Analysis: IDX-Listed Palm Oil Producers Face Serious Business Risks Without Improved Sustainability Practices

Six of the ten largest palm oil producers traded on the Indonesian Stock Exchange (IDX) face high financial risk exposure from major traders committing to eliminate forest and peatland destruction and human rights abuses from their supply chain, according to a new analysis released today by Chain Reaction Research. The report assesses the financial risk exposure of the ten largest palm oil growers listed on the IDX – which alone represent 10% of global production and $7 billion in annual revenue – as a result of strengthened sustainability policies among the industry’s major buyers.

Over the past year and a half, traders controlling over 90% of the global palm oil trade have committed to No Deforestation, No Peat, No Exploitation (NDPE) policies that apply to their entire supply chain, including subsidiaries and third-party suppliers. Industry leaders such as Wilmar International, Golden Agri-Resources, Cargill, Bunge, Musim Mas and others are in the midst of implementing these commitments, and have faced intense public scrutiny to cut off suppliers that violate the terms of these policies. As a result, palm oil growers and producers that lack strong sustainability standards risk losing business with some of their largest customers.

“Particularly for publicly traded companies that face pressure from shareholders, the protection of forests, peatlands and human rights should now be seen as an essential financial responsibility for palm oil producers,” said Jan Willem van Gelder of Profundo, one of the Chain Reaction Research partners. “Given the tremendous pace of change to demand higher sustainability standards, it appears that maintaining the old status quo in the palm oil industry is financially riskier than ever.”

The report assesses the level of risk that producers face based on how their own policies stack up to the NDPE standard, the percentage of their customers with NDPE policies, and their progress in meeting certification levels for the Roundtable on Sustainable Palm Oil (RSPO) – which is basic criteria for many traders. Among these ten companies, six were found to sell at least half of their palm oil products to external buyers that have adopted No Deforestation policies. Overall, six of the ten were assessed to have “high” risk exposure, while the remaining four are categorized as having “medium” risk exposure.

While the consequences of these risk may not have hit home yet for all the companies, some of the producers have already begun to feel the impact of this new market: two of the producers – Sawit Sumbermas Sarana and Austindo Nusantara Jaya – have recently had their purchasing contracts suspended over sustainability concerns; meanwhile two others – Sinar Mas Agro Resources Technology and Astra Agro Lestari – have been recently pressured by buyers, investors, and civil society groups to establish stronger sustainability standards.

“Ultimately, the transformation going on right now in the palm oil sector is not going away anytime soon,” said Albert ten Kate of Aidenvironment, one of the Chain Reaction Research partners. “Palm oil companies, especially those that rely heavily on customers with strong sustainability standards, should move to minimize the risk to their business and shareholders by committing to eliminate deforestation, peatland clearance, and labor exploitation from their supply chain right away.”


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Analysis: IDX-Listed Palm Oil Growers
June 30, 2015
Six out of ten largest palm oil growers listed on the Indonesian stock exchange (IDX) have high-risk exposure to major buyer/traders’ No Deforestation, No Peat, No Exploitation (NDPE) purchasing policies. Six out of these ten growers sell 50% or more of their crude palm oil and/or palm kernel oil to buyers that have adopted such policies for their supply chain.

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