How brands can drive palm oil change

Brands can drive change in their palm oil supply chains, but doing so requires real engagement with suppliers

The challenge

Brands are in a tricky position. Their values matter to consumers and they face the most reputational risk if there is an NGO campaign about poor practices in their supply chains. With global supply chains, increasing consumer awareness and campaigning organisations lighting up social media with alarming facts and figures, brands find themselves asked by consumers and shareholders to take responsibility for production practices far removed from their own operations. This is a necessary but challenging task.

In the palm oil world, it leaves brands asking, ‘How can I ensure responsible production in my vast, global supply chain and work to build practices in line with my values?’ Although brands often receive the most attention from consumers and campaigning organisations, it’s up to the companies at the producer level to improve conditions on the ground.

This means that although the brands may carry the greatest reputational risk, the producers carry the responsibility for implementing best practices.

This means that although the brands may carry the greatest reputational risk, the producers carry the responsibility for implementing best practices. At TFT, we’ve seen companies have great success in driving positive practices that match their values by respectfully engaging and supporting their suppliers to take concrete, measurable steps to address known issues.

Avoiding misuse of new tools

Palm oil mill evaluation tools have recently gained popularity with the launch of the Global Forest Watch (GFW) PALM Risk Tool (Prioritising Areas, Landscapes, and Mills). This tool uses remote sensing and spatial monitoring to rank the relative environmental risk to a mill in comparison to the other mills within its dataset. In many ways it is similar to the Mill Prioritisation Process (MPP) that TFT has been using and refining with our members since 2013.

Both tools are based on objective methodologies for highlighting risk associated with a mill’s location, and we see the value of open platforms that increase the transparency of the palm oil industry. However, it’s important to recognise the limitations of these tools and understand how different ways of using them can be helpful or harmful.

Experience shows picking and choosing suppliers won’t ultimately lead to the industry-wide transformation that will most benefit the environment and communities.

With the increasing trends toward transparency of mills in supply chains, combined with more accessible remote sensing and spatial monitoring tools, it may be tempting for some brands to try to instruct their direct suppliers to pick and choose which palm oil mills should be allowed in their supply chain with the goal of excluding the ones perceived as risky. Experience shows this approach won’t ultimately lead to the industry-wide transformation that will most benefit the environment and communities.

Why dropping suppliers does not save forests

The tools alone cannot accurately predict if the mills are truly causing deforestation, nor provide assurance that other companies who are deforesting are not being missed.

Both false positives and false negatives are possibilities based on the methodologies that these tools use. This means that the outcome of the process might show deforestation where it’s not actually occurring, or worse, it might not catch deforestation that has occurred.

As a result, we can’t be sure that a mill that has been designated as ‘high risk,’ truly has been involved in deforestation or other risky activities, or that there aren’t other worse actors elsewhere in the supply chain.

It just means that, based on the data available, the mills highlighted are the ones closest to areas requiring protections or to areas where deforestation may be taking place.

Simply eliminating ‘risky’ mills from the supply chain won’t drive industry-wide transformation.

Proactively excluding potentially high-risk mills from a supply chain without engagement removes any incentives that those companies would otherwise have to improve their practices and meet customer policies.

Due to the high demand for palm oil, eliminating the mills will most likely just lead to those mills selling to someone else and continuing with business as usual, now exasperated with the globalised marketplace which they may perceive is unfairly judging them.

Proactively excluding potentially high-risk mills from a supply chain without engagement removes any incentives that those companies would otherwise have to improve their practices and meet customer policies.

As a result, while a brand may feel like they’re doing the right thing by ‘cleaning up’ their supply chain, little has been done to successfully protect forests or peat.

True transformation will come only through a process of dialogue and engagement, and will include high, medium, and low priority mills alike. It is only after this process fails to affect change that refiners may have to make the tough decision to drop uncooperative suppliers.

When brands determine their own high risk-mills without consultation with their suppliers, emphasis may be taken away from the higher risk mills in the refiners’ supply chain.

If brands analyse mill lists tailored to their own supply, the riskiest mills in a refiner’s global supply chain may not be included. Work with those suppliers should not be derailed to hone in on a few brand-specific priorities.

A brand’s best assurance that a supplier is aligned with their policy is if the supplier is carrying out and acting on a prioritisation process throughout its own global supply chain. This allows a brand to confidently source from suppliers who have demonstrated the capacity and willingness to proactively address issues at scale.

Catalysing widespread change

Brands have other options for how they go about developing more responsible supply chains. In the same way that they have a name and reputation to protect when it comes to building consumer trust, they also have a name and reputation that can sway their suppliers.

The fastest way to drive industry transformation is to leverage their power as a customer to encourage suppliers to take concrete, transparent steps to strategically address issues across their own (the suppliers’) supply chains.

Leveraging doesn’t mean imposing—we have seen that when this leverage is applied through constructive conversations, incentives, support and mutual listening, it can lead to great innovation and reciprocal value creation for a brand and its supplier.

Diagram below: a brand’s leverage lies with its direct suppliers, which have closer (and often direct) buying relationships to mills.

Sending a clear and consistent message to suppliers

We have seen companies up to the challenge—Nestlé was the first company to develop a responsible palm oil sourcing policy, and in doing so, catalysed industry movement.

Mars and Wilmar have successfully used this approach to collaborate on improvements and mill engagement in both companies’ supply chains. Brands like Hershey, Colgate-Palmolive, and many others have also committed to extending their values throughout their supply chains and influencing industry transformation.

It begins with a brand sending a clear and consistent message to its direct suppliers that traceability data and a supplier’s own transformation strategy are expectations for doing business with them.

The brand should be prepared to help, and stand by the suppliers committed to the journey. This message gets passed upstream where origin refiners, mills and producers begin to take action to improve practices. It is through this approach that industry transformation is now slowly but surely underway, with each level of the supply chain playing an important role. Each supports the other to do better and grow a future supply based on widespread responsible production.

Asking for supplier transparency

Its natural to be nervous with risks circling all around. The impact on brand value through negative press is very real and costly. It is undertsandable that a company might want to make quick, conservative decisions about their whole chain based on new tools available. However, a number of companies have instead asked for transparency from their direct suppliers on their action plans and are now focused on developing credible ways to measure implementation progress.

At this point, many of the large palm oil refining companies already have their own No Deforestation, Peat, or Exploitation (NDPE) policies, have done risk assessments of the mills in their supply chains, are engaging strategically with priority mills, and are also addressing industry-wide issues more broadly. Duplicating this work is unnecessary, understanding it and monitoring it is key.

The relationship between a brand and its direct suppliers is powerful enough to drive change all the way upstream to the point of production.

Many suppliers won’t have action plans in place or ways to measure the impact of what they are doing. If a brand’s suppliers are not implementing some kind of prioritisation and transformation process, brands can and should encourage them to do so at scale for their supply. Beginning to ask questions about its suppliers’ policies and strategies will get those suppliers thinking about the brand’s expectations and how they can demonstrate their progress.

Consistent follow-up by the committed buyers conveys that it takes its policy seriously, and that suppliers need to get working in order to have a happy customer. By having conversations with their suppliers about key implementation activities and gaps, providing market incentives for leaders, and support to supplier transformation initiatives, brands can encourage a race to the top, and push (or drop) the suppliers that are falling behind.

We’ve seen this approach work again and again

We’ve seen this approach work again and again. It’s how Nestlé got the industry moving on transparency and traceability to mill; it’s why all of the major traders started to take responsibility and added their own voices to the chorus of no deforestation; it’s how suppliers in Latin America have begun to move from having little knowledge of increasing responsible sourcing trends to developing and implementing their own NDPE policies.

 By working hand in hand with their direct suppliers brands can create industry-wide movement towards responsible production and sourcing.

Brands sometimes feel powerless in a supply chain, without realising the impact that they can have. The relationship between a brand and its direct suppliers is powerful enough to drive change all the way upstream to the point of production. Brands don’t need to take on the burden of prioritisation and risk analysis for their entire supply chain: by working hand in hand with their direct suppliers to develop and implement transformation plans, brands can create a chain reaction resulting in an industry-wide movement towards responsible production and sourcing. Ultimately it’s about collaboration—brands and suppliers working together in a constructive spirit.

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