Long feature from June 2012

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June 2012 www.ethicalcorp.com
Responsible business in Bangladesh
Garment industry gains ground
Ruggie principles +1
A slow absorption process
Commercialised sustainability
Make cash that counts
The palm oil
challenge
How global brands can secure more sustainable supply

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Ethical Corporation • June 2012 Contents 3
Contents
5 From the editor
EthicsWatch
6 Asia Pulp and Paper
Indonesia gets tough
7 Fishing
Climate chases stocks north
8 Toy supply chains
Hotline helps
9 Rio+20
Reporting on the table
p11 People power p24 Don't get palmed off
10 Mallen Baker
Picking the right fight 31 NGOwatch
21 Peter Knight
Diet debate Burger King and animal welfare
Country briefing: Bangladesh
11 People power 22 CRwatch Strategy and management
Burma bounceback 32 Human rights
13 Slow-moving corporate sector
Ruggie, one year on
16 Social business
24 Palm oil 35 Sustainability commercialised
19 Top-down corruption? Jump out the niche
New look supply chain
38 Social media
When to tweet in a crisis
30 Jon Entine
40 Impact assessment
The science of political divide
The interactive approach
44 China column
Paul French on Chinese brand acquisitions
Review
45 Academic news
46 Report: Shell
47 Report: Lowe’s
48 New books
49 People on the move
COVER IMAGE: JAMES MORGAN
50 Toby Webb
p32 Ruggie rollout p34 Sustainable products get moving Scale up!

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Palm oil
Transforming
business models,
slowly
By Toby Webb
A complex, giant and growing industry needs
some solutions to a lack of sustainability

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Supply chains 25
JAMES MORGAN/WWF INTERNATIONAL
alm oil is an industry on the rise. Worth about £32bn
P a year, it is catching up fast with the £60bn plus
annual global cotton industry. Think about the amount
The RSPO in
numbers
of cotton in the average western wardrobe and you
RSPO represents over 850
get a sense of the reach of these commodities.
member organisations from
According to WWF, more than 50m tonnes of
more than 50 countries.
palm oil are used worldwide each year, in products
Certification according to
from food to cosmetics. From 2010 to 2020, this
RSPO global standards been
volume will increase by two-thirds, according to
granted to 30 plantation
WWF, in a recent report – Palm Oil Investor Review
companies and 146 palm
2012.
oil mills covering an area of
In the report, Darrel Webber, head of the
over 1.2m hectares with
Roundtable on Sustainable Palm Oil, points out that
over 6m tonnes of certified
among the 17 major oils and fats on the global
sustainable palm oil (CSPO)
market, palm oil has emerged as the leader,
in annual production
accounting for about a third of the world’s edible oil
capacity.
production.
Total production of RSPO
That comes at a cost. Webber says: “Between 1990
CSPO today is over 10% of
and 2005 as much as 55-60% of palm oil expansion
global palm oil production.
was at the expense of natural forest.” And the forests
The RSPO trademark is also
destroyed and under threat as a result of oil palm
addressed at educating and
market growth harbour some of the world’s greatest
informing consumers of their
biodiversity.
ethical purchase choices – to
More than £7bn of oil palm investment is
date, the trademark has
currently planned for west and central Africa alone,
been licensed to almost
according to Michael Flint, a well-known
60 companies in over
independent palm oil consultant who has worked for
13 countries.
the UK government.
Source: RSPO statement
Meanwhile, UK households consume 35kg of
to Ethical Corporation
palm oil a year, accounting for about 1% of global
palm oil consumption, with a market value of
somewhere between £500m and £650m.
According to the UK’s under-secretary of state for
international development, Stephen O’Brien, who
spoke at a recent conference on palm oil organised
by The Forest Trust, 43 from the 100 best-selling UK
grocery brands use palm oil. His numbers appear to
have come from a 2009 investigation by the
Independent newspaper in the UK.
Shrinking carbon sinks
As a result of both publicity and a greater under- Companies now
standing of the environmental impacts of greater oil
palm plantation growth, companies now question
question their
their role in the sustainability of the industry and role in the
the remaining forests around the world. These giant sustainability
carbon sinks are being shrunk, with native forest
cleared to become oil palm plantations, particularly of the palm
in Indonesia, elsewhere in Asia, South America and oil industry
Africa.
According to the UK’s Department for
International Development, 13m hectares of forest
are cleared annually. Deforestation is regarded as
being responsible for up to 20% of global carbon
emissions. Stopping it is finally becoming serious
business.
Flint, speaking at the recent Forest Trust
conference, argued that market demand must be
moved if these forests are to be saved. Flint said that
if 62% of UK consumption of palm oil was switched

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26 Supply chains Ethical Corporation • June 2012
MAURI RAUTKARI/WWF-CANON
Trouble at mill: Green Palm travails
Green Palm certificates have not seen widespread corporate take-up, despite the actions of leading
companies such as Unilever, Nestlé, Shell and BP.
According to well-placed industry sources, back in 2009 and 2010, there was a great tension with
farmers in Malaysia and Indonesia who were also members of the Roundtable on Sustainable Palm
Oil (RSPO).
Companies in Europe said they wanted sustainable palm oil, so farmers agreed to major changes as
long as they were paid extra for all the adaptations needed to comply with the RSPO’s principles. Once
they were ready and audits passed, the Green Palm certificates started to be issued at a price of about
$30/tonne.
But to the farmers’ surprise very few were bought. This may have been as a result of the financial crisis
in the EU. As one expert puts it: “With palm oil at $800/tonne nobody wanted to pay an extra cent for a
sustainable product that does not get recognised by customers at the store.”
Saving pristine forest is the aim
Sources say that after a fractious 2010 annual RSPO meeting, where disagreements about sales volumes
and EU company commitment risked bringing down the scheme entirely, other EU companies began to
it fails to encourage the traceability that is essential
commit to buy Green Palm certificates and the system stabilised.
to ensure that palm oil from questionable sources is
But Green Palm’s future is by no means guaranteed. One expert believes that all the Green Palm
excluded from the supply chain.
commitments make a total of about 10m tonnes. That’s about 20% of total production. However, only
Unilever, which buys about 3% of global palm oil
about 5m tonnes worth of Green Palm certificates are available. This means the price should be relatively
production, about 1.4m tonnes a year, helped found
high. It isn’t and only 2.8m tonnes worth have been bought. In late May, a Green Palm certificate could
RSPO in 2004. The company acknowledges that
be bought for $2.19.
certification without traceability has a limited shelf
One cited reason for EU company reticence in buying the certificates they had demanded is internal
life, but defends the RSPO method as an interim step
disagreements within companies. While sustainability and procurement professionals understood the
towards full traceability. Unilever will reach its target
value of paying a small premium to move the industry forward, finance and marketing departments
of buying 100% of its palm oil from certified
may have blocked early moves.
sustainable sources during 2012, three years ahead of
schedule.
to sustainable sources by 2021-22, about 90,000 Unilever spokesman Trevor Gorin says the
hectares of forestry clearance might be avoided company has already bought its first consignments
worldwide. This would mean the prevention of 78m of segregated palm oil. In 2011, 27,000 tonnes was
tonnes of CO2 emissions. These would have a landed in Rotterdam and used across Unilever ’s
present value of £7.3bn, at a cost per tonne of C02e European manufacturing sites.
(avoided) of £3.60. Now the company has set a new target of, by
“We can play around with numbers [on cost 2020, tracing all the palm oil it buys right back to the
benefit analysis] but it’s the financial markets and plantations where it is grown. Unilever has also
market demand [that will make the difference],” Flint announced the company is in advanced stages of
says. He developed the models that generated the discussions with the Indonesian government for
above data for the UK government, which has investing more than €100m in a large processing
committed some £600m to an international climate plant for palm oil derivatives in Sumatra. “This plant
Greenpeace argues fund over the next four years. The Department for will not only reduce transportation requirements and
that Green Palm International Development meanwhile, has said it save money but it will also start to make the palm oil
will stump up an additional £22m to help protect we use easier to trace,” Gorin says.
fails to encourage forestry specifically. So if the leading companies believe RSPO’s
traceability current policies, principles and certification are a step
RSPO and Green Palm on the long journey to full sustainability for palm oil,
Among large multinational companies, working where’s the problem?
towards more sustainable palm oil usually involves As one protagonist at The Forest Trust’s palm oil
supporting the certification work of the fast- conference in London in April put it: “We have to
growing Roundtable on Sustainable Palm Oil, a sort this before we run out of forest.”
Malaysia-based non-profit organisation. In 2007 the United Nations Environment
RSPO’s certified sustainable palm oil programme Programme predicted that for Indonesia,
is complex, and often involves the use of Green Palm “calculations suggest that 98% of lowland forest may
certificates. These allow companies in Europe to buy be destroyed by 2022. Since mature forest is being
certificates issued to show that they are supporting lost from such large areas, the supply of timber will
RSPO-certified palm oil businesses, bypassing the decline further. This means that the incentive to log
need for segregated RSPO-certified palm oil in the protected areas will grow.” (These numbers, now five
supply and transportation chain. years old, are disputed by some experts as being
This approach has come under criticism from exaggerated.)
campaigners such as Greenpeace, which argues that The concern about a limited supply of forest

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Ethical Corporation • June 2012 Supply chains 27
WWF, REPRODUCED IN UNEP'S REPORT THE LAST STAND OF THE ORANGUTAN
Extent of deforestation in Borneo 1900–2005, and projections towards 2020
resources applies not just to Asia. Huge plantations
are on the cards for western Africa and South Four reasons companies don’t buy RSPO certified palm oil
America.
RSPO certified oil continues to be bought below produced volumes for a number of reasons.
Sime Darby, for example, is developing large
plantations in Liberia, amid grave concerns about 1. Downstream buyers are not buying the oil, as it can be significantly more expensive than conventional oil.
their social and environmental conditions.
The BBC and other media outlets are now 2. The crude palm oil in itself is not necessarily much more expensive (sometimes $20/tonne). But
beginning to cover Liberian palm oil. Nigeria and because companies mostly use refined oil, or fractions, and the premium weighs on those fractions,
other states are likely to be in the spotlight next. this amplifies the premium sometimes up to $300/tonne.
Herakles Farms, a company investing in 3. Segregating the RSPO oil from the plantation to the final user is extremely costly. As a commodity,
Cameroonian palm oil, is increasingly in the media palm oil works on a critical mass basis. When you try to segregate and create artificial flows it is like
glare. swimming against the stream and the added costs are prohibitive. This applies particularly in
Critics of RSPO say that to deliver sustainable China and India.
palm oil it must adopt a policy that excludes
deforestation from its standards. Currently it does 4. Businesses such as Cargill, Nestlé and Unilever have committed to sourcing RSPO certified sustainable
not, and on top of that a number of producer palm oil by 2015. As a result, change to the status quo is unlikely until 2014. For the time being
members seem intent on continuing “business as businesses are snapping up Green Palm certificates, which do not require them to pay the full
usual”, according to Greenpeace, meaning they will cost of certified oil or change their supply chain to buy the physical trade of RSPO certified oils.
carry on chopping down native forest. Source: The Forest Trust
Rob McWilliam of The Forest Trust says

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28 Supply chains Ethical Corporation • June 2012
deforestation” target, alongside other members of the
Controlling members Consumer Goods Forum, by 2020.
The company’s partnership with its leading palm
Some RSPO member companies are highly committed to sustainable palm oil and many of these are
oil supplier and The Forest Trust is an example of
implementing serious sustainability plans.
how sustainability collaboration can dramatically
But other members are accused of being more interested in simply looking good and continuing the
change operating practices and business models.
expansion of palm oil onto forested land. Unless a grievance is lodged by activists, some experts argue, a
Magdi Batato, group technical director at Nestlé
company can simply carry on its practices.
UK, says that long-term sustainability is about
“It is difficult for RSPO as an organisation to control its members,” says one commentator. The challenge
transformation. “Your suppliers are part of it,” he
for RSPO is one encountered by industry or issue-based business groups on all sorts of sustainability chal-
argues, adding that long-term partnerships are
lenges. On one hand they need more members to gain critical mass and move markets, yet on the other
needed to help suppliers change the way they work.
they need to maintain credibility. Both Greenpeace and The Forest Trust voice sympathy to RSPO’s plight,
“It’s very expensive for a supplier to run two
but maintain it must move faster towards greater rigour.
business models.”
Darrel Webber, head of the RSPO, says that the organisation is holding “a review of our principles and
Batato says transformation around forest
criteria as required after five years of implementing certification on the ground”.
conservation has led to a new sustainable business
Webber points out that when it comes to accusations of non-compliance by member organisations,
arrangement between Nestlé and GAR while also
“RSPO has a structured grievance process in place that has taken the necessary actions and sanctions. RSPO
creating competitive advantage for the GAR as a
emphasises the importance of organisations in upholding their commitment as a member. Despite the
leading palm oil supplier. Total palm oil traceability is
challenges, significant progress and commitment has been made in addressing some of these issues.”
important to achieve trust, he says, and is achievable.
Peter Heng, head of sustainability and corporate
deforestation is being carried out “by both RSPO communications at GAR, agrees. “GAR believes that
members and non RSPO members”. One of the multistakeholder collaboration is the only way to
problems is the definition of deforestation, he says. achieving solutions to sustainable palm oil,” he said
Currently the RSPO standard includes protection at the April palm oil conference.
of High Conservation Value Forests. These are GAR has a forest conservation policy developed
typically primary forests but can be other forest in collaboration with The Forest Trust. It aims to
types, such as secondary forest. McWilliam notes that ensure it has a no deforestation footprint. The firm
any forest not identified as HCVF can be cleared. has committed to zero palm oil development on peat
This is resulting in the clearance of secondary forests and High Conservation Value forest land. GAR also
or the so-called “degraded forests”. Clearance of promises no development on high carbon stock
these, he claims, forms a large part of the 17-20% of forest land, free prior and informed consent from
the global carbon emissions generated by communities and compliance with all local and
deforestation. national laws. In recent years the company has
Darrel Webber, head of RSPO, acknowledges that implemented a social and community engagement
"Global demand “there have been lapses in compliance and the policy and a yield improvement policy in
is growing and credibility of all standards”. RSPO remains a “work collaboration with The Forest Trust and others.
in progress”, he writes in the recent WWF investor “Conserved high carbon stock forest can revert
the key concern report. But he argues: “Boycotting or withdrawing back to its natural ecological state,” Heng says. “GAR
is how palm from palm oil is not a solution. Given the high yield is prepared to take a lead.”
of palm oil versus other edible oils, sustainable palm But in terms of wider impact, GAR is limited by
oil is being oil production can provide significant benefits. the actions of other stakeholders and companies.
developed" Global demand is growing and the key concern is Nestle UK’s Batato agrees, saying: “It’s about
Darrel Webber, RSPO how palm oil is being developed.” transformation of the business models of suppliers,
Webber says that RSPO member companies must and bigger companies can lead the way.”
commit to measureable targets to be held The key difference between RSPO certification
accountable against. He notes: “Initiatives from and GAR’s work with Nestlé and The Forest Trust is
RSPO members, such as WWF through their score the closeness of collaboration between the three
card, help in encouraging more companies to players in monitoring progress and agreeing both
commit to the sourcing of sustainable palm oil.” cutting-edge policies and the incentives needed on
all sides to make it sustainable.
Beyond certification RSPO focuses heavily on having plantations
While RSPO struggles with the “growth versus certified to its detailed principles and criteria, and
credibility” conundrum that affects any successful does not yet encompass some of the issues that
multi-stakeholder working group on sustainability, GAR’s work with The Forest Trust and Nestlé tackles,
a partnership between Golden Agri Resources (GAR such as a commitment not to develop peat lands.
– a leading palm oil supplier), Nestlé, and The According to Greenpeace: “Indonesia’s peatlands
Forest Trust claims to have created a new model for represent just 0.1% of the Earth’s land mass, but
sustainable change. contribute a staggering 4% of global emissions”.
Nestlé, pushed by a hard-hitting Greenpeace While Indonesian law prevents the development of
campaign in 2010, has committed to a global “no peat lands more than 3m deep, the law is widely

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Ethical Corporation • June 2012 Supply chains 29
APOORVA SALKADE/GREENPEACE
flouted by companies in the country. The RSPO’s
Webber says peatlands are a complex issue, and that
in some cases degraded peatlands are best protected
by planting oil palm.
The GAR/Forest Trust/Nestle collaboration works,
according to The Forest Trust’s executive director,
Scott Poynton, by utilising networks of local
grassroots NGOs – which were once allied against
GAR – to provide early warning of when policy is not
being properly put into practice.
“Because GAR is listening and responsive, trust is
building,” he says. Peter Heng agrees. “Face to face
interactions are so important,” he says.
The GAR/Forest Trust collaboration on
sustainability beyond RSPO is one of the first large
scale palm oil partnerships utilised by a large
company. There are, however, other industry
examples of progressive and capacity-building
programmes.
Nestlé is keen to emphasise its small business
training and partnering programme in Malaysia. Hard-hitting campaigning makes a difference
Nestlé’s Magdi Batato recently worked in Malaysia
and says the company has trained more than 1,000 Tait, is keen to stress that he is by no means anti-
very small Malaysian companies in better RSPO and sees it as part of the solution to the scale
sustainability management. Following training, some problem. “The easiest way to deliver this [scale]
of these have become suppliers to Nestlé. would be [through] the RSPO. If we want to
Another company offering full palm oil transform the palm oil industry, I think it’s critical
traceability is New Britain Oils, albeit via vertical that the RSPO responds to the challenge of stronger
supply chain integration, a very different model. The standards and mainstreaming traceability. If it
company has had a policy of not planting on primary doesn’t, things will get complicated with a likely
forest since 1985 and says it does not plant on proliferation of alternative approaches,” he says.
peatlands. Rob McWilliam, a senior manager at The Forest
Andy Worrall, general manager at New Britain Trust, says the model his organisation has developed
Oils, believes that, ultimately, transparency in the full with GAR and benchmarked with Greenpeace is
supply chain for palm oil will be essential, and must scalable. Companies should simply make use of the
be part of competitive advantage for sustainably- work already done by Nestlé and “add to their
minded companies in the industry. leverage” he says.
“It must be good for business,” he says. Worrall “They all use the same suppliers anyway,” Big business
believes, though, that “critical trigger points” in the McWilliam says. Scaling the GAR/Forest Trust/Nestlé
market for traceable palm oil need to be reached to model is a matter of “aligning the sourcing guidelines
meets challenges
drive sustainable change. and asking for traceability first. It means investment like this regularly
While it is clear that RSPO has made great strides, and serious commitment from the brands. It means in other areas,
with its certified palm oil representing 10.2% of really involving the sourcing departments.”
global palm oil production, or 6m tonnes a year, in And, McWilliam insists, it can be done. After all, so why not in
the four years since certification began, NGOs such big business meets challenges like this regularly in palm oil?
as Greenpeace are worried that RSPO’s broad other areas, so why not in palm oil?
embrace of member consensus means it is not The outlook for genuinely sustainable, traceable
moving fast enough. palm oil is becoming more positive. RSPO’s Darrel
Webber points to what has been achieved since 2008.
The scale challenge More than 6m tonnes of Certified Sustainable
The long-term challenge for collaborative partner- Palm Oil has been produced since 2008. Major brands
ships may well be scale beyond certification. There such as Nestlé, Unilever and others are pushing
are not many experienced forestry NGOs such as other palm oil suppliers hard, through channels such
The Forest Trust that can work on the ground across as the Consumer Goods Forum, as they strive to
sizeable land areas. If a dozen other companies the reach their traceability and deforestation targets.
size of GAR suddenly wanted to emulate its model, If other big brands can begin to take a similar
these firms might struggle to find both the NGO approach, progress may accelerate quickly enough
capacity and the big brand buyer support they to save what remains of the world’s tropical forests
would need to make it happen. from destruction. At least, that is, as far as a more
Greenpeace’s senior forestry campaigner, Andy sustainable palm oil industry can have an impact. I