Responsible Business

Palm

Palm oil is an edible vegetable oil used in cooking, the commercial food industry and other industries. Some forecasts estimate that demand for vegetable oils will be almost double today’s levels by 2050.

Palm oil is already the most widely used vegetable oil, and its production is expected to quadruple in the same period.

Palm oil is an essential source of revenue for many farmers, and our challenge is to promote production practices that create shared value fairly and sustainably. We therefore work in partnership with many different stakeholders, helping to balance competing need.

As we do so, we seek to contribute to the United Nations’ Sustainable Development Goals (SDGs), particularly SDG 2: 

  • Preserve forests, which play vital role in the global ecosystem
  • Conserve biodiversity
  • Support farming communities to improve their incomes sustainably 
  • Help communities living in and around palm plantations to continue living in forested areas.
“Despite offering yields four to ten times higher per hectare than other oils, challenges remain to meet growing demand responsibly. Cultivation must continue without causing deforestation and destruction of ecosystems with high carbon stock and of high conservation value.”

Jacinto Peralta Ramo

Global Head of Palm

Our Role in Sustainable Palm Oil Supply

We need some copy here to be an introduction for the area, ideally not too long though.

We do not own palm plantations, but work with many different operators to supply oil by;

  • Refining palm bought from third-party mills at our refineries in Indonesia, and selling the oil to customers
  • Buying oil from third parties to sell on through our commercial office in Singapore

Palm oil bought by our Singapore teams often involves several intermediary layers of the supply chain. 

For us, this as an opportunity to influence these suppliers to adopt the ‘No Deforestation, No Peat, No Exploitation’ (NDPE) policy we launched in 2016.

We also make sourcing transparency a priority, aiming ultimately to trace palm oil back to mill level and beyond. We report on this in this report and on our website, which is regularly updated with information regarding our sourcing profile and locations.  

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Transparency, Traceability and Monitoring

Traceability is a vital part of encouraging supply chains to improve. Since 2015, we have worked to trace all our palm oil back to mill level and report on this, while taking steps to help our suppliers apply our NDPE policy.

For sourcing volumes in 2020, we achieved 100% traceability to mill level for palm sourced directly for our own two refineries, and 96% traceability to mill for indirect sourcing – traded oil that hasn’t gone through our refineries.  

Our goal for the coming years is to maintain 100% traceability for direct sourcing to our refineries, while improving indirect sourcing traceability to near 100%.  

We also have targets for tracing direct sourcing to plantation level. We finalized the methodology for this in 2019 and, although it is still a learning process, we achieved around 80% traceability of first-tier fresh fruit bunch (FFB) suppliers for crude palm oil (CPO) supplied to our refineries in 2020, with a target of near 100% for 2022.  

We undertake risk assessments of all our suppliers, applying Global Forest Watch’s independent evaluation of risk levels associated with the specific activities of each mill that supplies our refineries and trading book (see below). We combine this information with reviews of any grievance reports made against suppliers. 

As regards monitoring, in 2019, we started field verification of NDPE implementation for some of our direct suppliers.  

As this activity is currently on hold due to Covid-19 restrictions, in 2020 we commissioned two satellite monitoring service providers to monitor sourcing for our refineries and trading book.  

We receive bi-weekly monitoring reports from the providers and follow up closely with our suppliers if action is required. 

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Environmental Rating

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Since 1995, the Indonesian Ministry of Environment and Forestry has employed a rating system for company environmental performance, known as PROPER, to rate facilities’ compliance with environmental regulations using a color-coded rating, ranging from gold for excellent, green or blue for compliant, and red to black for poor performance.  

In 2020, our Lampung refinery participated in the scheme and received a blue rating. We will continue to improve the environmental performance of our refineries by integrating the PROPER criteria into our management system.  

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Collaboration for Sustainable Palm

To ensure all our suppliers understand, adopt and comply with our palm sourcing policies, and particularly our NDPE policy, our work ranges from including policy compliance in our contracts, through workshops and other engagement mechanisms to publicize our policies, to direct training and technical assistance, especially for smaller or higher risk producers.

In 2020, our efforts can be summarized as follows: 

  • Contractual supplier commitments to NDPE and agreement to our sustainability policy were in place for approximately 90% of palm volumes sourced, both directly and indirectly. Including our policy in all contracts is extremely difficult due to spot or one-off purchases, but it remains an ambition. 
  • 40% of mills supplying our refineries participated in engagement workshops on how to use our self-declaration tool to show compliance with our policy. 
  • Where possible, we engaged higher-risk supplier groups to ensure understanding of our grievance protocol and process.  
  • We trained over 1000 smallholders in good agricultural practices (GAPs), with a focus on product quality, cooperative structure and improving yields.  
  • We carried out a three-day training course on Best Management Practice on Peat and Fire Prevention System, in cooperation with Earthworm Foundation and Indonesia’s Ministry of Environment and Forestry, attended by almost 90% of our Lampung mill suppliers.  
  • Close to 70% of third-party mills we source from used our self-declaration tool, or an equivalent, to show compliance with our NDPE policy.  

We also have procedures for policy breaches, running a rigorous grievance process to investigate cases where a supplier is said to have broken our policy, reviewing allegations and publishing detailed updates on our website.  

We try to work with the supplier to change their approach, but where efforts fail the ultimate sanction is to remove them from our approved supplier list and stop trading all commodities with them, resuming only when the supplier proves they are addressing the issues.  

  

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Toward Improved Labor Practices

We need some copy here to be an introduction for the area, ideally not too long though.

In 2020, we began working with several stakeholders, including local governments, NGOs and other palm oil companies in East Kalimantan, Indonesia, to draft guidelines for palm oil companies on Fair Employment of Casual and Temporary Workers and Mitigating the Risk of Child Labor in Palm Oil Plantations. Unfortunately, this initiative is currently on hold due to Covid-19 restrictions. 

We are also working with a service provider to develop a human rights assessment for NDPE implementation field verifications. This assessment will complement the NDPE Implementation Reporting Framework, a multi-stakeholder reporting tool we use to systematically report on progress toward implementing NDPE commitments in palm oil. We hope to implement this assessment in 2021/2022, once Covid-19 restrictions have eased. 

  

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Palm Oil Certification

Although it is only one of many important tools to ensure sustainable palm oil sourcing, we continue to source and sell palm oil that complies with Roundtable for Sustainable Palm Oil (RSPO) and International Sustainability & Carbon Certification (ISCC) standards, as part of our NDPE commitment.

In 2020, our certified palm oil sales declined significantly, largely due to Covid-19 impacts on demand for energy. 

ISCC and RSPO certified volumes KMT

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Smallholder Inclusion

Although smallholder farmers manage 40% of palm oil plantations, they face low yields and have limited means to invest in sustainable agriculture.

In 2019, we started a project with Dutch non-profit organization SNV and the Louis Dreyfus Foundation in South Sumatra, Indonesia, to include smallholder farmers in sustainable supply chains. With a focus on increasing production and yields sustainably, and without resorting to deforestation, the project develops essential infrastructure, such as washing facilities and safe chemical storage, that is critical to help them comply with sustainability requirements, and so achieve certification.  

In 2020, the project managed to train over 1,000 independent smallholders despite the logistics challenges posted by Covid-19 restrictions.  

Trainees included a group of 30 smallholders who manage 130 hectares of oil palm as members of KUD Mitra Bersama. They became the world’s first independent smallholder group to be certified under the newly adopted RSPO Independent Smallholder (ISH) Standard.  

KUD Mitra Bersama’s Group Manager, Nyoman Sucipta, said the training they received not only taught them about sustainable oil palm cultivation, but increased the group’s production efficiency, and therefore their income.  

The additional sales generated by their RSPO certification helped incentivize the members and attract more smallholders to the group, who are now targeting the next level of RSPO certification, with our ongoing support. 

A similar smallholder project is now underway in Lampung province, with a target to train 1,000 smallholders in GAPs and achieve ISCC certification by 2022.  

  

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Looking to 2021 and Beyond

Despite Covid-19 restrictions, we continue to work toward our ultimate NDPE goal, taking our interview, monitoring and grievance processes online.  

Continuing to improve traceability remains a high priority, and we are introducing methods and targets to achieve traceability to plantation level. We will support this with satellite monitoring, especially for direct suppliers to our refineries. 

We also aim to expand smallholder inclusion activities in Indonesia, building on the successful pilot project described above. 

Targets

100% traceability to mill level for palm sourced directly to LDC refineries

100%

Completion: 2020

Status: Complete

Near 100% traceability to mill level for palm traded by LDC (Not sourced for its refineries)

96%

Completion: 2020

Status: Complete

60% traceability to plantation level for palm sourced directly to LDC refineries

60%

Completion: 2020

Status: Complete

90% of volumes sourced by LDC to come from verifiably responsible suppliers

90%

Completion: 2020

Status: Complete

60% of mills supplying LDC refineries to provide LDC-approved NDPE self-declaration

60%

Completion: 2020

Status: Complete

Suppliers representing 40% of direct volumes field-verified for NDPE compliance and GAPs

40%

Completion: 2020

Status: Delayed

Train an additional 750 South Sumatran palm smallholder farmers in GAPs

750

Completion: 2020

Status: Complete

New and amended targets

100% traceability to mill level for palm sourced directly to LDC refineries

Completion: 2021

90% of volumes sourced by LDC to come from verifiably responsible suppliers

Completion: 2021

Train a further 1,000 South Sumatran palm smallholder farmers in GAPs

1000

Completion: 2021

95% traceability to plantation level for palm sourced directly to LDC refineries

95%

Completion: 2022

100% of mills supplying LDC refineries to provide LDC-approved NDPE self-declaration

100%

Completion: 2025