Apollo Investment Management

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.

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

Operational disclosures for plantation & forestry companies
- recommended minimum
- on a consistent basis, updated annually, tabulated with comparative data for prior years.
  Name, location, size, licence (date obtained, years remaining in lease or licence period)
  Current status of all land held: concession / plantation / pending development / other
  Breakdown of landbank by soil type and forest stocking (tree density)
  Name, location, size, licence (date obtained, years remaining)
  Amount harvested from the concession
  Harvesting permits
  Estimated standing stock / density
  Levies paid
Plantations (crop or forest):
  Name, location, size, licence (date obtained, years remaining)
  Breakdown of area by terrain and soil-type
  Net plantable area
  Land area cleared in reporting period
  Land clearing permits
  Planting activity: hectares planted for each crop
  Breakdown of stands by maturity³
  Area harvested
  Realised harvest volume and yield
  Levies paid
Log production:
  Logs from selective harvesting
  Logs from land clearing
  Logs from plantations
  Logs from other sources, with description


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

  1. In 2010 Indonesia introduced its own Timber Assurance Legality System (SVLK), a national alternative to the more stringent criteria of the Forest Stewardship Council. The EU ratified a Voluntary Partnership Agreement (VPA) based on this system in February 2014, but meanwhile SVLK standards have been progressively watered down. In addition, there are many issues surrounding implementation. Certificates have been issued to concessions involved in court-convicted corruption, and independent monitoring bodies are not being given the access needed to do their work. Data that should be in the public domain are not. A scathing report issued by a coalition of NGOs highlights the following shortcomings:

    • Since its inception the SVLK standard was weakened repeatedly.
    • SVLK certifies operations which are not in compliance with various government regulations.
    • SVLK certifies operations which are not sustainable.
    • SVLK certifies operations which may source illegally and/or unsustainably produced timber from other companies.
    • SVLK certified companies had serious legality and sustainability issues in their forestry operations
    • Independent monitoring of the SVLK process has not been effective.

    - and concludes that the system is ineffective in excluding timber related to corrupt practices, natural forest clearance harming indigenous communities and critically endangered species, peatland drainage and burning; and that certified processed products like pulp or paper may have been sourced from any type of illegal and/or unsustainable operation.

    WWF's punchy press release is here; the full report is entitled SVLK flawed: an independent evaluation of Indonesia's timber legality certification system'.

  2. percentage of plantation area planted in each year  

    To save readers from overlooking data reported in different places, information from the RSPO ACOP should be added, including the number of strategic operating units certified, the number yet to be certified, and the date by which this is to be achieved.

  3. The most helpful graphic display of the age profile for a plantation group, and for each strategic operating unit of estates and mills, is the format shown on the right. Shown here is an ideal steady-state plantation with a 25-year replanting cycle. If there are years for which the percentage is significantly higher than 4%, the implications for bunched replanting requirements and mill throughput variation are apparent at a glance.

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