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The Chain: Investors With USD 6.7 Trillion in Assets Pressure RSPO to Boost Sustainability Efforts

August 16, 2018

A letter sent from investors to the Roundtable on Sustainable Palm Oil (RSPO), dated August 1, 2018, highlights growing demand in the investment and financial communities for the palm oil sector to alter its habits and strengthen its sustainability practices. The letter came from 90 institutional investors, which manage some USD 6.7 trillion of assets, or two percent of global wealth.

“Our investment portfolios include companies that have significant exposure to deforestation risks and therefore, have made robust no-deforestation polices and strong commitments to sourcing sustainably certified palm oil,” the investors wrote. “We are concerned with the current disconnect between leading corporate policy commitments and the RSPO standard,” they added.

The recent note comes after a March letter from a group of investors calling on the RSPO to adequately address human rights violations in the production of palm oil. The latest letter was also published ahead of the RSPO releasing its new five-year guidance in November 2018.

A trend regarding investment funds including deforestation risk and sustainability goals in their policy continues to take shape. In June, CalPERS, the largest state pension fund in the United States, updated its policy for identifying and managing environmental risk, with a specific mention of deforestation. Others—including Robeco, which received the highest possible score from the UN Principles for Responsible Investment (UN PRI)—are also making progress in this space. Robeco is actively engaging with companies in its portfolio to curb deforestation. Meanwhile, after engagement by Green Century Capital Management and the New York State Common Retirement Fund, Bunge updated its no-deforestation policy in May 2018, following reports of it sourcing supply from illegally deforested areas.

The letter states that investors are “keenly interested in making sure the RSPO has robust accountability systems that support certification.” It adds: “This should also include the enforcement of consistent sanctions against member companies if they or their related entities violate RSPO Principles and Criteria and Code of Conduct.” This comes on the heels of CRR’s report, “Shadow Companies Present Palm Oil Investor Risks and Undermine NDPE Efforts,” on how shadow companies pose risks for investors in the palm oil sector and challenge work that limits deforestation.

Investors Want RSPO to Succeed

Despite widespread criticisms of the RSPO and its guidelines, which have only minimally affected deforestation across the world, particularly in Indonesia and Malaysia, the two largest growers and suppliers of palm oil, the group of investors wants the certification system to succeed. Asset managers see it as a vehicle to spur broader engagement with companies that operate along the palm oil supply chain.

“We want the RSPO to succeed,” said Adam Kanzer, Managing Director of Corporate Engagement, Domini Impact Investments LLC in a statement, in a statement. “Companies, investors, consumers and local communities will all benefit from a single gold standard for sustainable palm oil.”

One major concern among investors is the RSPO not always aligning with the High Carbon Stock Approach (HCSA). Investors are calling on the RSPO to include the more stringent HSCA standards to determine where expansion is appropriate. Currently, RSPO members can clear forests to build plantations, with companies operating in Indonesia having the sharpest rates of deforestation. This situation has prompted investors to call on the RSPO to stop the clearing of all forests, not just certain types. As Mongabay points out, the RSPO currently allows its member to clear peat soil where the peat is less than three meters deep, prompting investors to call for a new definition of peat soil and guidance in order to phase out the “development or replanting on peat soils.” Furthermore, the group is pressuring the RSPO to require companies to have “management plans” to conserve forests on their concessions. Another key point in the letter is the call for increased transparency, including public disclosure of concessions in a digital format.

In order for the RSPO to boost its credibility among institutional investors, it is under pressure to not only crack down on companies that violate deforestation policies; the organization should, according to the letter, also adopt better labor practices. Investors are concerned with labor and human rights abuses as they see the RSPO lacking in this area. Among a number of other goals, the authors of the letter urge the RSPO to clamp down on violence against workers and provide a living wage.

The letter does not call out any particular company or country, but the fact that the authors seek stricter regulations, increased enforcement of rules, and greater transparency could portend higher risks for investors should the RSPO adopt more stringent measures.

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