Posted on April, 04 2019

WWF is today publishing a statement outlining the role that banks and institutional investors – collectively financial institutions – can play in addressing deforestation and other environmental and social issues in the palm oil sector.

There have been increasing public calls for financial institutions – banks and investors (including asset managers, pension funds and insurance companies) – to address deforestation, climate change and human rights abuses perpetrated by their clients and investee companies. Nine US senators, including 2020 presidential candidates Bernie Sanders and Elizabeth Warren, recently challenged major financial institutions to tackle these issues in their palm oil investments. Other stakeholders have demanded that financial institutions divest from the sector entirely. At the same, tensions between buyer and producer countries – culminating in the current threat of trade war between EU and Indonesia and Malaysia – highlights the potentially crippling social and economic consequences of not adequately managing sustainability in this sector.

WWF believes there is a clear need and role for financial institutions to address palm oil’s sustainability issues , but that divestment is not the answer. Palm oil is a critical commodity for global food security, and replacing it with other edible oils will require expanding agricultural land, leading to more deforestation and other habitat loss and exacerbating climate change. Sustainable palm oil must therefore be part of the solution to the global climate crisis. Also, there are other financial institutions who would step in to fill the gap left by a more responsible financial institution following divestment. This would mean that deforesting or otherwise unsustainable companies will continue to receive financing without any form of safeguards or engagement over their environmental and social impacts.

Divestment should be a last resort. Instead, financial institution engagement holds far greater potential for improving the sector’s sustainability. For this reason, WWF welcomes the leadership Robeco has demonstrated by joining the RSPO in February 2019, as well as the 4 March 2019 statement by Robeco, NN Investment Partners and Actiam NV, which reaffirmed their commitments to engagement along the palm oil value chain and highlighted the need for clearly outlined expectations and objectives to improve the sector’s sustainability. Last, WWF welcomes the 3 April expectations statement released by investor signatories to the Principles for Responsible Investment (PRI), as well as the ongoing work of the PRI’s Sustainable Palm Oil Investor Working Group (IWG) to engage companies on palm oil. WWF has in the past shared, and will continue to share, its insights from the ground with the PRI and the IWG.

In this vein, WWF believes there are several specific expectations and objectives that should form the backbone of any financial institution’s engagement with palm oil sector companies and their financiers. These are listed in the statement that WWF is releasing today.

Jeanne Stampe, Head of WWF Asia Sustainable Finance, said, “By asserting these expectations when engaging clients and investee companies and holding them accountable by monitoring progress over time, financial institutions will be more successful in terms of creating positive and lasting change in the palm oil sector’s sustainability. This will also ensure that portfolios are more aligned to achieving the Paris Agreement and more resilient to climate change and other ESG [environmental, social and governance]- related shocks.”

Through the recently launched Asia Sustainable Finance Initiative (ASFI), WWF also stands ready to support financial institutions to drive palm oil sector sustainability in a number of ways:

• Research and analysis on palm oil sector company performance to support investor engagement
• Capacity building on responsible investment and palm oil sector sustainability standards, risks and opportunities
• Training on tools for assessing and managing deforestation and other risks in the sector
• Development of green financial solutions to support sustainable land use

Peter van der Werf, Director, Active Ownership at Robeco, said “As asset manager we have engaged with the palm oil industry since 2010. Robeco welcomes WWF’s call to action to institutional investors and banks to engage with portfolio companies and clients to encourage the adoption of best practice sustainability criteria. Rather than divest from the companies who are shaping the future of food, the finance sector should contribute towards climate resilient, sustainable food systems – a key determinant of whether we meet the Sustainable Development Goals by 2030. We look forward to working alongside science-based organisations like WWF towards this end.”

WWF also believes that financial institutions must systematically integrate ESG issues into their decision- making processes, using science-based criteria where possible. To support investors on this front, WWF will soon be publishing a responsible investment framework that builds on existing best practice using WWF’s collective sustainable finance expertise, scientific knowledge and experience working with major companies on sustainability.

By using the framework as a reference point, asset managers and asset owners alike can better assess and act on ESG risks and opportunities. This allows their investments to more effectively drive sustainable development, contribute to halting deforestation and human rights abuses, while becoming part of the solution to climate change. Asset managers in particular play a key role in the investment chain but risk becoming the weakest link if they do not take significant action on sustainability in their portfolios. This is underscored by growing asset owner expectations from their asset managers on ESG.

Last, asset managers and owners using the framework to disclose about their approach to ESG issues can also better answer to the everyday people they directly and indirectly serve – pension plan holders and other savers – about the long-term resilience and sustainability of their investments. Only this way can they be fully invested in protecting our forests and other critical ecosystems, upon which humanity’s own aspirations for a sustainable future ultimately depend.