Monday, August 23, 2010

Palm oil giant's claim disputed by their own auditors

A confrontationist approach taken by palm oil giant PT SMART (the Indonesian palm oil arm of Sinar Mas), part of the Singapore Exchange listed Golden Agri Resources, to discredit Greenpeace report seems to have backfired, literally.

In a report, Greenpeace had accused PT SMART of destroying forests to raise oil palm plantations. The report prompted several of PT SMART customers including Unilever, Kraft and Nestle to terminate their sourcing agreements with the company.

PT SMART which has all along denied Greenpeace allegations then said it would commission an independent audit of its palm oil plantations to prove it has done no wrong.

Two weeks ago, PT SMART executives, armed with the "independent audit report" and advised by a UK-based PR firm Bell Pottinger, arrived in the UK to hold a press conference to claim that Greenpeace allegations were found to be untrue.

A fine spin work ensured worldwide headlines implying that an independent audit had cleared PT SMART of all wrongdoing and making Greenpeace look like a nuisance maker.

Greenpeace accused the company of misreporting the audit findings and selectively ignoring parts of the report. Ethical Corporation published comments from Greenpeace on the matter and invited PT SMART to respond. But nothing heard from the company yet.

Within three days of the press conference, BSI-one of the two audit firms involved in the audit- came out saying that PT SMART had misreported the audit findings. Well, this is what we call "a gun backfiring."

Greenpeace has ceased the opportunity and has written to the Singapore Stock Exchange seeking action against Golden Agri Resources for making factually incorrect claims.

PT SMART still insists it has not misreported the findings. Is this the advice they are getting from Bell Pottinger? And whoever are their sustainability advisers. They appear to in the wrong hands.

In the meantime, Golden Agri plans to expand into Liberia. The company is investing in private equity fund Verdant that is the sole shareholder of a Liberia-based firm in the process of being granted a government concession to develop 220,000 hectares for 20 years.

Sunday, August 22, 2010

Maximum corporate liability for a nuclear disaster in India : $322 million

The Gulf of Mexico oil spill disaster which killed nine Americans and destroyed some marine life in the affected area will cost the British company BP an estimated 30 -50 billion dollars in liability.

But an American nuclear power company will have to pay a maximum of 322 million dollars for a nuclear disaster in India which can potentially kill hundreds of thousands of people and leave behind contamination affecting future generations with birth defects and severe health problems.

Indian Cabinet has finally approved the controversial Nuclear Liability Bill (Civil Liability for Nuclear Damage Bill) which caps the liability for a civilian nuclear power power plant disaster to a maximum of $322 million. This amount is three times higher than the original proposed by the ruling Congress party regime. They increased the amount in the face of intense opposition and criticism from other parties and activists.

The American nuclear industry lobby wanted the liability cap before they start investing in India's civilian nuclear sector which has recently been opened up for private investment. They have succeeded. US company General Electric will be the biggest beneficiary of the liability cap as the company will now be able to look for nuclear deals in India without much worries about the potential liability.

By contrast, a nuclear power plant operator's liability in the US under the US legislation is $12.5 billion dollars.

German, Russian and French nuclear power companies had already started signing deals in India as they were not seeking any liability cap. The reason is that their respective governments underwrite their nuclear disaster liability.

But the US government does not take any such responsibility for the US companies' actions abroad. As a result, the US companies were not bidding for nuclear plant contracts in India. Rather they relied on an intensive lobbying with the reported support of the Obama administration to influence the legislation.

The bill needs to be passed by the parliament where it is likely to meet protests by the main opposition party BJP which want more stringent supplier liability clause in the bill.

It may be mentioned that the infamous Bhopal Gas disaster took place when the currently ruling Congress party was in power. And the disaster happened in a chemical plant owned by Union Carbide, a US company. So they have not learnt any lessons. See here a feature we did in Ethical Corporation on this.

Tuesday, August 17, 2010

Comments on draft Framework for Palm Oil Sector

A few weeks ago I wrote on this blog that the World Bank and IFC have released a Draft Framework for Palm oil sector for consultation.

Robert Goodland, a reader of my blog, has sent me his comments on the Framework that he has submitted to the World Bank Group. His comments are interesting and I am reproducing them here:

WBG Framework for Palm Oil”
(undated) Draft for Consultation

Comments for the consultation by R. Goodland ( respectfully submitted on:17 August 2010

[Note: Pagination refers to the page numbers in the 46-page WBG Framework. The text of the Framework has been italicized. My comments are in bold.]

P.3: The World Bank Group, with its primary mission of poverty reduction, sees the palm oil sector as an important contributor to furthering economic development in many developing countries.

The Framework needs to make the case that palm oil projects reduce poverty more than a similar investment elsewhere. That case has not yet been made convincingly in the current draft.

P.3: The World Bank Group is aware of the sector’s negative environmental and social impacts, including deforestation, biodiversity loss, greenhouse gas emissions, land use conflicts, and questions over land tenure and human rights.

Such awareness must be very recent as IFC denied the sector’s negative impacts by categorizing the Wilmar, Bertin industrial cattle ranching, monoculture Maggi soy and other damaging projects as ESA Category “B” until brought to book by CAO and others.

P.3: Recent civil society organization complaints to the Office of the Compliance Advisor/Ombudsman in relation to IFC’s handling of four downstream investments (in a palm oil trader and a refinery), as well as a complaint to the Inspection Panel regarding a World Bank smallholder oil palm program have raised concerns about sustainability issues. The World Bank Group recognized the legitimacy of these concerns and in response temporarily suspended any new investments in the palm oil sector.

It should not need CAO reports, massive outcries and complaints for the WBG to ‘recognize the legitimacy of these concerns’. The Knowledge Bank should be aware of such basic facts in advance, especially if it is to offer advisory services. These negative impacts are all too well known worldwide, and have been known inside the WBG at least since US Congress (led by Rep. Henry Reuss) pressured WBG President Robert McNamara on Malaysia’s massive Jengka Triangle oil palm projects in the 1970s.

P.4: A Common Approach …. In particular, IFC will only invest in plantation operations that are certified for sustainable palm oil production according to an internationally-recognized certification scheme, or have a time-bound action plan to achieve such certification.

This is too risky. It is well known that development agencies have highest leverage up to and just before Board approval. Once approved, such pari passu leverage and interest wanes fast. Time-bound action plans to achieve certain standards usually fail in such cases. Only part of the action plan is divulged. How the client is progressing to meet action plans is never divulged by IFC.

P.5: World Bank Group Commitments Key actions could include: working with governments to implement land registration systems, build capacity for environmental and social impact assessment and regulation, strengthen forest and land governance and administration and increase productivity.

Commitments and key actions could include a lot of good stuff. That is inadequate at this stage. IFC has been caught violating its own policies. The time has come to clarify what specifics IFC will firmly commit to in order to prevent such social and environmental damage and violations in the future.

P.6: Concerns about sustainability-related issues in the sector were highlighted by the IFC’s Office of the Compliance Advisor, the World Bank’s inspection panel, and civil society organizations and prompted a temporary moratorium in November 2009 on new World Bank Group investments in the palm oil sector pending development of a more strategic approach to
engagement in the sector.

(a) Is this “Framework” document supposed to be the strategic approach mandated by President Zoellick, and fostered by the unprecedented moratorium? The document is entitled Framework, but in places a strategy is hinted at. The e-mail address for comments on the Framework is “Strategy”. Clearly a strategy or even a policy is required if the recent massive impacts of IFCs investments leading to the moratorium are to be prevented in the future.

(b) IFC’s Compliance Adviser’s evaluation of IFC’s oil palm investments was kept secret for months before they were only partially released. CAO convincingly showed that corporate pressures had repeatedly trumped social and environmental concerns, starting with what is commonly IFCs weakest point, miscategorization for the Environmental and Social Assessment (ESA). Categorization as the ESA Category “B” of any project a priori likely to impact fairly intact tropical forest, likely to impact Indigenous Peoples, likely to emit significant GHG from forest removal, burning or peats, involuntary displacement—all should be systematically categorized as “A”. IFC’s AMaggi soy monoculture investment in the Amazon forest region, IFC’s Bertin industrial cattle ranching in Amazon forest region, and most, if not all oil palm projects, should routinely be classified as “A”. IFC categorized them all as “B” and refused to categorize them prudently without prolonged pressures, complaints, CAO investigations etc. All branches of the WBG should be enhancing prudentiary measures, rather than struggling to lower the standards.

(c) In addition, the CAO’s reports, the Inspection Panels reports and the complaints need to be included in full in the new oil palm Framework as annexes, or at least with easy-to-use links.

(d) CAOs findings -- that IFC systematically violated its own standards and policies -- need to rectified and stringently prevented in the future. Therefore, this Framework needs to specify precisely how the CAO-identified policy violations will be prevented in future.

P.6: The World Bank Group’s engagement in the palm oil sector is consistent with its mission to fight poverty without compromising economic, environmental and social sustainability.

Clearly not, or not yet. This claim is worrying. The Framework seeks to make WBG’s engagement consistent etc., but it’s a long way from achieving that as yet. The moratorium was commendably imposed on IFC precisely because IFC was refusing to follow its own standards and normal precautions. The CAO, IP and other evaluations showed that IFCs projects were exacerbating poverty and wreaking much environmental damage.

P.15: Table 1: A Summary of Possible World Bank Group Interventions under the Four Themes and Their Relation to Feedback from Consultations.

A menu of possible options is not what is needed at this stage. This Framework has been drafted precisely because IFC has been caught violating its own policies and standards. At this stage, firm commitments are needed, not “possible interventions.”

P.18: IFC may invest in oil palm plantation operations and other palm oil sector companies even if the public sector legal/regulatory enabling environment is less than ideal, if IFC is convinced that the project will have strong and measurable development impacts and that any risks can be mitigated through other governmental or non-governmental programs, including other World Bank Group operations, if present.

This has been tried by IFC and has failed. Post-approval leverage to foster compliance with pari passu action plans is weak at best. IFC needs to ensure that the design of projects it supports is as prudent as possible in advance, and that it has reduced all possible risks to a low or acceptable state. See comment on P.4 (above) on the risks of resorting to such pari passu aspirations.

P. 18: ….any risks can be mitigated through other governmental or non-governmental programs, including other World Bank Group operations, if present.

Up until now this statement is false. IFC has failed to mitigate risks such as destruction of forest, impacts in Indigenous and other poor people, harming GHG sequestration and forest fires etc, that’s why the moratorium was imposed on IFC. The moratorium is IBRD/IDA’s way of stopping IFC from creating more damage until their procedures are upgraded, fully agreed upon and conscientiously implemented by IFC, preferably with independent third party verification. The Framework as currently drafted could reduce risks further, but that would be insufficient. At this stage, in view of IFCs violations and irreversible damage as exposed by the CAO and others, the new strategy must ensure that: (a) no more forest is destroyed; (b) no more Indigenous People or poor re harmed; (c) no more GHG sequestration is impaired; (d) no more water is polluted. Clarifications and emphases on these basic priorities must be added to the next draft.

P.18: Last para: For the World Bank, the final selection of indicators will follow as activities are selected.

Despite all the Framework’s rhetoric about enhanced coordination between IFC and the rest of the WBG, this para suggests IFC prepared this Framework mainly on their own, but hopes IBRD/IDA will come in later.

P.23: Issue regarding how companies and government agencies obtained consent for land use changes was a strong theme. ….. Full adherence to the concept of Free Prior Informed Consent by investors in the palm oil sector was seen as essential by many of the stakeholders.

If FPIC is considered essential, where is IFC’s response? As FPIC is so important to RSPO and many other stakeholders, does the WBG propose to follow the United Nations Declaration (UNDRIP) and accept FPIC, or will it persist in debasing the UN Declaration into FPIConsultation? IFC is supposed to be a member of RSPO in good standing. As IFC apparently does not accept FPIC, it is violating RSPO’s membership criteria of accepting FPIC.

P.31 & 32: These projects are not discussed in the review because at the time of the research, the projects were missing from the Bank’s information depository (Business Warehouse) due to a problem with the internal sector coding system.

I respectfully suggest the missing projects be found and their lessons learned be integrated into this Framework while still in draft. I suspect the comment on P.3 (above) refers to these or similar projects.

P.44: All World Bank projects are categorized on the basis of the environmental and social risks associated with the project. Depending on the assessment of environmental and social
impacts and risks, projects may require Environmental Assessments and/or Environmental Management Plans to be prepared and implemented.

In fact, as already mentioned, IFC rarely finds a project worthy of an ESA Category “A”. IFC classifies practically all of its forest-, Indigenous Peoples- and GHG emitting projects as Category “B” at least until the CAO or others show how imprudent IFCs classification is. If IFC wants to promote sustainability and prudence, while reducing risks to environment or humans, it will classify any proposed project as a Category “A” that may impact or otherwise affect Indigenous Peoples, forest or GHG sequestration capacity, or any projects needing involuntary resettlement.

Conclusion: Three Gaps in the Draft Framework

1. Definition of ‘degraded’ sites: The Strategy or Framework should emphasize clearly that the WBG will decline to finance (or otherwise encourage) destruction of tropical, high conservation value, critical natural habitat, old-growth forest, secondary forest, hi-graded or selectively logged forest or other ecosystems, and impacts on Indigenous People. Further, that human displacement will be avoided or minimized, and that GHG emissions will be fully accounted beforehand, compensated for, and minimized.

The sites on which oil palm, soy or other projects may be located must be scrupulously defined. Brazil’s commendable policy is to select ‘abandoned’ or ‘degraded’ sites only. That’s a good first step. In the WBG’s case how a proposed site was found to be suitably abandoned or sufficiently degraded needs to be explicitly described. There have been far too many cases in which nomadic ethnic groups have hidden from development officials or are in another part of their customary ambits during a visit. Similarly, some officials may opine that a forest from which some mature trees of one species have been removed – selective logging -- is sufficiently altered to be called ‘degraded’. The basic premise, now that climate risks have intensified, is that most forest still standing is providing GHG sequestration services which are more valuable than more oil palm.

2. Use of Vegetable Oils: This is a tricky one akin to claiming: “guns don’t kill people.” On the one hand, IFC will garner much support if they can show that oil palm investments directly reduce poverty, create jobs for the poor etc, while not causing environmental and social damage. On the other hand, if the main benefit of oil palm production is to fuel vehicles, IFC won’t get much support. Between these two extremes, if oil palm production makes corporations more profitable and a fraction of this profit eventually trickles down to the poor, support for IFC also is likely to be weak (except from multinationals). If oil palm based industries are created in-country, thus diversifying products and expanding refining and processing benefits to the producing country, that would be a benefit. IFC should encourage domestic processing and value-added to the fullest extent possible. Indonesia rejected WBG advice a few years ago by thoughtfully imposing a ban on the export of crude undressed logs. As a result, Indonesia now has a thriving plywood, veneer, particle-board and finished wood products industry, along with massive wood processing jobs. As an ecologist, I haven’t a ready solution, but the problems are real and should be tackled.

3. Water Use and Pollution: Now that fresh water has become scarcer than at any time in history, its conservation has risen in priority. It may have been understandable in the 1950s and 1960s for palm oil producers to dispose of their extremely high BOD oil palm wastewater into the nearest creek. That era has long gone. Now even untreated sewage outfalls from coastal cities into the ocean are increasingly being banned. The time has come for IFC to lead palm oil producers into closed-cycle water management. This would conserve the supplies of water, while preventing the pollution of waterways below the oil palm factory. In addition, it would create secondary industries in recycling and use of waste products regained form wastewaters.

Monday, August 09, 2010

Carbon credits for palm oil plantation companies?

While environmental campaigners accuse the palm oil industry of destroying natural forests in Indonesia, the Indonesian government is preparing to allow the palm oil plantations to claim carbon credits under reducing emissions from deforestation and degradation (REDD), a UN backed scheme still under negotiation.

REDD is yet to be approved by the UN Framework Convention on Climate Change.

If REDD is approved, the Indonesian government's plan to include palm oil plantations in the scheme would generate billions of dollars revenue for the palm oil companies as they will be able to claim carbon emission reduction units or carbon credits and sell them in the market!

Here is more on this.

Activists are for sure going to see red.

Thursday, August 05, 2010

Unilever's sustainable palm oil plan on track, Cargill also committed

Unilever is clearly establishing itself as a leader in sustainable palm oil sourcing, a commitment that it made last year in response to a high-pitch campaign by Greenpeace.

Unilever says the company is on track to meet its target of 100% palm oil from sustainable sources by 2015. The company will have 35% of its palm oil coming from certified sustainable sources by the end of this year.

The company has recently signed an agreement with commodities trader Cargill to supply 10,000 tonnes of RSPO-certified sustainable palm oil for its European operations. About the same time, Unilever also signed a long term supply agreement with IOI-Loders Croklaan to source fully segregated RSPO-certified palm oil.

Cargill, a major player in the global palm oil trade, has announced a goal of 60% of its total crude palm oil from RSPO-certified producers by the end of 2010. The company eventually wants to buy 100% of its palm oil from RSPO-certified producers.

A partnership between the two giants- Unilever and Cargill- is a positive sign. Will other food majors follow suit?

Wednesday, August 04, 2010

Include financial audits in supplier code of conduct?

Should brands now include regular financial audits of their suppliers? The answer should be yes if there is any learning from Nike's recent experience in Honduras.

Under pressure, Nike had to agree to pay $1.54 million after two of its suppliers in Honduras closed factories without paying severance compensation to workers.

A New York Times report says that "Nike agreed to the payment after several universities and a nationwide group, United Students Against Sweatshops, pressed it to pay some $2 million in severance that the two subcontractors had failed to pay."

The report says that the "the University of Wisconsin, Madison terminated its licensing agreement with Nike over the Honduran dispute, and Cornell warned that it would do the same unless Nike resolved the matter."

Nike however explains that the payment is for a "worker relief fund" and not for severance. But the point is that campaigners for the first time have succeeded in extracting a payment from a brand after a supplier has failed to pay to workers. This may the beginning of a new trend, no matter how unfair it may seem to some.

In recent years, incidents of sudden factory closures have significantly increased in the garment industry in what are called "shut and run" cases. In many cases, the factories were owned by foreign vendors who fled the country overnight leaving behind sewing machines in the closed factory. In most cases, workers are not paid even the legal severance.

So far brands have audited and monitored working conditions in their supplier factories. Now it may make sense that brands also evaluate the financial conditions of their suppliers to prevent such incidents. Brands may consider requiring their suppliers to maintain certain fund, enough to cover severance pay, in a separate account at all times. Or buy an appropriate insurance cover. This however will increase the cost of doing business and suppliers will not like it.

How else can they protect the rights of workers in the event a supplier shuts shop all of a sudden without any severance pay? Ideas welcome.

Bangladesh workers on warpath over low wages

The fresh round of low-wage protests in Bangladesh garment industry was not unpredictable. For years, Bangladesh has had the lowest minimum wage on earth. This attracted multinational clothing brands to flock to the country to enjoy low production cost.

But garment manufacturing is more than just an industry in Bangladesh. The garment industry is the largest employer in the impoverished nation and accounts for over 80% of the export earnings totalling over $12 billion a year.

Though there are 400 garment factories in Bangladesh, a good chunk of them is owned by politically influential families. As a result, the minimum wage stayed the same for 12 years until 2006 when the wage was revised, only after months of violent labour protests threatened the future of the industry.

But the 2006 raise -revised from Taka 900 ($13) to Taka 1662 ($23) a month- was much below what the workers asked for and many factory owners took a long time to implement the new wage.

Sporadic labour protests have continued since then. Five years on, the same scene is being replayed. The government has revised the monthly minimum wage to 3000 Taka ($43) only after workers resorted to violence by burning down factories and vehicles. The increase is significantly lower than the 5000 Taka ($71) demanded by the labour groups.

Even at 5000 Taka a month, the minimum wage will still be the one of the lowest in the world.

Retail brands though recognise the labour risk of low wage in Bangladesh, they have been frustratingly slow to find a solution. The popular excuse is that the wage is set by the government and therefore it is for the government to address the issue.

But the low wage is the very reason these brands love Bangladesh. Many of them will be the first to flee the country if wages are increased. This very fear discourages the government to raise wage levels.

The labour protests in the meanwhile have turned violent again. A large number of factories are shut down. Workers have learnt that violence is the only language the industry association and the government understands. This does not reflect good on retail brands' corporate responsibility claims.

Here are some of the local stories on the ongoing labour violence:

RMG sector still in grip of violence

Sunday's tripartite meeting 'a farce'

Thousands of workers continue protests

Business leaders for stern action against RMG troublemakers

And here is a video