The Palm Scribe

South Korea and its Companies Play Large Role in Palm Oil Leakage Market

South Korea and its companies play a large role in the global trade of sustainable palm oil, with the lack of government legal requirements for companies to assure the sustainability of supplies, the safeguard of the environment and the respects of human rights, activists said.

South Korea’s public institutions do not seem to take an active role in enforcement of human rights policies and, or, due diligence of the companies they finance, Sarah Drost, a consultant with Aidenvironment told a webinar on Thursday (21/1), citing studies conducted by two South Korean NGOs, KFEM and APIL.

“It also does not appear to have in place appropriate measures to prevent or minimize economic, social, and cultural damage,” Drost said, elaborating on a report released by Chain Reaction Research last month which she co-authored.

The report discusses the role of South Korean companies in the worldwide palm oil market and the country’s position as an owner of oil palm concessions, a buyer of palm oil products, and a financier of palm oil operations.

“South Korean companies are significant leakage players as both developers of plantations and buyers of palm oil products,” Drost said adding that they continued to leak unsustainable palm oil into international markets.

Shin Young Chung from APIL, speaking at the same webinar said that among the difficulties in addressing problems in the palm oil sector in South Korea were the lack of legal basis to address them.

“It is difficult to hold the companies accountable,” Shin said, explaining that South Korea, which more than doubled its palm oil imports within the last decade absorbing 648,496 metric tons of palm oil and palm oil products in 2019, had no laws requiring human rights due diligence or the monitoring of supply chains from company, or the mandatory disclosure of Environmental, Social and Governance (ESG) information.

Drost said that South Korean plantation companies, including those who with No Deforestation, No Peat, No Exploitation (NDPE) policies, also continued to receive financial assistance from both South Korean and European financial institutions.

“South Korean and European financial institutions fund South Korean leakage palm growers overseas despite deforestation and human rights violations.,” Drost said, while Shin said that APIL which had studied the government’s overseas funding mechanisms and due diligence, could not find evidence for systematic loan review processes. 

She said that six South Korean plantation owners operating mostly in Indonesia, had significant non-compliance issues linked to environmental, social, and human rights issues

The Chain Reaction Research report named them as Posco International, Korindo Group, Samsung C&T, Daesang Corporation, LG Corporation, and JC Chemical.

Korindo and Posco have the highest amount of deforestation of all six companies, the report said, adding that in 2016 and 2017, concessions belonging to both cleared over 17,500 hectares of forest. Daesang Corporation cleared 347 hectares of peatland on its plantation concession after 2016. January 1, 2016 is commonly seen as the cut-off date for NDPE compliance.

The top-5 South Korean buyers of Indonesian palm oil–JC Chemical, Dansuk Industrial, GS Global, AK Holdings, and LG Corporation–accounted for78 percent of imported palm oil from Indonesia in 2019 but none of them appeared to have public NDPE commitments, and they did not seem to screen their palm suppliers, Drost said. 

“As a result, the buyers are at greater risk purchasing unsustainable palm oil. The main buyers’ websites do not provide any evidence of systematic due diligence on their palm oil suppliers to determine if violations of environmental, social, human rights, or cultural values have occurred,” she said.

There was also no transparency on their suppliers through publicly listed mills and grievances or proof of segregated purchases of palm oil, she added. 

The Chain Reaction Research report said that 33 percent or 135,709 MT, of all imported palm oil from Indonesia in 2019 and H1 2020 to South Korea came from “leakage growers and refiners.”

The report identified these growers and refiners mainly as Incasi Raya Group, Salim Group, Tunas Baru Lampung, and Wings Group “who either lack NDPE commitments, or who do not seem to implement them.”

Some of the South Korean growers operating in Indonesia have come under pressure from NDPE traders and financial institutions who suspended sourcing or financing.

NDPE traders including Nestlé, Bunge Loders Croklaan, Wilmar and Cargill, have suspended buying from Korindo because of deforestation, illegal burning, and loss of High Conservation Value areas on its concessions between 2016 and 2018.

The Norwegian Sovereign Wealth Fund and ABP divested from Posco International in 2015 and 2018 respectively because of its“environmental damage.” UK’s largest drugstore retailer Boots also ended its retail partnership with Posco. 

“South Korean growers continue to find customers despite suspensions by large traders,” Drost said.

The Chain Reaction Research report said that Korindo and Posco were leaking unsustainable palm oil to non-NDPE Indian refiners, and LG Corporation also served non-NDPE markets in India. 

Despite NDPE policies now covering 83 percent of the palm oil refining capacity in Indonesia and Malaysia as of April 2020, other geographical markets have not seen coverage at such high levels, the report said.

India, China, Pakistan, and Bangladesh likely represented the largest leakage markets.

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