CDP’s Global Disclosure System Helps Build Transparency in the Palm Oil Industry

There are several layers and players involved in achieving sustainability in the palm oil industry. These players play their own part to help the industry achieved their profit, help farmers become more prosperous, while at the same time, try and safeguard the environment.

One of those players is CDP, formerly the Carbon Disclosure Project, which envisions a world with a thriving economy that works, in the long term, for people and the planet.

During the “CDP-LTKL Workshop on Accelerating Implementation of Sustainable Palm Oil Commitments” held in Jakarta (14/3), the UK-based organization came under the spotlight for their work in helping commodities to become more sustainable, ensuring transparency in the sector through a disclosure platform.

“Our mission is to focus on investors, companies, national and subnational governments to take urgent actions to build a truly sustainable economy. We support decision-making and action by offering a global disclosure system that enables companies, cities, states, and regions to measure and manage their environmental impacts.” Morgan Gillespy, CDP’s Director of Forests told The Palm Scribe in an exclusive interview.

Through the disclosure platform, data and tools, CDP supports and advocate transition plans to reduce emissions, avoid deforestation, deliver water security and build resilience to climate change. With offices and partners in 50 countries, they have driven unprecedented levels of environmental disclosure. Over the past 17 years, this organization has built the most comprehensive collection of self-reported environmental data in the world.

This transparency is used to make better-informed decisions by their network of investors and large purchasing customers, representing over $100 trillion, along with policymakers around the globe.

“We aim to make environmental reporting mainstream and provide the detailed insights and analysis to drive the urgent actions needed for a climate-safe, water-secure, and deforestation-free world,” Gillespy said.

Since 2013, CDP’s work on forests has focused on removing commodity-driven deforestation from value chains by engaging with companies around the globe that produce and procure forest-risk commodities such as soy, timber, beef, palm oil, and rubber. CDP provides these companies with a platform to report information to investors and large purchasing customers about their efforts to manage deforestation risks and protect global forests.

Since disclosure is at the heart of their strategy, CDP requests information from companies, cities, states, and regions on the impacts and dependencies they have on forests, and their strategies for managing them. By doing so, they directly influence improvement in environmental performance and drives continuous improvement by benchmarking companies on an annual basis.

CDP’s disclosure system has shown that through the provision of annual data, both investors and companies can better understand, manage and mitigate deforestation risk while capitalizing on opportunities.

Table 1. CDP development since 2002

Specifically for the palm oil industry, CDP has contributed to sustainability through the process of disclosure that incentivizes companies to measure, manage and reduce their impact on the environment. Independent research has found that companies that measure and disclose Glasshouse Gas (GHG) emissions to CDP achieve greater-than-anticipated emission reductions.

“In the palm oil sector, CDP’s forests questionnaire takes companies on a journey that starts with creating awareness through the process of disclosure. This then generates insights from the reported data, and finally leads to action to address deforestation risks and realize the business opportunities associated with shifting to more sustainable practices,” she said.

“CDP analysis demonstrates that while only 43 percent of first-time disclosers have climate risk management plans in place, this has risen to 71 percent by the third year,” she added.

In 2017, CDP’s launched its supply chain- forests questionnaire, to enable large purchasing organisations to better manage their forests-related risks and opportunities through supplier disclosure. By 2018, 14 members of purchasing organisations requested their suppliers report to CDP; which was responded by over 305 suppliers. This was a dramatic increase from just 88 suppliers responding to eight members in 2017.

Encouragingly, many of the suppliers responding in 2018 were from the high deforestation-risk region: 68 suppliers responded from Brazil, and there was increased in engagement in Indonesia where 50 suppliers were either producing and/or sourcing palm oil.

In Indonesia, CDP’s Power of Procurement project focuses on removing deforestation from palm oil supply chains while in South America, Europe, and China it focuses on the deforestation related to the flow of cattle products and soy.

However, one important question begs for an answer: Why are companies willing to disclose their data to CDP, and what do they get in return?

“CDP’s information request is backed by either investors or buyers. The information request is used by investors and buyers to support their decision-making processes. For example, buyers have used CDP supply chain information request to inform their procurement decisions. This action encourages and incentivizes supplying companies to perform well in their disclosure.” Gillespy said.

CPD, however, does not verify the reported data. CDP’s scoring methodology rewards companies for getting third-party verification of data points disclosed in their forests response, and for reporting which verification standards were used.

Based on CDP data, 45 percent of companies identified that supply chain complexity is the main challenge in removing deforestation from their value chain. These complexities make traceability particularly challenging for consumer-facing companies that are most vulnerable to reputational risk.

Data from 2018 says that 69 companies that reported to producing in, or source palm oil from Indonesia, only 4 percent could prove 100 percent traceability of their palm oil to the mill point; another 4 percent could trace 100 percent of their palm oil only up to the plantation point.

Table 2. CDP scores for palm oil companies which have operations in Indonesia and the region

“Thirty-five percent of companies agree that the biggest opportunities related to palm oil are located in their supply chain. From a CDP perspective, we encourage companies to strengthen their supply chains by investing in developing the capacity of producers and small- and medium-sized enterprises,” Gillespy said.

“This is critical given the significant contribution of smallholder farmers in palm oil production in Indonesia. It also helps avoid creating a two-tier market, and most importantly to manage corporate risks to ensure long-term profitability for companies,” he added.

As more and more companies, cities, states, and regions increasingly recognize the benefits of acting, and the risks of continuing business as usual, CDP is confident that within five to ten years from now more and more organizations will be willing to join the discourse, but there would be plenty of homework to iron things out.

“First, environmental concerns need to underpin every decision that companies, cities, and investors make. Considerations around climate impact, water management, and deforestation belong squarely in the boardroom of every major corporation in the world, and in every town hall and governor’s office,” she Said.

Already the tides are changing on climate governance, with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures ensuring that climate information is integrated into mainstream financial reports, he added.

“The transition to a sustainable economy will also require the movement of large amounts of financial capital toward low-carbon, less water-intensive investments. Trillions of dollars of investment are waiting to be unlocked, but this cannot be done without the right information, which CDP is working to provide.” Gillespy Said.