Investors Worth Over $6.7 Trillion Call for Stronger Palm Oil Standards

Institutional investors are calling on the largest certification body in the palm oil industry to strengthen its sustainability standards for the ingredient, which is now used in nearly half of all consumer packaged goods (CPG).

More than 90 investors, collectively managing over $6.7 trillion in assets, sent an open letter to the Roundtable on Sustainable Palm Oil (RSPO) last week—asking the multi-stakeholder certifier to beef up its production standards and enforcement. The letter reflects what these investors call a “disconnect” between corporate zero-deforestation commitments and the RSPO’s Principles and Criteria Guidance, which certifies palm oil as “sustainable” if it meets certain standards.

Up to $941 billion in assets worldwide are linked to commodities tied to deforestation, according to a 2017 report from CDP. Such a massive figure put companies and their investors on notice, and a host of major corporates have pledged to root out deforestation from their supply chains—which includes, among other things, sourcing sustainable palm oil.

“Our investment portfolios include companies that have significant exposure to deforestation risks and, therefore, have made robust no-deforestation policies and strong commitments to sourcing sustainably certified palm oil,” the investors wrote in their letter, coordinated by the sustainability nonprofit Ceres.

The group of hedge funds, pension funds, faith-based investors and other large asset managers said they’re concerned that the rigor of RSPO’s standards has not kept pace with corporate commitments. Namely, they called on the RSPO to increase protections for peatlands and high carbon stock forests, as well as address labor concerns such as children’s and worker rights.

“To move from policy commitments to implementation, companies need assurance that their palm oil supplies are deforestation-free,” Julie Nash, director of food and capital markets at Ceres, said in a statement. “Without that, their businesses are vulnerable to reputation and market risks.”

RSPO reviews its standards every five years, in accordance with ISEAL best practices, and the investor letter is one of thousands of public comments to its revised guidance, which is set to publish in November. “This new guidance has the opportunity to help companies implement no-deforestation pledges, but it must meet industry norms for zero deforestation,” Nash said.

RSPO ran two 60-day public consultation periods as part of its review process. More than 10,000 stakeholders commented on the first draft of its new guidance. The second-draft review—which concluded on August 2—attracted just as much feedback, if not more, an RSPO spokesperson told Sustainable Brands.

"Our Principles and Criteria review process is designed to allow members and stakeholders alike the opportunity to provide input on proposed updates to our standards,” the spokesperson said. “We welcome this diverse input and encourage it from all groups, including the signatories of the recent open letter. All comments submitted are carefully considered, with final revisions decided according to an inclusive decision-making process.”

The timing of the RSPO standards review is especially relevant as companies strive to achieve their zero-deforestation commitments by 2020 and governments seek to meet international pledges to reduce greenhouse gas emissions in line with the Paris climate agreement, Ceres said.

Deforestation is responsible for 10 percent of global GHG emissions, and the destruction of carbon-rich peatlands is of particular concern. Current RSPO standards allow member companies to clear peat soil where the peat is less than 3 meters deep, Mongabay News reported. The investors asked for a “revised definition of peat soil and guidance on phasing out development or replanting on peat soils,” as well as a ban on clearance in high carbon stock forests.

"Strengthening the RSPO standards is vitally important,” said Beth Richtman, managing investment director of sustainable investments for California’s public pension fund, CalPERS, a signatory to the letter. “Without stronger standards, companies trying to lower their risk and improve the sustainability of their supply chains are operating in the dark.”

RSPO now certifies around 19 percent of the $37 billion global palm oil industry—which is expected to reach up to $92.8 billion by 2021, as the ingredient is increasingly used in consumer goods ranging from foods and beverages to cleaning and personal care products.

While imploring the certifier for stronger production and human rights standards, investors insisted they’re not out to slam the RSPO. “We want the RSPO to succeed,” said Adam Kanzer, managing director of corporate engagement for Domini Impact Investments, another signatory. ”Investors strongly support many of the proposed amendments to the [guidance], but more work is needed to bring RSPO standards into compliance with corporate … commitments, as well as relevant ILO Conventions on child labor.”

Still, the investors warned that the RSPO—now the de facto name in palm oil sustainability certification—could be replaced if it can’t keep pace with companies’ needs. “Investors and the companies in the palm oil supply chain are looking to the RSPO to catch up to the current state of play in the industry,” said Leslie Samuelrich, president of Green Century, another investor signatory on the letter. “Without meaningful standards, companies will be forced to develop alternative paths for verification.”

Image credit: Flickr/Peter Nijenhuis

Editor's note: Since this article was published, we have received a statement on behalf of RSPO:

"Deforestation and carbon stock loss in carbon rich areas such as Latin America, subtropical Asia and Africa are mainly caused by the expansion of intensive agriculture. Palm oil, soy and cattle grazing are among the top drivers behind this expansion. RSPO fully recognizes the challenge of reaching 100% sustainable palm oil cultivation that respects biodiversity, natural ecosystems, deforestation, local communities, and workers in palm oil producing countries.

"We have embarked on a journey to make market transformation a shared responsibility and to find common solutions to issues within the industry. This is mirrored in the governance structure of RSPO, through its multi-stakeholder representation, and through the review process of its Principles and Criteria (P&C)."