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IOI Corp’s RSPO Complaint Closure is Credit Positive
26/10/2018Borneo Post

KUALA LUMPUR: IOI Corporation Bhd’s announcement that the Roundtable for Sustainable Palm Oil (RSPO) Complaints Panel officially closed a complaint case against its palm-oil plantation subsidiary in Ketapang, Indonesia, is credit positive for the company, says Moody’s Investors Service. 

In a statement yesterday, Moody’s said the closure reflected industry stakeholders’ recognition of the group’s continued commitment to sustainable palm-oil production. 

“The closure also removes the risk of further sanctions as a result of the initial complaint, which if unchecked, could lead to weaker earnings resulting from a loss of customers,” it said. 

RSPO is an association of palm-oil industry stakeholders which promoted the growth and use of sustainable oil-palm products. 

An environmental organisation, Aidenvironment, criticised IOI for clearing peatland in Ketapang which resulted in the company being suspended by RSPO between April and August 2016. The suspension was lifted after the company took remedial action to address the concern, said Moody’s. 

However, the case remained open amid the group implementing an action plan and third-party verification. 

“Since this incident, IOI had introduced a Sustainable Palm Oil Policy which outlined its commitment to a number of practices including no deforestation, no peat development and no development of high conservation value areas. 

“IOI has also taken a number of steps to improve sustainability practices, including obtaining third-party verification on its progress towards implementing sustainable policies. These steps were acknowledged by Greenpeace, an environmental activist organisation, in 2017,” it added. 

The increasing scrutiny by stakeholders including customers and investors on Environmental, Social and Governance (ESG) issues has prompted palm-oil producers to adopt and strictly implement sustainable practices that allowed for strong monitoring and mitigation of negative ESG impacts. 

“Amid growing awareness and demand for sustainable production, we expect companies such as IOI, which have RSPO certification, to be better positioned to benefit from the favourable long-term outlook for palm-oil demand,” said Moody’s. 

Certified crude palm oil and its derivatives are increasingly required by leading global food and household product companies, particularly in Europe and North America. 

Moodys said based on a CPO price assumption of RM2,300 per tonne, IOI’s profitability was expected to remain stable, with reported operating profit of around RM1.2 billion over the next 12-18 months. 

“Stronger sustainability standards will not result in an immediate increase in IOI’s earnings, but they limit the risk of reputation damage and loss of customers arising from further sustainability complaints,” it added. 

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