New research from CDP, a non-profit global environmental organization is showing that companies using palm oil in their products are vastly underestimating their risk related to deforestation, a situation compounded the lack of transparency in its supply chain.
In a report titled “THE PALM BOOK: Tracking progress of sustainable palm oil commitments in Indonesia”, Carbon Disclosure Project (CDP), said that only one-third of the 96 companies analyzed, or 33, reported the potential financial impact associated with substantive deforestation risk in 2019, representing $4.9 billion in losses if the risks were not managed.
Around 89 percent of the 96 companies reported producing, sourcing or using products that contain Indonesian palm oil in 2019 are already reporting forests-related risks.
It also found that just under 20 percent of the companies were on track to meet their 2020 targets of removing deforestation from their supply chains.
“Supply chains are exposed to physical risks of climate change – 90 percent of global palm oil production is concentrated in Southeast Asia in low-lying land exposed to coastal flooding. This could jeopardize global supply and risk further deforestation inland” according to the report.
The report was based on self-reported data from nearly 100 companies that produce, source or use products made with Indonesian palm oil. Of the 543 companies that disclosed their data this year, 96 reported producing or sourcing palm oil – or products containing palm oil – from Indonesia, or up 20 percent from the 80 companies in 2018 and an incredible 50 percent jump from the 64 in 2017.
CDP stated that companies are increasingly aware of the scale of deforestation risks and are starting to build the governance structures to manage them. About 91 percent of the companies that use palm oil from Indonesia in 2019 reported having board-level oversight of forest-related issues, reflecting growth from just 69 percent two years ago.
Lack of transparency was seen as the main challenge in assessing the contribution of commitments from the private sector. Despite the increase in the number of companies reporting on their use of Indonesian palm oil, disclosures are still dominated by manufacturers and retailers located in North America and Europe.
Increasing disclosure among upstream companies and producers where forests are located – including Indonesia – was vital to assessing progress toward targets to curb deforestation. The report also revealed a notable gap in technical and financial support from upstream companies to smallholders in scaling up the sector’s transition to sustainable palm oil production.
Through the CDP forest questionnaire over 500 of the world’s largest companies and their suppliers disclosed to their shareholders or customers, the inherent risks and strategies for managing the production and sourcing of agricultural commodities most associated with deforestation.
The number of companies disclosing these risks has been growing steadily: from 211 companies in 2017 to 455 in 2018, and 543 this year. A significant portion of companies reporting on the use of Indonesian palm oil belongs broadly to the food and agriculture system – including food and beverage processing, retailing, tourism and crop farming companies.
A total of 86 of these companies reported having systems to track the origin of their palm oil, up 19 percent compared to 2018. The number of companies able to trace their palm oil to mill level also increased, by 21 percent to 46 companies in 2019. However, the number of companies reporting traceability up to plantation level dropped from eight in 2018 to just five companies in 2019.
RSPO remains the certification most reported by companies in 2019. The majority of these companies reported targets focused on utilizing RSPO Mass Balance certification to fulfill their commitments.
CDP uses the disclosure platform, data, and tools to support and advocate transition plans to reduce emissions, avoid deforestation, deliver water security and build resilience to climate change.