The area under oil palm plantation development has trebled in the last decade. Although the expansion of the industry has generated considerable economic growth, it has also had significant environmental costs.

Plantations have often been established at the expense of valuable ecosystems across the tropical belt, including forests and peatlands. This has had catastrophic consequences for the most biodiverse terrestrial ecosystems, destroying critical habitat for endangered species, and acting as a significant source of greenhouse gas emissions.

The environmental risks inherent in the production of palm oil extend beyond initial land-use conversion throughout the life cycle of production, as well as far outside of concession boundaries. Producers can take steps to address the full range of impacts and should ensure that these are implemented at a landscape scale.


Sustainability on SPOTT

Producers can ensure sustainable palm oil production by addressing the environmental impacts associated with production. SPOTT’s Sustainability pages give details of the primary environmental risks of production; the importance of addressing these risks and related guidance and resources on approaches to monitoring and managing the related impacts. These pages focus on the following areas:

 

Social issues

Sustainable palm oil requires more than addressing environmental concerns. The production of palm oil can also have significant social impacts, resulting in land grabs, loss of livelihoods and social conflict.

  • As a wildlife charity, ZSL’s focus is biodiversity conservation. SPOTT therefore primarily aims to assess and support growers in addressing the environmental aspects of sustainability.
  • However, the importance of ensuring that palm oil production does not have negative social consequences cannot be underplayed, and it is essential that palm oil companies respect the rights of local people and prevent and mitigate the social impacts of their operations.
  • Furthermore, social and environmental impacts are often inter-related. Deforestation, for example, can be extremely damaging to forest-dependent communities. Similarly, there can also be trade-offs between measures aiming to address social and environmental risk.

 

What are the risks and opportunities?

The socio-environmental risks of palm oil production create a number of business risks to growers and their supply chain and financial stakeholders. Conversely, the effective management of environmental risks also presents significant opportunities.

Operational

    • Addressing the environmental impacts of palm oil production is important for ensuring the sustainability of company operations as the adverse effects of production can ultimately negatively impact plantation productivity.
    • For example, the adoption and implementation of zero burning policies is important for minimising the resulting haze and air pollution that can directly impact productivity and crude palm oil output.
    • Similarly, companies can minimise their contribution to greenhouse gas emissions and protect against poor productivity by not planting on peat. The draining of peat soil and the resulting subsidence can expose oil palm roots, leading to their collapse, or can lead to the planted area becoming lower than surrounding non-peat areas with the risk that oil palms will become submerged and damaged.

Regulatory

    • The palm oil industry can be impacted if it does not keep pace with changing regulations that require sustainability improvements. For example, biodiesel demand is predominantly driven by the sustainability benefits associated with its comparatively lower emissions than regular diesel.
    • However, demand can decrease with the introduction of regulations that recognise the potential risks of emissions being higher when production has been linked to tropical deforestation and therefore substantial emissions from land-use change. Conversely, producers who anticipate changes in regulation can maintain a competitive advantage.

Reputational

    • There is a reputational risk associated with environmentally harmful operations.
    • The exposure of consumer-facing brands in particular as being linked to environmental destruction through their supply chains is extremely damaging to a company’s reputation.
    • This is evidenced through the powerful lobbying actions of NGOs, such as Greenpeace’s campaign against Nestlé in 2010, which associated its ‘Kit Kat’ brand with the destruction of valuable orangutan habitat.
    • Manufacturers have commonly been the target of campaigns of this nature; however the financial sector has come under increasing pressure to take responsibility in recent years, while producers themselves can also suffer from similar reputational damage.
    • This reputational risk can equally be regarded as an opportunity, with companies taking the lead in sustainability benefiting from a positive image.

Market

    • Responding to sustainability challenges presents growers with significant market opportunities. Supply chain stakeholders are increasingly mitigating their own regulatory and reputational risks by committing to address their potential social and environmental impacts. This includes commitments to sourcing sustainable, deforestation-free palm oil. Growers can ensure continued market access by meeting the sustainable sourcing policies of their buyers.

Financial

    • The environmental risks of palm oil production can ultimately manifest as financial if the company does not adequately address them. For example, losing market access by not meeting the sustainability requirements of buyers can have an impact on company profits. Similarly, responding to legal risks associated with unsustainable production can have significant costs.

 

Scope of sustainability commitments

To ensure the environmental impacts of palm oil production are addressed comprehensively, it is important that approaches to environmental management are not just implemented by major palm oil producers on large plantation estates, but by their entire supply chain also. This includes improving environmental practices among all outgrowers, and associated smallholders and scheme smallholders, as well as independent FFB suppliers.

  • Insufficient capital for expenses, limited access to knowledge and training, and poorly defined ownership status for land or a lack of formal land use rights can make it more difficult for smallholders to adhere to environmental standards. The decentralised nature of smallholder groups also means there is large variation in their practices and impacts.
  • To ensure inclusive supply chains and market access for smallholders, it is essential that companies support smallholders to implement environmental best practice, for example through financial support and the provision of information on more sustainable production and management methods.
  • For example, supporting smallholders in the implementation of better management practices (BMPs) can reduce deforestation and facilitate more sustainable production systems.

 

Useful resources