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ESG Challenges in the Palm Oil Industry

The Malaysian palm oil industry has had a head start when it comes to addressing sustainability as well as environmental, social and governance (ESG) requirements, due to the demand, since the early 2000s, for sustainable palm oil production.

Yet it remains one of the most scrutinized industries as the plantation sector still has to deal with heavy criticisms and misconceptions with regard to the ESG-related issues.

Industry players have upped their game in the face of this heightened scrutiny; as of March 31, 2022, about 97.33% of the oil palm plantations are Malaysian Sustainable Palm Oil (MSPO) certified.

Palm oil supply chain companies are required to be certified with the MSPO certification.

About 95% of the planted area has been certified under the independent, organized smallholders and plantation categories.

As of 2019, a total of 1.2 million ha of operational areas out of 5.7 million ha, were Roundtable on Sustainable Palm Oil (RSPO) certified.

MSPO is the compulsory national scheme while RSPO is voluntary.

“But as much as negative campaigns are being advertised, we should work together in a parallel way to conduct positive campaigns and narratives to educate the people; good, positive and correct facts and stories about the palm oil industry need to be disseminated.

“We need to tell the world that we are responsible producers; we are committed to improving the productivity of oil palm without neglecting the importance of the environment,’’ said Malaysian Palm Oil Board (MPOB) director-general Datuk Ahmad Parveez Ghulam Kadir.

Net zero goal

Among the plantation companies, Sime Darby Plantation Bhd (SDP) is laying the foundation to achieve its net zero goal and a 50% reduction in carbon emission by 2030.

This involves accelerating the development of biogas plants across its upstream operations to capture methane from palm oil mill effluent which is its largest source of emission, said SDP chief sustainability officer Rashyid Redza Anwarudin.

Another top priority at SDP is to improve efficiencies and reduce dependence on migrant labor, in line with its aim to upskill its existing workforce while attracting a younger generation of local workforce.

The Malaysian Palm Oil Council (MPOC) sees that current focus should be on issues such as:

  • Forced labor; whether it is really happening and to what extent. The MPOC is engaging with industry stakeholders, the Human Rights Commission of Malaysia and the US Customs and Border Protection.

  • Net zero opportunities; commitments by the government have not cascaded well to the industry and implementers, said MPOC. A serious action plan is required especially when the committed time frame is fast approaching.

  • Deforestation-linked laws in Britain and the European Union where certain commodities have been targeted.

  • No palm oil labelling where laws are already in place on discriminatory labels against palm oil, but require serious implementation.

Conservation projects

Environmental and wildlife conservation projects are being carried out by the MPOC through partnership between the Malaysian Palm Oil Green Conservation Fund and the Sabah Forestry Department, Sabah Wildlife Department, Sarawak Forestry Corp as well as Department of Wildlife and National Parks Peninsula Malaysia.

The MPOC is also engaging with key markets to create better international market acceptance for MSPO.

To create better awareness, events are organized locally and internationally on sustainability challenges and the requirements faced by the industry.

One of the urgent issues facing palm oil producing countries is deforestation and the protection of peatlands as well as the associated destruction of biodiversity.

When grown sustainably in line with RSPO principles and criteria, palm oil agriculture and the environment can co-exist while primary and secondary forests are protected and wildlife habitats are not harmed, said the RSPO secretariat.

RSPO-certified sustainable palm oil has a lower impact of 35% on global warming and 20% on biodiversity from land use changes in Indonesia and Malaysia, according to a recent, first detailed life cycle assessment comparing RSPO certified and non-certified palm oil production.

The MPOB is looking into regulating fertilizer production, in collaboration with the Department of Agriculture, to ensure that farmers are provided with fertilizers with the right specifications.

Projects relating to improving soil health and fertility are also being emphasized.

MPOB is working on issues that include:

  • Improving the supply chain via a combination of tools involving certifications and reporting mechanisms.

  • Reduction of greenhouse gas emissions.

  • Developing sustainable palm oil plantations that conserve biodiversity.

  • Improving working conditions and labor standards in the industry.> Planting materials that are resilient to climate change.

  • Impact of different peat soil types and best management practices.> Adoption of technologies towards sustainable agriculture.

  • Engaging with stakeholders to raise awareness of sustainable palm oil production.

Sustainable practices

When it comes to international ESG developments, there should be continuous efforts to improve the management of oil palm plantations to enhance sustainability, with more sustainable practices to reduce the use of pesticides and fertilizers.

Traceability and certification programs should be implemented to ensure that palm oil products are sourced from sustainable and responsible operations.

“Decades-long stagnation in yields points to an urgent need to improve yield performance through utilization of quality planting materials with best agronomic management,’’ added Ahmad Parveez.

Sustainable growth should be augmented by nature-based solutions driven by technology and data knowledge for precision agriculture.

The recently-revised MSPO 2022 includes environmental aspects such as high conservation value, no deforestation and greenhouse gas monitoring.

Social aspects include International Labor Organization indicators of forced labor and triangular employment (through a third party), ethical recruitment and children’s rights, while governance is via the Malaysian Anti-Corruption Commission’s latest act on anti-corruption.

Besides increased efforts in decarburization and a firm commitment towards net zero, other climate action initiatives should include the adherence to “No Deforestation, No Peat and No exploitation” commitments, reforestation plans, regenerative agriculture and circular economy.

“The industry should also remain committed to eliminating forced labor and supporting human rights including, among others, committing to and actually paying remediation fees and adopting ethical recruitment practices,’’ added Rashyid Redza.

Vigilance and extensive promotions on sustainable palm oil are required in the face of severe criticism and prejudices.

Writer: Yap Leng Kuen, a former StarBiz editor.


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