Corporates increasingly aware of risks from Indonesian palm oil, but failing to cascade action through supply chains

Corporates increasingly aware of risks from Indonesian palm oil, but failing to cascade action through supply chains
  • New report finds that over 80 per cent of companies analysed identified risks associated with deforestation, with most of these risks being reputational.
  • More than a third of companies have already experienced detrimental impacts associated with palm oil.
  • Management is taking note — more companies report having board-level oversight of forests-related issues and timebound, zero-deforestation commitments.
  • Most companies use traceability systems and certification, but the comprehensiveness of traceability systems and volume of palm oil covered by certification must increase.
  • Purchasing organizations must provide more financial and technical assistance to develop the capacity of their suppliers and help transform the palm oil sector.

CDP, the non-profit global environmental disclosure system, has released its first report examining the state of play in the Indonesian palm oil sector. The report is based on data provided to CDP in 2017 and 2018 by over 60 global companies that produce, source and/or use Indonesian palm oil.

Of these companies, over 90 per cent are manufacturers and retailers such as L’Oréal and General Mills; some are also producers, processors and traders such as Wilmar International and Golden Agri-Resources.

The most common type of risk cited by these companies was reputational risk. Nearly a third of reporting companies (32 per cent) reported brand damage as the primary impact caused by forests-related risks, while a quarter fear reduced demand for their products and services.

With its myriad applications in food, personal care products and biofuels, palm oil is a crucial commodity, but its negative impacts are understandably also under constant scrutiny.

Sultana Bashir, global director for Forests, CDP

Given the threat this poses to the bottom line, companies’ boards are increasingly paying attention. Board-level oversight of forests-related issues has grown more than a third, from 69 per cent of reporting companies in 2017 having such oversight in place, to 86 per cent in 2018.

There was a smaller growth in the proportion of companies reporting a time-bound zero deforestation commitment, from 50 per cent in 2017 to 57 per cent in 2018. However, in 2018 only 41 per cent of companies had what CDP considers to be high quality commitments. While this represents an increase from 25 per cent in 2017, the report argues that the majority of reporting companies need to improve the rigor of their commitments, as CDP data suggests that implementation of commitments is more likely if the commitment is concrete, actionable, and has a clearly defined scope.

“Palm oil production has been a formidable engine of economic growth for Indonesia, but it has also been a major driver of deforestation in the country and other parts of Southeast Asia,” commented Dr Sultana Bashir, Global Director, Forests, at CDP.

“With its myriad applications in food, personal care products and biofuels, palm oil is a crucial commodity, but its negative impacts are understandably also under constant scrutiny. Companies reporting on palm oil through CDP’s forests questionnaire typically have 15 per cent of revenue dependent on palm oil, hence a deeper understanding of environmental risks, opportunities, and impacts is critical to ensuring sustainable business performance.”

The most widely used measures to manage palm oil-related deforestation risks in corporate supply chains are traceability systems – which 94 per cent of reporting companies said they used – and certifications, which 86 per cent of companies reporting having. However, only 41 per cent of companies report having all the palm oil they produce or use under third-party certification.

“The complexity of supply chains is a major barrier to more comprehensive implementation, so it is worrying that the findings show that the proportion of manufacturers and retailers working with their direct suppliers on forests-related issues fell from 93 per cent in 2017 to 84 per cent in 2018,” commented Dr Bashir.

“The proportion of such companies engaging their indirect suppliers also fell from 70 per cent to 55 per cent over the same time period. While the reasons for these decreases are not yet clear, it is critical for large purchasing organizations to take more meaningful action on supplier engagement, capacity building, and investment to transform the palm oil sector.”

Currently, only 19 per cent of manufacturers and retailers reporting through CDP provide technical support to their suppliers to develop their capacity to supply sustainable palm oil, while an even smaller proportion (8 per cent) provide financial support.

The report identifies an opportunity for deeper collaboration with smallholders, whose share of Indonesia’s total oil palm plantation area is forecast to rise from 41 per cent to 60 per cent by 2030. It argues that while many producers, processors, and traders such as Musim Mas and Wilmar International are engaging with smallholders, a lot more must be done in order to scale up responsible palm oil supply chains.

To mark the release of the report, CDP held an event today at Le Meridien Jakarta that brought together stakeholders from the public and private sector. Keynote speaker Dr. Ir. Wilistra Danny, M.For.Sc, Deputy Assistant for Plantation and Horticulture, Coordinating Ministry for Economic Affairs, spoke about the importance of forests to Indonesia’s Nationally Determined Contribution and achieving the Sustainable Development Goals. The event was co-hosted by LTKL, the Sustainable Districts Association.

For more details, please refer to the full report here.


For more information on CDP’s work on forests, please contact:

Candice Low
Corporations and Supply Chains Manager

For media enquiries and interviews, please contact:

Charlotte Amaro
Communications Manager

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