Palm Oil in Focus: The EUDR and Corporate Efforts on Transparent Sourcing

Leveraging ESG Risk Ratings to Assess Palm Oil Buyers’ Management of Deforestation-Related Risks 

Sustainalytics’ ESG Risk Ratings provide data on how companies manage their relationship with suppliers regarding land use and biodiversity issues. Based on our research universe, we have compiled a sample of 17 key companies sourcing palm oil. This covers four of the largest palm oil traders in the agriculture industry, each sourcing over 1.5 million metric tons of palm oil and derivatives in 2024, and 13 palm oil buyers in the packaged food and personal products industries that together accounted for over 50% of the reported volumes of palm oil purchased.¹⁰ As shown in Figure 1, agricultural traders are more exposed to risks related to Land Use and Biodiversity – Supply Chain, a key management indicator used in the ESG Risk Ratings, given they source large quantities of forest-risk commodities and are closer upstream to the plantation-level where issues are more likely to occur. Personal products and packaged food products companies face medium exposure, given they rely on forest-risk commodities as an input to finished products. Figure 1 demonstrates that most companies have strong scores (i.e., >50 points) based on our assessment of their Land Use and Biodiversity – Supply Chain management. Three companies fall into the adequate range.

Figure 1. Land Use and Biodiversity – Supply Chain Exposure and Management Scores of Companies Sourcing Palm Oil

_{Source: Morningstar Sustainalytics. Data as of September 25, 2025. For informational purposes only.} 

_{Note: Sample includes public palm oil buyers from the packaged foods and personal products industries purchasing over 50,000 MT of palm oil in 2024 (according to the WWF Palm Oil Scorecard)¹¹ and four agricultural traders sourcing over 1.5 MT of palm oil (according to the latest RSPO ACOP reports).¹²}

Strong management scores indicate that companies are integrating commodity-driven deforestation and land-use concerns into their sourcing strategies, likely a response to decades of growing awareness. This is confirmed by looking more closely at the Deforestation Program Management indicator, which assesses companies’ initiatives to mitigate deforestation in their supply chain. Table 2 shows that most companies in the sample have a strong or very strong deforestation-management program, with just four companies having weak programs.

Table 2. Performance of Palm Oil Buyers’ Deforestation Program

_{Source: Morningstar Sustainalytics. Data as of September 25, 2025. For informational purposes only.} 

Nevertheless, companies continue to be scrutinized for any link between their supply chain and deforestation. In July 2025, Rainforest Action Network, an environmental organization, alleged that the palm oil supply chains of Wilmar, PepsiCo, Mondelez, and Nestlé could be linked to illegal land degradation in Indonesia’s protected Rawa Singkil Wildlife Reserve of the Leuser Ecosystem, a biodiversity hotspot and home to the densest population of critically endangered Sumatran orangutans.¹³ The management challenges are largely due to the complexity of agricultural supply chains. In the case of palm oil, supplies are frequently mixed, making it difficult to fully distinguish between deforested and non-deforested sources.  

The EUDR aims to address some of these challenges by mandating traceability back to origin and restricting the use of certification methods such as “mass balance,” which allows for the mixing of sustainable and non-sustainable sources. At the same time, companies need to be prepared to respond to any cases of non-compliance in their supply chain to avoid operational disruptions and reputational risks. Therefore, strong traceability programs, robust incident investigation mechanisms, and regular supplier audits can help ensure companies are prepared to meet regulatory obligations and maintain a deforestation-free supply chain. Figure 2 breaks down how the sample is performing on these critical aspects of a comprehensive deforestation program, revealing important takeaways.

Figure 2. Company Performance on Select Deforestation-Program Criteria

_{Source: Morningstar Sustainalytics. Data as of September 25, 2025. For informational purposes only.} 

Companies are Investing in Traceability Programs; the Next Step is Plantation-Level Coverage 

One key takeaway is that most companies in the sample (69%) have traceability programs covering both direct and indirect suppliers, publicly disclosing the location of their suppliers to at least the mill level. However, traceability to origin is becoming increasingly important to enable better procurement decisions and to foster collaboration across the value chain. Some companies are proactively working towards this. Colgate-Palmolive has reported it achieved 81% traceability to the plantation level for its palm oil and palm kernel oil volumes in 2024.¹⁴ Danone has also reported that it achieved 98% overall traceability to plantation, and publicly discloses the GPS coordinates of the plantations from which it sources.¹⁵ This strong progress is encouraging, especially considering the upcoming EUDR requirements. This is an area that needs continual effort and collaboration among supply chain actors, given the complexity of palm oil supply chains.

Grievance Mechanisms are Becoming More Common, but Continued Progress is Needed 

Another key takeaway is that over half (59%) of the companies within our sample have disclosed evidence of incident investigation mechanisms such as grievance procedures, which can be used to identify and address deforestation (actual or alleged) within supply chains. Best practice involves maintaining publicly available grievance logs that track company engagement with suppliers implicated in such allegations. For example, Archer-Daniels-Midland regularly updates its grievance log, disclosing details of where the issue took place and the status of the case.¹⁶ This not only enhances transparency but also provides insights into how companies are actively remediating issues. However, almost 40% of companies within the sample are still lacking these mechanisms, representing a significant gap that may expose them to risks if they are not transparent on how they manage supply chain-related issues.

Evidence of Regular Audits is Sparse 

On top of achieving more visibility into supply chains, companies should ensure that their sourced palm oil aligns with their deforestation-free commitments and any new regulatory requirements. NGOs have criticized companies for sourcing commodities from suppliers involved in deforestation, despite companies’ commitment to the No Deforestation, No Expansion on Peat and No Exploitation reporting framework. Verification tools like regular audits are critical to address this issue. However, approximately two thirds (65%) of companies in the sample do not conduct regular internal or external audits on direct and third-party suppliers, highlighting an important management gap that should be addressed to avoid reputational and operational risks stemming from non-compliant supply chains.

Delays to EUDR Offer Breathing Room, but Risk of Inaction Persists 

While key players such as Colgate-Palmolive, Danone, and Unilever report strong deforestation programs and high levels of traceability, gaps remain across the relevant industries. Best practice includes traceability to the plantation-level, adopting grievance mechanisms, and conducting regular audits to ensure sourced amounts are deforestation-free. These gaps highlight that challenges persist as companies adapt to the stricter requirements of the upcoming EU regulation.  

The proposed further delay of the EUDR provides companies with additional breathing room to strengthen their anti-deforestation programs. However, the risk of inaction remains high. Companies that take the delay as a sign to postpone investments in traceability and compliance systems could face higher costs, operational disruption, and financial risks once enforcement begins. Early movers — many of whom have already invested time and financial resources toward compliance — could gain a competitive advantage through strengthened supply chain transparency and improved stakeholder trust. Supply-chain transparency and anti-deforestation programs are not only a regulatory necessity, but also a signal of strong risk management, supply chain resilience, and long-term value creation.