© WWF-Malaysia / Mazidi Abd Ghani

THE ROLE OF GOVERNANCE
IN PRODUCER COUNTRIES

There has been major progress on transformation of the palm oil industry –
but significant challenges remain.

In the last 10 years, in the face of greater transparency, closer scrutiny and continual criticism, the palm oil industry has started to change. Since 2009, this progress has been charted by the WWF Palm Oil Buyers Scorecards. And the results of this 2016 Scorecard confirm that leading parts of the industry have made genuine steps toward the transformation of their own practices.

More than 3,000 companies are now members of the RSPO. Close to a fifth of the world’s palm oil is produced to the RSPO standard, with 6 million tonnes being bought and claimed as CSPO by brands across the world. Up to 80% of European and even US use of palm oil is being met by CSPO. Recently, some commentators were declaring that 90% of the world’s palm oil is covered by a no-deforestation commitment.

The RSPO has also kickstarted change that in some cases has gone even further than originally envisioned. There has been a wave of commitments by many global brands to eliminate deforestation from their supply chains; several of the major palm oil producers and traders have committed to zero deforestation, zero peat and zero exploitation; and we’ve seen sustainability platforms develop among producing companies, local NGOs and brands. The Palm Oil Innovation Group (POIG) has come together as a coalition of innovators and has already succeeded in encouraging the RSPO to develop its NEXT version of the standard for sustainable palm oil.

SO IS THE JOB DONE?

Well, not quite. Despite this progress, deforestation is still happening at an alarming rate. Palm oil in Southeast Asia is growing at half a million hectares a year – and almost half of that is on forest land. In 2015, fires in Kalimantan and Sumatra cleared 2 million hectares of land and forested areas and created critical health issues in Indonesia, Singapore and Malaysia. Conflicts with communities and the workforce continue to hold back the industry’s progress.

So if companies are doing what we ask of them, and in some cases making their own commitments to go even further, why do the problems still persist?

BARRIERS TO CHANGE

The reality is that, despite their best intentions, innovators can only take things so far. The industry may be dominated by a handful of massive global players with headline-grabbing commitments to no deforestation, but it is built on a foundation of thousands of small and mid-sized companies and millions of independent smallholder producers. And unfortunately, those foundations are often illegal and unsustainable. Until the whole industry changes, commitments at the top will have only a limited impact on the ground.

At the same time, limits to change are also being imposed by the very authorities who should be setting policies and regulation to make the industry more sustainable. Rather than welcoming the sustainability efforts of individual companies and industry coalitions, the governments of Indonesia and Malaysia have been sending mixed messages. On the one hand, Indonesia has extended its moratorium for new palm oil developments on peat and even established an agency to restore degraded peat area. On the other, it recently put pressure on leading producers to roll back some of their more progressive developments, such as the Indonesia Palm Oil Pledge (IPOP), because it saw them as inherently critical of the rest of the industry. This pressure led to IPOP’s demise in 2016.

Both Indonesia and Malaysia have introduced national certification schemes based on legal compliance in an attempt to eliminate the worst practices within their industries. But at the same time the Malaysian authorities are blocking the RSPO from collecting and publishing maps of landbanks controlled by the large industry players – an essential element of transparency.

Unfortunately it is not just mixed messages that are holding back progress. WWF’s work shows that a lack of enforcement means that independent palm oil producers are free to illegally clear protected land. Systemic governance weaknesses undermine the progressive actions of some parts of the industry to eliminate deforestation from the global supply chain.

IS IT TOO LATE FOR PALM OIL?

So it is hardly a surprise that global brands and progressive producers working within this environment are failing to implement their own commitments to end deforestation. Not only must they try to persuade thousands of other stakeholders to change, but they are doing so in a climate where change is unsupported and sometimes actively undermined by governments.

Ultimately, it seems unclear whether the countries where the most palm oil is produced can truly visualize the future of their industries without deforestation. Unless this changes, responsible parts of the industry will inevitably decide that the risk of doing business under such conditions is not worth the rewards. We can already see this happening in the US and parts of the European market where some companies are choosing to substitute palm oil with other edible oils.

If this industry is going to stop deforestation then it urgently needs governments to play their part. The fundamental truth is that the absence of good governance has created a “Wild East”, which is exploited by the unscrupulous and which constrains the more responsible parts of the industry. This has to change.

Despite the progress, deforestation is still happening at an alarming rate. Palm oil in Southeast Asia is growing at half a million hectares a year – and almost half of that is on forest land.

BRINGING GOVERNMENT TO THE TABLE

We cannot afford to ignore the truth and simply pretend that everything is fine. However, the answer is not more knee-jerk criticism by the authorities of NGOs, the RSPO or even those responsible industry players who are exposing poor practices. But neither is it a good idea for consumers or international brands to boycott palm oil.

Instead, the answer is to create a level playing field where unsustainable practices are eliminated and every company is allowed, encouraged, supported and maybe even forced to act responsibly. This will only happen if governments collaborate with the innovators.

One ray of hope for closer company-government working is the emergence of the "Jurisdictional Approach", which focuses on the governance capacity of a particular region and provides some framework around good governance as a market requirement for palm oil. This approach is taking root in the Malaysian state of Sabah and the Indonesian province of Central Kalimantan, where the governments are working together with key stakeholders to implement pledges that all palm oil produced must meet RSPO certification standards. Bringing government to the table is galvanizing both large multinational plantation owners and smallholders to engage.

WWF co-founded the RSPO in 2004 because we saw the potential within the industry to change. To date that change has been driven by the market and the companies themselves. This Scorecard measures that change – but it also highlights that corporate change alone is no longer enough. The industry leaders are reaching the limits of how far and how fast they can progress. Although there is considerable scope for other companies to match their efforts, we are not convinced that the next 10 years will see enough further progress to end deforestation without governments changing too.

WWF asks companies that use palm oil to engage with governments in producer countries, both at the national and jurisdictional level, asking for a level playing field that eliminates unsustainable practices and mandates responsible production. Industry leaders must work together with governments to make this happen. What’s at stake are some of the world’s most valuable forests, and the species and people that depend on them as well as the long-term viability of the palm oil business and the economic benefits it brings to producing countries.