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IOI Risks Suspension From RSPO-Certified Palm Oil Market

September 30, 2015

The Roundtable on Sustainable Palm Oil (RSPO) has issued a stern warning to IOI Corporation to address serious legal and policy non-compliances in Kalimantan, or face expulsion from the Certified Sustainable Palm Oil (CSPO) market.

With over 140,000 hectares of RSPO-certified land bank and 12 certified mills, the IOI Group is one of RSPO’s flagships and a key supplier of Certified Sustainable Palm Oil (CSPO) to Unilever, Mitsui and others. In spite of having two-thirds of its total land bank fully RSPO-certified, some 10% of IOI’s total land bank is contested, subject to formal RSPO complaints for over five years. On August 15, RSPO threatened IOI to suspend it from access to the global CSPO market.

Case 1: Sarawak, Malaysia

In 1997, IOI acquired a 70%-majority stake in a Sarawak based plantation company (IOI Pelita), in spite of a lawsuit filed by Kayan and Kenyah villagers over encroachment into their Native Customary Land. The company pursued appeal to the Malaysian Federal court. In 2013, IOI won the legal battle but it lost the war. A formal complaint (November 2010) filed by the community and NGOs was poorly handled by RSPO. As it stands today, the community continues to hold control over the land they reclaimed from the company.

Case 2: West Kalimantan, Indonesia

In 2010, a study by Aidenvironment found that two of IOI’s subsidiaries (PT BNS and PT SKS) in West Kalimantan had cleared some 10,000 hectares of land without having secured the legally required permits. Moreover, PT BNS cleared 1,000 hectares outside its concession boundaries. In May 2012, RSPO dismissed complainants, arguing lack of evidence and that IOI was not intentionally non-compliant with Indonesian law.

During monitoring checks in early 2015, Aidenvironment found that PT BNS had again occupied some 800 hectares of protected forestland. Furthermore, the newly developed PT BSS plantation was found to be in non-compliance with a host of other RSPO’s standards. In response to a renewed complaint, IOI commissioned studies to Aksenta and Intertek, whose verifications saliently revealed that PT BSS did not have the (legally required) fire prevention measures in place in 2014. In the same year, fires raged throughout the concession, laying to ash a High Conservation Value (HCV) forest and deep peat.

RSPO committed to fair complaint handling

In April 2011, RSPO partially suspended IOI for its non-conformance by preventing it from applying for new supply base certificates. The Malaysian newspaper “The Star” cited CIMB Research, saying that “in the event that the current issue was not resolved quickly, it could eventually affect IOI Corp’s sales to key markets like Europe”.

However, when RSPO handled the IOI complaints in 2011, its board members were directly involved in complaints handling, in spite of the fact that IOI as well as one of its main buyers (Unilever) were also represented in the board. Suspecting undue influence, a group of NGO’s subsequently prepared a Resolution for RSPO’s General Assembly, calling upon RSPO to ensure that RSPO’s complaint handling is in line with the UN Guiding Principles on Business and Human Rights, i.e. transparency, credibility and independence. The RSPO membership adopted the NGO Resolution by large majority in November 2013. The RSPO has since excluded Board of Governors members from the Complaints Panel and introduced a series of other improvements to enhance the integrity of the RSPO complaints system.

IOI is offered a final chance

Given RSPO’s commitment to ensure fair complaint handling and the fact many other growers supply CSPO to the market today, the question arises is whether IOI is still “too big to lose” for RSPO and its key buyers. In its latest letter of 29 September, RSPO’s Complaints Panel states that “there are reasonable grounds for considering that IOI has breached the RSPO Principles and Criteria,” highlighting several non-compliances:

  1. Principle 2 – Compliance with National laws and regulations
  2. Principle 7 – Responsible Development of New Planting
  3. Criteria 7.4 – Prohibition of development on peat land
  4. Time bound plan

In its Preliminary Decision, RSPO’s Complaints Panel granted IOI another 17 days to respond and come up with action plans to address its non-compliances in.

IOI stock value at risk

CRR believes that IOI Group may well be suspended by RSPO in October-November, resulting in the Group’s acute loss of access to premium CSPO markets, particularly in Europe and the US. This could depress IOI’s stock value, also considering that Malaysian stock is bearish due to, among other, political unrest in Malaysia, the cooling down of China’s economy and the devaluation of the Ringgit.


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