Considering oil palm plantations

In recent years I have paid little attention to the plantation sector, despite its importance to several Southeast Asian economies and to the global food supply. The rapid expansion of the sector has caused justifiable concern on deforestation (we now have very little rainforest left), land acquisition (what happens to the former owners), the biodiversity lost to the monoculture (what happens to the orangutans and other wildlife), and the direct environmental damage (from fertilisers, pesticides, and peat burning). The industry is now often vilified, but it will not be intentionally downsized - and since it is now by far the world's largest source of edible oil, and yields far more oil per hectare than any other crop, we must hope that biological threats never prove serious. Apollo Asia Fund has no investments in plantations at present, but if I were considering them, or running a large global fund that had to invest in the sector, I would wish to be environmentally discriminating, and this is how I would begin to screen the companies.

• Invest only in members of the Roundtable on Sustainable Palm Oil, RSPO
  - check the list here. Probably most listed companies are members, but Astra Agro Lestari is one striking exception.


• Check that the company has been submitting its Annual Communications of Progress
  - supposedly mandatory, but Genting Plantations and Tradewind Plantations are among those that have not.


• Check what the ACOPs say
  - Boustead Plantations has only 4 of its 50 estates certified. QL Resources provides none of the statistics requested and says its reasons for non-disclosure are confidential. While scheduled to achieve 100% RSPO certification of its estates in 2015, it says it has no plans for action to achieve this.


• Monitor the RSPO complaints board
  - complaints, responses, and the status of investigations are publicly posted.
  Equatorial Palm Oil is a joint venture partner and 20% associate of Kuala Lumpur Kepong.


• Request thorough public disclosure of key statistics
  - our list of recommended disclosures is below.


• Engage the companies directly, and ask questions
  - especially on land acquisition and development, any labour and community grievances, responses to climate change and to other challenges.


• Keep thinking
  - additional criteria may be appropriate.

There seems to be a trend towards relying on certification by third parties, which is understandable for customers and investors wishing to find simple solutions to complex issues, but has some dangers. The scope of certification is often much more limited than most readers realise. Some companies use RSPO and other organisations quite cynically, to satisfy many questioners while deflecting attention from core issues. Golden Agri-Resources for example publicizes sustainability efforts which are focused on its existing pre-2010 estates, and diverts attention from the key issues relating to its expansion and deforestation. It aims to get two minor end-products RSPO-certified, while not disclosing its usage of non-certified CPO and palm kernel. Its ACOP is riddled with non-disclosures that make one wonder about the company's commitment to the move towards sustainability.

Certifying organisations which are well intentioned at startup may be rendered ineffective over time by new conflicts of interest, or bureaucratic drift: new challenges may be inadequately taken into account. A reliance on certification also sets up a vulnerability to corruption. The forestry sector provides ample examples of the limitations of certification schemes.¹

For all these reasons, public disclosure and transparency are highly desirable. Reported data may then be scrutinised, and new questions asked. Few companies currently report adequately. Even if they did, an organisation like RSPO also has great value: it can bring sector expertise to bear, and the eventual threat of sanctions or expulsion. A three-pronged approach seems optimal for investors:

Our recommendations for minimum standard disclosures by forestry and plantation companies were accompanied by some further discussion and detail when first published in January 2013 under the title 'Gaps in the canopy'. That list was as follows.²

Claire Barnes, 20 June 2014
with a great deal of help from Masya Spek