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

April 18, 2017

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.


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).

Figure 2 below clearly shows the recent deforestation of peat forest in PT TAA’s concession.


Figure 2: Deforestation of peat forest in PT TAA’s concession

Repeated Offenses Despite Sustainability Commitments

In April 2016, Chain Reaction Research published a detailed sustainability risk assessment on FGV. The report described FGV’s that its RSPO credentials at risk and it might have immediate cash flow impacts. This analysis showed that FGV’s subsidiaries PT CNP and PT TAA in West Kalimantan had knowingly cleared High Conservation Value (HCV) peat forest for plantation expansion.

FGV’s violations of RSPO’s standards could have led to the company’s suspension. This is because in March 2016, RSPO suspended IOI Group for similar reasons. Anticipating a possible suspension, in May 2016, FGV withdrew its RSPO certifications from 58 mills.

One of the April 2016 Chain Reaction Research report’s key suggestions was that FGV’s management and Board of Directors “adopt integrated sustainability and financial risk analysis from the Board of Directors to the plantation manager to improve overall risk management”. This recommendation is reflected in FGV’s new NDPE policy, approved by the company’s Board of Directors on August 25, 2016.

FGV “pledges to no conversion of HCV areas, peat soil, and/ or areas with High Carbon Stock (“HCS”) and implementation of Best Management Practices for existing peat land estates.”

FGV Group Sustainability Policy August 2016

Leading up to the August 2016 Board of Director’s announcement, FGV’s sustainability team repeatedly engaged Aidenvironment to discuss the company’s sustainability risk exposure. In fact, this specific peat forest clearance case in West Kalimantan was discussed four different times between April and December 2016, with Aidenvironment noting that the peat forest deforestation continued despite FGV’s management promises to stop.

As result, FGV reported its non-compliance to RSPO and posted progress updates, with all six reports referring to the HCV clearance raised by Aidenvironment.

FGV Now Faces Material Financial Risks From Losing Customers

FGV’s ongoing deforestation clearly violates:

  1. FGV’s own sustainability policies.
  2. RSPO’s Principles & Standards.
  3. NDPE purchasing policies of FGV’s major customers.

FGV now may face suspension from the RSPO for this continued deforestation. It remains unknown if RSPO will suspend FGV resulting in reducing the global supply of certified sustainable palm oil.

Regardless, FGV’s corporate buyers may suspend purchases from FGV. Several clients have already engaged FGV over sustainability compliance in the recent past. Similarly, Unilever, Wilmar, IOI, Musim Mas, Sime Darby and KLK have all signed up to the Sustainable Palm Oil Manifesto (SPOM) which clearly states that these companies:

“will not do business with serious repeat violators of RSPO’s Principles and Criteria”.   

Chain Reaction Research-partner Aidenvironment to Speak at Economist Indonesia Summit 2017

Chain Reaction Research-partner Aidenvironment’s Eric Wakker, Director of Corporate Sustainability and Co-Founder at Aidenvironment Asia, will be speaking at the Economist’s Indonesia Summit 2017 on a panel discussing deforestation and sustainable standards on April 20, 2017 in Jakarta, Indonesia.

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