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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 (CPG.L), Procter & 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.

Although 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.

Only a 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.


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