Despite mounting international pressure and risks of deforestation linked to Indonesia’s palm oil industry, only 22% of Indonesia’s palm oil companies have implemented deforestation policies
A new report by CDP finds that while palm oil companies have modestly increased pledges towards more sustainable practices, only a small fraction have actually implemented policies to reduce deforestation.
Indonesia is one of the most biodiverse countries in the world, and the destruction of the country’s tropical forests is a major risk to both the climate and the global supply chain.
Scaling up regulation and support globally to reduce deforestation and increase the sustainability of the palm oil industry is key to accelerating action.
According to the latest research from CDP, only a small fraction of companies operating in the country are taking concrete steps to limit deforestation. This is a critical risk to the global commodity supply chain, as Indonesia is one of the most biodiverse countries in the world, home to the world’s third largest rainforest and a significant proportion of the world’s flowering species, mammals, birds, and reptiles.
The problem is that Indonesia is also home to the world’s largest palm oil industry, responsible for over half of global palm oil production.
The rapid expansion of Indonesia’s palm oil industry has led to mass deforestation, forest fires, release of carbon emissions, and air pollution. From 2001 to 2019, the land area for palm oil doubled in the country, reaching 16.24 million hectares and causing the loss of nearly one-third of Indonesia’s old growth forests.
Not enough effort to limit deforestation
Indonesia is currently the world’s eighth largest greenhouse gas (GHG) emitter, with the Agriculture, Forest, and Other Land Use (AFOLU) sector responsible for over half of the country’s emissions as deforestation for agricultural purposes is destroying the country’s important carbon sinks.
Rising international concerns about the environmental impacts of the palm oil industry have led to many global initiatives to halt the deforestation of the industry such as the Sustainable Palm Oil Initiative, and alliance between the government of Indonesia and the United Nations Development Program (UNDP), and the multi-stakeholder Roundtable on Sustainable Palm Oil.
However, despite these efforts a new report from CDP, the non-profit that runs the world’s environmental disclosure system, shows that only a small fraction of companies producing and sourcing palm oil in Indonesia have taken concrete steps towards reducing deforestation in their activities.
“In Indonesia primary forest loss has fallen over the last five years and whilst companies are moving in the right direction, more action is needed to maintain this trend” commented CDP’s global director of forests and land Thomas Maddox.
Indonesia’s palm oil companies are failing to decouple production with deforestation
The CDP report analyses the data disclosed by 167 companies that produce and/or source palm oil from Indonesia through the organisation’s forest questionnaire in 2021.
The report tracks companies’ progress against CDP’s 15 key performance indicators (KPIs) to measure the level of compliance of companies taking action on deforestation. These KPIs are based on the Task Force on Climate-Related Financial Disclosures’ (TCFD) categories of governance, strategy, risk management and metrics and targets.
Analysis of companies against these KPIs show that there has been a slight increase in actions and initiatives to slow down deforestation, but these actions are not robust or comprehensive enough to have a meaningful impact to half deforestation activities.
CDP finds that while 86% of companies have implemented deforestation policies in some capacity, only 22% have actually put in place public and comprehensive no-deforestation policies.
Failing to follow through commitments
Due to increasing public pressure and both international and national policies to limit deforestation, three-quarters of palm oil companies have put in place commitments to develop more sustainable supply chains and production practices. Yet, CDP finds that only 28% of these companies have actually followed through with the promised commitments.
The same results can be seen when considering traceability systems and certification schemes.
While 28% of companies have traceability targets and 43% have certification targets, only 16% and 4% have actually set up reporting mechanisms to track progress towards these targets respectively.
While over 90% of companies use some sort of certification scheme for their products, only 2% are using deforestation-free compliance third-party verified schemes that cover over 90% of their production or consumption of palm oil.
The results of this report bring to light a worrying trend that palm oil companies are setting front-facing targets and initiatives, but with no intention to back these up will meaningful action and scale to transition to more sustainable and transparent business practices. There seems to be a stark disparity between what palm oil companies say, and what they actually do.
The economic risk of deforestation
Failure to cut back on deforestation in the palm oil industry will have grave economic consequences for these companies, as well as the world.
Over half of the world’s GDP, or approximately $44 trillion, is moderately or highly dependent on nature. Forests are one of the main contributors to these economic activities, providing important services for the livelihoods of people across the world, with around 500 million people depending on them directly.
From an emissions perspective, forests are a critical source of carbon sequestration to slow down the dangerous impacts of climate change. The Intergovernmental Panel on Climate Change (IPCC) finds that forests have the potential to reduce global emissions by up to 30%.
Reducing and mitigating carbon and other GHG emissions is important to limit the physical risks of climate change, which have the potential to destabilise financial systems and businesses globally as the impacts of climate change are increasingly felt across the world.
Risks imminent in various industries
One study found that the paper, cattle and timber industries could face up to US$80 billion in supply chain risks from changes in forest-related ecosystems driven by deforestation.
These risks are also imminent in the palm oil industry. The CDP report found that 44% of the companies analysed reported over US$18 billion worth of risk related to sourcing and/or producing palm oil from Indonesia.
Yet, 40% of these companies reported that the cost of early action to manage these identified risks is around US$656.4 million – just a fraction of the risk value. Failure to change business practices to manage these risks is therefore not a question of finance, but rather one of corporate will and lack of governance on deforestation issues.
Increasing global action to slow deforestation and protect biodiversity
CDP’s director of Southeast Asia and Oceania, John Leung argues that “biodiversity needs to be tackled in the same way as climate emissions”.
Indonesia’s government has recognised the massive problem that deforestation and the palm oil industry poses for the country and wider climate action. In the country’s updated Nationally Determined Contribution (NDC) under the Paris Agreement, Indonesia has committed to reduce its emissions by 60% primarily through transforming its forestry and land use into a net carbon sink by 2030.
At COP26 in Glasgow, Indonesia was also one of the 137 signatory countries of the Glasgow Leaders Declaration on Forests and Land Use. Under this declaration, countries pledged to “halt and reverse” the rate of deforestation by the end of 2030.
However, Indonesia’s environment and forestry minister Siti Nurbaya has made it clear that the country’s commitment to use its precious forest resources as a net carbon sink does not mean that they will halt deforestation altogether by 2030 because this would “unfairly” take away economic opportunities from the country.
“The massive development of President’s Jokowi’s era must not stop in the name of carbon emissions or in the name of deforestation,” said Nurbaya in a tweet.
This point of view is not uncommon with developing countries, as “climate colonialism” forces developing countries to sacrifice their economic opportunities to solve a problem that was primarily caused by developed countries.
In fact, over 85% of Indonesia’s palm oil is actually exported to other countries. This means that Indonesia’s deforestation problem caused by palm oil production should not only be tackled by national policy, but also by putting in place international standards to manage deforestation and increase sustainability in the palm oil industry.
The UN’s Biodiversity Conference COP15, taking place in Montreal in December 2022, will be a key arena whereby countries can increase targets and actions to reduce deforestation and catalyse more sustainable systems that can continue to support the economic development of countries such as Indonesia, without sacrificing nature.