CDP finds that only 22% of companies sourcing or producing palm oil in Indonesia have implemented public and comprehensive no deforestation policies.

• Only 2% of companies that source or produce palm oil are using deforestation-free compliant third-party verified schemes that cover over 90% of their production of palm oil.
• Whilst 87% of companies have implemented traceability systems, only 25% of companies have the capacity to scale these to over 90% of their production/consumption back to at least the municipality level.
• Companies must increase engagement with their supply chains. Currently, only 35% of companies are providing financial and technical assistance to direct suppliers and only 53% of companies are engaging with suppliers beyond their first tier.
• Collective action across stakeholders is increasing but still lacking with only 14% of companies involved in jurisdictional approaches to remove deforestation from their operations.

The latest findings from CDP, the non-profit that runs the world’s environmental disclosure system, highlight the rate of action from companies to decouple palm oil sourcing or production in Indonesia with deforestation must accelerate.

‘Measuring progress towards a sustainable palm oil supply chain’ highlights that forests provide key services that are essential for livelihoods and ecosystems; around 500 million people depend on them directly. Positively, over the past five years, primary rainforest loss has fallen, but this report warns that companies must increase corporate ambition to ensure this trend continues.

The fourth iteration of the report, tracks companies progress against CDP’s 15 key performance indicators (KPIs). These KPIs are industry measures that help track companies progress by mapping companies onto a pathway toward a forest-positive future (more detail in notes to editor). CDP’s latest report should be used by companies sourcing or producing palm oil in Indonesia as a tool to track their progress towards decoupling deforestation from palm oil supply chains.

This report analyses data disclosed through CDP’s forests questionnaire in 2021 by 167 companies that produce and/or source palm oil from Indonesia. The report found that whilst companies are adopting a wider range of actions, they need to go further in setting robust policies and commitments that integrate both environmental and social issues, and this must be coupled with ambitious, measurable, and time-bound targets. It also found that 44% (74) of companies reported over $18 billion worth of risk related to sourcing and/or producing palm oil from Indonesia but the cost for early action to manage identified risks disclosed by 40% (67) of companies was a fraction of the risk value, estimated at US$656.4 million.

Companies must also be mindful of incoming climate regulations from the Government of Indonesia. Minister Nurbaya explained that the palm oil industry will need to align with the Forestry and Other Land Use (FOLU) net sink climate target of 2030. This report shows that for companies to negate costs associated with identified and disclosed risk and stay ahead of climate regulation they must engage with supply chains.

Key findings from the report:

• 86% of companies have implemented policies, but only 22% have public and comprehensive no-deforestation policies.
• 75% of companies have no deforestation commitments, but only 28% of these demonstrate good practice.
• Traceability systems have been implemented by 87% of companies, but only 25% have the capacity to scale these to over 90% of their production/consumption back to at least municipality or equivalent.
• 90% of companies use certification, but only 2% are using deforestation compliance third-party verified schemes that cover over 90% of their production of palm oil and/or consumption volumes.
• Only 23% of companies producing or sourcing palm oil from Indonesia assess compliance against national regulatory standards
• Companies must increase engamgnet with supply chains. Currently, only 35% of companies are providing financial and technical assistance to direct suppliers and only 53% of companies are engaging with suppliers beyond their first tier.

The report also provides examples of good practices happening across the palm oil industry through the inclusion of case studies from Unilever, Pepsi and Co, and Firmenich S.A. CDP provides the structure to disclose progress.

Joining CDP’s Supply Chain forest program allows companies to engage their suppliers, pinpoint risks and identify opportunities through CDP’s world-leading disclosure system. CDP is also calling for increased multi-stakeholder collaboration, as it is essential when recognizing forests importance within the global market.

John Leung, Director SEA & OC, CDP, said:

“It is encouraging to see that commodity companies are adopting a range of actions to preserve forests and respect biodiversity. This report shows companies are increasing their traceability and compliance systems, as well as developing their engagement with their palm oil value chains. However, as we approach COP15 (UN Biodiversity Conference, Montreal December 2022) companies must endeavour to go beyond their value chain systems to protect the Earth’s biodiversity - namely through implementing ecosystem restoration and protection projects. The report shows several companies are already taking steps to protect biodiversity, but more companies are needed to accelerate the rate of action. Importantly, biodiversity needs to be tackled in the same way as climate emissions. By disclosing through CDP, companies can drive the change needed.”

Thomas Maddox, Global director of forests and land, CDP, said:

‘Tackling deforestation must be a collective global effort from governments, companies and investors. In Indonesia primary forest loss has fallen over the last 5 years and whilst companies are moving in the right direction, more action is needed to maintain this trend. Companies producing our sourcing palm oil must engage with their supply chains to help reduce deforestation. Disclosing through CDP ensures that companies are able to track and measure progress, and you can’t manage what you don’t measure. CDP’s supply chain programme is vital tool to help companies engage with their suppliers.

Notes

[1] CDP Key Performance Indicators (KPI’s) consist of 15 outlined areas, split into 6 key themes, which are used to measure the level of compliance of companies taking action on deforestation.

About CDP

CDP is a global non-profit that runs the world’s environmental disclosure system for companies, cities, states and regions. Founded in 2000 and working with more than 680 financial institutions with over $130 trillion in assets, CDP pioneered using capital markets and corporate procurement to motivate companies to disclose their environmental impacts, and to reduce greenhouse gas emissions, safeguard water resources and protect forests. Over 14,000 organizations around the world disclosed data through CDP in 2021, including more than 13,000 companies worth over 64% of global market capitalization, and over 1,100 cities, states and regions. Fully TCFD aligned, CDP holds the largest environmental database in the world, and CDP scores are widely used to drive investment and procurement decisions towards a zero carbon, sustainable and resilient economy. CDP is a founding member of the Science Based Targets initiative, We Mean Business Coalition, The Investor Agenda and the Net Zero Asset Managers initiative. Visit cdp.net