Breaking Boundaries: Can Palm Oil Investment Be a Force for Good by 2023
Breaking Boundaries: Can Palm Oil Investment Be a Force for Good by 2023

Breaking Boundaries: Can Palm Oil Investment Be a Force for Good by 2023

  • 18-May-2023 4:05 PM
  • Journalist: Patricia Jose Perez

Indonesia: Palm oil, the most widely consumed vegetable oil in the world, is used in various products such as cooking oil, chocolate, noodles, margarine, soap, and biofuels. However, its increasing popularity has resulted in environmental and social issues such as the destruction of primary vegetation, degradation of peatlands essential for the climate, endangerment of wildlife, forest and land fires, and resentment within local communities. Palm oil has also been linked to slave labour and human trafficking, leading to controversy and condemnation.

With the world embracing sustainable-investing practices, finding solutions to Palm oil's production challenges has become a pressing issue. The advancements made through the lens of ESG (Environmental, Social, and Governance), particularly the "E" and "S" aspects, could play a pivotal role in making ethical investments in this highly controversial commodity possible in the future.

Palm oil, a vital food source that originated from West African communities, has a rich history in global trade dating back to the 16th century. Despite being once deemed a luxury food item, it is now an indispensable low-cost oil used in a variety of foods and supermarket products. The production of this oil, derived from the oil Palm tree's reddish-brown fruit, requires vast plantations, which have rapidly expanded worldwide to meet the skyrocketing demand.

Although Palm oil plantations have recently been established in Africa and Latin America, the majority of Palm oil production is concentrated in Indonesia and Malaysia, which account for approximately 85% of global output. Palm oil is Indonesia's most valuable agricultural export and third-most valuable export overall, contributing to around 11% of the country's total export earnings. This has resulted in endless rows of oil Palm trees on the islands of Borneo and Sumatra, replacing once lush rainforests and indigenous communities. The production process takes several years to complete, requiring vast areas of land and several key stages including planting, harvesting, threshing, pressing, and distributing. Consequently, serious environmental and social issues have arisen and remain unresolved today.

The government did not adequately protect the people from the negative impacts caused by the introduction of oil Palm plantations. Furthermore, the government largely disregarded climate considerations and land conflicts with local farmers.

Peatlands are crucial for storing carbon, making them the largest terrestrial tool for carbon storage on the planet. However, their destruction in favour of plantations has had a significant impact on climate change. Indonesia's peatlands store around 80 billion tons of carbon, which is approximately 5% of all carbon stored in soil globally. At one point, Indonesia was home to 50% of the world's tropical peatlands, but the large-scale cultivation of these lands for oil Palm plantations has led to their rapid decline.

Indonesia's Palm oil industry continues to face a critical challenge of rampant deforestation, which poses a threat to the country's valuable rainforests. The practice of burning land for plantation has led to frequent forest fires, causing a significant impact on air pollution, and contributing to the worsening global climate crisis. The loss of habitats has also resulted in immense suffering for the endangered orangutans and Sumatran tigers, among other local wildlife species.

While sustainability is a global concern, various regions face unique challenges. For instance, Palm-oil production poses significant sustainability issues in some parts of the world. In 2019, as forest fires ravaged Indonesia, Palm-oil companies in the Democratic Republic of Congo (DRC) were also found guilty of violating workers' rights and dumping untreated waste.

Considering the numerous disasters caused by Palm-oil production, many experts believe that only outright bans and boycotts can provide a solution to this problem.

Indonesia and Malaysia have implemented crucial certification standards, such as Indonesia Sustainable Palm Oil (ISPO) and Malaysian Sustainable Palm Oil (MSPO), respectively. Companies operating within the Palm-oil industry in these countries are required to comply with these standards. Currently, ISPO-certified plantations cover more than one-third of Indonesia's total 16.38 million hectares of oil Palm tree plantations. Meanwhile, Datuk Siti Aminah binti Aching, Malaysia's Deputy Plantation and Commodities Minister, announced in February that a staggering 97.88% of Malaysia's 5.6 million hectares of oil Palm tree plantations have acquired MSPO certification.

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