by Source Intelligence
on July 25, 2016
In the past week, international companies have publicized bold decisions to both create partnerships and cut industry ties as part of the movement toward sustainably sourced materials.
Cargill, a leading provider of agricultural and food products, cut ties with palm oil producer IOI Group this month after IOI lost its RSPO certification this March. Many leading consumer brands decided to remove IOI from their supply chains immediately after its certification was revoked, including Unilever, Nestle, Kellogg, and Mars. IOI Group’s certification was suspended because they failed to process environmental permits for several subsidiaries and cleared more land for palm plantations than they were allowed.
This is the first palm oil producer that has experienced significant financial losses due to non-conformance with sustainable palm oil standards. The immediate and coordinated industry reaction significantly affected IOI Group’s business; according to Financial Times, market share price dropped nearly 15% from March-May, and Moody’s considered downgrading IOI’s credit rating. Market pressure is increasingly pushing companies to adopt legitimate CSR commitments and standards produced by groups such as RSPO are now guiding industry leadership and collaboration.
Over 2,500 stakeholders throughout the palm oil supply chain to date have committed to using or producing sustainable palm oil as RSPO members. In order to become and stay a member, companies must adhere to rigorous certification standards as outlined in the RSPO Principles and Criteria. In addition, all entities from the grower to the retailer must pass audit requirements put forth in the RSPO Supply Chain Certification Standard. Once downstream users of certified palm oil meet audit requirements, they can brand their products with the RSPO trademark.
Members also share a commitment to sustainable palm oil and exchange best practices for achieving their goals. Certified palm oil producers are able to gain access to many international brands. However, they also run the risk of losing that business if they fall out of compliance with RSPO’s standards.
Other global brands are also pursuing partnerships to make bold commitments to supply chain sustainability. Toyota recently became the first car manufacturer to enter a Global Partnership Agreement with WWF, setting a high bar for other car manufacturers that want to demonstrate their commitment to sustainability. To support WWF, Toyota will donate $1 million to the Asian Forest Project, which promotes tropical forest and wildlife conservation in Southeast Asia. A key aspect of the project is to ensure that palm oil, rubber, and other materials are sourced sustainably to prevent deforestation.
Multi-faceted partnerships are emerging as stakeholders across the supply chain start to recognize the need to address sustainability, especially the business repercussions of neglecting to conform with publicized standards. Due to technological advancements, companies are able to trace materials to the source for the first time in decades. Digitized data has also allowed transparency to become increasingly accessible and affordable for SMEs as well as large enterprises. Businesses now can truly possess the knowledge they need to make informed decisions about who participates in their supply chain based on their sustainability performance.
However, the growing number of businesses that either need or own increased supply chain knowledge exposes stakeholders at the source, such as producers, growers and miners, to more scrutiny than they have ever experienced. They are now threatened with losing significant business if they do not conform to social and environmental requirements outlined by their downstream customers. This only adds to the expanding number of entities who have a vested interest in making decisions that are sustainable for their business and the planet.
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