on potential business benefits. According to a study by Climate Advisers and S-Network Global Indexes RSPO members outperformed the FTSE Bursa Malaysia Asian Palm Oil Plantation Index by about 6 per cent over the last five years.

Avoiding certification or skipping a few steps of the certification process not only risks missing business opportunity or getting negative public exposure. Companies stand to lose customer faith in their brand, says Archana Shah, associate account director for Cohn & Wolfe, a public relations firm that has worked for some of the biggest agribusiness firms, including palm oil giant Golden Agri-Resources.

“Gaining back customer trust is a lot harder than losing it. Moreover, companies risk seriously impacting their revenue as a result of a betrayal in customer trust,” says Shah.

She points out that, besides the reputational risk of not playing by the rules, circumventing certification hurts the fragile ecosystem for sustainable palm oil. “Palm oil producers’ efforts to provide sustainable oil will not be recognised or given the premium it deserves,” she notes.

Certified sustainable palm oil (CSPO) makes up about one fifth of the world’s total palm oil supply. But demand for sustainable oil has not kept up with overall demand for palm oil, and is often sold as regular oil.

Sime Darby Plantation, which claims to be the world’s biggest seller of sustainable palm oil, sells only half of its product98 per cent of which is certifiedas sustainable oil. “The willingness of the market to pay more for sustainable oil is just not there,” laments the company’s chief sustainability officer, Simon Lord told Eco-Business in a recent interview.

This has the knock-on effect of disincentivising smallholder farmers—who produce 40 per cent of the world’s palm oil, but often use less efficient, unsustainable farming techniques—from getting certified, Lord says.

Improving an imperfect system

Getting more companies to sign up to RSPO is one of the best ways to protect forests and the people who live in and around them, says Benjamin Tay, president of Singapore-based non-government organisation (NGO) People’s Movement to Stop Haze (PM. Haze). But he admits that RSPO is not a panacea.

NGOs and investors regularly complain that RSPO’s standards are not high enough. In August, investors with assets worth US$67 trillion called on RSPO to ban deforesting members, and to rule out the conversion of land on peat, carbon-rich soil that, when dried, becomes extremely flammable.

But by joining the RSPO platform, “at least there is some commitment from companies saying they are going to attempt to transform their supply chains,” says Tay. Since 2016, there has been a 30 per cent increase in RSPO membership, and there are now 2,553 companies with supply chain certificates.

The more companies that get certified, the more robust the system will get for producing and selling sustainable palm oil, argues Tay. And that could be the crucial factor in protecting Southeast Asia’s forests, and the people who depend on them.

Meanwhile RSPO, which counts NGOs and consumer groups among its stakeholders, has been reviewing its Principles and Criteria for certification, together with members and stakeholders, over the course of the past eighteen plus months to ensure the standards are further strengthened and improved, so that sustainable palm oil is what it claims to be.

RSPO’s revised certification standard is set to be voted on by RSPO membership at the General Assembly, following the Roundtable on Sustainable Palm Oil’s RT16 conference in Kota Kinabalu, Malaysia on 12-15 November 2018.

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