The continuous improvement challenge

To ensure that our “no deforestation, no peat, no exploitation” integrated policy is being implemented appropriately across our supply chain, we have been mapping and tracing supply flows from ports and refineries back to palm oil mills, and are on track to complete this by end 2015. Eventually, we aim to achieve full traceability not just to mills, but back to individual plantations.

Having detailed supply chain maps builds greater transparency and accountability, as it facilitates the monitoring of practices on the ground. The mapping exercise also enables us to uncover challenges faced by growers in the implementation of our integrated policy, allowing us to provide the requisite support in a targeted manner.

Palm oil supply chains are multi-tiered and complex. For example, Wilmar has over 800 crude palm oil suppliers, excluding small-holders, agents and brokers. It is not feasible for companies to monitor 100% of their supply bases. Together with our supply chain mapping exercise, we are also conducting risk assessments based on environmental and social factors such as proximity to forest reserves, peat soils, and social conflicts. This helps prioritise engagement efforts with higher risk mill owners and their suppliers, to discuss and support their compliance with Wilmar’s integrated policy.

It is important to recognise that sustainability is a journey of continuous improvement. Due to the nature of palm oil supply chains, commitment targets such as total supplier compliance and full traceability are impossible to be maintained at 100% consistently. Signs that companies are working towards targets using their best efforts, while being transparent in their progress and setbacks, are a more realistic reflection of performance.

Wilmar’s sustainability commitments have been described as revolutionary and game-changing. As the industry leader in palm oil, we felt that it was our responsibility to steer the industry towards sustainable production, having witnessed the environmental and social impacts of unethical practices, resulting in palm oil garnering a bad reputation among consumers and investors.

Palm oil is the most efficient oil-bearing crop in terms of land use, and has contributed significantly to rural development and poverty eradication in producer countries. It is important for the industry to adjust to evolving market expectations in order to remain competitive and to solidify its position as a pillar of sustainable development.

We have made steady progress in key areas, such as supply chain mapping and traceability, as well as engagements with targeted suppliers. Traceability data is now available for all major palm oil sourcing geographies, in Malaysia, Indonesia, Europe, India, Bangladesh, China and Nigeria. We have also completed a substantive phase of engagements with key suppliers in Indonesia and Malaysia. Detailed information and quarterly progress updates are available on our sustainability dashboard.

Since Wilmar’s policy announcement in December 2013, there has been a deluge of sustainability pledges. The industry has reached an inflection point, with over 85% of palm oil trade covered by sustainability pledges. Together, these pledges have the potential to accelerate industry transformation, making sustainable practices the norm, and curtailing market access of laggard or non-compliant parties. Ultimately, real success will depend on how these commitments are implemented, enforced and monitored in every link of the value chain.

Since the launch of our dashboard earlier this year, we have seen synergies arising from the disclosure of our supply chain maps and grievance filing mechanism with publicly available satellite imagery from remote sensing technologies.

Wilmar has over 800 crude palm oil suppliers, excluding small-holders, agents and brokers. It is not feasible to monitor 100% of our supply bases for policy compliance. Remote sensing technologies, such as Global Forest Watch, coupled with traceability data – for example disclosure of supply chain maps in our sustainability dashboard – have allowed unprecedented grassroots level participation in supply chain monitoring, to flag out errant suppliers. These cases are being documented in our grievance list on our dashboard, with regular progress updates on corrective actions taken.

Sustainability is a shared responsibility, requiring multiple stakeholders with diverse interests to come together.

Key industry players now have similar sustainability commitments on deforestation, peat, and exploitation, albeit with differing timelines. The current challenge is in the implementation gaps among buyers, which allows non-compliant suppliers to continue marketing their products, weakening the incentive to move towards sustainable production.

There is immense potential to expedite industry transformation if key players come together to implement these targets throughout their supply chains unanimously. We have been working with organisations such as TFT, whose membership includes most of the palm oil majors, to coordinate such efforts.

Governments have an equally important role to play, in rolling out regulatory reforms to underpin the sustainability efforts of agribusinesses. For example, despite “no deforestation” policies across industries, Indonesia still lacks provisions to conserve high conservation value or high carbon stock forests. Together with the other palm oil majors, we have signed the Indonesian palm oil pledge, led by the Indonesia Chamber of Commerce (also known as KADIN). Apart from reaffirming sustainability commitments, this will also serve as a channel for the industry to lobby the Indonesian government, in order to catalyse regulatory reforms.

Smallholders are an integral part of the palm oil industry, and we recognise that they face unique challenges in conforming to Wilmar’s policy, and attaining certification. Wilmar conducts ongoing consultations with smallholders, and provides them with technical assistance to support their compliance with our integrated policy. We are also working with Wild Asia, a Malaysian social enterprise, to help individual smallholders attain RSPO certification, and have a similar plan in place for Indonesia.

The HCV approach is the most widely used forest conservation principle in voluntary sustainability standards and certification standards across the agricultural and biofuels industry. It has also been integrated in the purchasing and investment policies of consumer goods companies, global retailers and banks. HCV provides a common and accepted principle for forest conservation across all stakeholders, which is important as it ensures a degree of consistency in implementation and enforcement of sustainability standards.

The HCS approach is a more recent development, designed to support zero-deforestation commitments. Its main novelty is in the separation of HCS areas (viable natural forests) from non-HCS areas (degraded land), which can be used for agricultural expansion. With immense pressure on the industry to delink agriculture from deforestation, the HCS approach is gaining favour with an increasing number of industry players. Wilmar has also adopted the HCS approach in our integrated policy.

There is a great degree of overlap in the two approaches. Integrating them into a single, more comprehensive assessment tool will greatly streamline and reduce the cost of sustainability assessments, expediting industry transformation.

Integrated landscape management (ILM) is a more holistic approach as compared to HCV and HCS, as it takes into account economic, social, and ecological sustainability. ILM is a good starting point, and it is basis for Wilmar’s no deforestation, no peat, no exploitation policy.

To cope with the ever-rising consumer demand, there has been emphasis on the concept of climate-smart agriculture, which combines ILM with sustainable intensification to increase quality and yield with fewer resources.

Deciding on a single “best” approach may not be the best way forward. These approaches need to be consistently refined to adapt to the dynamic local and global environment. The development of new and innovative approaches should also be encouraged. Regardless of the approach used, it has to be tailored to local needs and priorities.

Agriculture continues to be a key driver of economic and social development throughout the developing world. Sustainability policies, such as ILM must not hinder equally important development goals, such as poverty eradication.

Pragmatic implementation of ILM policies is required. Special consideration for agricultural expansion must be granted to least developed countries, which may have limited options for economic development.

Local indigenous communities must be allowed to develop the land for which they have native customary rights – which may include peat lands – despite being in breach of ILM policies.

Wilmar’s sustainability journey was led by our chairman, Kuok Khoon Hong. At a time when palm oil was facing increasing consumer backlash and losing favour with investors, making the switch to sustainable production was necessary in order to maintain the viability of the industry.

We have received strong support from our internal and external stakeholders to reach the progress we achieved today. Currently, Wilmar’s headway in sustainability and transparency is widely considered to be one of our key differentiating competencies that put us in a better position to cater to the needs of our customers, who are also on a tight timeline to meet their sustainable sourcing policies.