In the summer of 2016, two of the world’s largest producers of palm oil, which is found in everything from lipstick to margarine, lost the ability to market what they sold as certified by the Roundtable on Sustainable Palm Oil, the world’s largest association for ethical production of the commodity.
The companies had been responsible for nearly a fifth of the global supply of RSPO-certified palm oil, which is increasingly sought after as corporate palm oil users commit to purge their operations of environmental destruction and human rights abuses, ills often associated with the industry. The subsequent strain on supply sent prices for the premium stuff soaring.
CDP surveyed 187 of the world’s largest and most impactful companies in relation to deforestation risk. Although 75 percent of companies reporting on palm oil said they have identified sufficient sources of sustainable oil for future operational needs, CDP concluded that “this confidence may be misplaced.”
“It is not clear, at this point, that sufficient supplies of sustainable commodities will be available to meet all of these targets, raising risks that some companies will be in breach of their commitments, or will otherwise face spiralling costs as demand races ahead of supply,” the report said.
As the rapid expansion of oil palm plantations in Southeast Asia and, increasingly, in Africa and Latin America fuels rainforest loss, land grabbing and labor abuses, many industry players have set goals for cleaning up their supply chains by 2020.
In 2016, the ‘Fragility’ of Sustainable Palm Oil Supply Was Revealed
Seventy-seven percent of the companies reporting on palm oil told CDP they rely on RSPO certification to ensure that what they buy is sustainably produced. In April 2016, the RSPO suspended the credentials of one of the biggest certified palm oil suppliers, IOI Group, after the Malaysian firm was accused of a raft of violations in Indonesia. Shortly thereafter, another major supplier, Felda Global Ventures, voluntarily withdrew certification from 58 of its mills in Malaysia after acknowledging sustainability problems.Mixed Messages: Shortage or Plenty?
While it’s possible enough certified palm oil will be available to meet growing demand, the key will be making sure buyers and sellers connect, according to RSPO communications chief Stefano Savi.He pointed to a supply-demand paradox: “From the growers’ perspective, some will say, ‘There’s not enough demand.’ From the buyers’ perspective, some will say, ‘I can’t find enough certified sustainable palm oil.’ In a way, both of these answers are true.”
RSPO-certified palm oil is a niche product that still requires companies to deal one-on-one with suppliers, Savi explained. “It’s not something that you can pick up a phone and call a commodity trading desk and say, ‘I would like X-tons of certified sustainable palm oil.’ That’s not the way it works today.”
Some of what the RSPO certifies ends up being sold under other schemes, such as the International Sustainability and Carbon Certification system, which is popularly used for palm oil destined to become biofuel in Europe. The remainder is sold as conventional palm oil.
A more stable supply could be established by clearer communication between certified producers and prospective buyers, Savi said.
“Just cleaning up a part of the industry to supply the U.S. or Europe doesn’t solve the problem,” he said. “I think the key is to really emphasize that at the end of the day we need the demand.”
Building a Stable Supply
McCoy, the CDP forests program chief, said the best way to ensure a stable future supply is for companies to foster sustainability in their existing supply chains instead of just looking for new sources that are already certified.While the CDP report highlighted the dearth of companies rigorously planning for long-term supply stability, some companies—like Latin American palm oil giant Agropalma—have solid plans for decades to come, McCoy said. That includes working intensively with suppliers, who often lack funds and a familiarity with the needs of international markets, to help them clean up their operations, she explained.
McCoy highlighted some figures from the CDP report to illustrate what kinds of collaboration are generally lacking: “Thirty-seven percent are auditing the suppliers, 31 percent run workshops and training, 17 percent do joint projects, and only 9 percent offer technical support.”
Building a Solid Standard
And then there is the issue of the quality of the RSPO’s green label itself.The roundtable’s standard only protects old-growth primary forests and deep peat swamps. But the trend among companies now is to swear off clearance of any tract of forest or carbon-rich peat soil.
It’s a frequently leveled criticism, to which the RSPO typically replies that it doesn’t want to raise the bar so high as to discourage uncertified firms from pursuing the existing standard. “Shouldn’t we get everyone to really start jumping before we move the post?” Savi asked.
The RSPO did launch RSPO NEXT last year as an optional zero-deforestation tier for members. But there’s a worry that creating different levels of certification may devalue lower levels, Savi explained, making it tricky to find a balance that helps all players.
Savi acknowledged cases in which RSPO has failed to enforce its own standards, which undermines the value of its certified palm oil in the eyes of many. “We acknowledge there are a lot of issues in implementation. Sometimes things shy away from perfection,” he said.
“This is a process,” he added. “What we should focus on is improvement.”