Engagement with palm oil companies

Deforestation strongly contributes to the increasing emission of greenhouse gases and, subsequently, to climate change. The commercial agriculture, mainly in the palm oil, cattle, and soy sectors, accounts for around two-thirds of the deforestation. The impact of the palm oil industry on deforestation, especially in Indonesia and Malaysia, is both enormous and pressing. Land has been defined as a focus area by ACTIAM and it actively participates om the UN PRI engagement programme on palm oil (in addition to soy and cattle).

Since 2017, ACTIAM participates in a an engagement programme of the UN PRI and CERES. The purpose is to address deforestation by companies in the livestock farming, soy, and timber industry. The UN PRI network is an international group of institutional investors which collectively work on the promotion of ESG integration in the investment process. CERES is a not-for-profit organisation that seeks collaboration with the most influential investors and companies to find solutions for the largest sustainability challenges of our times, such as climate change, water scarcity issues, and deforestation.

Continuation of the engagement

The current engagement programme builds on previous efforts aimed at the improvement of transparency and policies regarding deforestation and biodiversity within the palm oil supply chain. The dialogue between the investors - united in the Investor Working Group (IWG) - and the palm oil industry already kicked off in 2011. Since 2013, engagement activities have been carried out with fourteen large palm oil producing companies in order to enforce improvements related to transparency and policies in the area of native people and their environment. Under the umbrella of UN PRI, ACTIAM is actively involved in these engagements with major players in the market such as Wilmar International and Golden Agri-Resources, which ensures a continuous focus on this sector.

Identifying the impact

The first step is to identify the impact of the palm oil sector: which regions are facing the largest risks and which palm oil companies are actively involved, including listed companies as well as suppliers in the chain.

The impact of the engagement is considered and transparency is one of the objectives. Issues that are monitored, are the quality of the land use (RSPO certification), the cessation of deforestation, the safeguarding of human rights, certification of suppliers, and increasing the efficiency on the plantations. This last aspect is of great importance as it can limit the amount of land that the plantations need to use.

Deployment of the latest technologies

A second step is the deployment of the latest techniques and technologies. An example is studying of satellite images in order to see the development of certain land and how this can be linked to individual companies.

Engaging with parties

Developing an active dialogue with parties in the sector is an important next step. This usually begins with sending a letter with the request to start the dialogue. When the company responds positively and the dialogue develops, the possibilities and options to work in a more sustainable way will be discussed with the company . ACTIAM also sets measurable goals in this regard.

Measuring progress

ACTIAM's ambitions go beyond just forming an opinion and starting the dialogue with companies. One of the essential aspects is the monitoring process to check whether the changes are actually implemented; it is all about a lasting effect. The progress that companies effectively book is evaluated. Not just the efforts made by the company itself are reviewed, but also which requirements the company, in turn, sets its suppliers and subcontractors. When a company is unwilling to cooperate, ACTIAM can decide to discontinue the engagement and to exclude the company from investments.

What is the result?

Most companies in the engagement programme have the intention to increase the sustainability of their palm oil and have already developed policies to achieve this. Wilmar and GAR, however, have taken it a step further by keeping stakeholders informed about their progress. We see, for example, that, since 2016, palm oil producer Wilmar has a clear view of no less than 97% of the production areas on where the palm oil is processed. 95% of the purchases by Golden Agri-Resources are RSPO certified.

Together with the other investors, ACTIAM will continue to be involved, whereby the focus lies on the largest palm oil producing companies. As these companies are at the front of the value chain and are most exposed to the risks, we urge these companies in particular to cease the clearing of tropical forests and peatlands.

ACTIAM considers these engagements as an integral part of land management in Indonesia and Malaysia. This is why we stimulate the companies to maintain better agricultural practices, which increases the return and efficiency while, simultaneously, taking into account the water management and pest control. Another element of these engagements is the safeguarding of land rights via exploitation licences.

Scaling up these efforts effectively leads to economic changes with a positive impact for small farmers, communities, and employees. Additionally, the vulnerable rainforests and peatlands are secured. The principal goal is a sustainable trade in palm oil from which companies, investors, as well as our society will benefit.

Results of the engagement

ACTIAM - together with 34 other asset management companies - carries out a collaborative engagement with 13 palm oil producers. Furthermore, ACTIAM supports various collective actions in this area. A dialogue has been established with all the companies that were approached for this project and the result is that, by now, more than half (57%) of these companies have taken measures to fulfil the objectives; an increase of 14%.

It is also exceptional to see that eleven of the thirteen companies in the palm oil sector have entered into a dialogue with the investors and that already several consultations were conducted.

Not just palm oil

One of ACTIAM's focal points is the promotion of sustainability in the palm oil sector, but progress can also be made in other areas. An example is the development of a more sustainable livestock farming industry in South America, which is done in collaboration with other institutional investors. And this year also saw the launch of a programme that not only focuses on deforestation, but also on other ESG topics such as poor working conditions and land rights.

The first consultations took place with 36 companies within the entire chain, from cattle farms and meat processing companies to retailers of leather clothing and even restaurants. Together with 40 other investors (jointly representing € 5.1 trillion in managed assets), ACTIAM called upon companies throughout the entire chain to commit to the cessation of deforestation. When the engagement programme for deforestation has been completely rolled out, the focus will be extended to other products such as soy and timber.

Source: ACTIAM, as per end of March 2021