“Sustainable” palm oil has a legal problem

Thursday, December 1st, 2016

By Tom Johnson, Head of Research at Earthsight

In early November, the major producers, financiers and buyers of palm oil gathered in Bangkok for the annual meeting of the Roundtable on Sustainable Palm Oil. The RSPO has an ostensibly simple mission, to oversee a system that certifies palm oil against an agreed set of rules, allowing that palm oil to be traded as “sustainable”.

Its annual meeting is the place where the competing tensions within the RSPO and its various constituencies come briefly together, in a fancy hotel, to spend a few days pulling it in one direction or another. Among the items on the agenda this year was a panel session entitled “How Legal and Traceable are your FFBs?”

The acronym stands for Fresh Fruit Bunches, the raw material that enters the very first stage of processing after being plucked from palms. It’s an important topic, because illegality is rife within the plantation sector. But on the face of it, the panel was set up only to address one part of the problem, and ignore a second, arguably more important, feature.

Each of the topics the speakers addressed appear aimed at smallholders – independent farmers selling their FFB to mills – and the risks to palm oil processors and traders, most of whom are planters themselves, in buying unprocessed palm oil from uncertain sources. One title refers to “complex supply chains”. Another to “uncertain origins”.

There is undoubtedly a significant risk of illegally-produced fruit entering the supply chain from smallholdings. The NGO network Eyes on the Forest has done excellent work in Sumatra tracking raw materials from national parks and tiger habitat, into the mills of major plantation companies.  But what does not appear on the agenda here or anywhere else, is the question of the large plantation companies that overwhelmingly dominate the industry producing palm oil illegally themselves.

This is a problem because, as I have written extensively in the past, legal compliance among such producers is critically low (see here and here). Central Kalimantan, one of the major palm oil producing provinces in Indonesia has essentially become one giant crime scene. Among the offences routinely committed by plantation owners are cutting far beyond boundaries, operating without Environmental Impact Assessments (EIAs), and using fire to clear land. All of these offences are obscured by a lack of transparency on the part of both the government and the private sector, but have been exposed repeatedly by diligent NGOs and community activists.

‘Legal compliance among palm oil producers is critically low’

This is a big problem for the RSPO. The biggest crisis facing the scheme in recent years arose from its decision to suspend the sustainability certificates for the IOI Group earlier this year. IOI’s actions had given rise to two long-running official complaints, that went unresolved since 2010, due in large part to the company’s intransigence. The RSPO’s decision to suspend all of its certificates (and not only those relating to the plantations that were the subjects of the complaints) was seen as a robust decision that might finally push IOI into confronting its problems.

It evolved into a crisis for the RPSO because it threatened to tear apart the fragile seam holding together two key groups within the RSPO. On the one hand IOI, a hugely influential member and producer, argued it was unfair that the certificates should be suspended, to the point of threatening to sue. On the other, NGOs that had consistently exposed IOI’s wrongdoing for half a decade felt that any backsliding on this position would represent a craven submission to pressure, on the part of the RSPO, that exposed its susceptibility to planters.

Lost in the fog of this dispute was a kernel of hard fact: IOI had broken the law.

A key part of the case against IOI, raised by the organisation Aidenvironment, was that three of its subsidiaries in West Kalimantan had started clearing land and planting palm oil before their Environmental Impact Assessments had been approved. A report published by Friends of the Earth based on Aidenvironment’s research in 2010 provided evidence from both satellite analysis and ground investigations that this had taken place, in violation of Indonesia’s 2009 Environmental Law.

‘IOI even provided fraudulent statements to the government’

IOI even provided fraudulent statements to the government about the development. In statements dated July 2009, the directors of two IOI subsidiaries wrote, “without reservation”, according to Friends of the Earth, “that no physical activities will be undertaken until their companies’ EIA reports are approved”. Aidenvironment’s research proved that the company had already begun operating when it made these claims, and continued to do so afterwards with the reports still not yet approved.

The RSPO upheld both of these allegations, in March this year. But in a written response, IOI claimed that while the law states companies must have approved EIAs before they begin operating, the Province of West Kalimantan demands that companies “demonstrate completion of some development activities to meet the local governor’s and local communities time schedule and demand whilst awaiting the release of the environment permit”. (The details of the case can be seen on the RSPO case tracker, here).

It’s an odd argument. The process to which IOI refers is governed by the 2009 Environmental Law, which provides criminal sanctions – fines and jail time – for anyone operating without an EIA. At the time of the offences the law was in a transitional phase and the sanctions had yet to come into force, but IOI’s position is that it was willing to commit a criminal offence, and provide a false statement to the government, on the grounds of an ill-defined local rule with no obvious basis in law. If local government policy was that the company should start operating before the EIA was approved, why did company directors provide signed statements to the contrary?

The 2009 Act represented a new generation of environmental law in Indonesia, that emerged in part because companies were routinely operating without approved EIAs. The intention was to establish a law “with teeth”, to prevent precisely the kind of behaviour exhibited by IOI. Though the EIA process will never entirely prevent an oil palm development clearing forest, if properly implemented it still has the potential to dramatically reduce the environmental and social impacts, including protecting the most valuable forests within a given area, reducing the risks of devastating fires, and reducing the chances of conflict with communities. Failure to implement it matters.

Another prominent RSPO member violated the same law, after the criminal sanctions had come into effect. But like IOI, continues to operate with impunity. PT Nabire Baru, a subsidiary of RSPO member Goodhope Asia Holdings Ltd., began operating in its concession in Papua in 2010. According to Greenpeace research the first public consultation for its EIA took place three years later, and the EIA was finally approved in August 2014 – four years after it began operating and three years after criminal sanctions became available to enforcement agencies. An open and shut case.

‘The complaint alleges that PT Nabire Baru has “not complied with current laws and regulations”, but legal issues have now slipped off the table’

A complaint against Goodhope was lodged with the RSPO in April 2016. The case never appeared on the RSPO’s online case tracker, as it should have done. But the most recent minutes of Complaints Panel meetings – which is as much as can be seen into the process – suggest the legal issues have slipped off the table. The complaint itself alleges both that PT Nabire Baru has “not complied with current laws and regulations” and has failed to provide its permits to affected communities since it began operating. The minutes make no reference to allegations of legal violations, nor the violations of the RSPO statutes this would infer. In the meantime, villagers have been flooded out of their homes. An unnatural disaster that, as Greenpeace rightly suggests, may have been avoided if Goodhope had properly mitigated the impacts of its forest-clearing.

Clearly, the RSPO struggles with these kinds of violations. A central reason for this is that, in the most generous interpretation, its approach to violations of its standard is to take measures to mitigate the harm caused and bring member companies back towards its rules. This creates vast grey areas. Cleared orangutan habitat? Ok, let’s make sure you don’t do it again, and you can stay in the club. Grabbed indigenous peoples’ land? Ok, let’s hold some meetings with them and try to work it all out. The objective is to keep as much of the industry inside the tent as possible, and shift it collectively towards better practices.

What it doesn’t do is set red lines, and kick out members who cross them. This leads to a steady erosion of the standard. In years to come there will be certified “sustainable” palm oil that was produced on former orangutan habitat, on deep peatlands, on indigenous peoples’ land without their consent. The RSPO will leave in its wake a fudge of messy agreements, half-baked commitments, and undelivered action plans.

‘The RSPO will leave in its wake a fudge of messy agreements, half-baked commitments, and undelivered action plans’

The purpose of the 2009 Environmental Law, in contrast, was to draw such a red line. You cross it, you go to jail. That hasn’t happened for a number of reasons. One is that the Indonesian judicial system is a mess. Another is that plantation companies exercise a lot of undue influence on officialdom. Certification schemes like the RSPO can’t replace the functions of the state, but what they can do is refuse to certify palm oil produced illegally.

Some might argue that the ends justify the means. They might ask that if companies respect the rights of indigenous communities (beyond what is required by law), that if companies conserve more forest than legally demanded, does it really matter that companies haven’t ticked all the boxes?

‘The purpose of the 2009 Environmental Law was to draw a red line. You cross it, you go to jail.’

In reality, the scant regard with which companies treat the law is carried over into the RSPO. And why would it not be? If they don’t bother complying with the law, why would they comply with an entirely voluntary scheme, run by an organisation that has shown zero propensity to use the leverage it holds over them? Far from becoming a check on the sector beyond the law, in many cases voluntary certification is simply an extension of the softly-softly, consensus approach to regulating palm oil. There is no black-and-white, only shades of grey. No consequences for past ills, only promises to do better in future.

The influence of the IOI and Goodhope over the RSPO is illuminating: both companies are represented on the Board of Governors, the highest body within its governance structure. Edi Suhardi, of Goodhope, is even a Vice President. This is not to say that they used that influence to supress the RSPO’s actions against their violations of the standard. What it does mean is that every other member of the RSPO can look up and sees that it’s ok to break the law. That you can break the law, and you can still be “sustainable”.

‘The scant regard with which companies treat the law is carried over into the RSPO’

The question for the RSPO is this: does it refuse to certify illegally-produced palm oil and send a message to producers? Or does it certify illegally-produced palm oil, in the hope that by doing so it can help move them towards better practice? To date, it has chosen the latter route. But the indigenous communities of Long Teran Kanan in Sarawak and Nabire in Papua might rightly question how keeping IOI and Goodhope inside the tent has improved their situation or protected their forests. When it comes to addressing the ills of the palm oil industry, it’s time for red lines.