Wilmar improves its impact, market position and bottom line

Engaging in the Roundtable on Sustainable Palm Oil has resulted in improvements on the ground and in the marketplace

Wilmar International Ltd., one of the world's top palm oil producers and traders, has been quick to respond to the controversies surrounding the commodity, which has been blamed for driving deforestation, climate change and usurpation of communal lands.

It was one of the first companies to join the Roundtable for Sustainable Palm Oil (RSPO) - a nonprofit organisation and ISEAL member that promotes environmentally sustainable and socially responsible practices - and has committed to ensuring that none of its palm oil is linked to ecosystem destruction or exploitation.

While ensuring that its operations are environmentally friendly and socially responsible has required significant investments, Wilmar has already begun to reap benefits from those changes.

The company has improved its global reputation and has positioned itself to take advantage of a growing market for sustainable palm oil. At the same time, implementation of the RSPO's social and environmental criteria has resulted in savings on the ground and improved relations with workers and neighbouring communities.

Ubiquitous Ingredient

Darrel Webber, the Secretary General of the RSPO, observed that "Palm oil is the commodity that people love to hate, and there's a reason for this, because unsustainable production of palm oil can have a very negative impact on the environment and local communities." But thanks to commitments by companies like Wilmar, the situation is improving.

The RSPO was founded in 2004 to bring together stakeholders within the palm oil industry, such as producers, retailers, manufacturers, traders, investors and social and environmental NGOs, with a vision of transforming markets to make sustainable palm oil the norm.

Among the RSPO's first achievements was the development of a set of principles and criteria covering global environmental and social guidelines for the certification of sustainable palm oil production. Wilmar and other companies that have been certified under the RSPO standard have shown that palm oil companies can address environmental and social issues and still be profitable.

The RSPO now has more than 2,000 members - representing more than 40% of the palm oil industry - that have committed to produce, source, or use Certified Sustainable Palm Oil (CSPO). Approximately 18 percent of global palm oil production in 2014 was CSPO - almost 12 million tons - though only half of it was sold as a certified product.

Webber noted that one of the RSPO's goals is to increase demand for certified oil. "Many things have changed," said Webber, who explained that the industry is becoming more transparent, with more interaction between buyers and suppliers, and that financial institutions are increasingly factoring RSPO certification into their risk analysis for loans and investments.

Simon Siburat, Wilmar's General Manager for Group Sustainability, said: "One of the main reasons Wilmar chose to join the RSPO is that we wanted to benchmark our practices against a global sustainability standard. RSPO certification is considered the gold standard when it comes to palm oil sustainability."

Wilmar joined the RSPO in 2005 and has since been active in the development, implementation, and improvement of its standard. Headquartered in Singapore, the company has more than 240,000 hectares of planted area, most of which is in Indonesia and Malaysia, and purchases palm fruit and oil from an array of other producers.

By the end of 2014, two thirds of Wilmar's mills and plantations had been certified under the RSPO standard and the company was working toward a goal of getting all of its operations RSPO certified by the end of 2016.

Benefiting from Sustainability

According to Jeremy Goon, Wilmar's Chief Sustainability Officer, RSPO certification has already improved the company's market position. He explained that Wilmar's ability to deliver CSPO has resulted in better long-term contracts, helped the company to keep customers, and helped it get new customers, though it doesn't always mean a better price.

Webber noted that while producers would like to get a premium for all their certified sustainable palm oil, demand has grown more slowly than the supply in recent years, so about half of the CSPO produced in 2014 was sold on conventional markets. He expects demand to grow in the coming years, as national governments and major corporations implement sustainability policies. "What continues to motivate producers is that they are improving their bottom line," he said.

Siburat explained that Wilmar has perceived varied benefits from applying the RSPO standard, noting that: "RSPO certification has tangible and intangible benefits. There are actually more intangible benefits, but they are very difficult to quantify." He explained that some of the first economic benefits that Wilmar got from implementing the RSPO standard were through waste reduction, especially in agrochemical application, which is now more targeted.

He cited the example of herbicides, which workers used to apply everywhere on plantations. By banning the herbicide paraquat and increasing training and the use of protective gear, the company has reduced accidents in areas with historically high accident rates, which lowers the cost of lost work time, training replacement workers and insurance rates. "Because of the continuous training, our staff understand that things must be done in a systematic way," Siburat said. "We've moved away from ad hoc crisis management."

Better Relations

Wilmar has made significant investments in improving employee welfare and facilities. The company has opened schools and kindergartens for the children of Indonesian workers on farms in Malaysia, where foreign workers' children are not permitted to attend local schools.

It has also improved health care for workers through regular checkups and monitoring, especially for employees who apply agrochemicals. Webber explained that the RSPO standard requires the establishment of a structured dialogue between management and workers, which can improve worker retention, morale and performance.

"Palm oil producers have traditionally done what they thought was best for the workers, but now, thanks to RSPO, they have a system to identify the issues that are most important to workers and address them," he said. "We haven't done research on this, but more and more people are saying that employees want to work for a sustainable company. When you go to an RSPO certified plantation, the first thing you notice is that everything is clean, because people are proud to be working on a certified plantation. People are proud to be working for Wilmar," Siburat said.

"Anything that avoids damage to the reputation of a company as big as Wilmar represents a significant cost saving," Webber said. He added that investors, buyers and governments especially value the transparency built into the RSPO system.

This will become increasingly important as more buyers demand sustainable palm oil. As Webber pointed out, various European countries are implementing policies that will prohibit imports of palm oil that isn't RSPO certified. As more buyers and consumers become concerned about palm oil's negative impacts, a company like Wilmar that can prove it is doing the right thing can count on market access and a favourable business environment well into the future.

Originally published 2014