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This month Wilmar International – Asia’s leading agribusiness group and the world’s largest trader of palm oil – announced a “No Deforestation, No Peat, No Exploitation” policy that is good news for the communities and wildlife that live in fast-shrinking rainforests across the tropics and for everybody else who depends on a stable climate.  While the announcement was pretty much ignored in the Western media outside of the business and environmental press, it is nonetheless a very big deal.

Why? According to the Wilmar policy statement, “No Deforestation” means no more conversion of forests that are high in carbon stock or conservation value.  “No Peat” means no further development of plantations on peatlands, which are a globally-significant source of the greenhouse-gas emissions that drive climate change.  And “No Exploitation” means respecting the labor rights of workers and the tenure rights of local communities, and facilitating smallholder access to the palm oil supply chain. 

Complying with the policy will require a significant course correction for Wilmar.  In 2009 the company’s failure to obtain community consent to land clearance for new plantations in West Kalimantan prompted the World Bank to suspend lending to the entire oil palm industry.  Earlier this year, WWF-Indonesia blew the whistle on a Wilmar mill that was buying palm fruits from an illegal plantation inside a national park in Sumatra that is one of the last remaining habitats for endangered tigers and elephants. And in June when huge fires in Indonesia blanketed Singapore—where Wilmar has its headquarters—in a suffocating haze, advocates using satellite imagery linked the fires to the forest-clearing activities of Wilmar subsidiaries.

Why the change?  Wilmar CEO Kuok Khoon Hong responded to these revelations by entering into a constructive dialogue with people such as Glenn Hurowitz of Climate Advisers, CGD’s partner in our  Tropical Forests for Climate and Development initiative. That dialogue opened up the possibility of exploring a different way of doing business. 

But the change would not have come about without the persistent advocacy efforts of local and international watchdog organizations such as the Forest Peoples Program and Greenpeace and pressure from consumer-facing manufacturers and retailers, who are themselves under pressure to squeeze deforestation out of their supply chains (Nancy Birdsall would call this global citizenship in action).

Wilmar’s press release states that the new policy responds to the “rising market demand for traceable, responsibly produced vegetable oil.”  Tellingly, the first sentence refers not to the new policy but rather to a Memorandum of Understanding with Unilever, which buys large amounts of palm oil for use in such products as shampoo, margarine, and soap, and has committed to sourcing it sustainably. While the contents of the MOU are confidential, its prominence in the Wilmar release suggests that incentives from a large buyer were key to the deal.

Under the leadership of CEO Paul Polman, Unilever adopted a goal in 2010 of sourcing all of its palm oil from certified sources; last year the company broadened its commitment to include traceability.  Polman played a key role in securing a 2010 pledge from the Board of the Consumer Goods Forum—which represents more than 400 companies—to achieve zero net deforestation in their supply chains by 2020.  For these efforts—even prior his company’s role in encouraging Wilmar’s policy change—Polman was selected to receive CGD’s 2013 “Commitment to Development Award,” as announced today.

Importantly, Wilmar’s commitment goes beyond what is currently required for “certified sustainable” palm oil under the Roundtable on Sustainable Palm Oil (RSPO), the industry’s main standard-setting body, which has been slow to adopt standards that meaningfully limit greenhouse gas emissions from oil palm cultivation. That the new Wilmar policy bans conversion of high carbon stock forests and peatlands, requires management of emissions from existing plantations, and opens the door to restoration of disturbed peatlands is especially significant. 

While the true test will be in implementation, the potential knock-on effect of Wilmar’s new policy within the palm oil industry is huge: it covers not only the company’s own considerable production and processing operations worldwide, but also the operations of third-party suppliers who, according to a Bloomberg News report, account for some 90 percent of the palm oil entering its refineries. 

Stay tuned, as the most important impact of the Wilmar announcement will be its influence beyond the company’s own supply chain.  I expect that Wilmar and its many suppliers will soon begin pressing the RSPO and governments in the producer countries where they operate to require similarly high standards from their competitors.

At the end of the day, stopping deforestation, ending peatland conversion, and eliminating exploitation of workers and local communities will depend on strengthened law, regulation, and enforcement in producer countries.  As long as there are markets that are insensitive to the adverse social and environmental impacts of irresponsibly-produced palm oil, and impunity enjoyed by those who flout applicable laws and standards, there will be individuals and corporations willing to supply those markets, at the expense of forests, local people, and the global climate.

Wilmar will prefer a level playing field with other traders such as IOI, Cargill, and Golden Agri Resources, and its suppliers will prefer to have effective policing of industry norms and applicable laws rather than bearing the costs of compliance by themselves.  With some two million hectares of forest being lost every year in Indonesia alone, lining up key industry players behind an agenda for change would be a big deal indeed.

Disclaimer

CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.