Engagement Update - Unilever and Palm Oil

Palm oil is the most widely produced vegetable oil in the world. It is made from the fruits of African oil palm trees which originally came from tropical rainforest areas in west and south-west Africa. They were introduced to Indonesia and Malaysia in the late 19th and early 20th centuries. These days, palm oil is used in a vast array of food and consumer products, from peanut butter, margarine and ice cream to lipstick and shaving foam. Approximately half of products sold in a UK supermarket contain palm oil or palm-kernel oil[1].

Despite its widespread applicability, in recent years palm oil has become synonymous with a range of social and environmental problems. Plantations have been associated with a raft of poor behaviour such as the destruction of wildlife habitat, illegal logging, displacement of indigenous populations and labour rights abuses.

We are investors in the global consumer goods firm, Unilever. As well as household brands such as Dove, Ben & Jerry’s and Hellman’s, the company is also well-known for its ambitious goals to radically improve the sustainability of its business. Its recent pledge to eliminate fossil fuels in cleaning products by 2030[2] is a case in point. It would be remiss of us not to acknowledge that Unilever has had some missteps in recent years[3] but, by and large, we view it as company that continues to set the standard on sustainability.

Unilever is a significant player in the palm oil market[4] and the company has long been at the forefront of efforts to clean up the industry. Back in 2004 Unilever was a founding member of the Roundtable for Responsible Palm Oil, a cross-sector initiative to hold plantation owners to an agreed set of ethical standards.[5] Two years ago it became the first consumer goods company to publicly disclose all its palm oil suppliers, a bold move when the industry remains beset with problems. We applaud their transparency, and the fact that they’re willing to be scrutinised by NGOs, journalists and others. A number of competitors have since followed suit.[6]

We contacted Unilever over the summer. At Castlefield we carry out our ESG[7] research in-house, but a company called Ethical Screening provides an extra layer of monitoring on current and prospective holdings. They flagged concerns about allegations of human rights abuses and environmental destruction by a Liberian palm oil producer, GVL.

Although not a Unilever supplier, GVL has links to GAR, a large and well-known palm oil company and a supplier to Unilever. Given the close connection to its own supply chain, we raised the allegations with Unilever. They confirmed that Unilever does not source directly from GVL in Liberia, and that they are monitoring the situation closely through discussions with GAR and due diligence reports from organisations such as AidEnvironment. Unilever reiterated that all its suppliers are expected to adhere to its No Deforestation, No Peat, No Exploitation commitments which apply to all suppliers and their entire operations, including traders and third parties. The company also mentioned that it has previously suspended nine palm oil suppliers due to breaches of social and environmental issues.

The response offered us some reassurances: the company is aware of the issue and appears to be putting pressure on GAR; whether that results in action by GVL remains to be seen. We will continue to monitor the situation. On a more positive note, Unilever is involved in an industry-wide collaboration to develop radar technology that will enable early identification of deforestation. Trials indicate that radars can detect deforestation several weeks earlier than previous systems[8]. Much will depend on how quickly this technology can be rolled out globally, but it may provide an additional tool in combatting the destruction of forested land.

Palm oil is also a topic that we have recently discussed with our external advisory committee (read more here: https://www.castlefield.com/news-media/blog/our-external-advisory-committee/) and we will be keeping them updated with our engagement in this area.

If you want to find out more about our engagement work, you can read our latest Stewardship Report here: https://www.castlefield.com/media/3031/castlefield-annual-stewardship-report-2019-2020.pdf

Written by David Gorman & Ita McMahon

[1] https://www.ethicalconsumer.org/palm-oil/palm-oil-free-list

[2] https://www.unilever.com/news/press-releases/2020/unilever-to-invest-1-billion-to-eliminate-fossil-fuels-in-cleaning-products-by-2030.html

[3] https://www.theguardian.com/world/2017/oct/08/dove-apologises-for-ad-showing-black-woman-turning-into-white-one

[4] https://www.unilever.com/Images/unilever-palm-oil-policy-2016_tcm244-479933_en.pdf

[5] https://www.foodnavigator.com/Article/2018/02/20/Unilever-publicly-discloses-palm-oil-supply-chain-You-can-t-outsource-your-responsibilities-says-Polman#

[6] https://www.wsj.com/articles/palm-oil-sustainability-certifier-to-review-indonesian-bribery-claims-11584752501

[7] Environmental, social and governance

[8] https://www.wri.org/news/2019/10/release-palm-oil-industry-jointly-develop-radar-monitoring-technology-detect