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February 13, 2017
Indonesia’s proposed palm oil moratorium combined with buyers’ No Deforestation, No Peat, No Exploitation (NDPE) policies impacts industry growth potential. Within current concession areas, the moratorium adds regulatory risks to market access risks for companies that proceed with developing forests or peatland. Outside these existing concession areas, there is a material loophole in the proposed moratorium for land classified as ‘convertible production forest’ (HPK). However, this loophole is essentially closed by stranded land risks caused by NDPE policies. West Kalimantan has 2.2 million ha of land suitable land for palm oil development outside of its current licensed palm oil concessions. But, because of the moratorium and NDPE policies, at most 2.6 percent of this land is available for future viable oil palm concessions. Likely responses to NDPE market innovations and the moratorium are an increase in smallholder investments, industry consolidation and vertical integration.
The Chain: Indofood Agri Resources New Palm Oil Policy; Risks in Advanced Holdings SG$240 Million Reverse Takeover; Malaysia’s Sukau Bridge Risks Investors, Dooms Elephants
February 16, 2017
Indofood Agri Resources New Palm Oil Policy
Singapore-listed Indofood Agri Resources (IndoAgri) is one of the largest oil palm plantation companies in Indonesia, with a total landbank of 63 concessions covering 549,287 ha (42 percent of which is contested land), and planted area of 247,000 ha. This week it launched a new sustainability policy, superseding its former policies.
The new policy will apply to the company’s own plantation operations as well as third-party suppliers, including smallholders. At present, at least 36 percent of the crude palm oil processed in IndoAgri’s refineries comes from undisclosed sources. These third-party suppliers will now be confronted with these policy requirements.
The new policy is quite similar to the No Deforestation, No Peat, No Exploitation (NDPE) policies earlier adopted by the main traders and processors of oil palm. IndoAgri is an exception because it has chosen to follow the weaker RSPO standards for preserving High Carbon Stock areas, instead of the prevailing HCS approach. Since 2013, the company has had a policy of refraining from developing peatlands.
IndoAgri’s new policy, for the first time, expresses its intentions to comply with the fundamental conventions of the International Labour Organization. However, the company has not adopted sector specific labor standards. This exposes it buyers and investors to material risks. In October 2016, the NGOs Rainforest Action Network, OPPUK and ILRF filed a complaint with RSPO. In their report The Human Cost of Palm Oil these NGOs documented several material violations of workers’ rights in North Sumatra, and to date IndoAgri has not resolved these issues. This case, and the lack of a commitment to establish a credible grievance mechanism aligned with UN Guiding Principles on Business and Human Rights in its new policy, shows that the company still has a long way to go in its opening up to society and handling of grievances.
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Chain Reaction Research conducts sustainability risk analysis for financial analysts and investors. Our special focus is on sectors that deal with environmentally intensive commodities, especially those sourced from tropical regions like palm oil, and pulp and paper.<
We explore whether unsustainable corporate practices and actions have introduced unreported risks – and how or whether sustainability leadership can mitigate those risks and possibly provide competitive advantage. Where possible, we provide pre-IPO checking of claims about risk and assets reported in prospectuses. We also review claims made by publicly traded companies.
Chain Reaction Research has received support, in part, from the David and Lucille Packard Foundation, and from the International Climate and Forest Initiative (NICFI) scheme managed by the Norwegian Agency for Development Cooperation (Norad). Chain Reaction Research statements and materials do not necessarily reflect the standpoints of the Packard Foundation or Norad.