Why palm oil standards are hard to achieve and harder to maintain

In 2010, Nestlé, the world’s largest food business, promised to ensure that its palm oil supply chain would be deforestation-free. Ten years later 70% of its supply base met that status. 

The company’s renewed ambition, announced earlier this year, is to hit its deforestation-free target by end of 2022. To help, it has invested in a new interactive video platform that presents users with a series of decisions they need to make. The idea behind Beneath the Surface is to give stakeholders a better understanding of just how complex palm oil supply chains can be. The investment in the platform is an acknowledgement of both the complexity involved as well as a need to improve engagement, especially among smallholders and suppliers.

Given this complexity, it’s little wonder brands continue to lean on certification and standards to give them as much confidence as possible as to where supply is coming from. The leading sustainable palm oil certification system remains that of the Roundtable on Sustainable Palm Oil, and it continues to grow. More than 19m tonnes of RSPO-certified sustainable palm oil is produced every year, accounting for 19% of all global palm oil. Some 3.2m hectares of land is being used to grow this palm oil. That was just 106,000 hectares in 2008.

Market reform

Carolyn Lim, corporate communications senior manager at palm oil producer Musim Mas, says that certification gives the opportunity for growers “to access differentiated markets and change industries from within”. She recognises that legislation, regulation and due diligence are practical tools for market transformation. 

But, increasingly, voluntary schemes such as the RSPO have seen certification allowing for “sustainable” goods exchanges between the global south and north, without complicated trade agreements, and leaving legislation at a national level. Lim argues that due diligence measures alone, for example, while robust on the surface, “can lead to businesses leaving vulnerable producers and workers behind to avoid supply chain risks” – hence the need for voluntary schemes. 

For Musim Mas, and many other palm oil sector companies, certification schemes offer a structured approach to setting up a series of processes buttressed by robust governance. This helps them to ensure that sustainable practices are implemented consistently and efficiently throughout their organisation. “RSPO remains the best bet for companies like us who operate in developing countries and are yet subjected to the commercial realities of the developed ones,” Lim says. 

Rumours of disagreement within the RSPO between those who want the organisation to go much further and those who think reforms have gone too far, have been around for some time. The abrupt departure (after just one year) of CEO Beverley Postma in May on top of a series of other senior personnel changes had fuelled rumours of continued internal tension. Restrictions imposed by the pandemic were cited as the cause of Postma’s early departure, with the boss unable to even visit RSPO’s Kuala Lumpur headquarters from her base in Singapore during her 12-month tenure.

The organisation has also been accused of being too weak in demanding more commitment from producers on sustainable agriculture and human rights issues, despite the Improvements made to its Principles and Criteria  – the set of standards to which members must comply – in 2018. 

But these have made a difference, with the RSPO standard “now more in line with stakeholder expectations”, according to sustainable supply chain adviser, Dr Simon Lord. Areas that were improved include protection of areas of high carbon stock, stronger commitments on peat, and an improved approach to human and labour rights across the industry. 

Musim Mas is one of 14 companies that joined the Palm Oil Innovation Group (POIG), a collective with the intention of raising the bar by developing and implementing innovations that went beyond the previous 2013 RSPO standard. The latest changes to the P&Cs were welcome, Lim says, because they demonstrated that the RSPO was “ready to align towards best practices established by POIG”. These had, Lim argues, “already demonstrated the viability of producing and independently verifying palm oil that is grown without deforestation, development on peatlands, human rights violations, or exploitation of workers”.

For some, the latest developments are still not enough. But the standard is hard to achieve and even harder to maintain, Lord says. He points to the fact that, even after years of implementation, some major and critical non-conformances still arise in well-established companies. “I think this is positive and probably reflects that both the standard and the level of auditing have kept pace and are continually improving.” 

While acknowledging the RSPO has its failings, not least in an approach that limits change to compliance, meaning that companies stick to the criteria rather than being more ambitious, Lord says that this represents “a failing of ambition in the companies, not the standard”. 

RSPO has also been criticised for failing to properly enforce its standards – an accusation not helped by the fact that, for many years, its secretariat also fulfilled the role of accreditation body. Again, that has changed, with an external accreditation body now in charge of carrying out audits of plantations, issuing certificates and enforcing standards. 

It’s still not a perfect situation, as Lord points out. As long as companies select and pay for certification bodies to conduct audits – albeit from a shortlist of approved bodies – there will always be cries of an unlevel playing field, he points out. 

One idea that has been floated is to create a third-party escrow fund for smallholders that RSPO members pay into. The money would then be spent by an external accreditation body who selects the certification body to audit. While it’s unlikely to find favour outside of the plantations, “it would at least go some way to solving the problem of ‘shared responsibility’, which is still missing amongst RSPO membership,” Lord adds.

There are also clear opportunities. The use of certification and standards is likely to grow thanks to the emerging policy landscape, particularly in Europe. The EU’s farm-to-fork strategy and 2050 climate neutral goals will target supply chains to reach an acceptable standard – something the RSPO is well placed to achieve. The body’s progress has also spurred the Malaysian and Indonesia governments to create their own standards which, along with RSPO, are trying to establish a stronger link between sustainable practices and a licence to operate.

So, what comes next for RSPO? How can it evolve to support companies better in creating more sustainable supply chains for their palm oil? 

In a corporate world currently dominated by net-zero and low-carbon targets, making a better link between sourcing and the carbon intensity of that sourcing will be increasingly useful. More detailed and comprehensive mill lists will make it easier for palm oil buyers to select which mills they want in their supply chain based on their greenhouse gas impact data (CO2e/per tonnes of palm oil processed). 

The RSPO’s PalmGHG Calculator allows growers to estimate and monitor their net GHGs. But there are also calls for RSPO to look at improved carbon disclosure as part of the standard, with Lord and others suggesting the time might be right for the certifier to develop guidelines not on the management of peatland, but on approaches and plans to withdraw from these importance carbon sinks.

Further challenges for the industry are emerging. A new report from thinktank Orbitas says that two thirds of unplanted concessions across Indonesia could be stranded and obsolete assets by as early as 2040 due to government efforts to comply with the Paris climate agreement. The Orbitas analysis suggests that 69% of Wilmar International’s unplanted concession areas will be stranded. Similarly, for Musim Mas, 86% of its 108,000-hectare unplanted concession area maybe unusable. 

However, “If Indonesian palm oil companies invest sustainably, climate transitions could boost the palm oil industry’s value by $9bn,” the report concludes.

Initiatives such as POIG, and others, have been useful in harnessing the innovation and energy of forward-thinking companies that are continuing to push industry standards. And the sector remains one where individual companies continue to not accept that certification alone is enough to create the change needed in palm oil.

UK retailer Marks and Spencer has developed additional criteria for its palm oil suppliers to meet. It also helped to create the Palm Oil Transparency Coalition to develop approaches to manage issues not covered by the current RSPO standard and enable retailers to hold palm oil importers to account.

Chocolate company Ferrero, which was ranked first out of 173 companies by the latest WWF palm oil buyers scorecard, recently committed to 100% satellite monitoring of its palm oil supply chain using the Starling service. It provides data that shows where potential deforestation is happening which enables the company to identify grievances.

Cosmetics firm L’Oréal has managed to trace 98% of its derivative volumes back to refineries, 92% back to mills and 27% back to plantations. The company’s sustainable palm index – which is publicly available – includes criteria for assessing palm oil derivatives suppliers based on factors such as their commitments, sustainable sourcing practices and compliance with L’Oréal zero-deforestation policy.

The approach taken by Mars is to reduce the number of mills it sources from. It has gone from more than 1,5000 to fewer than 100. By 2022, it will halve that number again.

However, achieving global widespread sustainability of palm oil supply will remain a significant challenge for companies, governments, growers and processors. RSPO still only covers 20% of the global palm oil sector. Regardless of the apparent deficiencies and limitations of certification, the uptake of certified products remains limited. 

And while most major consumer goods companies have made strong commitments to shift their palm oil sourcing for the better, there is a need for more markets, such as the US, China and India, to make similar pledges. For RSPO, this means understanding the challenges companies face and providing a level playing field to support as many companies as possible.

With the demand for edible oil only increasing with population, something has got to give. “In a post COP26 world, I don’t see a place for oil palm grown on peat,” says Lord. “The western world will demand only sustainable palm oil and that needs to be attached to assurance; certification seems the likely candidate to provide this.”

However, as Nestlé will tell you, achieving this remains a highly complex challenge.