How Green Century Does Shareholder Advocacy – Engaging Indonesian and Malaysian Palm Oil Producers
Green Century has been working to end the needless deforestation caused by unsustainable palm oil production since 2012 – and we’ve had a lot of success. We’ve helped secure zero-deforestation commitments from key purchasers, including Conagra,* Target,* and Kellogg,* which now sources 99% of its palm oil from RSPO members.
It’s hard to overstate the importance of forest protection in the effort to combat climate change, given that forests hold as much as 45% of the world’s carbon stored on land. Of course, stopping deforestation also is key to preserving habitats for endangered species and mitigating potential financial risks for investors.
Palm oil is the most widely used vegetable oil in the world, and it is one of the leading drivers of tropical deforestation. It can be found in products from packaged food to soap to detergent to biodiesel. And global demand for palm oil is growing, which means growing more palm oil. Increased palm oil production can come either from investing in oil palm plants that have higher oil yields or from expanding the land on which palm oil is grown.
Many of the companies investing in these higher-yielding plants are doing so because they’ve seen the value in mitigating deforestation in their supply chains. These companies see a sustainable palm oil supply chain as the future of the industry. In recognizing the benefits of sustainable supply chains, over 470 companies and 11 of the 15 largest palm oil refiners in Southeast Asia have made commitments to curb deforestation in their supply chains.
Unfortunately, the environmental, financial, and, frankly, moral, imperative is not yet universally recognized.
Despite these commitments, deforestation persists in the industry. This is due to a variety of reasons: from the limited integration of small farmers into no deforestation efforts to downstream companies accepting palm oil products derived from deforestation to investors and lenders continuing to provide financial support to companies that cause deforestation.
To help transform the entirety of the industry, we need to increase the global demand for sustainable palm oil, by mobilizing buyers and traders to incentivize producers to adopt sustainable production practices. That’s why Green Century has worked and continues to engage downstream companies to adopt No Deforestation, No Peat, and No Exploitation (NDPE) commitments and to get others to strengthen and expand their forest-related commitments.
Engaging producers directly about the expectations of international markets is another way to put pressure on producers to adopt NDPE practices.
While in Southeast Asia, I had the opportunity to do just this. I met directly with five palm oil companies and engaged with them on their growing practices, urging them to improve their practices around three primary issues:
1. Sustainable certification,
2. Zero deforestation commitments, and
3. Transparency about where companies grow and process their palm oil and from who they source it.
While in Southeast Asia, I also learned about some of the “supply-side” efforts, including notable actions to improve the governance in palm-oil production areas, taking place to make the palm oil industry more sustainable.
While in Malaysia, I attended the annual conference for the Roundtable for Sustainable Palm Oil (RSPO), the largest third-party certifier for sustainable palm oil. At the RSPO conference, Deputy Chief Minister of Sabah Wilfred Madius Tangau highlighted government policies for sustainable palm oil in Sabah, a prime palm oil producing province in Malaysia. Sabah is committed to producing deforestation-free soy by 2025 and that all palm oil from the region will be 100% RSPO certified by the same year.
While industry players have different views on whether this “jurisdictional approach” is the best way forward, to me it suggests progress and that corporate commitments influence more than the company’s supply chain, helping to change the physical and legislative landscape for tropical forests. This is just another way that Green Century’s work is having an outsized impact on making our world a little greener.
*As of December 31, 2018, Target Corporation and Kellogg Company comprised 0.74%, 0.00%, and 0.00% and 0.00%, 0.15%, and 0.00% of the Green Century Balanced Fund, the Green Century Equity Fund, and the Green Century MSCI International Index Fund, respectively. Other securities mentioned were not held in the portfolios as of December 31, 2018. References to specific securities, which will change due to ongoing management of the Funds, should not be construed as a recommendation by the Funds, their administrator, or the distributor.
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