Palm Oil and Deforestation: a missed window of opportunity for the RSPO?

Posted on November 12, 2018

Thijs Huurdeman
Thijs Huurdeman
Senior Associate, Consumer Goods Research

In August 2018, 90 institutional investors representing USD 6.7 trillion in assets sent a letter to the Roundtable on Sustainable Palm Oil (RSPO) expressing their concern over deforestation and the disconnect between leading corporate policy commitments and the RSPO standards.

Often considered the leading authority on creating a sustainable palm oil industry, as noted in the investor letter, the RSPO’s own standards now appear to be lagging. This call for further action in the palm oil industry comes amid an RSPO consultation process to revamp its principles and criteria. The revised principles will likely include more stringent standards on deforestation and are scheduled to be ratified in November 2018.

Will the new RSPO principles make the cut?

As the RSPO reviews its principles and criteria (last updated in 2013), investors, companies, and other stakeholders will be eager to see whether the RSPO succeeds in addressing deforestation concerns. The RSPO’s Principles and Criteria Review Task Force commissioned a round of consultations to better understand available options to curb deforestation through the RSPO framework. This consultation, along with input from other stakeholders, resulted in a proposal to bolster the RSPO’s criteria on deforestation.

The RSPO proposal includes an adaptation of the principles of the High Carbon Stock Approach (HCSA), which aims to curb deforestation and only allows for the development of degraded lands. However, the RSPO proposal falls short of adopting the HCSA. Under the RSPO proposal several loopholes would allow for ongoing deforestation, while the HCSA leaves much less wiggle room. According to the Environmental Investigation Agency NGO report, implementing an adapted variant of the HCSA will likely prove much more complicated than using the existing HCSA framework.

Investors’ need for a global framework for addressing deforestation

Increasingly, investors are addressing deforestation in their portfolios, while simultaneously buyers and producers of palm oil are bolstering their no-deforestation policies. For instance, companies are committing to the No Deforestation, No Peat, No Exploitation (NDPE) approach; including commitments concerning High Conservation Value (HCV) forests; or committing to the HCSA.

As the signatories to the investor letter note, the RSPO principles and criteria risk falling behind leading practices, such as NDPE commitments and the HCSA. Under the proposed RSPO principles and criteria, companies are still allowed to clear certain forest areas to develop plantations.

As the most widely recognized certification scheme in the palm oil industry, the RSPO is in a unique position to have a real impact on how companies address deforestation in their own operations and throughout their supply chain. Investors and palm oil buyers (e.g., food retailers or packaged food companies) also often look to the RSPO when making decisions about whether to invest in or buy from palm oil companies.

In recent years, investors and buyers have often waited for the RSPO to suspend companies for breaching RSPO rules, before ending their relationship with these companies. However, as both investors and buyers increasingly commit to deforestation policies more stringent than RSPO criteria, they could look beyond the RSPO in their attempts to mitigate risks from deforestation in the palm oil industry. Despite the RSPO’s efforts since it was founded in 2004, deforestation risks remain prevalent and are perhaps even greater than ever before, as global deforestation totalled 29.4 million hectares (roughly the size of Italy) in 2017 alone.

How can investors mitigate their deforestation risks?

Investors and buyers might mitigate their deforestation risks by implementing policy requirements for palm oil producers themselves, requiring producers to have a NDPE policy in place, protect HCV forests, and implement the HCSA. There might even be an opportunity for a new framework or standard to emerge, geared towards identifying which palm oil producers follow best practices and thus helping investors and buyers mitigate their deforestation risks. Any unified approach could also provide a degree of clarity for producers about ways to curb deforestation and what is expected of them.

While the RSPO’s proposal is an improvement to its current standards around deforestation, it might not be enough for the RSPO to remain the primary, credible authority in sustainable palm oil. Now may be the time for others to pick up the gauntlet and drive the palm oil industry towards better practices regarding deforestation.

[Update] RSPO improves its standards on deforestation

On 15 November 2018, the RSPO agreed on new principles and criteria. One of the most prominent improvements is the requirement that all members of the RSPO accept the No Deforestation, No Peat, No Exploitation (NDPE) standards and implement the High Carbon Stock Approach (HCSA). These improvements are considerable, since now forests identified through the HCSA as being high carbon forests will be protected.

An earlier draft of the new principles and criteria proposed an adapted HCSA procedure for High Forest Cover Countries (HFCC), which according to some left loopholes that would have allowed deforestation in these regions. While the idea of implementing an adapted HCSA procedure for HFCCs has not been rejected, the RSPO will set up a steering group to develop a procedure for HFCCs. Until then, the regular HCSA procedure will remain in place.

The new principles and criteria do not currently address separate standards for smallholder farmers, who account for 40% of palm oil production. However, the RSPO has stated that simplified standards for smallholders are due for ratification in November 2019.

In short, the new RSPO principles and criteria are addressing the latest concerns regarding deforestation, which is truly a major step towards a more sustainable palm oil industry. Now palm oil producers, buyers and investors are eager to see whether the RSPO will also successfully enforce compliance with its new standards.