Palm oil body criticises Malaysia's IOI for environment, social damage
* IOI the 2nd firm to face censure after Indonesia's SMART
* IOI licence for green palm oil may get suspended-RSPO
* IOI shares flat, analysts see limited market impact
* Firm accepts RSPO view but warns on NGOs' false statements
By Niki Koswanage
KUALA LUMPUR, April 7 (Reuters) - An industry body for eco-friendly palm oil has censured Malaysia's second largest palm oil planter, IOI Corp , alleging it has drained peatlands and felled forests on Borneo island to expand and that it could face further sanctions.
The censure follows complaints by green groups over IOI's environmental practices in the Malaysia's Borneo state of Sarawak, including a protracted land dispute with a local community.
The Roundtable on Sustainable Palm Oil (RSPO), a group of planters, NGOs and consumers, said its grievance panel found IOI to have breached its membership obligations, making it the second firm after Indonesia's SMART to face censure.
IOI's current and ongoing applications to certify its plantations as environmentally and socially responsible have been suspended and the firm has until May 2 to come up with an acceptable solution to the issues raised, the RSPO said.
"Failure to deliver the required proposal ... will result in the RSPO considering further sanctions, which may include the suspension of (the) IOI licence," RSPO said in a statement on its website seen on Thursday.
The comments will invite further scrutiny to $30 billion palm oil industry that has tried to boost its green credentials in the wake of an aggressive campaign by environment and social activists as well as consumers shunning palm oil-based products.
IOI shares were up slightly to 5.56 ringgit around 0400 GMT on Thursday.
Analysts said there will be muted market impact unless big customers like Unilever (UNc.AS) and Finnish oil refiner Neste Oil stop buying from the firm although that may provide more opportunities for companies in China and India to snap up cargoes.
IOI said on its website that the company accepted the RSPO's decision and would work with the industry body to find a solution, especially for the land dispute issue.
But it warned that activists were making unfair and false statements against the planter.
"Merely pressuring one party will not guarantee or facilitate the successful conclusion of the discussion said," IOI said.
U.S.-based green activists Rainforest Action Network welcomed the RSPO statement and called on agribusiness giant Cargill, the largest palm oil importer to the U.S., to scrutinise its relationship with IOI.
"This ruling reinforces RAN's demand that Cargill institute basic safeguards on its supply chain to ensure it is not selling palm oil from stolen indigenous lands to American consumers," said Lindsey Allen, RAN forest programme director.
The spotlight on IOI comes as Golden Agri Resources , the parent of Indonesia's SMART, joined the RSPO and pledged to commit to producing green palm oil as both companies raced to win back their customers. [ID:nL3E7F41I0]
Major palm oil consumers such as Unilever and Nestle stopped buying from SMART because of environmental concerns, and have yet to resume supply ties, traders said. (Reporting by Niluksi Koswanage; Editing by Ed Lane)