Rewarding reform: How innovative practices are greening Indonesia’s palm oil sector

PRESS RELEASE: Case studies show it is possible for palm oil firms to be profitable while curbing social conflict, cutting greenhouse gas emissions and protecting forests. But more needs to be done. Download the full report here. 

JAKARTA, 12 Feb 2014 – The narrative around Indonesia's palm oil industry is usually one of destruction of tropical rainforest, conflict with local communities and loss of habitat for orangutans. But growing numbers of palm oil companies have found that being socially and environmentally responsible can be profitable and help reposition themselves to win new customers and markets, a study released today shows.

The study looks at six palm oil companies operating in Indonesia whose investments illustrate how new practices are being adopted to cut greenhouse gas (GHG) emissions, improve livelihoods of small holders supplying company mills and improving yields to make greater use of existing land, potentially easing pressure to clear more rainforest. Indonesia is the world's largest palm oil producer.

The study, Best Management Practices in the Indonesian Palm Oil Industry, by Daemeter Consulting, underscores a shift underway in palm oil towards more responsible production. Pressure from NGOs, governments, investors and consumers are key drivers of change but companies are also realizing that agricultural land is finite, conflict and land grabs are bad for supply chain stability and that going green is a good way to reassure customers concerned about impacts of palm oil.

"Sustainability is increasingly seen by industry as a source of innovation and growth rather than simply risk management. These trends should be rewarded and strengthened," said Gary Paoli, Director of Research and Project Development at Daemeter and the report's lead author.

The report was not funded by industry. Support came from a group of U.S. foundations whose work promotes deforestation-free supply chains and active engagement with the palm oil sector.

The report does not imply supply chain-wide endorsement for the companies profiled. Rather, it aims to recognize their efforts in the areas highlighted, the authors say, which reflect years of planning, partnership and investment. Much of the information in the case studies is not widely known outside the industry, and in some cases outside the firms themselves, said Paoli. Laying groundwork for learning networks around good practices is a major goal of the study.

Companies highlighted include REA Holdings PLC, applying tools to measure and reduce GHG emissions across the palm oil production process; PT Inti Indosawit Subur, implementing a system of financial and technical support for thousands of small-holder farmers, boosting incomes and yields; and PT Astra Agro Lestari, whose strategic approach to CSR supports entrepreneurial farming and creates shared value with local communities.

"We see monitoring our carbon footprint as a tool to drive greater efficiency in our management practices and at the same time identify opportunities to reduce further our GHG emissions. It's been a challenging process, but we recognize this is an area of concern for our stakeholders and that a greater level of transparency is needed," said Sophie Persey, Group Sustainability Manager of REA Holdings.

Also profiled is the U.S. agricultural giant Cargill, which developed practices to boost palm oil yields and cut fertilizer use. Cargill's practices were found to work well even on degraded land and could, if adopted by industry, reduce pressure to clear more forests. Wilmar International, the world's largest palm oil trader, is highlighted for its leadership in developing tools and partnerships to conserve biodiversity within plantations through maintenance of wildlife corridors and critical habitats for threatened species. Musim Mas is featured for its leadership in applying Zero Waste practices, especially methane capture facilities, to reduce GHGs and related environmental impacts.

"Our results demonstrate the greater potential of palm oil which is already the world's most productive oil crop," said John Hartmann, Chief Executive Officer, Cargill Tropical Palm Pte Ltd. "It's a fact that the world population will increase, placing massive pressure on remaining land to meet growing energy and food demand. It's an issue that concerns humanity, which is why we supported this study to demonstrate that the palm oil industry can boost oil output through implementing best management practices alone, relieving pressure for land conversion and reducing our industry's carbon and chemical footprint."

The case studies underscore diverse motivations among companies adopting good practices, ranging from a realization that the industry is changing or that it is good for the bottom line, to the logic of tackling recurring problems such as poor relations with suppliers and NGOs or because top leadership has embraced a progressive vision for sustainability.

Dr. Gan Lian Tiong, Group Head of Sustainability for Musim Mas, said "When we started the project, our primary motivations were our President Director's commitment to mitigate the environmental impact of our operations and the opportunities that can be derived from sustainable practices. We find that our customers prefer to work with us, because our project helps our customers to lower their products' carbon footprint."

But while the case studies highlight positive examples, much needs to be done to achieve Indonesia's vision for the sector as a high-growth, low-impact driver of the economy, the authors say.

"Indonesia's highly decentralized governance of oil palm affords companies wide latitude to shape their impact footprint. Wider use of due diligence by producers to avoid licenses in environmentally or socially sensitive areas, and greater scrutiny in lending decisions by financial institutions, must be encouraged to direct future investments onto low-impact areas," noted Paoli.

Simon Siburat, Group Sustainability Controller for Wilmar, agrees but cautions that companies cannot do it alone. "Business will lead the way through voluntary action, but to transform industry as a whole, government policy must be more supportive, civil society must be a partner as much as a watchdog, and the market must reward good practice to broaden its appeal to more producers. Without these building blocks in place, industry will improve but not at the pace we hope for."

The full report of Best Management Practices in the Indonesian Palm Oil Industry can be downloaded here.