RSPO's Update on Principles and Criteria has No Impact on Sime Darby, IOI — Moody's
20/11/2018The Edge

KUALA LUMPUR (Nov 20): The Roundtable of Sustainable Palm Oil’s (RSPO) update on its Principles and Criteria (P&C) is not likely to impact three of four Moody’s Investors Service rated palm oil producers, which include Malaysia’s Sime Darby Plantation Bhd (Baa1 stable) and IOI Corporation Bhd (Baa2 stable).

This is due to the fact that they have already implemented sustainability policies that incorporate the updated RSPO requirements.

The RSPO is an association of palm oil industry stakeholders that promotes the growth and use of sustainable palm oil products. Key elements of the updated criteria relate to halting deforestation, protecting peatlands and strengthening labour rights.

“The three rated issuers, Sime Darby Plantation Bhd (Baa1 stable), IOI Corporation Bhd (Baa2 stable) and Sawit Sumbermas Sarana Tbk (P.T.) (B1 stable), have adopted sustainability policies that include no deforestation, no peatland development and no labour exploitation.

“Therefore, they are likely to be in compliance with the revised RSPO requirements ahead of the 12-month grace period companies have to adopt the requirements,” the rating agency said in a statement here, today.

Amid growing awareness and demand for sustainable palm oil production, Moody’s expect companies that have RSPO certification to be better positioned to benefit from the favourable long-term outlook for palm oil demand.

According to Oil World, an independent global research firm on oilseeds, global palm oil consumption will rise to around 85 million tonnes by 2025 from 62 million tonnes in 2016.

“Among our rated issuers, Sime Darby Plantation is best positioned for sustainability practices. It is the largest producer globally of certified sustainable palm oil, producing 20 per cent of global output, and one of the founding members of the RSPO.”

IOI Corporation, another RSPO founding member, has enhanced sustainability practices. Last month, the RSPO officially closed its complaint from 2016 in recognition for IOI's continued commitment to a number of practices2, including no development in high conservation value areas.

Sawit Sumbermas is enhancing sustainability practices following complaints in recent years. The company has also engaged external consultants to provide sustainability advisory services to optimise its sustainability standards, including better environmental management.

However, Indonesia's Tunas Baru Lampung Tbk (P.T.) (Ba3 stable) is not seeking RSPO certification.

Around 75%of its palm oil products are sold domestically, where customer demand for RSPO-certified palm oil is lower than in importing countries, although this could change over time, it said.

The company is pursuing the Indonesian Sustainable Palm Oil certification scheme, which was initiated by the government and is less stringent than the RSPO requirements.

RSPO’s P&C offers a generic standard that defines the criteria for manufacturing of sustainable palm oil at the palm oil mill and production standards applied during the planting and harvesting process. It is one of the most widely used certification standards globally and seeks to address environmental, social and governance (ESG) issues in the palm oil sector.

The adherence to ESG considerations is being increasingly raised by palm oil stakeholders such as customers, non-governmental organisations and financial institutions.

“We expect palm oil producers with well-established sustainability practices will have an edge in terms of better access to larger customers, which are increasingly adopting more stringent sustainability policies, and to funding as ESG criteria are becoming increasingly important considerations for investors and lenders.”