Analysis: Is the palm oil body RSPO’s multi-stakeholder model splintering under the strain?

Investors are scrutinising the Roundtable for Sustainable Palm Oil

This month, a group of institutional investors with $6.7trn in assets responded to a public consultation organised by the Roundtable for Sustainable Palm Oil (RSPO), the trade body which regulates sustainable practices in the sector.

At the heart of the review, convened every five years, is the RSPO’s Principles & Criteria (P&C). These are the very “principles and criteria” that member mills and plantations must comply with to receive the body’s flagship certification.

The investors’ contribution took the form of an open letter. While the signatories indicated their continuing support for the RSPO’s mission and the “central role” of RSPO certification, they challenged it to rebuild credibility and voiced concerns about the body’s “relevance and effectiveness” due to “significant shortcomings” within the P&C.

Chief among the investors’ concerns was the “disconnect” between corporate policy commitments and the RSPO standard.

This is in reference to a number of best practices under the “No Deforestation, No Peat and No Exploitation (NDPE)” policy umbrella not included in the P&C.

Specifically, using the High Carbon Stock Approach (HCSA) methodology to determine plantation expansion, employment of a permanent non-casual workforce, a zero tolerance policy for retention of worker passports, and outlawing certain harmful pesticides.

In response, the RSPO told Responsible Investor that the eventual resolution would be the result of consensus among its “multi-stakeholder representation”, an extensive list which includes NGOs, growers, manufacturers etc. The multi-stakeholder model is the Roundtable’s founding principle and its source of credibility. It is also the reason why many of the investor recommendations are unlikely to make the final draft.

The strengths and dangers of this model are immediately apparent. A widely drawn membership provides the best representation of relevant stakeholders, and any agreed actions or sanctions, for example, will carry with it the full force of a sector-wide consensus.

But policymaking and a wide membership can make for uneasy bedfellows.

To ensure compliance costs remain feasible for its smaller members, the RSPO almost invariably defaults to the minimum of standards in its certification schemes. While this dynamic is not unique among self-regulating sectors, here they are reinforced. Palm oil has a large representation of smallholders – accounting for 40% of production – who must be factored into any policy aspirations.

Global brands face different pressures. Brands seen as laggards are often penalised by investors and consumers who are increasingly conscious of malpractice within the palm oil industry. On the other hand, class-leading brands are able to capitalise on their size.But those with aspirations beyond RSPO standards may find their progress hindered by the limits of the multi-stakeholder model.

In June, the RSPO announced the suspension of one of its members, a rare occurrence made even more newsworthy as it was Nestlé, the Swiss leviathan.

The decision was meted out after the RSPO refused to accept the food giant’s annual report of its progress in sourcing sustainable palm oil, as it mainly reported against Nestlé’s own in-house Responsible Sourcing strategy.

Although the only evidence of this episode available on Nestlé’s website is a charitable statement welcoming the suspension’s reversal just three weeks later, the food giant’s initial response to the decision endures in the internet’s backpages and reveals profound ideological differences.

Beginning with the assertion that while RSPO certification is one tool to achieve responsible sourcing of palm oil, “it is not the only one”, Nestlé argued in favour of more “interventionist activities” for better traceability and improved supply chain practices “instead of solely relying on audits or certificates”.

Another point of contention is that instead of “premium mechanisms” to defray the costs of sustainable production, costs should instead be embedded into “supply chain procurement practices”. In a broad, final criticism, Nestlé denounced the RSPO certification scheme as “not conducive to achieving the levels of industry transparency and transformation the sector so urgently needs”.

In fairness, these aggressive supplier engagement strategies hinge on the scale and bargaining power of Nestlé, and would be impractical for producers who deal in much smaller volumes. But while the Roundtable has an imperative to ensure the enforcement of minimum standards, it is harder to justify the imposition of an orthodoxy on its class-leading members with resources and incentives to develop more ambitious approaches.

A potential solution lies in the clustering of Nestlé and its ilk from the ranks of growers, buyers, investors and non-profits, while remaining under the RSPO auspices. This would allow the design of novel and ambitious approaches, while the Roundtable provides independent oversight and transparency.

The Roundtable has already made tentative moves in this vein with the 2016 launch of RSPO Next, a voluntary add-on criteria to the P&C. The approach, however, is fundamentally the same while foregoing any regulatory bite.

Given a fragmented sector in one of the most vulnerable regions in the world, the multi-stakeholder model can be credited for getting palm oil sustainability onto the agenda. In turn, the Roundtable should take pride in member organisations taking the initiative and leading it into the future.