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ESG and sustainability compliance in palm oil industry

30/12/2021 11:13 AM

By Nurul Hanis Izmir

KUALA LUMPUR, Dec 30 -- As the world’s appetite for palm oil is seen rising along with global population, the edible oil will continue to be under watchful eyes, especially in the area of environmental, social and corporate governance (ESG) to ensure that the industry remains sustainable and attractive for investors.

In particular, compliance with International Labour Organisation’s 11 indicators with respect to employment of migrant workers - their living conditions, access to healthcare during the pandemic, failure to reimburse all recruitment fees by the employer and other failings will be under scrutiny.

Besides this, the industry and its stakeholders have been constantly pressured with issues on how the crop is negatively impacting the environment.

However, heightened efforts have been put in place to address environmental and social concerns through the Malaysian Sustainable Palm Oil (MSPO) and Roundtable Sustainable Palm Oil (RSPO) certification schemes.

Ahead of meeting the United Nation’s 2030 Agenda for Sustainable Development, companies big and small and smallholders are enhancing their sustainability compliances.

The government has also made significant commitments to climate change mitigation at the recent 2021 UN Climate Change Conference (COP26) when it joined world leaders to commit to halt and reverse forest loss and land degradation by 2030.

It also announced incorporating initiatives leading to a low-carbon, climate-resilient economy based on clean, green and resilient development via its five-year 12th Malaysia Plan in September this year.


Palm Oil Industry can be Net-zero Carbon by 2040


Senior lecturer and fellow at the Monash-Industry Palm Oil Education and Research (MIPO) Qua Kiat Seng believed that the industry is making an effort towards approaching net zero carbon emissions.

“It is imperative to measure data for improvement. The soon-to-be-available Malaysian Sustainable Palm Oil (MSPO) greenhouse gas (GHG) calculator will serve us well in this respect.

“Consequently, we can see where we stand with 96 per cent of plantations and 89 per cent of mills certified to MSPO. Bear in mind, only 20 per cent are certified to Roundtable Sustainable Palm Oil (RSPO),” he wrote in an opinion column in The Edge recently and shared the input with Bernama.

Qua noted that palm oil has fortunately started its sustainability journey early and has a 15-year head start.

He added that sustainable palm oil has an average emission of 0.45 tonnes of carbon dioxide equivalent per tonne oil compared with 2.89 tonnes for soy, 2.47 tonnes for rapeseed and 1.18 tonnes for sunflower.

Among the big companies, Kuala Lumpur Kepong Bhd (KLK) published its Sustainability Rating Report on Oct 21, with RAM Sustainability reaffirming its sustainability rating at Gold (G2).

As a member of the RSPO, KLK has committed to no deforestation, no peat and no exploitation (NDPE) and used the RSPO GHG calculator to measure its GHG emissions.

Meanwhile, KPMG Malaysia’s inaugural Net Zero Readiness Index (NZRI) revealed that the country was ranked 21st among 32 countries.

The index compared the progress of selected countries in reducing greenhouse gas emissions that cause climate change while assessing the country’s preparedness and ability to achieve net zero by 2050.

“The challenge now is to go beyond the talk, ensuring that everyone plays one’s part. The private and public sectors are the engine of low-carbon growth and they are seeking clarity and certainty in government net zero policies.

“Hence, if Malaysia is to achieve its net zero ambition by 2050, it’s critical for the government to set clear policies that enable the green movement and this includes spurring investment in research and development, providing support mechanisms for early stage innovation by small and medium enterprises and creating markets for low-carbon products and services, among other initiatives,” KPMG Malaysia head of governance and sustainability Kasturi Nathan said.


Work in Progress


IRGA Sdn Bhd chairman M.R. Chandran said the difficult task of improving ESG norms is taking place at all levels of industry and society, resulting in positive changes which should support investor’s confidence in the palm oil industry.

“Only inclusive societies can get the climate change equation right. Politicians must therefore reset their agenda and move away from divide and non-inclusive policies,” he said.

Chandran, who is also advisor to RSPO, said the loss of biodiversity and high carbon stock forests, planting on peat and human rights violations are likely to continue to be high in the agenda of the European Union (EU), the United Kingdom and also in other importing Asian countries in the months and years to come.

Therefore, he urged the industry to anticipate heightened pressures to reduce its GHG footprint and to comply with best-in-class ESG standards.

Chandran suggested fresh research efforts to design mosaic landscapes for oil palm plantations that could lead to a significant increase in biodiversity without adversely affecting unit yields.

In the EU, for example, France will become the centre for campaigning against palm oil next year, following the state’s elections in April and presidency campaign in the first half of the year.

Meanwhile, Chandran said that certification standards help to create and sustain consumer demand for Certified Sustainable Palm Oil (CSPO) through shared responsibly targets as well as to assure the quality of the products.

These are designed to ensure that downstream RSPO members drive market transformation by committing to increase their uptake of CSPO.

CSPO supply presently outstrips demand, with a gap of 25 per cent. This requires a closer examination of market forces and demand drivers, he said.

“Partnerships across the public, private and non-governmental organisation sectors will be essential to drive CSPO uptake, especially in the large consumer markets of India, China and Indonesia where awareness of the concept of sustainable palm oil is still low.

“Therefore, any sustainability certification scheme must be embedded fully into global supply chains and be viewed as a positive, inclusive business tool for profitable growth,” he stressed.

Chandran said this is due to the immense potential of standards to solve the many problems that plague the socio-economic realities, such as helping to determine market access; the efficiency of the economy; the cost, quality and availability of products; economic growth and innovation; and therefore, development for the whole market.


Agriculture 4.0


On mechanisation and automation for sustainable crop production under Agriculture 4.0, the plantation veteran said that COVID-19 has highlighted the transformative power of digital technologies as a means of continuing commercial and economic activity.

It has also emphasised the urgent need for mechanisation and automation in the oil palm industry as the sector in Malaysia is struggling with massive labour shortages amid the ongoing pandemic.

“Mechanisation is an important component of sustainability as it eases and reduces hard labour, relieves labour shortages and improves productivity and efficient use of resources.”

“It is imperative for the oil palm industry to intensify mechanisation efforts to address technological, economic, social, and environmental dimensions of sustainable development of the industry,” he said, adding that during the recent health crisis, the migrant worker population became the vulnerable group because their living conditions and poor access to health contributed significantly to the transmission of the disease.

“The industry should set its sight on becoming a shining example of sustainable production by sticking scrupulously to set standards of conduct and compliance without resorting to all manners of ifs and buts.”


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