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The Chain: Norway divests from palm oil deforestation, APP’s historic commitment, and more

August 18, 2015

Norges Bank divests from Daewoo International over palm oil deforestation

Norges Bank, the central bank of Norway, announced this week its decision to divest funds from Daewoo International Corporation (047050:KS), Korea’s largest trading company, and its parent company POSCO (005490:KS), as well as Genting Berhad (GENT:MK) and IJM Corporation Berhad (IJM:MK) for the companies’ role in rainforest clearing for palm oil development. Norges stated that the bank’s Executive Board decision was made on the basis of a recommendation by its Council of Ethics, which cited an “an unacceptable risk that the companies are responsible for severe environmental damage as a result of conversion of tropical forest into oil palm plantations.” The case demonstrates that lost investment is one of the main sustainability risks that companies face when engaging in environmentally destructive practices.

APP makes historic commitment to restore peatlands

Indonesia’s largest pulp and paper producer, Asia Pulp and Paper (APP), announced last week that it is committing to retire 7,000 hectares of commercial plantations on carbon-rich peatland areas in Indonesia, which the company claims will be the first-ever retirement and restoration of tropical plantation land for conservation purposes. APP’s sustainability director Aida Greenbury stated that the commitment was a “major breakthrough,” while also noting that further action is needed by the Indonesian government and other companies to address “the systemic barriers” to the protection and restoration of forest and peat lands. Although many major plantation companies have made commitments to avoid conversion of peatlands, the Indonesian government is currently weighing a measure that could weaken the country’s peatlands protection.

APP announced its Forest Conservation Policy in February 2013 following years of pressure by civil society and investors. Two years later, an evaluation by the Rainforest Alliance showed substantial progress by APP to implement this policy on the ground. Meanwhile, pressure mounted steadily on Indonesia’s second-largest pulp and paper producer, Asia Pacific Resources International Limited (APRIL), eventually leading the company to announce its own sustainability policy this June – meaning that over 80% of Indonesia’s pulp and paper sector is now covered by forest conservation policies. APP’s latest commitment takes a significant step forward by not only pledging to stop further clearing of forests and peatlands, but it provides an action plan to remove already existing developments and begin the process of restoration.

WSJ exposes labor abuse on Malaysian palm oil plantations

While the most commonly discussed sustainability risks are related to deforestation and other environmental impacts, companies also face significant risk of human rights exploitation in their global operations, which can similarly result in losses of investment and customers, legal penalties, and severe reputational damages. A recent feature story in The Wall Street Journal investigates the human and labor rights violations associated with the palm oil industry in Malaysia, the world’s second largest producer country of palm oil. The story describes the rampant use of slave labor on plantations in the region, including human trafficking, unsafe working conditions, withholding of wages, refusal of food and water, exposure to hazardous chemicals, and more. Recent estimates are that nearly 50,000 people in the past two years have made the dangerous journey by boat to Malaysia for the promise of new work, many dying from the brutal conditions along the way.

The report includes testimony from young men working on plantations controlled by Felda Global Ventures (FGV:MK), a semi-autonomous company set up by Malaysia’s government and one of the world’s largest producers of crude palm oil, whose customers include major agribusinesses such as Cargill, as well as consumer brands like Nestlé and Proctor & Gamble. Felda and many of its customers are members of the Roundtable on Sustainable Palm Oil, however many of the RSPO’s requirements for fair labor practices leave considerable discretion to local authorities. According the WSJ, “Felda said workers on its plantations, nearly 85% of them foreigners, are afforded basic rights and earn the minimum wage. Cargill and its customers said they weren’t aware of alleged labor abuses on palm-oil plantations and would investigate.” Civil society groups are calling for a full RSPO investigation of the practices detailed in the story. The RSPO has since indicatedthat it is working to gather more information.

Assessing the sustainability of “soft commodity” financing

As more and more commodity traders and consumer brands commit to eliminating deforestation from their supply chains, attention is increasingly turning to the sustainability standards and practices of the financial sector. A recent report by the Natural Capital Declaration (NCD), commissioned by the UN Environment Program, shows that many financial institutions are failing to address sustainability risks associated with investments in “soft commodity” agricultural companies that may cause deforestation. As Mongabay explains, while an increasing number of commercial banks and institutional investors are implementing more stringent environmental and social standards, “the majority of domestic banks and investors in Southeast Asia continue to lag behind their international peers in the adoption of such policies.” The NCD report evaluates 30 international financial institutions based on the scope, strength and implementation of their policies related to soft commodities. While nearly half of the groups were found to have policy statements on soft commodities, just 13% had actually developed financial products and services to encourage sustainable production and trade. The NCD report provides a new tool to begin to fill this gap – the “Soft Commodities Forest-Risk Assessment Tool” – which allows financiers to identify areas for improvement in their policies and practices.

Clarification: First Resources’ zero-deforestation policy

In our previous update, we reported that Singapore-based palm oil producer First Resources (FR:SP) committed to a new policy to go beyond the standards of the RSPO to end deforestation, peatland development, and human rights abuses it its supply chain. In that update, we stated that, “the company’s new policy was developed in consultation with third-party implementation partner The Forest Trust (TFT).” We have since been informed that, in fact, First Resources’ policy was not developed in consultation with TFT and TFT is not an implementation partner of the policy. First Resources states that it “will provide regular progress updates of the implementation” of its new policy and that the company “welcomes input and feedback from stakeholders.”


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