In early September 2020, Mondelēz International announced enhanced traceability of its palm oil sourcing policy, including independent verification. This action followed Unilever’s June 2020 announcement of its extra measures to help transform the palm oil industry. These developments have occurred against the background of the Consumer Goods Forum (CGF) targeting of zero-deforestation in 2020, Fast-Moving Consumer Good companies (FMCGs) still lagging in the execution of No Deforestation, No Peat and No Exploitation (NDPE) policies, and the repeated links between FMCGs and the top-10 deforesters in Southeast Asia.

Mondelēz International, known for brands like Oreo, Tuc, Côte d’Or, Milka, Lu and Cadbury, says that starting in 2021 the company will require “traceable, forest-monitored palm oil from mills across its supply chain.” By Q1 2021, 80 percent of palm oil supplied to the company will need to be “sustainably sourced under these enhanced expectations.” The new requirements consist of traceability to the plantation and satellite monitoring covering all palm oil concessions supplying to mills in the company’s supply chain. The policy also states that there should be no active grievances against concessions among these mills’ direct supply base or in those operated by the same producer groups elsewhere. In addition, suppliers must have “third-party assurance of their monitoring process and systems used and be subject to cross-check by Mondelēz International.” By 2025, suppliers will be required to confirm sustainable sourcing practices across their entire supply chains, and not only for the portions that supply to Mondelēz International.

Although the new policy is wide-ranging and enhances Mondelēz International’s previous commitment, the company will still not meet the 2020 CGF target of zero-deforestation. Moreover, the company has not committed to update its public mill list more than once per year.

Unilever’s announcement that it plans to accelerate action to achieve a deforestation-free supply chain by 2023 was also an acknowledgment that it would miss its 2020 target. The company’s policy is committed to “increase traceability and transparency by using emerging digital technologies – such as satellite monitoring, geolocation tracking and blockchain – accelerating smallholder inclusion and changing its approach to derivates sourcing.” However, Unilever has yet to provide details. Unilever sources more palm kernel derivatives than Mondelēz International, as it is one of the top food companies and is active in home and personal care.

Unilever and Mondelēz occupy respectively the first and seventh positions among FMCGs that source palm oil. Together, the two companies buy circa 1.8 percent of global palm oil production (the top-25 FMCGs sources 9 percent of global production). CRR’s report “FMCGs’ Lagging Efforts in NDPE Execution Lead to Deforestation, USD 16-82B Reputation Risk” concluded that 88 percent of the top-25 sourcing FMCGs are still lagging in their NDPE execution on palm oil. The key performance indicators (KPIs) identified to help reduce leakage include: 1) The presence of an NDPE policy; 2) An up-to-date list of palm oil mills and a grievance list; 3) External auditing; and 4) Implementation of non-financial reporting according to the Task Force on Climate-related Financial Disclosures (TCFD) process and/or up-to-date disclosure in an established format such as CDP Forest.

In view of increasing attention on FMCGs for gaps between deforestation policies and their execution, CRR’s report calculates that investors could be confronted by reputation risk valued at USD 16 to 82 billion. This amount is equal to 3-15 percent of their market capitalization, and a best-in-class execution of NDPE policies is a low-cost burden. The cost would be 0.3-0.9 percent of EBITDA and 0.1 percent of palm oil-related product revenues.

Large FMCGs such as PepsiCo, Procter & Gamble, Nestlé, Yildiz, Ferrero, Reckitt Benckiser, Colgate, FrieslandCampina, Henkel, Johnson & Johnson, Mars, Kellogg, L’Oréal, and Danone still need to address several of these KPIs in order adequately implement their policies. These companies, as well as many other FMCGs, are still listed in the supply chains of several of the top-10 deforesters in Southeast Asia. With Mondelēz International and Unilever both launching enhanced policies, industry peers will come under pressure to follow. With 3-15 percent of their investment value at risk, investors have the opportunity to engage in industry-wide transformation.