Financial institutions & palm oil

What are some of the major global financial institutions doing about palm oil sustainability issues?

And what risks are they reducing in the process?

Commercial banks are sharpening their palm oil and timber risk assessment policies plantations. Why? To avoid negative environmental and social impacts of their lending and investment activities. Some have developed written statements on palm oil.

 Bank Palm oil policy
 Rabobank Stand-alone palm oil policy
HSBC Part of broader Forest Land and Forest Products Sector Guideline

Socially Responsible Investment is gaining recognition as a way to manage investment risk. Engagement policies may cover such areas as: environmental impact, labour rights, and human rights.

One institutional investor that has been actively involved in efforts to promote sustainable palm oil production is the Co-operative Insurance Society (CIS). CIS has engaged with investee companies in the palm oil supply chain to encourage them to join the RSPO and to commit to buying sustainably produced palm oil.

Reducing risks in palm oil investments and investing

By adopting sustainable practices, upstream companies reduce their exposure to compliance risks due to violation of regulations, social risks due to local conflicts, market risks due to the loss of market share as demand for sustainable palm oil grows, and reputation risks.

Downstream, consumer-facing companies using palm oil are also exposed to risk due to consumer concerns about the impacts of palm oil.

Reducing these risks strengthens the commercial prospects of your client or investee and in turn reduces your financial institution’s exposure to default and reputation risks.

Sustainable banking and investing: a wider issue

Developing and implementing a responsible palm oil policy will normally be part of a larger effort by a financial institution to adopt a sustainable approach in all its operations.

There would be limited value in developing a responsible palm oil policy if a financial institution’s overarching policies and procedures do not recognize environmental and social risks more broadly. Important initiatives in this process include:
  • UNEP Finance Initiative
    UNEP FI is a global partnership between UNEP and the financial sector to understand the impacts of environmental and social considerations on financial performance.
     
  • The Principles for Responsible Investment
    The PRI provides a framework for considering environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios.
     
  • The Equator Principles
    The EP are a set of environmental and social benchmarks for managing environmental and social issues in development project finance globally.
     
  • IFC Performance Standards
    (IFC's position on palm oil: here)
 / ©: Alain COMPOST / WWF-Canon
Loggers clearing a swamp forest for a palm oil plantation. (Illegal logging) Central Kalimantan, Indonesia.
© Alain COMPOST / WWF-Canon

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