Commodity series: the palm oil problem

Insight / 28 Apr 2020

We focus in on what the 2019 Forest 500 report tells us about palm oil

As we approach the first International Day of Forests of the 2020s, commodity-production is continuing to drive tropical deforestation. Over the past decade, palm oil has come under more intense and high-profile scrutiny than any other forest-risk commodity. Global Canopy’s annual Forest 500 rankings, which assess the policies of the most influential companies in forest risk supply chains, have consistently found more company deforestation commitments for palm oil than for beef, leather, soy, timber, and pulp and paper.

However, the problem with palm oil is that despite these commitments, palm oil supply chains are incredibly opaque. With a lack of transparency on exposure to the commodity, companies struggle to commit to tracing their palm oil through the supply chain – meaning many companies cannot guarantee that their palm oil supply is deforestation-free.

The palm oil industry

Palm oil is perhaps the most well-known forest-risk commodity. Found in everything from shampoo to chocolate, consumers in the UK are increasingly aware of the presence of deforestation in their shopping baskets.

Gaining public attention through campaigns based on the destruction of orang-utan habitats and videos of tropical forests burning, the increased scrutiny brought to companies by such campaigns correlates with company action focused on palm oil supply chains.

The results from the 2019 assessment bear this out. The average score for palm oil across the 198 companies assessed in 2019 was 31%. While this score is still shockingly low, it is 10% higher than the average score for any other commodity.

Top 5 palm oil powerbrokers: Nestle, AAK, Ferrero, Unilever and Sinar Mas

The highest commodity scores that companies received were for their palm oil commitments – the top five scored between 87% and 84%, whereas the highest score across other commodities was soy with 83%, followed by beef with 68%.


Deforestation commitments

65% of companies who produce or use palm oil had a deforestation commitment.

Manufacturers and retailers were the most likely to have a deforestation commitment, including Mars Inc. and Marks and Spencer PLC. Meanwhile, processors and traders were the least likely to have such commitments.

The fact that the companies closest to the consumers are more likely to have deforestation commitments suggests that consumers have a vital role to play in creating pressure and driving change in commodity supply chains.

The problem with palm oil and peat

We also assess palm oil companies on whether they have a commitment to protect high carbon stock (HCS) forests and peatlands. Both of these ecosystems are critical carbon stores; the degradation and destruction of these ecosystems releases vast volumes of carbon dioxide into the atmosphere – contributing to climate change. In 2019, 43% of companies who produce or use palm oil are failing to protect these vital carbon stores, including the well-known SPAR International B.V. and Amazon.

With almost half of the most influential companies in palm oil supply chains failing to commit to reduce the impact of their operations on peat and high carbon stock forests, it is clear that more action is urgently needed to reduce the impacts on these landscapes. Without this, the production of palm oil will continue to drive habitat destruction and the reduction of tropical biodiversity, and contribute to climate change through releasing vast volumes of carbon dioxide into the atmosphere.

The problem with companies knowing where their palm oil is coming from

Forest risk commodity supply chains are long and complex, and this is no different for palm oil.

So many companies feed into palm oil supply chains that it is almost impossible for companies to prove that their palm oil is deforestation-free – because they cannot trace it all back to the point of production.

In 2019, only 36% of companies had committed to develop fully traceable palm oil supply chains. Fully traceable means that they can either trace it back to the plantation it came from, or back to a point where they can be sure the palm oil meets their sourcing standards. This means that 64% of companies who are exposed to palm oil cannot be sure if their palm oil is contributing to tropical deforestation, including McDonald’s Corp. and WM Morrison Supermarket PLC.

But making commitments is only the first step – companies must then implement their commitments effectively throughout their supply chains. How can we be sure that all of these commitments are being acted on?

The problem with palm oil and progress reporting

Of the 129 palm oil companies with a deforestation commitment, 110 (85%) report their progress towards their goal. The vast majority (102) also had their progress reporting independently verified. Reporting allows customers, financiers, and other stakeholders to see that companies are implementing their commitments, and tracking their progress towards them.

However, the format of reporting varies between companies. Some companies may report qualitatively on engagement efforts, and some may report the proportion of palm oil that meets their deforestation commitment. In order for cross-company comparisons of progress to take place, greater standardisation in the way that companies report progress is needed.

This is exemplified by the proportion of companies with deforestation commitments which report the volumes of compliant and non-compliant palm oil.

Graph showing the proportion of Forest 500 companies with deforestation commitments that disclose the total volume and/or compliant volume of the palm oil that they produce or use. Information is from the Forest 500 2019 assessments.

In 2019, just 68% of companies with a deforestation commitment provided this volume information for palm oil, with 19% failing to report any volumes at all.

The remaining 13% reported on either their total volume or the compliant volume, which is insufficient to fully understand their exposure and action.

Trase, a project of Global Canopy, found that mills and refineries often source palm oil from outside of their own group, with traceability reports failing to give information on volumes sourced from which supplier. In failing to report the volumes of palm oil which they source, companies are preventing external stakeholders from being able to identify how much of their palm oil came from specific mills – and thus which are their main suppliers. This lack of information blurs the potential risk in buying from these companies, meaning companies further down the supply chain are unable to implement and monitor their deforestation commitments, and simultaneously obscures the ability for consumers to know whether their sourcing is deforestation-free.

Despite a promising number of companies having deforestation commitments for palm oil, without clear and quantifiable reporting on volumes and their progress towards their commitments, it is impossible to be sure that a company is truly sourcing sustainable palm oil.

The future of palm oil

Global consumption of palm oil shows no signs of slowing, but the 2019 Forest 500 assessments have shown that companies are still taking too little action to halt tropical deforestation in their palm oil supply chains.

While more companies have deforestation commitments for palm oil than for any other commodity, the picture is still bleak. The 45% of companies without palm oil commitments should make meeting these commitments a priority, and the companies with pre-existing deforestation commitments now need to make sure they are being implemented on the ground.

Without this, aided by transparent and coherent reporting on progress, the progress made by companies operating in palm oil supply chains in comparison to other commodities will stagnate. With the global palm oil market predicted to reach a volume of 111.3 million tonnes by 2025, the time for companies to take action is now.

Banner image – IBR Graphics via Shutterstock

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