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What will motivate companies to source palm oil responsibly?

Being more sustainable is good for a company's bottom line and reputation. So why are companies, as seen in WWF's recent Palm Oil Scorecard for Singapore and Malaysia, dragging their feet on sustainability? SIIA researchers discuss. By Eco-Business

For several years, the Singapore Institute of International Affairs (SIIA) has been actively engaging industries on the sustainability of their business practices.

What we have found is that while adopting sustainable practices is becoming increasingly important for businesses, many have yet to enact corporate sustainability policies and lack staff trained in identifying and addressing sustainability issues.

A clear example of this is the stance that local companies are taking on palm oil. Last week, the World Wide Fund for Nature (WWF) released its Singapore and Malaysia Palm Oil Buyers’ Scorecard, which revealed that only six out of 47 major Malaysian and Singaporean companies surveyed were buying sustainably produced palm oil.

Many companies cited higher prices and lack of consumer demand as reasons for not doing so. But sustainable palm oil can cost as little as 1 additional cent per litre, and in the week since the Scorecard was launched, over 30,000 members of the public have sent emails to voice their concern to the CEOs of the companies surveyed.

The Singapore Alliance on Sustainable Palm Oil, of which SIIA is a member, was also established last year to make it easier for companies to make the switch by connecting them with other committed buyers and suppliers of sustainable palm oil.

Are companies intentionally dragging their feet on the issue, and how can we send a stronger signal to companies to source more responsibly?

Scoring companies on their sustainability commitments, as WWF is doing, can highlight the gap between public expectations and companies’ actual behaviour. Following the Scorecard’s release, five companies that previously did not respond to WWF’s queries have now publicly committed to sourcing sustainable palm oil.

Efforts made by civil society organisations are also having a tangible impact. Over the past year, local NGO People’s Movement to Stop Haze (PM.Haze) has mobilised volunteers to go door-to-door to help food establishments understand why they should switch to sustainable palm oil. Veganburg is one local restaurant that has heeded PM.Haze’s call.

It appears that companies are willing to switch to sustainable palm oil once they understand the importance of doing so. All the same, it is shocking how little companies know about sustainability, given the direct impact it can have on their financial performance.

As the effects of climate change worsen and our planet’s resources come under increasing strain, sustainability issues will increasingly affect companies’ bottom lines. For some companies, failing to adequately address sustainability issues has already translated into financial impacts through increased reputational risk.

For example, during the 2015 haze episode, supermarkets pulled Asia Pulp and Paper (APP) products from the shelves after the company came under investigation by the National Environment Agency for their links to the Indonesian fires. APP products continue to be absent from many local stores. A 2015 paper by researchers from the National University of Singapore also showed that consumers become much less likely to buy a product when told that it is linked to deforestation.

Sustainability is not just about avoiding risk—it can also be a powerful way to differentiate a business. There is a positive association between the strength of a company’s sustainability commitments and its profitability. Numerous studies have also shown that consumers are willing to pay more for products certified as fair-trade or sustainably produced.

It is understandably difficult for companies to begin examining the entire scope of their operations through a sustainability lens. But as an issue that has already gained major traction and consumer attention, palm oil is an ideal place to start.

By demanding only sustainable palm oil, food service and consumer goods companies can do a great deal to push growers away from unsustainable, environmentally damaging practices.

On October 20, the SIIA will host a workshop in Jakarta, entitled “Making Green Finance Count: Impact Investing for Indonesia’s Agricultural Sector”, to help palm oil buyers and investors understand how they can help bring about this supply chain transformation.

Local companies now face a choice: they can either carry on with business-as-usual, or they can commit to help transform the palm oil industry. By choosing the latter, they can boost their company’s reputation, consumer trust, and economic profits. The decision is not a difficult one to make.

Fawziah Selamat is Deputy Director (Sustainability), Singapore Institute of International Affairs, and Pek Shibao is Policy Research Analyst (Sustainability) at the Singapore Institute of International Affairs.

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