KUALA LUMPUR (Reuters) - An industry body for eco-friendly palm oil has censured Malaysia’s No.2 planter IOI Corp for green violations but consumer giant Unilever, one of the firm’s biggest buyers affirmed their supply ties.
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.
The move comes after green group and social activists lodged complaints over IOI felling forests, draining peatlands and engaging in land disputes with local communities in the Malaysian Borneo state of Sarawak.
RSPO said IOI’s current applications to certify its plantations as environmentally and socially responsible have been suspended and the firm had until May 2 to come up with an acceptable solution for the issues raised.
“Failure to deliver the required proposal... will result in the RSPO considering further sanctions, which may include the suspension of (the) IOI license,” RSPO said in a statement on its website seen on Thursday.
RSPO’s move will invite further scrutiny of the $30 billion palm oil industry that has tried to boost its green credentials in the wake of an aggressive campaign by activists as well as consumers shunning palm oil-based products.
But Unilever said it would continue to buy palm oil from IOI’s mills that have already been certified green, playing down concerns that one of IOI’s biggest customers would sever ties and hit earnings as it did for SMART.
“IOI can still trade the oil from mills certified in the past,” Jan-Kees Vis, global director of sustainable sourcing development at the Anglo-Dutch consumer goods giant, told Reuters.
Based on RSPO data, IOI has four green certified mills. Another three have been audited and the remaining five mills were scheduled to be audited by the end of this year.
Vis declined to say how much palm oil Unilever sourced from IOI but the firm is one of the biggest buyers of the tropical oil, used in products like Dove soap and Stork margarine.
IOI shares closed up 3.1 percent after the Unilever statement, recovering from losses notched the previous day.
“For now we do not expect the suspension to affect the group’s operations as it will merely delay the certification of new estates,” Malaysian investment bank CIMB said in a note.
“(But) this is a negative surprise and may tarnish the group’s image as a sustainable palm oil producer.”
IOI said on its website 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,” 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 United States, to scrutinize 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 program director.
The spotlight has fallen on IOI 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 customers.
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.
Editing by Ramthan Hussain