BLOG: The year of corporate acting— does business need a new approach to palm oil?

2018 went down as the ‘year of corporate caring’ about the palm oil controversy.  A banned TV advertisement promoting a Palm Oil free Christmas by the UK supermarket Iceland went viral on social media with over 5 million views in merely a couple of weeks.  Shortly after, on the south bank in London, Iceland responded to the ban with a displaced Orangutan hanging from a Christmas tree surprising tourists and drawing attention to the loss of biodiversity due to the clearing of virgin rainforests.  Debates about palm oil in Malaysia and Indonesia are far from new.  But recent events are surely stirring up the conversation and attention to the issue is at an all time high.

By Amanda Williams, Steve Kennedy and Gail Whiteman.

Proponents are reacting to the complete ban of palm oil with statistics on the efficiency yields from the fruit of oil palm trees and claim boycotting palm oil would simply shift demand to other types of vegetable oil to meet demand.  Palm oil has climbed the charts in popularity because it is cheap, versatile and efficient.  While others argue that despite the efficiency benefits of the crop, new approaches are needed to tackle this pressing humanitarian and environmental issue.

Business and Palm Oil

CEOs of multi-national corporations that depend on palm oil and tropical timber in their supply chains are well aware of their impacts and the consequences of deforestation.  Outgoing Unilever CEO Paul Polman already stated back in 2015, “We are seeing the effect of climate change in our own business.  Shipping routes cancelled because of hurricanes in the Philippines.  Factories closing because of extreme cold weather in the United States.  Distribution networks in disarray because of floods in the UK.  Reduced productivity on our tea plantations in Kenya because of weather changes linked to deforestation of the Mau forest.  We estimate that geo-political and climate related factors cost Unilever currently up to €300 million a year.”

Many companies are working hard to address the issue.  The Roundtable on Sustainable Palm Oil, established in 2004, brings together palm oil producers, traders, consumer goods manufacturers, retailers and NGOs to improve environmental and social criteria for the certification of sustainable palm oil.  The roundtable boasts that 13.20 million tonnes of palm oil is RSPO certified, amounting to 19% of the global volume.  Palm oil certification is expensive for farmers to obtain and has yet to solve issues of deforestation or poverty.  In fact, a recent study by the Palm Oil Transparency Coalition found that despite certification, importers are unable to determine if their products are linked to deforestation or unethical labor practices.   

Beyond certification, companies are setting ambitious targets.  Unilever’s touchstone Sustainable Living Plan aims to become carbon positive by 2030 and halt deforestation by 2020.  And Nestle is ‘striving for zero’ environmental impact including emissions and deforestation.  Yet, ambitious corporate targets are not translating into concrete results on the ground.  Recent reports demonstrate that emissions and deforestation rates are still rising.  In advance of 2020, at the Consumer Good Forum, brands admitted that reaching zero deforestation targets by the end of the decade is unlikely.  The head of sustainability and procurement at Mars, Barry Parkin, is calling for strategies that go beyond certification that consider “new theories of change.”

Current efforts aren’t cutting it 

Despite these ambitious efforts, the situation in Malaysia and Indonesia remains bleak and deforestation continues at alarming rates.  In Borneo, only 43 percent of its original lowland rainforests remained by 2015.  Lowland rainforests are optimal for palm oil production plants but are also home to many rare species.  The consequences of deforestation extend beyond biodiversity loss to land degradation, droughts and forest fires, which interact to further increase emissions.

Even if companies successfully meet ambitious zero deforestation targets, halting deforestation may prevent further increases in emissions, but is unlikely to restore societal and environmental resilience to future shocks.  If certification and deforestation targets are not the solution, then what is?

Lessons for business 

How can business leaders approach palm oil production differently?  Based on our latest article, we offer several suggestions:

1. Focus on a different scale. Firm-centric approaches, such as mitigation and adaptation to the effects of climate change, may keep companies afloat in the meantime, but are unlikely to offer a long-term solution.  Mitigation and adaptation aim to enhance firm performance and respond to the effects of the problem, but do little to consider the eco-systems on which the companies depend.  Complex interactions in local societies and ecosystems go unnoticed and leave companies vulnerable to future disturbances.  New approaches should consider how to develop healthy ecosystems that can continue to provide services for the local community and companies for decades to come.

2. Look closer. When considering the intricacies of ecosystems, managers can monitor slow variables and feedbacks. Slow variables such as the amount of soil organic matter, insect populations or the level of rainfall can control how an ecosystem functions. Managers can identify the slow variables that govern how ecosystems behave and what levels of these variables puts the ecosystem at danger. Feedbacks offer managers warning signals that changes are occurring and allow to detect when ecosystems may be at risk. Managers can seek to tighten their recognition and action to feedback loops in order to minimize time delays and improve chances of avoiding ecosystem collapse.

3. Manage ecosystem diversity and redundancy. Moderate levels of diversity and redundancy allow ecosystems to thrive.  When a disturbance strikes, response diversity allows ecosystems to react in numerous ways.  Redundancy provides substitute functions when elements that preform similar functions fail.  When diversity and redundancy are compromised, ecosystems become brittle and vulnerable to even small disturbances.  Firms can move beyond halting deforestation by actively building viable business models for land restoration.  For example, effective cropping system diversification can lead to landscape restoration, increased economic viability and enhanced ecosystem resilience.     

As companies such as Mars are calling for an overhaul in corporate efforts to tackle deforestation, we hope these lessons offer some inspiration.

The article: Williams, A., Whiteman, G., & Kennedy, S. (2019). Cross-Scale Systemic Resilience: Implications for Organization StudiesBusiness & Society

Do you want to learn more about how to run a business that generates multiple returns, instead of only financial return? Have a look at ENABLE, a strategic partnership of renowned partners including academic partners, private businesses, the public sector, and NGOs.

Or watch this video by Dr Mallory Flowers, explaining externalities.

Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s top 10 business schools. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who can become a force for positive change by carrying their innovative mindset into a sustainable future. Our first-class range of bachelor, master, MBA, PhD and executive programmes encourage them to become critical, creative, caring and collaborative thinkers and doers. Study information and activities for future students, executives and alumni are also organised from the RSM office in Chengdu, China. www.rsm.nl

For more information about RSM or this blog, please contact Irene Bosman, media officer for RSM, on +31 10 408 2028 or by email at bosman@rsm.nl.

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