Palm Oil Investor Review 2012

Investors have a key role to play in promoting the development of a sustainable palm oil industry. WWF’s Palm Oil Investor Review 2012 outlines how investors can play their part more effectively – and how the Roundtable on Sustainable Palm Oil (RSPO) and WWF should support them.
 
The Review also summarizes findings from a first-of-its-kind survey of 35 key palm oil investors, examining their understanding of, and progress in dealing with the challenges related to palm oil and sustainability.

Why are investors important?

More than 50 million tonnes of palm oil are used worldwide each year in everyday products including food and cosmetics. From 2010 to 2020, this volume is projected to increase by over 65%.

The growing demand for palm oil has resulted in rapid and poorly managed expansion of production, causing deforestation, species loss, large-scale greenhouse gas emissions, displacement of indigenous communities and the loss of ecosystem services (such as food, fuel, fibre and medicinal products) on which these communities depend.

Investors are uniquely placed to influence investee companies through active engagement and exercise of proxy voting rights, and through directing their investment capital towards sustainable palm oil producers. Understanding this dynamic is key to harnessing the power of investors to shape the palm oil industry

- Jeanne Stampe, co-author of the report
 / ©: WWF
The Palm Oil Investor Review 2012 surveyed 35 key palm oil sector investors to assess how they are managing the challenges associated with sustainable palm oil and outlines the role they can play in moving the industry toward greater sustainability
© WWF
Over the past decade, there has been growing recognition that environmental, social and governance (ESG) issues directly affect financial performance. Companies which integrate sustainability into their core strategy and operations are better able to mitigate risks and exploit opportunities – resulting in better investment performance.

Investors can emphasize this to investee companies across the palm oil supply chain, making it clear that if they ignore sustainability principles, they will find it harder to access capital.

WWF is urging investors to embrace this crucial this role and promote greater sustainability in the palm oil industry.

KEY SURVEY FINDINGS

  • Investors face internal organizational constraints in addressing ESG risks
  • Investors increasingly focus on ESG issues as more clients ask for ESG screens
  • Investors see the RSPO as the most influential initiative and the de-facto standard for investment screens, but want it to cover more issues and have “more teeth"
  • Investors continue to see significant challenges to investing in palm oil due to reputational risk, poor environmental performance and lack of company ESG disclosure
  • Investors believe the strengthening of the RSPO, demonstrable progress by its members toward certification and legislative changes that support the RSPO would have the greatest impact on increasing investment in sustainable palm oil
  • Investors need more disclosure, transparency and research so they can properly engage with their investee companies on sustainability issues

RECOMMENDATIONS

Investors need to:
  1. Work within their organization to quantify their palm oil exposure, include palm oil in their ESG appraisals, commission and fund independent ESG research, and ensure that all fund managers have access to internal ESG analysts
  2. Work collaboratively within the investment community to engage with and support the RSPO, highlight gaps in information and tools, drive sustainability reporting criteria and be more receptive to issues of sustainability
  3. Work externally and publicly to incorporate ESG issues into ownership policies and actively engage with investee companies across the supply chain to join the RSPO and disclose commitments, pressure stock exchanges to mandate minimum reporting requirements for high impact sectors and explore ways to develop demand for certified sustainable palm oil through market mechanisms.

The RSPO should:
  1. Develop and publish uniform ESG performance data
  2. Educate its financial members about the palm oil sector and the costs and benefits of certification
  3. Help its members to develop and share best practice analytical and investment tools
  4. Clarify its requirements for commitments and actions to transform the palm oil industry
  5. Have flexibility in membership fees to encourage investors with minor assets in palm oil to join.

WWF will continue to actively support the financial sector by:
  1. Providing information and guidance to the wider investment community on material ESG risks in the palm oil sector through workshops and road shows, the sharing of existing WWF tools and guides and the development of new tools
  2. Engaging with investors one-to-one and collectively
  3. Providing frequent updates on relevant research and activities through the Commodity Update Quarterly Newsletter
  4. Working with finance sector partners globally to ensure that they can incorporate the best ESG risk management tools in their transactions and to highlight opportunities to support sustainable palm oil businesses

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