New Publication: Perspectives on "Sustainable" Palm Oil: Problematic Certification Systems and the Responsible Investor

Posted by | March 24, 2014

Here at Portfolio 21, we are continuously working to identify critical ESG issues and educate both ourselves and our investors.  As part of these efforts, we are pleased to announce a new publication:  “Perspectives on ‘Sustainable’ Palm Oil:  Problematic Certification Systems and the Responsible Investor,” which examines the challenges of the global palm oil industry.

Palm oil is already the largest individual source of oils in the global food system, and its growth is outstripping both population and the rest of the vegetable oil industry overall.  As a high-growth industry operating in environmentally sensitive areas, the issues surrounding the production of palm oil have (deservedly) received a good deal of attention.  In parts of Southeast Asia, palm oil has become almost synonymous with rainforest destruction.  The threats to environmental health and biodiversity have been well publicized, and more recently the social problems arising in local communities are also receiving publicity.

This is especially unfortunate given some of the advantages of oil palms, which actually give this crop an edge over other means of dietary oil production.  Oil palms use relatively less land and have the ability to yield more than eight times as much oil per acre as other oil crops (e.g., soy).  Furthermore, it has a viable production lifespan of up to 30 years, reducing the impacts that come from constant planting and soil turnover.  Indeed, most of the problems in the industry are a consequence of poor regulation and a focus on short-term profits over sustainability and local well-being.

An industry group, Roundtable on Sustainable Palm Oil (RSPO), was formed in 2004 to provide standards and certification for those companies seeking to address the industry’s environmental and social challenges.  The organization’s membership currently includes over 40% of global producers and many point to its achievements.  However, when we took a closer look at the standards, and more particularly their enforcement mechanisms, it became much more difficult to endorse the RSPO as a sustainability authority.  Ten years into the existence of the organization, a disappointingly small percentage of “certified sustainable” palm oil is actually traceable to responsible operations.  The RSPO has approached these problems more as a public relations issue, and changes in the operational behavior of palm oil plantations have been limited.

Several prominent environmental and conservation organization signatories to the RSPO, such as Greenpeace and the World Wildlife Fund, have come to the same conclusions about its efficacy.  They, along with several companies going well above and beyond the RSPO requirements, came together in 2013 to create the Palm Oil Innovations Group (POIG).   POIG provides high standards and excellent guidance for producers who are seeking to integrate environmental and social best practices into their business management.  Unlike the RSPO, the organization is committed to regular monitoring and strict enforcement.

We are pleased that these diverse organizations have come together and created a standard that moves the industry towards improved sustainability and social justice.  While we will continue to examine the long-term risks, this gives us an entry point to consider investment in this increasingly important segment of the global food system.

Christian is Portfolio 21's Research Assistant.  He works with the investment management team on both internal and external research projects. He is a graduate of Harvard University and is studying for his CFA certification.

Post categories: climate change, deforestation, food, global warming, palm oil, socially responsible investing, sustainable investing

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