The Chain: Neste Revenue Risk From Norwegian Public Procurement Ban of Palm Oil-Based Biofuels

  • This June, the Norwegian government voted to ban palm oil-based biofuels in public procurement of fuels and public transport. The Norwegian Parliament – the Storting – voted that the regulation shall enter into force as soon as possible. Furthermore, the Norwegian Parliament called for the retail biofuels industry to not use biofuels that exceed the EU’s minimum greenhouse gas emissions reductions targets.

The Norwegian government’s policy changes are important to Neste Corporation as Neste is the sole supplier to the Norwegian market of palm oil-based biofuels.

In response to the Norwegian government decision, Nils Hermann Ranum, Rainforest Foundation Norway, said:

“It is highly positive that Norway has now followed up on last year’s pledge to ensure deforestation-free supply chains through the government’s public procurement policy with this strong commitment. It is now incumbent on other consumer countries to follow suit. In particular, the EU should take urgent steps to reduce the consumption of commodities, such as palm oil biodiesel, that are linked to rainforest destruction and accompanying greenhouse gas emissions, biodiversity loss and human rights violations. A revision of the EU biofuel policy, to avoid biofuels that drive deforestation and are worse for the climate than fossil fuels, is urgently needed.”

Similarly, in 2016, the Norwegian government voted to ban any palm oil products purchased by its central and sub-central governments. This follows Norway’s support for the New York Declaration on Forests, launched during the 2014 Climate Week in New York City. The Declaration is the first global timeline for cutting and totally ending deforestation, and was supported by developing and developed nations, businesses and NGOs.

Importantly, on April 3, 2017, the European Parliament voted for a resolution to phase out the use of non-sustainable vegetable oils for biofuels by 2020. The resolution called for independent audit and monitoring to guarantee that deforestation and peatland conversion does not occur. The resolution also called for a single, mandatory set of certification mechanisms. It states that it:

“Acknowledges the positive contribution made by existing certification schemes, but observes with regret that RSPO, ISPO, MSPO, and all other recognised major certification schemes do not effectively prohibit their members from converting rainforests or peatlands into palm plantations; considers, therefore, that these major certification schemes fail to effectively limit greenhouse gas emissions during the establishment and operation of the plantations, and have consequently been unable to prevent massive forest and peat fires; calls on the Commission to ensure that independent auditing and monitoring of those certification schemes is carried out, so as to guarantee that the palm oil placed on the EU market fulfils all necessary standards and is sustainable; notes that the issue of sustainability in the palm oil sector cannot be addressed by voluntary measures and policies alone, but that palm oil companies should also be subject to binding rules and a mandatory certification scheme.”

Motorists Drive EU Palm Oil Demand

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The Chain: Noble Group’s Deforestation Risks Further Sinks the Ship

In 2013, Noble Group was among the 100 biggest companies in the world by revenue. Since then, its shares have fallen 97 percent since their 2014 highs. Noble Group’s shares closed on Wednesday June 7, 2017 at USD 0.24. S&P Global stated they have put Noble Group at risk for default within the year.

Noble Group has almost USD 2.1 billion in debt due in 2018. By end of 2018, Bloomberg reports that Noble Group must repay:

  • USD 600 million on its borrowing facility.
  • USD 379 million on a bond repayment.
  • USD 1.1 billion on its revolving credit facility.

Two of Noble Group’s loans for its May 2018 revolving credit facility have also collapsed in the past month. They are now trading at USD 0.59 and USD 0.50, down from USD 0.91 in early May, 2017. Last week, Noble’s 2020 bonds decreased in value from USD 0.60 to USD 0.36.

Noble Group’s Q1 2017 adjusted net loss was USD 42 million. This equals USD 0.17 per share excluding items. Noble Group’s reorganization resulted in a noncash discrete tax item totaling USD 260 million, which led to a net loss of USD 302 million or USD 1.24 per diluted share. Noble Group Executive Chairman Richard Ellmann’s resigned May 11, 2017.

Finally, Noble Group’s palm oil business suffers from both potential weak High Conservation Value (HCV) assessments and poor Roundtable on Sustainable Palm Oil (RSPO) checks.

Despite this record, Noble stated on p. 17 of its 2016 Annual Report that:

Since 2013, permanent conservation departments at both plantations have been responsible for implementing our integrated conservation master plan. We have published our sustainability criteria to illustrate our approach across critical areas, such as undertaking free, prior and informed consent, access social and environmental impacts, conservation of forest and high conservation values areas, maintain high carbon stock areas, no planting on peat and a zero-burning policy.

Noble Group: Institutional Investors Sell Because of Deforestation Risks

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The Chain: IOI Corporation Commits To Improving its Supply Chain Risk Management

Moody’s reported on Monday May 8, 2017 that IOI Corporation renewed commitment to complying with Roundtable on Sustainable Palm Oil (RSPO) certification requirements supports IOI Corporation’s corporate customer retention.

Moody’s stated that:

“Compliance with RSPO principles and criteria is an important differentiating factor for palm-oil producers, providing a competitive advantage and profitability enhancement in the industry. RSPO-compliant palm oil producers are well positioned for growth, particularly in Europe and North America, because certified crude palm oil and its derivatives are increasingly required by leading global food and household product companies.”

Environmental NGOS have criticized IOI’s performance beyond its recent breach of its certification requirements. Other criticisms have focused on IOI clearing peatlands in Ketapang, Indonesia. Environmental NGOs have also protested IOI’s palm oil facilities and put pressure on its financiers due to land and labor rights violations and IOI’s shortfalls in its palm oil production policy.

On April 28th, IOI committed to implement global best-practice peatland management in the Ketapang landscape and undertake third party verification of its policy compliance. Greenpeace responded to these additional commitments by announcing it was suspending its campaign against IOI. Following both announcements, IOI Corporation’s shares traded up slightly to RM4.60.

IOI’S Material Deforestation Financial Risks: Two Formal RSPO Complaints

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The Chain: Felda Global Ventures Allegedly Defying Government of Indonesia Peatland Laws, Company Disagrees

As of April 28, it appears that Felda Global Ventures’ (FGV) management has yet to acknowledge the company’s possible risk exposure to Government of Indonesia’s administrative sanctions and buyers’ suspensions over continued peat clearance by its Indonesian subsidiaries. Peatlands are the world’s largest carbon sinks.

Chain Reaction Research highlighted risks such as these in its April 22, 2016 report Felda Global Ventures (FGV:MK): RSPO credentials at risk, immediate cash flow impacts.

FGV’s Deforestation Risks Continue to Present

In 2015, in Landak District, FGV’s subsidiary PT Citra Niaga Perkasa, cleared a 240 hectares (ha) High Conservation Value forest on deep peatland greater than three meters. FGV previously bought PT Citra Niaga Perkasa in 2012 for USD 10.6 million.

More recently, on April 12, 2017, Chain Reaction Research-partner Aidenvironment commissioned a drone fly-over video of FGV’s neighbouring subsidiary PT Temila Agro Abadi’s concession. FGV previously bought PT Temila Agro Abadi in 2013 for estimated USD 4.2 million. Then on April 18, 2017 Chain Reaction Research published a research note showing deforestation from the drone video allegedly demonstrating deforestation activities by FGV’s subsidiary PT Temila Agro Abadi.

The image below in Figures 1 and 2 show that in 2017, FGV subsidiary PT Temila Agro Abadi has cleared a total of 390 ha of peatland. This included High Conservation Value forests.

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The Chain: PepsiCo and TIAA Face Financial Risks from Agriculture Investments and Supply Chains

 

PepsiCo Faces Supply Chain Risks From Conflict Palm Oil

Picture1Figure: Activists on Monday delivered their demand by draping a massive “Cut Conflict Palm Oil” banner from New York City’s iconic, six-story-tall “Pepsi-Cola” sign.

PepsiCo – the largest globally distributed snack food company – came under pressure today because of its sourcing and business relationships with high risk actors in the palm oil sector in SE Asia and Central America. PepsiCo’s risky relationships include:

  • Possible sourcing relationships to Reforestadora de Palma de Petén SA (REPSA), a l palm oil company purportedly involved in the killing of Guatemalan Indigenous rights activist Rigoberto Lima Choc on September 18, 2015, kidnapping of three others, Hermelindo Asij Mo, Lorenzo Pérez Mendoza and Manuel Perez Ordoñez and ongoing intimidation of human rights defenders.
  • Relationships with Indofood Agri Resources. A report in early 2017 by Chain Reaction Research suggested that 42 percent of Indofood Agri Resources’ 549,287 hectares landbank is contested. In fact: Six plantations allegedly have community conflicts and labor controversies. Four plantations are located on peat and/or forest areas, potentially prohibited from development given Indonesian government regulations. 16 plantations do not publish concession maps.
  • Major palm oil traders Cargill, Wilmar and AAK involved in sourcing from palm oil plantations are threatening the future survival of the Leuser Ecosystem – the last place on Earth where orangutans, tigers, rhinos, elephants and sunbears still coexist in the wild.

PepsiCo’s global suppliers are selling PepsiCo material risks that PepsiCo’s investors may now own.

Clients Ask TIAA to Manage its Agriculture Investment Risks

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The Chain: EXCLUSIVE – FGV Risks Supply Chain Exclusion Over Repeat Offenses – See Video

New evidence has emerged that Malaysian-based agri-business, Felda Global Ventures (FGV) (USD 1.7 billion market cap), continues to clear peat forest, contrary to its policies and industry standards, on its PT Temila Agro Abadi (PT TAA) plantation in West Kalimantan, Indonesia.

FGV is violating its own sustainability policy, adopted in August 2016 by its Board of Directors. FGV’s deforestation is also directly in violation of RSPO’s Principles and Criteria.

FGV’s deforestation pose material risk to its current commercial and business relationships. The majority of FGV’s customers, including Unilever, Wilmar, IOI, Musim Mas, Sime Darby, and KLK, have No Deforestation No Peat No Exploitation (NDPE) policies.

Satellite and Drone Images Show Ongoing Deforestation

As seen below in Figure 1, Chain Reaction Research-partner Aidenvironment’s satellite imagery shows that FGV’s subsidiary PT TAA continues to clear forest and peatland. The total cleared area since 2016 is 1,612 ha of mostly peat forest. This cleared land includes High Conservation Value (HCV) areas. Since FGV announced its new policy, it has cleared 864 ha of mostly forested peatland.

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Figure 1: Satellite images of PT TAA’s concession

Aidenvironment commissioned a drone fly-over on location April 12, 2017 of the PT TAA concession.

You can view the video here (source: Aidenvironment).

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The Chain: Unilever Changing Strategy After Kraft Pulls Bid and Invests USD 200 Million in Sustainability

Unilever Selling its Spreads / Margarine Business

Unilever announced April 6, 2017 that it will sell its spreads / margarine business, possibly by Q2 2017. The move came after Unilever conducted a review of its business segments following Kraft Heinz February 2017 unsolicited USD 143 billion takeover offer.

Two days after it became public, as analyzed by Profundo, by February 19, 2017, Kraft Heinz had pulled its bid for Unilever. Kraft Heinz, controlled by Warren Buffett and the Brazilian private equity firm 3G Capital, pulled its bid for various reasons including Buffett’s longtime aversion to hostile bids. While he supported the “friendly” takeover of H.J. Heinz in 2013 and later combining it with Kraft Foods Group Inc. in 2015 to create Kraft Heinz, he does not like to go where Berkshire Hathaway is not welcome.

Kraft Heinz Rejected So Announces USD 200 Million CSR Investment

Kraft Heinz in response announced March 21 2017 a USD 200 million investment to expand its CSR commitment.

Kraft Heinz says it will improve its supply chain’s sustainability, decrease its GHG emissions 15 percent and donate one billion meals by 2021. It also aims to set raw material-sourcing policies and practices to improve supply chain sustainability.

For example, under its new policy, it will only purchase palm oil products certified by the Roundtable on Sustainable Palm Oil (RSPO). But Kraft’s plan to rely on the RSPO and its Green Palm certificates scheme has been targeted by NGOs.

Domini Impact Investments and Calvert Investments Launch Proxy Against Kraft

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