- We travelled to Indonesia to meet major palm oil and coal industry companies and press them for stronger climate change strategies
- Progress is slow, with companies citing strong demand from their Asian customer base for non-certified palm oil and for coal
- We argued for a more proactive approach, highlighting the potential for future demand shifts – particularly in coal, where some Asian countries are now adopting more aggressive decarbonisation strategies
- More intensive co-ordinated investor engagement with Indonesian comp
Indonesia is one of the world’s biggest emitters of greenhouse gases, driven by deforestation and land-use change. With palm oil, rubber, sugar and coal being vital to the country’s economic growth and trade balance, calls to address the climate impacts of their production and use face significant hurdles. Meanwhile, the intense monsoons and rain of January 2020, which left tens of thousands of people displaced, were a stark reminder of the country’s vulnerability to climate risks.
We travelled to the country to meet with companies in those industries to better understand their current practices and encourage a more strategic approach to managing the risks and opportunities that climate change will have on their businesses.
The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested. Investing in emerging markets is generally considered to involve more risk than developed markets.
Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.
Indonesia is one of the world’s biggest emitters of greenhouse gases, driven by deforestation and land-use change.
Slow progress in sustainable palm oil
We met with one of the largest palm oil companies in the country to discuss challenges the industry faces in justifying investment in implementing Roundtable on Sustainable Palm Oil (RSPO) standards and achieving certification. Current demand projections for certified products show insufficient uptake as consumer goods companies in countries such as India, China and Pakistan, which account for the lion’s share of global consumption, hardly require any certified palm oil.
We heard similar comments during an engagement meeting with Bank Mandiri, one of the largest financiers of the palm oil industry. The meeting, attended by representatives from the credit risk and wholesale banking units, capped a very successful year of engagement with the bank on palm oil financing activities. We are glad to report that it is in the process of implementing a stricter approach to palm oil financing, in line with its new Sustainable Finance Action Plan announced in August 2019, whilst assessing ways to use its leverage as a key participant in the industry to drive more sustainable practices. However, the bank has shied away from requiring its clients obtain RSPO certification (it encourages them instead) because there is no commercial imperative to do so.
Without significant pressure from end consumers or buyers of palm oil in Asia, the road ahead for sustainable palm oil remains unclear. Despite the challenges, we will continue to engage with producers, buyers and banks to call for more sustainable agricultural practices, including adherence to RSPO standards.