Geopolitics

Global Investors Call For Stronger Standard From Sustainable Palm Oil Certification Group

With the impending release of the new five-year standard, 91 investors with $6.7 trillion in AUM urge stronger protections for forests, human rights

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Q2 hedge fund letters, conference, scoops etc

Sustainable Palm Oil
tristantan / Pixabay

BOSTON - More than 90 institutional investors representing more than  $6.7 trillion in assets under management called on the Roundtable on Sustainable Palm Oil (RSPO) to strengthen its draft standards for certifying the sustainable production of palm oil, a key ingredient found in nearly 50 percent of all packaged goods, from cosmetics to candy.

In a letter sent earlier this month to the RSPO, investors voiced their concerns over the group’s relevance and effectiveness and the current disconnect between leading corporate policy commitments and the RSPO’s Principles and Criteria Guidance. The investors outline specific recommendations to help bridge the gap.

“Our investment portfolios include companies that have significant exposure to deforestation risks and therefore, have made robust no-deforestation policies and strong commitments to sourcing sustainably certified palm oil,” the investors wrote. The letter, coordinated by the sustainability nonprofit organization Ceres, urges the certification body to include stronger provisions for protecting high carbon stock forests, peat soils and the human rights of plantation workers. The RSPO is preparing to release its new guidance in November 2018. It will help to guide "sustainable palm oil production" for the next five years.

The RSPO, a multi-stakeholder sustainability certification body for the palm oil industry, is tasked with providing assurance that palm oil has been produced sustainably, but has faced mounting pressure in recent years to strengthen its standards and enforcement. The current draft standards do not include robust protections for peatlands, high carbon stock forests and labor concerns – such as children’s and worker rights. 

“To move from policy commitments to implementation, companies need assurance that their palm oil supplies are deforestation-free,” said Julie Nash, Director, Food and Capital Markets at Ceres. “Without that their businesses are vulnerable to reputation and market risks. This new guidance has the opportunity help companies implement no deforestation pledges, but it must meet industry norms for zero deforestation.”

Nineteen percent of the world’s palm oil is currently RSPO certified.

“We want the RSPO to succeed,” said Adam Kanzer, Managing Director of Corporate Engagement, Domini Impact Investments LLC. ”Companies, investors, consumers and local communities will all benefit from a single gold standard for sustainable palm oil.  Investors strongly support many of the proposed amendments to the P&C, but more work is needed to bring RSPO standards into compliance with corporate NDPE commitments, as well as relevant ILO Conventions on child labor. Questions also remain about the RSPO’s audit processes and grievance mechanisms. We look forward to working with the RSPO and its members to help ensure the market receives the reliable assurance it requires.”

The rapid expansion of the $37 billion palm oil industry has contributed to the destruction of rainforests, drainage of carbon-rich peatlands, and land conflicts with local communities. Palm production continues to be a leading driver of deforestation – which causes 10 percent of global greenhouse gas (GHG) emissions. In fact, new data from the University of Maryland indicates that last year was the second-worst on record for tropical tree cover loss.

The timing of the RSPO standards review is especially relevant as companies strive to achieve their zero deforestation commitments by 2020, and governments seek to meet international pledges to reduce greenhouse gas emissions in line with the Paris Agreement.

"Strengthening the RSPO standards is vitally important,” said Beth Richtman, CalPERS managing investment director, sustainable investments. “Without stronger standards, deforestation and land rights abuses could continue in palm oil production leading to financial risks for investors. Without stronger standards, companies trying to lower their risk and improve the sustainability of their supply chains are operating in the dark.  RSPO needs to be the bright light that incentivizes and guides the palm oil industry into one that is truly sustainable in all meanings of the word.”

Specific recommendations in the investor letter include:

  • A ban on cutting down and planting on High Carbon Stock forests (as defined by the HCSA) and development of management plans for the conservation of HCS forests;
  • Revised definition of peat soil and guidance on phasing out development or replanting on peat soils.
  • Procedures and mechanisms to ensure protection of human rights defenders from threats, intimidation and/or violence, aligned with the UN Declaration on Human Rights Defenders;
  • Alignment with the Free and Fair Labor in Palm Oil Production Principles and Implementation Guidance, published by a broad coalition of NGOs.

“Investors and the companies in the palm oil supply chain are looking to the RSPO to catch up to the current state of play in the industry,” said Leslie Samuelrich, President of Green Century. “Without meaningful standards, companies will be forced to develop alternative paths for verification. Strengthened standards will benefit RSPO members, investors that support these members, and the environment.”

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Investor Letter

August 1, 2018

Re: RSPO Principle’s and Criteria Review, ESG Factors for Integration in 2nd Consultation Dear Principles and Criteria (P&C) Review Task Force,

We, the undersigned investors representing $6.7 trillion in assets under management, are writing to encourage the adoption of a robust and effective standard for sustainable palm oil production during the 2018 Principles and Criteria review period. This review process and outcomes – which will set the standard for the next five years – is a critical opportunity for the RSPO to build credibility and expand sustainable practices.

Our investment portfolios include companies that have significant exposure to deforestation risks and therefore, have made robust no-deforestation policies and strong commitments to sourcing sustainably certified palm oil. As such, both investors and companies rely on the RSPO to ensure reliable supplies of verified sustainable palm oil. We strongly support the RSPO’s mission and the central role of RSPO certification in the industry.

However, we are concerned with the current disconnect between leading corporate policy commitments and the RSPO standard. Many of these policies and standards push best practices beyond the RSPO, including “No Deforestation, No Peat and No Exploitation (NDPE)” commitments. Others, which are not currently included in the P&C draft, include using the High Carbon Stock Approach (HCSA) methodology to determine appropriate areas for expansion, hiring a permanent non-casual workforce, ensuring a zero tolerance policy for retention of worker passports, and banning paraquat and other harmful pesticides. We are concerned that the RSPO’s relevance and effectiveness will be significantly impaired without the inclusion of these principles in the final stages of the Principles and Criteria revision.

We understand the Task Force is aware of this dynamic and we commend the inclusion of additional critical elements in the revised second draft. These improvements include 1) defining high carbon stock forests through HCSA, 2) requiring companies to report location of peat soils to the RSPO Secretariat and the use of drainability assessment procedures to determine viability of replanting on peat, 3) increased restrictions on use of paraquat and, 4) additional direction on protections for human rights defenders.

We urge you to maintain these elements. However, significant shortcomings remain that materially weaken the P&C. We offer the following recommendations to remedy these areas:

Protecting High Carbon Stock (HCS) Forests and Land

  • A ban on cutting down and planting on High Carbon Stock forests (as defined by the HCSA) and development of management plans for the conservation of HCS forests;
  • The application of HCSA in high forest cover landscapes should align with the consensus position of the HCS Approach Steering Group in these landscapes, creating a unified approach to the application of “no deforestation” in high forest cover landscapes rather than proposing a weakened system and competing set of guidance and standards in those landscapes. Language in the current draft is considerably weaker, and undermines the HCSA Steering Group’s position;
  • A greater focus on community co-management and monitoring of HCS forest conservation to ensure inclusion (to also be checked in the auditing process);
  • Revised definition of peat soil, and offer guidance on a phase-out of development on peat soils and replanting on peat (and associated reporting on peat).

Mandating Traceability and Mapping

  • Language requiring public disclosure of concession maps in digital format;
  • The RSPO should not certify palm oil from lands taken through eminent domain.

Protecting Human Rights and Labor Concerns

  • The existence of procedures and mechanisms (not just policies) that ensure the protection of human rights defenders from threats, intimidation and/or violence, aligned with the UN Declaration on Human Rights Defenders;
  • Guidance for living wage aligned with the Global Living Wage Coalition (GLWC);
  • Zero tolerance for retention of identification documents;
  • A complete ban on the use of paraquat;
  • Alignment with the Free and Fair Labor in Palm Oil Production Principles and Implementation Guidance, published by a broad coalition of NGOs.

In addition to improvements to the P&C, investors are keenly interested in making sure the RSPO has robust accountability systems that support certification, including improvements that ensure an expedient and credible complaints mechanism that actively enforces standards when companies are non-compliant. This should also include the enforcement of consistent sanctions against member companies if they or their related entities violate RSPO Principles and Criteria and Code of Conduct.

Thank you for your leadership on these issues and your consideration of these concerns and suggestions. Please direct your response to Siobhan Collins, Manager, Food and Water Program at Ceres (collins@ceres.org, 617-247-0700 ex. 181), who is coordinating this engagement on behalf of the participating investors and will communicate your response to the undersigned.

We look forward to hearing from you in the coming weeks.

Sincerely,

Accrued Equities

Adrian Dominican Sisters, Portfolio Advisory Board

Aegon Asset Management

Alquity Investment Management

Andra Ap-fonden (AP2)

AP4 (Fourth Swedish National Pension Fund)

APG Asset Management

ASR Nederland N.V.

Australian Ethical Investment

Aviva Investors

Batirente

Boston Common Asset Management

Brunel Pension Partnership Ltd

California Public Employees’ Retirement System (CalPERS)

Calvert Research and Management

Central Finance Board of the Methodist Church

Christopher Reynolds Foundation

Clean Yield Asset Management

Conference for Corporate Responsibility of Indiana and Michigan

Congregation of Sisters of St. Agnes

Congregation of St. Joseph

Committee on Mission Responsibility Through Investment of the Presbyterian Church U.S.A.

Dana Investment Advisors

Daughters of Charity, Province of St. Louise

Dignity Health

Domini Impact Investments LLC

Earth Equity Advisors

EdenTree Investment Management Limited

Environment Agency Pension Fund

Epic Capital Wealth Management

Epworth Investment Management Ltd.

Ethos Foundation Switzerland

Etica Sgr – Responsible Investments

Everence and the Praxis Mutual Funds

First Affirmative Financial Network

First Swedish National Pension Fund (AP1)

Franciscan Sisters of Perpetual Adoration

Friends Fiduciary Corporation

Generation Investment Management

GES International

Green Century Capital Management

Hermes EOS

Hexavest

JLens Investor Network

Karner Blue Capital, LLC.

KBI Global Investors

Le Regroupement pour la Responsabilité Sociale des Entreprises (RRSE)

Local Government Super

M&G Prudential

Maryknoll Sisters

Mennonite Education Agency

Mercy Investment Services, Inc.

Midwest Coalition Responsible Investment

Miller/Howard Investments, Inc.

Mirova

Natural Investments

NEI Investments

New York City Office of the Comptroller

New York State Common Retirement Fund (Patrick Doherty)

Newground Social Investment

NN Investment Partners

NorthStar Asset Management, Inc.

Northwest Coalition for Responsible Investment

Ostrum Asset Management

Pax World Funds

Raiffeisen Capital Management

Region VI Coalition for Responsible Investment

Responsible Investment Advisors

Robeco

School Sisters of St. Francis

Seamans Capital Management

Seventh Generation Interfaith Inc.

Sisters of Charity, Halifax

Sisters of Saint Joseph of Chestnut Hill, Philadelphia, PA

Sisters of St. Dominic/Racine Dominicans

Sisters of St. Francis of Philadelphia

Sisters of the Good Shepherd

Sisters of the Presentation of Aberdeen SD

Skandia

Skye Advisors

Socially Responsible Investment Coalition

Stardust

Stewart Investors

Sumitomo Mitsui Trust Bank

The Sustainability Group of Loring, Wolcott & Coolidge

Tredje AP-fonden AP3

Trillium Asset Management

Trinity Health

Unitarian Universalist Association

Walden Asset Management

Zevin Asset Management