The Chain: Cargill suspends IOI after IOI does not meet deadline, Indonesia proposes 5-year moratorium, UK DECC to be dismantled

Cargill Suspends IOI

According to the Financial Times, the leading global commodity trader Cargill has suspended ties with IOI Corporation (IOI:MK). The move comes after IOI’s suspension by the RSPO, and Cargill’s request that the company respond by meeting specific deadlines or lose the trading giant’s business. Specifically, Cargill had requested that IOI:

  • Issue a responsible sourcing policy by July 15, 2016.IOI must publicly issue a transparent and credible responsible palm sourcing policy that includes commitments to conduct High Conservation Value  (HCV) and High Carbon Stock (HCS) assessments, and adhere to Free, Prior and Informed Consent (FPIC) principles before pursuing any further developments across all IOI Group operations and third-party suppliers. IOI must also commit to mapping peatland across its operations and develop a management plan for identified peatland areas in collaboration with reputable, independent third-parties.
  • Release a detailed sustainability implementation plan by July 15, 2016.IOI must deliver a detailed sustainability implementation plan that includes clear objectives, milestones and timelines for each activity outlined in its policy. IOI must also implement a program to monitor and verify the implementation of its policy across all levels of its organization.
  • Establish a formal public grievance process by September 15, 2016.IOI must launch a grievance process that acknowledges existing concerns and allegations and outlines clear actions and timelines to address retroactive and future grievances.”

It is not clear how IOI will achieve these requests from one of its largest customers. Many of the largest global palm oil producers and traders have made commitments similar to what Cargill has requested from IOI. For example, Wilmar International (WIL:SP) has made commitments regarding HCS, HCV, and FPIC.

Indonesian Five-Year Moratorium

In April, Indonesia’s President Joko Widodo proposed a five-year moratorium on new palm oil concessions. On July 15th, further information was released by Pak Darmin Nasution, Indonesian Coordinating Minister for Economic Affairs, who was previously Governor of Bank of Indonesia from 2010 to 2013.

The first phase of the review occurred in May 2016 resulting in the Indonesian government rejecting requests to plant palm oil on 851,000 hectares. In the second round, the Environment and Forestry Ministry rejected previously approved “in-principle” concessions issued to prospective palm oil plantations on 600,000 hectares. In the third round, the government rejected all forest-release permits for 2015-2016. In the upcoming fourth and final round, the Environment and Forestry Ministry will review currently outstanding and permitted forest-release permits.

Key to this approach by the Government of Indonesia is the harmonization between the Coordinating Ministry for Economic Affairs and the Environment and Forestry Ministry, a novel approach to mitigating climate risk by integrating financial and environmental risks and opportunities into a unified effort.

UK Department of Energy and Climate Change to be Dismantled

The new government in the United Kingdom has announced it will abolish the UK Department of Energy and Climate Change (DECC). It will now combine DECC and the Department of Business, Innovation and Skills (BIS) into the new Department for Business, Energy and Industrial Strategy.

Formerly, the UK DECC tracked both crude palm oil (CPO) and certified sustainable palm oil (CSPO) imports into the United Kingdom. UK DECC has also previously supported CSPO imports, as previously reported by Chain Reaction Research.

DECC’s reporting on UK imports of RSPO have shown the UK’s progress to achieving its 100% sourcing of credibly certified sustainable palm oil by the end of 2015.

UK DECC reported that since 2009, United Kingdom market demand for CSPO has grown 255% since 2009. At the same time, with the abolition of UK DECC, it is unclear if CSPO demand in the UK will decrease given recent changes.