January 06, 2004
Many Companies Cannot Verify Whether Their Palm Oil Is Produced Sustainably
by William Baue
An ISIS Asset Management report finds that few companies can trace the source of their palm oil up
their supply chain to confirm whether or not it is produced sustainably.
If you do not know much about palm oil, you may not be alone. It turns out that many companies who
use this commodity in their products cannot ensure whether their palm oil is produced in a
sustainable manner or not, according to a new report. The report surveys 24 companies held by ISIS Asset Management, a socially responsible
investment (SRI) firm, including Cadbury Schweppes (ticker: CBRY.L), Colgate-Palmolive (CL), Compass Group
& Gamble (PG),
and Unilever (UN). With current demand of 22.5
million tonnes per year, palm oil has become the single largest traded edible oil in the world, and
demand is projected to almost double to 40 million tonnes by 2020.
two-thirds (67 percent) of the responding companies feel they manage the risks of the ecological
impacts on their supply chains adequately, more than four-fifths (83 percent) do not appear to know
where their palm oil originates.
“Only a limited portion of companies were able to
identify their ultimate suppliers,” states the report, entitled New Risks in Old Supply Chains:
Where Does Your Palm Oil Come From? “Few could trace their supplies to a given country and
fewer still to a particular plantation.”
“Assurances about sustainability were extremely
general and presented little or no independent verification of the claims,” the report continues.
“Several were so generic (i.e. naming a specific country from which palm oil is sourced and
claiming, incorrectly, that all the oil from that country is sustainably produced) as to be of
little or no use.”
Palm oil comes from the dark orangish-brown fruits of the oil palm
tree, which resembles the coconut palm. The subtitle of the report, From lipstick to ice cream:
a survey of palm oil use and supply chain management, suggest the wide spectrum of palm oil’s
commercial uses--as a component of food, cosmetics, detergents, and chemicals.
portion of the palm oil on the market is grown sustainably, with much of the increase in production
displacing rainforests and indigenous communities. Companies with foresight recognize the
importance of tracking their supply chains accurately and disclosing transparently the sustainable
production of the palm oil they use.
“The study reveals that some companies have the
situation broadly under control, at least insofar as palm oil sourcing is concerned,” the report
states. “Unsurprisingly, some of those that perform well in this specialized area--such as
Unilever, Body Shop, and Marks & Spenser--are the so-called ‘usual suspects,’ well-known for their
commitment to matters of sustainable development.”
“Other companies, such as Cadbury
Schweppes and Compass Group, have been able to source from suppliers that are known to produce in
line with sustainable development objectives,” the report adds.
The report finds that many
companies’ stated policies regarding the sustainable production of commodities in their supply
chain do not match their actual practices, and often have no way of verifying their commitments.
The report therefore recommends that companies change their walk to match their talk. The report
also recommends that companies take action to ensure the sustainability of the palm oil they use.
For example, it recommends joining the Roundtable on Sustainable Palm Oil, an initiative
promoting sustainability sponsored by the World Wide Fund for Nature (WWF) in cooperation with industry representatives including
Unilever and the Body Shop.
Encouragingly, the report finds that almost a quarter (21
percent) of the surveyed companies are developing or considering developing supply chain policies
specifically relating to palm oil. Three of these proactive companies are doing so even though
they consider themselves to be dealing adequately with the issue already. And the very conducting
of the survey itself spurred action.
"Several companies noted that the ISIS survey
stimulated further internal action on this issue," the report concluded.