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Roundtable Palm Oil Plantation Sector [first session 2023]

This is the third year of Roundtable sessions jointly organised by the CEO Action Network and CGM to raise issues and mobilize the private sector in increasing climate ambition and climate resilience.


The palm oil industry in Malaysia is one of the largest landowners in Malaysia, therefore, the most impactful at dealing with issues with deforestation, pollution and other relevant issues. Hence, these sessions aim to give thought leaders a platform to voice out their opinions and help the industry stay ahead of the sustainability narrative.


This roundtable on the Palm Oil Plantations Sector was organised with the support of the Roundtable on Sustainable Palm Oil [RSPO] and Sime Darby Plantation. Reading material & speaker profile are available online for this session as is the recording. Read the recap of past Roundtable sessions here or watch the recording on this channel.



Panel 1: Monitoring Zero Deforestation Commitments & Ensuring Traceability

Panellists:

Yen Hun Sung, Head of Impacts, RSPO

Olivier Tichet, Director of Sustainable Supply Chain, Musim Mas

Azmi Yaakop, Chief Strategic Communication Head of FGV Holdings



Yen Hun Sung shared data indicating that global annual deforestation associated with oil palm peaked in 2009 and 2012, declining significantly after 2013 while estimated deforestation in both Malaysia and Indonesia has reduced dramatically from its peak from 2006-2010 [source: World Resources Institute].


There has been a decoupling of agricultural commodity prices from deforestation in Indonesia, which indicates that sustainability practices in Indonesia are gaining traction.


Therefore, traceability becomes the question now, away from “how do we reduce deforestation as a result of palm oil production?” towards “how do we show the markets and consumers that our palm oil derivatives and products are free of deforestation?”


Olivier Tichit pointed out that smallholders, as independent palm oil farmers, sell their produce through middlemen. They are more unpredictable, more ruthless and less altruistic in their approach to farming, and requires government involvement, whether national, regional and district level government, as the latter deals directly with farmers. there are a number of forums being held to educate small farmers in Indonesia.


Olivier also suggested moving away from certification and towards verification. Once a region is verified to be deforestation free, there is no further need for certification, reducing the need for bureaucracy and red tape.


Azmi Yaakop reiterated the importance of educating small holders regarding sustainability practices, as they have very different aims: requiring capital for certification; having difficulty in obtaining land titles; and wanting premium prices in exchange for certification.


During the Q&A session, a few relevant topics were brought up. Firstly, the definitions of deforestation were addressed: Yen noted that the European Union Deforestation Regulation (EUDR) is largely similar to local regulations but we need to be able to prove compliance.


Azmi mentioned that the Western market, mainly the European and US customer base, are very strongly convinced that palm oil equates to deforestation even though the opposite is now true.


The Moderator Joseph D’Cruz surmised that a strong, authentic narrative is now needed, that palm oil production is now largely deforestation free. He also pointed out that the palm oil industry, namely RSPO, has also taken steps to synchronize with other industries to push for zero deforestation, including the Malaysian government, to demonstrate that we are capable of living up to sustainability practices, and convince trading partners.


M.R. Chandran, a senior advisor in the industry, brought up that in order to prevent deforestation, the central government has to work with the state government to regulate pristine forest reserves and prevent deforestation of said forests.


Joseph added that there were times in the past, when the central government did try to provide monetary allocation to get state governments to protect such forest areas, in exchange for purported lost economic opportunities. Nevertheless, it is still crucial for the private sector to work with various authorities to demarcate areas for forest reserves as there is increasing civil and market support for the inhibition of deforestation, and efforts for reforestation.


Panel 2: Reducing Emissions & Decarbonising the Grid

Panellists:

Muazzam bin Mohamad, Head of Investment Stewardship Division, PNB

Rashyid Redza Anwarudin, Chief Sustainability Officer, Sime Darby Plantation,

Ir. Qua Kiat Seng, Senior Lecturer of Engineering (Practice), Monash University



Muazzam described how PNB currently has assets under their management worth RM343 billion, which mathematically represents approximately 10% of Bursa Malaysia, reflecting the potential power to evoke change in the capital markets. PNB launched its sustainability and ESG framework last year, pledging to invest RM 10 billion in new green and transition assets by 2030.


PNB has also been hard at work quantifying emissions from Scope 1-3, while balancing profitability with social investments, and launching a labour rights policy in December 2022, highlighting 6 different aspects as its pillars to be adhered to strictly.


Rashyid described that almost 80% of Sime Darby Plantations (SDP)’s GHG emissions are from their mills, which triggered interventions such as biogas capture, utilization of biomass as fuel, etc.


SDP made the following commitments to achieve net zero emissions:

1. Acceleration and Expansion of Renewables via methane capture projects in mills and implementation of solar farms in identified areas.

2. Land Use Transformation via reforestation efforts and usage of stabilized fertilizers.

3. Enhancing Supplier Engagement to ensure NDPE (No Deforestation, no Peat, no Exploitation) policies in the supply chain and engaging suppliers to adopt science based emissions reduction.


Qua shared that Malaysia’s net emissions in 2020 was 75 million tonnes while the potential use of biofuel, biomass and biodiesel as primary sources of energy can be as high as 25%. However, Malaysia’s use of biofuel sources is currently 1% of our energy sources, which is a huge gap between the potential of biofuels used as energy sources and its actual usage.


In 2018, Qua and his colleagues had calculated that utilising biofuel sources to its fullest potential, the palm oil industry could potentially achieve close to net zero emissions; an emission intensity of 0.01, giving examples of plants which use biofuels to increase energy efficiency, such as the Sandakan Biopower Plant, a combined heat and power plant.


Regulations could standardize and provide assurance that biofuel sources are reliable sources of fuel, rather than waste. Industry collaboration is also needed. Funding from the government and banks would further unlock potential sources of biofuel.


Q&A session

Datuk Henry Barlow, CGM Council Member suggested that members of sustainability committees from different companies should meet, without the presence of higher management, with the certifying bodies, to review the spectrum of sustainability policies, to which Muazzam concurred.


In 2011, Malaysia enacted the Renewable Energy Act, which has not been enforced. IEA forecasts that reduction emissions will be driven more by increasing energy efficiency and less so by exploring renewable sources such as nuclear, solar etc.


Usage of biomass as energy sources from the palm oil industry i.e. crude palm oil (CPO) is lacking as high biomass prices charged by palm oil mills due to their perceived premium prices under the National Biomass Strategy 2020.


Malaysia’s Renewable Energy Roadmap (MyRER) proposes to increase bioenergy utilization in Malaysia by dividing mills into clusters and diverting biomass from adjacent plants without bioenergy conversion technology to those that do. Transportation costs could be a potential barrier towards the implementation of this policy.

Panel 3: Strengthening Labour Rights

Panellists:

Gajani Nayagi Seeveneserajah,Chief Risk Officer, Sime Darby Plantations

Sharmila Sekaran, Senior independent director, Top Glove

Adrian Pereira, Executive Director, NSI North South Initiative


Gajani described how Sime Darby Plantations (SDP) was faced with a Withhold Release Order (WRO) by the US Customs and Border Protection (CBP) on allegations of forced labor.


In an effort to improve their standards in terms of labor, SDP had undertaken a continuous improvement programme for 12 to 18 months and measured themselves against the International Labour Organisation (ILO) forced labor indicators. US CBP issued a statement that SDP’s products are no longer produced through forced labor, while SDP has shifted its focus towards implementing these human rights friendly practices in business-as-usual (BAU) operations.


3 particular key areas were highlighted:

1. Structural changes: dedicated units to sustain changes implemented and to explore new practices to adapt to evolving worker needs.

2. Continued focus on enablers: Multiple grievance channels, including social platforms for workers to discuss issues in a collaborative fashion to ensure their voices are heard.

3. Key Performance Indices (KPI): to track social wellbeing of workers, including worker surveys, on their living and working experiences.


Migrant workers are more vulnerable to exploitation, hence SDP is trying to localize their workforce, which requires a paradigm shift to attract locals, from what was considered as 3D work (dirty, dangerous, difficult) towards skilled labor, as SDP automates and mechanizes production and harvesting.


Sharmila observed many companies are unable to embed worker welfare practices and there may be a hesitation to improve migrant workers’ lives due to pervasive problematic beliefs. These beliefs need to be dealt with in order to improve the welfare of migrant workers. Labour rights are also inextricably linked with the fundamental rights of a human being.


If worker surveys were implemented and without considering their freedom of speech, for example, the workers are in fear of being punished for speaking out, which will lead to such surveys becoming redundant. Another example, would be the right to clean air, which has led to an increased prevalence of asthma among children. This will in turn result in increased behavioral and societal issues among the younger generation who will become our future workforce.


Adrian proposed that the government has to play a bigger role in determining how to regulate the companies so that there is more corporate responsibility to ensure labor rights are being taken care of. Currently, labor rights reform in Malaysia is largely driven by external factors like the Trans-Pacific Partnership Agreement. It is also important that governmental and company policies match, to ensure that the implementation of labor rights reform is not impeded.


Sooner or later, the international agencies like the Canadian and European agencies, will start enforcing and penalizing labor right violations. Therefore, if the government is unable to table labor laws or enforce them, the companies must come together as a united coalition to nip the problem in the bud before the international agencies start blacklisting Malaysian companies for labor right violations. It is crucial to include labor movements like unions, both migrant and local, in the labor discussion, to generate creative ideas, as they are on the ground working.


All in all, we must raise the bar in terms of ensuring labor rights are not violated, so as to stay ahead of the curve and not fall short of international standards.


Belvinder of MPOB then stepped up to share that prior to the WRO, Malaysia was exporting 1 to 1.5 million tonnes of palm oil to the US which dropped to 200,000 tonnes after the WRO was imposed. The Trafficking in Persons Report has downgraded Malaysia to Tier 3, for the past 2 years.


It is paramount that the government engages the authorities regarding allegations of human trafficking and forced labor concerns. Datasets which resulted in the Tier 3 classification outdated and sources are not verifiable. Further, smallholders and small plantation owners are unable to take corrective measures to deal with allegations of forced labor.


Muazzam hypothesized that perhaps there should be a greater alignment with all of the different agencies in charge of enforcing labor laws.


M.R. Chandran questioned how the Malaysian palm oil industry is still being perceived as having gaps by the international community, even after following the robust standards set in place by RSPO, MSPO, and other relevant authorities, with even ILO representatives giving input.


Gajani countered that it wasn’t the standards that weren’t robust enough, but really the interpretation of it that differed greatly, hence causing the implementation of the standards to be wanting.


Shahida from Maybank asked for attention to the social side of ESG, not on environmental issues exclusively, especially with workers that are inevitably left behind.


Adrian reiterated that corporations have to take responsibility, and more crucially hold the government responsible to enforce sustainability policies competently. Because at the end of the day, if the government doesn’t pick up the slack, the Malaysian palm oil industry as a whole, along with other adjacent industries will suffer as a result of blacklisting.


He also mentioned that fraudulent audits are an issue here in Malaysia, which can result in the industry as a whole being blindsided until the issue blows up. The industry should help in coming up with more comprehensive policies to ensure that this doesn’t happen again.


Gajani concurred and repeated her earlier point that we need to ensure uniform interpretation and subsequent implementation of the standards.


Sharmilla reminded that companies needed to view labor rights from a more fundamental human rights perspective, rather than just a checkbox to tick.







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