Palm Oil Monitor Weekly Update – 12th June 2019

The EU’s Version of Cooperation on Palm Oil

The European Commission launched its Indonesian ‘Blue Book’ – a broader strategy on bilateral development cooperation – earlier this month. The launch is generally a time of EU self-congratulation.

This year, however, it was overshadowed by the Renewable Energy Directive (RED).

The Blue Book generally makes broad claims about the contribution of its programs to sustainable development in Indonesia. This year the Chargé d’Affaires of the EU Delegation to Indonesia, Charles-Michel Geurts, had to play it defensively. Geurts claimed that the EU did not have ‘an obsession’ with imports of palm oil. He said:

Indonesia wants to produce sustainable palm oil and has a whole set of policies to do that, while the EU wants to consume sustainable palm oil, so our paths are bound to meet between sustainable palm oil production and sustainable palm oil consumption.

For the moment, we fully understand the worries and concerns or even the indignation of our Indonesian friends because when you talk about palm oil you talk about 17 million people who directly or indirectly depended on palm oil, the commodity that has been a driver to get out of poverty.

Geurts happily insisted that the Commission’s assessment of drivers of Indirect Land Use Change (ILUC) from palm oil are correct. He also stated that:

We don’t want as the EU to promote deforestation and to promote degradation of peat lands by subsidizing and by heavily supporting biofuels, like we have in the past by creating this huge market.

So, the EU will support and subsidize the significantly larger quantities of deforestation that come from soybean – and its associated biofuels.

Finally, Geurts also asserted that the EU and Indonesia would meet halfway on sustainable production and consumption of palm oil.

However, this is simply not reflected in the EU’s activities. The only mention of palm oil in the Blue Book is support for Indonesia Sustainable Palm Oil (ISPO) certification. Yet, the EU supported program is an NGO-driven program to completely redefine ISPO. It would make more sense for the EU to strengthen the existing system as a standard that can be endorsed by Indonesia’s national standards body – along the lines of Malaysia’s MSPO.

This year’s Blue Book – and Geurts’ comments – underline that the EU’s contradictions on palm oil and Indonesia are firmly in place. They can be interpreted as follows: we’ll cooperate on economic development, but only on European terms. This is not genuine cooperation.

 

The EU Election Fallout Continues

 The ‘Green Wave’ from the EU elections mentioned in last week’s issue has continued to underline the broader threats to palm oil in the European market. The election results appear to have – within just a few days – emboldened the EU’s Green parties.

First, Spain’s Socialist Party has written to the Commission requesting a substantial discussion on the introduction of carbon border taxes. The idea behind carbon border taxes is that if goods are produced under conditions where more carbon is emitted, a levy is introduced. The discussion thus far has pointed towards steel, but the RED has also been used as an example.

Spanish Energy Minister Teresa Ribera and Budget Minister Maria Jesus Montero wrote:

“If Europe ends up importing goods produced under lower climate standards, the emissions we avoid will be counterbalanced, or even overcome, by those generated in countries where goods are manufactured.”

A scenario that commodity and food exporters need to consider is if this kind of levy will be applied to vegetable oils, oleochemicals or other goods, based on a deforestation profile.

Second, the Financial Times recently profiled a high-profile French socialist civil servant – who at one point worked in the office of former President Francois Hollande – who switched his vote to France’s green candidates. The article also pointed out that the Greens’ leader Yannick Jadot is now one of France’s most popular politicians. Jadot was previously a campaign leader for Greenpeace in Europe between 2002 and 2008.

It’s also worth noting that there may be new battlefronts between MEPs and the Commission on RED implementation. The design and implementation of RED assurance schemes is the responsibility of the member states, with some suggestions that there will be greater possibility of fraud in some states. Politico this week reported a Commission official stating that “the member states are for instance responsible for the design of support schemes, which may affect the risk of fraud, and the supervision of certification bodies that are conducting independent auditing under the voluntary schemes”.

 

French Activists Chase Bolloré

France-based activist group Sherpa has filed a civil lawsuit against the Bolloré Group in France. Sherpa believes that the Bolloré group has a substantial influence on Socapalm, a plantation operation in Cameroon in the absence of a significant shareholding

Sherpa is arguing that the Bolloré Group has a legal obligation to force Socapalm to uphold an action plan it put in place in 2013 to support local communities. The action plan was put in place following a complaint against Bolloré by the same NGO group.

This complaint refers to a so-called agreement between Sherpa – and its NGO partners — and the Bolloré Group.

The agreement was made after the NGO complained to France’s National Contact Point (NCP) for the OECD in 2010. The complaint argued that Bollore had breached the OECD Guidelines for Multinational Enterprises.

In 2013, France’s NCP mediated an agreement between Bollore, the local communities and the NGOs involved, which it followed up until 2016, noting delays to implementation. Part of the problem was that Bolloré – although a major shareholder of the Socfin holding – couldn’t actually force its subsidiaries to undertake any management action at all.

The case was then handed to Belgium’s NCP.

The Belgian NCP halted its role in following up in 2017, noting Socfin’s progress on the ground.  More recently, Socfin has become a member of the Earthworm Foundation – formerly TFT. It’s also worth noting that Socfin has made a strong commitment to RSPO.

In our view, Sherpa went after the wrong target. It effectively argued that Bolloré was ‘competent’, i.e. it could make changes at Socfin. But our understanding is that:

  • Bollore is a 38% shareholder in the Socfin Group
  • Socfin Group owns 59% of Socfinaf
  • Socfinaf owns 63% of Socapalm.

That does not mean that Bolloré can force the hand of management at Socapalm, particularly given that it is not a majority shareholder in Socfin. A major shareholder or managing director from one company may sit on the board of another, but that does not mean that they are able to out-vote other shareholders. Indeed, some major shareholders – even majority shareholders – don’t take up the number of board seats they are able to.

It’s worth noting that some of the actions in the action plan needed to be implemented with the shared responsibility of the Cameroonian government.

Sherpa is following a reasonably straightforward pattern established by NGOs in the United States, where the success or failure of the suit is actually irrelevant; the publicity gained from the suit contributes to a campaign narrative – and may yield document discovery on the way.

 

Musim Mas Announces POIG Compliance

Musim Mas has announced that it is the first company in Southeast Asia to have implemented the Palm Oil Innovations Group (POIG) standards.

The POIG standards – which are best described as a tougher version of RSPO – first rose to prominence when NGO groups were attempting to have tougher standards on new planting and high carbon stock brought into RSPO.

But after RSPO introduced HCS and a broader suite of obligations at last year’s General Assembly, does this mean POIG is irrelevant?

Not quite. One of the other key differences between RSPO and POIG is that POIG allows greater levels of scrutiny by POIG members – particularly the NGOs themselves – on member operations. It will, therefore, always be standard of choice for NGOs even if the standards are almost identical.

POIG did previously have broader support from plantation companies in the region, but this also appears to have fallen away since HCS was adopted in RSPO.

So what explains Musim Mas’ ongoing involvement?

Musim Mas has always been ahead of the green curve in relation to other Indonesian companies. It has a high degree of vertical integration and is therefore able to segregate its supply chains. This means it can produce CPO, oleochemicals and other derivative products along that supply chain. For companies that are highly sensitive to criticism in Western markets – such as L’Oreal, also a POIG member – this kind of assurance is significant.

For Musim Mas and its clients, this ability to market their products so far along the supply chain is a good hedge against NGO attacks. For NGOs, it can be used as a self-serving example: they can claim that greater NGO scrutiny creates better results.

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