Opening shots in a palm oil war

Suspension from the RSPO has knocked supplier IOI but it’s the kicking from its customers that hurts most – and big food brands kick hard when their sustainability reputation is at risk.

The IOI Group’s chief executive officer, Dato’ Lee Yeow Chor, said the decision to sue the Roundtable on Sustainable Palm Oil (RSPO) was a “difficult and painful one for us to take”. But the pain may have only just begun for him and his colleagues.

IOI’s suspension from the RSPO was announced in early April after allegations of non-compliance with certain principles and criteria within the palm oil certification scheme. The complaint focused on three units in Indonesia where illegal planting on deep peat, overplanting into unlicensed land, a failure to get proper and full licences and destruction of high conservation value areas had reportedly occurred.

It wasn’t really the behaviour expected of a founding member of the RSPO, and when it became clear that IOI wasn’t taking action to remedy the problems the roundtable’s board of governors had no choice but to suspend the company. At that time, the RSPO was “hopeful” everything could be sorted.

IOI didn’t seem overly perturbed, at least if the comments reportedly made by one senior manager were anything to go by: “The only effect is that IOI will not be able to earn CSPO [certified sustainable palm oil] premium on our oil which represents only a very small percentage (less than 0.5%) of our revenue.”

But then some of the world’s biggest food brands began distancing themselves from the supplier and IOI’s share price fell. WWF suggested the situation had “lit a fire under them” as Kellogg, Unilever, Yum! Brands and Mars all said they were cutting back on the palm oil they buy from IOI. Half a dozen others have also done the same, according to Aidenvironment, the consultancy that raised concerns about IOI.

Most were noting that IOI’s suspension from RSPO put it in breach of company policy and as a result they had already started “disengaging”. “We take claims of non-compliance very seriously,” says the Kellogg chief sustainability officer, Diane Holdorf.

And doesn’t IOI know it – the RSPO ruling knocked the company down, but it’s the kicking from customers that is hurting most. Big brands also kick hard when their corporate social responsibility reputation is at risk. The 2015 Eco Pulse study showed that the percentage of people who said they had stopped buying a product based on the environmental reputation of a manufacturer increased dramatically from 11% to 33% in the past year.

Nestlé not impressed

At the end of May Nestlé revealed that it was cutting ties with IOI; existing contracts would be phased out and the Malaysian firm wouldn’t get any new ones. It was a critical turning point.

The move followed an analysis of the action plan IOI had submitted to RSPO in a bid to have its suspension lifted. The RSPO has yet to reveal what it thinks of the proposals but Nestlé was clearly unimpressed. The firm’s senior corporate spokesperson, Nina Caren Kruchten, told FoodNavigator.com: “Alongside the Forest Trust, we have now carried out an assessment of IOI’s action plan, which it claims is designed to deliver on the group’s commitment to no-deforestation in its operations. Our conclusion is that it does not go

far enough in tackling the issues raised by IOI’s RSPO suspension and that Nestlé will therefore not award any new business to IOI Group with immediate effect. We will also phase out all existing contracts with an expected completion date of August 31st 2016.”

There has been no official statement yet from IOI after Nestlé’s findings. It is clearly feeling hard done by. In the statement announcing plans to sue the RSPO, the firm’s CEO said: “We feel that we have been unfairly affected by the extent and scope of the suspension decision which was recommended by the complaints panel and subsequently endorsed by the board of RSPO.”

Caught by surprise

In communications with the RSPO earlier in May there were signs that the seriousness of the suspension was (belatedly) hitting home. The group’s head of sustainability, Surina Ismail, outlined a number of decisions that had been taken and urged the RSPO to lift the suspension as quickly as possible.

“Every day’s delay represents a substantial disruption and loss, not only to IOI, but also the non-IOI suppliers to our downstream operations, some of whom are smallholders, the 300-plus customers of IOI many of whom have entered into forward contracts with IOI prior to the suspension and many more other users of RSPO-certified oils down the supply chain,” she explained in a letter dated May 3rd 2016.

This was more than a year after Aidenvironment submitted a formal complaint to the RSPO (and it was not the first time IOI had been under the spotlight, either). Just days later, after a response from RSPO requiring quarterly progress reports for 12 months, IOI announced its decision to pursue legal action against the roundtable.

Unsurprisingly, it didn’t go down well. More than 20 NGOs signed a letter to 100 global brands and traders urging them all to immediately cut ties with IOI. “Companies that continue to source from IOI are taking a major risk by associating their brand reputation with a supplier known to be connected to conflicts with communities, exploitation of workers and the ongoing clearing and burning of natural forests,” said Gemma Tillack, the agribusiness campaign director of Rainforest Action Network.

The big brands they had written to have remained eerily quiet on the matter. Suspension from the RSPO they had been expecting – press statements could be prepared and company websites updated – but IOI’s reaction had totally blindsided them. Let’s not forget that some of these companies have had their fingers burned (or in Nestlé’s case eaten) by palm oil stories in the past.

The first mover brought another surprise: Mondeléz, notoriously reluctant to talk about its suppliers, let alone name them, urged IOI to “urgently withdraw” its legal challenge. Less than a fortnight later and, as Footprint went to press, the Cadbury owner got its wish.

“IOI Corporation Berhad (IOI) wishes to announce that we have decided to withdraw the challenge proceeding against the RSPO Board’s suspension decision in the Zurich District Court of Switzerland,” explained the group’s CEO, as he also committed to “voluntarily adopt the more stringent RSPO Next certification system” starting from the end of the year.

It’s a welcome about turn, but the story is far from over. IOI has just submitted a quarterly report of progress against its action plan, but Aidenevironment says it’s “too early” to say whether it’s enough to see the suspension lifted.

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