To say that palm oil is popular would be an understatement.

Palm oil’s long shelf-life makes it one of the most widely used vegetable oils in the world; found in nearly 50% of the packaged products available in supermarkets, from pizza to chocolate, deodorant to lipsticks. It is also utilised in animal feeds and used as a biofuel in many parts of the world.[1]. The majority of us use palm oil on a daily basis without even realising it.

Palm oil plantations cover more than 27 million hectares and produce more than 70 million tonnes of palm oil annually. That is an area bigger than New Zealand, generating double the amount produced just twenty years ago.[2].

Palm oil production: cost to the environment

Forest fires across Malaysia and Indonesia and the resultant haze over many parts of South East Asia, has forced the global community to confront the unsustainable nature of many palm oil producers. Despite the integral role it plays in our daily lives, palm oil attracts considerable controversy due to the environmental and ethical issues surrounding the development, operations and management of plantations.

The demand for palm oil has led to the proliferation of plantations in Indonesia and Malaysia, but with forests burned to obtain land, smog pollution and rising levels of CO2, it has often been at the expense of local ecosystems. Other controversial elements of the process include the treatment of a significant portion of the labour force, with harsh working conditions and low pay.[3].

If palm oil production continues to cause unconstrained deforestation, the destruction of biodiversity and the production carbon emissions, the industry is likely to seal its own fate.

Palm oil in itself is not a harmful substance. The damaging effects for our global community largely stem from abuses surrounding the production process. Arguably, a positive way to contribute to the sustainability of the sector is carefully investing in funds whose managers respect the need to support companies who are obtaining their palm oil from sustainable sources. Advocates of this active engagement approach include non-governmental organisations such as the World Wildlife Foundation (WWF).

Discontinuing palm oil production is not a viable solution and, given its comparably high yield and the growing global population, ensuring sustainable palm oil production could provide significant benefits.

For many local communities and rural economies, palm oil has become a major source of income.[4]. Aside from benefitting society and the environment, the adoption of sustainable palm oil practices will also benefit palm oil companies, as they will have increased access to global markets and commercial opportunities, whilst also securing their own reputations. Ultimately, for businesses the implementation costs are a short-term sacrifice for long-term price premiums via stronger operational controls, reduced inputs and increased yields.[5]

An encouraging number of companies have made the commitment to source palm oil sustainably, but with a vast and complex supply chain, palm oil supply chains are difficult to trace and certify. One of the world’s largest buyers of palm oil is Unilever, who buy 1 million tonnes of crude palm oil and around 0.5 million tonnes of palm kernel oil and other derivatives every year for use in their products.[6]

Increasing accountability and transparency

Unilever recognised the need to change the wider industry and increase accountability and transparency in supply chains. The rising demand for this change helped pioneer the Roundtable on Sustainable Palm Oil (RSPO), the only globally recognised certification standard to drive sustainable production in 2004.

RSPO involves both growers and buyers as well as influential organisations, non-profit groups, mill operators and commodity traders.[7].  Unilever itself has pledged to source all of its palm oil from sustainable sources by the end of 2019 and by 2017, 56% of its volume of palm oil was from certified sources with 78% traceable.

Unilever’s efforts meant that in 2016, WWF awarded the company with a score of 9 out of 9 for its work towards their target and Greenpeace commended the company for its transparency. Unilever is held within one of our global funds in the LGT Vestra Sustainable Model Portfolios.

 

Progress on palm oil

Source: Unilever, Transforming the Palm Oil Industry

[1] 8 Things to know about palm oil

[2] Transforming the palm oil industry

[3] Palm Oil and your Investment Portfolio (p2)

[4] Sustainable Palm Oil?

[5] Palm Oil Investor Review: Investor Guidance on Palm Oil

[6] Ibid

[7] RSPO website

 


This article was created for the DISCUS website by Olivia Woodhead, Sustainable MPS Investment Assistant at LGT Vestra. You can find out more about their investment services on the LGT Vestra dedicated page