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Palmful of problems

Sharanya Pillai
Sharanya Pillai  • 12 min read
Palmful of problems
The ubiquitous palm oil is being blamed for a litany of environmental and socioeconomic woes. Some consumer brands have vowed to be palm oil-free and by 2030, the EU may phase out palm oil biofuel. But such moves may hurt sustainability efforts.
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The ubiquitous palm oil is being blamed for a litany of environmental and socioeconomic woes. Some consumer brands have vowed to be palm oil-free and by 2030, the EU may phase out palm oil biofuel. But such moves may hurt sustainability efforts.

SINGAPORE (Dec 10): Recently back from Kota Kinabalu, Sabah, palm oil industry veteran M R Chandran is exuberant. The 80-year-old was there for the 16th annual conference of the Roundtable on Sustainable Palm Oil (RSPO), an industry body pushing for sustainability, from Nov 12 to 15. This year’s conference saw the industry take bold steps, Chandran tells The Edge Singapore over the phone from Kuala Lumpur, where he is based.

He highlights how the RSPO is adopting zero deforestation standards through the High Carbon Stock Approach — a method that identifies forests with large reserves of carbon and rich biodiversity for protection. “This is not just the gold standard, it is the platinum standard for all agricultural commodities out there,” says Chandran, who retired in 1996 as a director and head of plantations at rubber and palm oil player Socfin Co.

The RSPO is a non-profit with more than 3,000 members across the palm oil supply chain. It has developed a set of environmental and social criteria that companies must comply with for their product to be labelled Certified Sustainable Palm Oil (CSPO). Chandran is an adviser and honorary member of the RSPO.

But critics contend that the RSPO’s latest steps are too little, too late. Oil palm growers in Malaysia and Indonesia, the two largest producers globally (see Chart 1), have allegedly caused widespread deforestation and displaced wildlife such as the orangutan. The burning of peatlands has led to massive carbon emissions, and the 2015 transboundary haze in Southeast Asia was attributed to it. The industry is also accused of human rights abuses. The RSPO, formally established in 2004, has been castigated as toothless.

Now, the pushback against palm oil is escalating. The EU enacted the Renewable Energy Directive a decade ago to promote the use of sustainable biofuels. This encouraged imports of palm oil from Malaysia and Indonesia for use in EU biofuel. But after a review of the RED, the EU has decided that next year, it will finalise a method to determine which biofuels are high-risk in terms of climate change. The EU may then stop using those high-risk crops in biofuel by 2030. While palm oil is not specifically named, fears are that the crop will be targeted.

Palm oil is also becoming unfashionable among retail brands. Popular cosmetics brand Lush, for instance, is removing most palm oil from its supply chain because it has not identified “any fully sustainable and traceable” palm oil sources. While calling CSPO is a positive step, the brand notes that only 20% of all palm oil is certified today. “We’re not convinced that palm oil can ever be truly sustainable,” Lush says on its website.

Industry veterans such as Chandran argue that the rhetoric against palm oil is white noise. He feels that it detracts from the genuine efforts taken by the RSPO and producers to remedy the complex problems. “All that nonsense, that you can do away with palm oil and find alternatives, is the height of hypocrisy,” he contends.

Can the palm oil industry ever be fully sustainable? The tough reality is that there is no black-and-white answer, experts tell The Edge Singapore. But if we choose to switch away from palm oil to alternatives, we must recognise a key side effect: Other vegetable oils may require more land and energy, opening a whole other can of worms.

Palm oil bad, others worse?

When a team of environmental, social and governance (ESG) analysts at Amundi started studying the impact of the palm oil industry, there were a myriad of drawbacks to consider. At the broad level, there are the seemingly worsening effects of climate change. From an environmental perspective, deforestation is just the tip of the iceberg. “Fires due to slash-and-burn practices also cause irreversible damage on the biodiversity and have a very negative impact on the health of local and neighboring communities,” says Thierry Bogaty, head of socially responsible investments expertise at Amundi.

In 2015, a dry year, numerous fires ravaged peatlands in Indonesia, causing the transboundary haze that enveloped Singapore. Such events also have a devastating carbon footprint. “Peatlands form massive carbon sinks, and when their functioning is disturbed, they release carbon with the impact we can imagine on the level of carbon emissions,” Bogaty explains.

Adding to this turmoil are allegations of human rights abuses. Palm oil giants have been accused of grabbing land from rural communities under exploitative terms. Despite local regulations, poor labour standards are all too prevalent, says Robin Averbeck, agribusiness campaign director at environmental non-profit organisation Rainforest Action Network (RAN). “Palm oil in Indonesia and Malaysia has been documented repeatedly [as] being produced by child and forced labour, in situations of modern-day slavery,” she says.

Amundi echoes this concern. “Even if from an economic point of view the palm oil industry could have a positive social impact on the local communities by giving them work, there are also negative impacts related to labour conditions and human right issues, [namely] land rights, the absence of work contracts, confiscation of passports of foreign workers and child labour,” Bogaty says.

But instead of avoiding the sector, Amundi chooses to take a “best in class” approach. From an efficiency standpoint, palm oil has a huge advantage over other vegetable oils: Its yields are much higher, for one (see Chart 2). Palm oil yields between 2.75 and seven times more oil per unit of land than substitutes such as rapeseed and soy, notes Lee Poh Onn, a senior fellow at the Institute of Southeast Asian Studies (ISEAS)-Yusof Ishak Institute.

The crop is perennial rather than annual, and each tree can last about 25 years. It also requires far less pesticide and fertiliser, and is extremely versatile. Palm oil accounts for over a third of vegetable oil produced globally, but occupies less than a tenth of land allocated to oil crops (see Chart 3). “Shifting to palm oil alternatives would result in higher levels of land clearance and deforestation,” Lee says.

Janice Lee, assistant professor at the Asian School of the Environment at Nanyang Technological University, agrees that palm oil has its strengths. She adds, however, that it is not possible to conclude simply whether palm oil is better or worse overall than other vegetable oils. Rather, each assessment should be highly specific to each ecosystem and how the wildlife adapts to the environment, she says.

Nevertheless, Janice notes that the role of palm oil in deforestation may be over-emphasised and other “major deforesting commodities” deserve more scrutiny. “There definitely has not been as much attention paid to the cattle and soybean industries. More should be done. If you look at the certification schemes for cattle and soy, they are way behind compared with palm oil. And if you want to solve global deforestation, you can’t just focus on palm oil,” she says.

Lee of ISEAS-Yusof Ishak reckons that consumers should not be looking outward for palm oil alternatives, but keep pushing the industry to be better. “The solution does not lie in seeking cheaper alternatives to palm oil but rather in ensuring that all palm oil producers come under the umbrella of sustainability and environmentally friendly methods of production,” he says.

Averbeck of RAN puts it this way: “Ultimately, palm oil is not better or worse than any other vegetable oil. The extractive and exploitative nature of the conflict palm oil industry is the problem, and we are working to change it.”

Fears over EU action

Speaking on the Malaysian radio station BFM in October, Malaysia’s Minister of Primary Industries Teresa Kok was on fire. Kok labelled the EU’s moves against Malaysian palm oil as mere protectionism, to shield Europe’s oil crops from Southeast Asia’s more efficient palm oil. “All these anti-palm oil campaigns are also funded by all these oil and fats companies in Europe… They are using NGOs, the media, even the school textbooks to discredit palm oil... The anti-palm oil sentiment has gone up and is not going down,” she charges.

Asked whether they agree that the EU is being protectionistic, industry players generally did not respond directly. Nevertheless, most expressed hopes that palm oil will not be unfairly targeted. “We believe that whatever system is chosen needs to be applied equitably to all oils and should be considered at the producer and not the feedstock level,” says Lim Shu Ling, head of sustainability communications at Golden–Agri Resources.

Christina Lim, executive director of Bumitama Agri, is worried about the impact on demand for sustainable palm oil. “Banning commodity products that involve labour-intensive [production] and smallholders will impact the massive livelihood that the industry creates. Palm oil players and smallholders will also suffer from the lower price while costs are rising. It is a challenge for the industry to find alternative markets to other countries outside of the EU that [are] fairly open to sustainable palm oil products,” she says.

Perpetua George, general manager of group sustainability at Wilmar International, thinks the worst-case scenario will result in just a pinch for the integrated player. “I think the more important thing here is that it’s not going to just impact palm oil in general but basically CSPO production. Right now, whatever goes into the EU already has to be certified sustainable… It’s a bit counter-intuitive that this kind of [move] by the EU would not necessarily impact the lower levels of palm… It is going to impact, to a certain degree, the sustainable market,” she says.

Know thy palm

Despite the business case for sustainable palm oil, one can be easily disillusioned by the spate of scandals rocking the industry. Last month, for instance, the RSPO suspended certification of a palm oil mill owned by London Sumatra, a unit of Singapore-listed Indofood Agri Resources, due to “grave and methodical” labour rights breaches.

These lapses included excessive overtime work, inadequate documentation of salaries and intimidation of union representatives. They were first alleged in the report “Indofood, Pepsico’s Hidden Link to Worker Exploitation in Indonesia”, by RAN, the Indonesian labour rights organisation OPPUK and the International Labour Rights Forum. Indofood Agri did not respond to a request for comment from The Edge Singapore.

The case highlights the shortcomings of the RSPO, says Averbeck of RAN: “Indofood stands out as a prime example where labour rights abuses are well documented, but its oil was allowed to enter the global market for years and even certified ‘sustainable’ by the RSPO. A sustainability certification or commitment is only as strong as its enforcement and execution on the ground, and across the board, we are not seeing enough from the palm oil industry.”

Perhaps a silver lining, though, is how the RSPO’s complaint mechanism enabled action to be taken against London Sumatra. Chandran believes these safeguards will only grow stronger. For instance, another issue being raised by the RSPO conference is that all workers must be paid a decent “living wage”.

But while these reviews are in progress, what can consumers and investors do to educate themselves on palm oil sustainability? Janice of NTU suggests reading up more third-party reports on palm oil sustainability. The Sustainability Policy Transparency Toolkit, or SPOTT, for instance, is an initiative by the Zoological Society of London to track forestry and palm oil companies against more than 100 sustainability benchmarks, such as whether at least 75% of their land is RSPO-certified.

The six major palm oil players on the Singapore Exchange, as shown in the table, have all been given scores based on their sustainability standards. As at last month, the best performer was Golden-Agri; the lowest scorer was Indofood Agri. Of course, these scores must be seen in the context of any new exposés and news developments.

For investors coming from an ESG perspective, it is hard to prescribe whether one should avoid palm oil or go with a “best in class” approach like what Amundi did. Impact investor and social entrepreneur Alvin Li offers some advice: Whatever your decision, make sure you can reconcile with it. “For industries that have conflicting arguments, like palm oil, the stakeholders need to focus on mitigating any negative effects of their preferred action.

“For example, if we continue investing in palm oil, we must strive to provide fair wages, safe working conditions, without human rights violations like child labour or displacement of indigenous people, stable prices, a plan for re-forestation or carbon offset, as well as biodiversity conservation,” says Li, who is not invested in palm oil.

“On the other hand, if we divest from palm oil, we must strive to find or create new industries in the local economy, provide new employment for these displaced workers and offer alternative products or processes that have lower carbon footprints than palm oil.”

Lee of ISEAS-Yusof Ishak urges investors to go the extra mile. “Investors must investigate further into each company, examine the company’s overall efforts in sustainability, before arriving at a judgement,” he says.

Long-time observers such as Chandran are realistic that the problems with palm oil have grown in complexity, and will require more patience to untangle. He hopes that despite the perception of “shifting goalposts”, both producers and environmentalists will stick with the process. “Remember, the [RSPO] standards, like everything else in this world today, are not stagnant. Everything moves forward. So continuous improvement is what we need,” he says.

Sharanya Pillai was a writer at The Edge Singapore

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