OCBC Supports Environmental Destruction and Socially Irresponsible Business Actions

OCBC investment research's Carey Wong recently released a research note in response to the latest action by Nestle to terminate its direct palm oil purchases with Sinar Mas, which operates palm plantations through its Singapore listed subsidiary Golden Agri Resources. In her research note (signed off by head of research, Carmen Lee), Carey said:

Financial impact likely limited. While SMART did not reveal how much Nestle contributed to its sales, we understand that it is likely pretty insignificant at less than 0.5% of overall sales; this as the group sells most of its CPO to customers in China and India, where demand for CPO is expected to track the rapid urbanization in these countries. As such, the financial impact from the latest development, if any, will probably be very limited for GAR, although SMART may suffer some minor setback to its reputation. On that note, we believe that the adherence to guidelines laid out by RSPO (Roundtable for Sustainable Palm Oil) will become more important as the Nestle development suggests that businesses are paying more attention to “green practices”.

Maintain BUY with S$0.66 fair value. However, the push for full RSPO-certified CPO is still expected to be quite gradual; a Dow Jones report estimates that the total amount produced through sustainable methods is still quite small at 1.5m tons, as compared to the 45m tons of annual CPO output globally. As such, we continue to remain upbeat about GAR’s medium-term prospects and maintain our BUY rating and S$0.66 fair value.

Indeed, it is true that the direct contracts with Nestle constitute but a tiny fraction of Sinar Mas' overall sales and the immediate short-term financial impact is likely to be negligible.

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However, Carey has conveniently ignored the high probability of other customers and intermediaries cutting Sinar Mas from their value chains. Cargill and IOI, both major intermediaries and purchasers of palm oil from Sinar Mas, are coming under pressure from environmental groups and customers for not terminating their purchases from now notorious illegal deforester Sinar Mas. Indeed, Nestle itself is putting pressure on Cargill to ensure that Sinar Mas is eliminated completely from its value chain. IOI has also recently come under fire for its environmentally destructive practices in the development of Indonesian Palm Oil plantations. The chance of further financial impact is not insignificant.

In any case, whether or not Sinar Mas eventually suffers financially from its fracas, I find it distasteful and socially irresponsible for OCBC to promote a business that wilfully and illegally destroys high conservation value rainforest while claiming that it is a responsible member of the "Roundtable of Sustainable Palm Oil." Through the promotion of Golden Agri stock, OCBC shows that it is willing to turn a blind eye to environmentally destructive practices and corporate social hypocrisy, in the pursuit of profits.

And just a point of note - in a detailed comparative profitability analysis of the 5 SGX listed palm oil stocks, Golden Agri has come in last, by a mile.

Hence, how on earth can any analyst with a conscience consider Golden Agri to be a buy?

What is Cargill Waiting For? Cut Sinar Mas (Golden Agri Resources) Palm Oil Immediately!!

Unilever, Nestle, Kraft, Shell and Sainsbury have all cut notorious rainforest destroyer Sinar Mas from their list of palm oil suppliers. However, Cargill, the multinational commodities trading giant, is yet to follow the lead of its corporate peers in taking a firm stand on corporate social responsibility and environmental protection.

Despite clear evidence that Sinar Mas, the largest palm oil producer in Indonesia, is illegally logging and clearing high conservation value rainforest and peatlands, and in the process further threatening endagered species like the Orangutan, and contributing to greenhouse gas emissions, Cargill is still mucking around on the issue.

Cargill's role in the 'chain of destruction' is illustrated in the image below. The company is a middleman between the producers of the palm oil and the final users of the same.



The company has released a statement on the issue on its website, saying:

Cargill is keenly aware about the allegations made in December 2009 by Greenpeace about illegal forest clearance and the Indonesian palm oil company, Sinar Mas.

When we became aware of the Greenpeace report we contacted Sinar Mas’s senior management and we have communicated to them that we are looking to them to address the issues in the Greenpeace report. Additionally, we urged the RSPO board to review this issue. We are pleased the RSPO Board has instructed the RSPO Secretariat to get a response from Sinar Mas to the allegations in the Greenpeace report. We are continuing to follow this closely and hope to see a reply from Sinar Mas by the end of April 2010.

If the RSPO validates the allegations of improper land conversion or illegal planting in deep peat land as alleged in the Greenpeace report and Sinar Mas does not take corrective action, we will delist them.

The recent actions by Nestle and Unilever, however, demonstrate that Cargill's corporate peers have rejected the credibility of the RSPO. Indeed, the evidence of Sinar Mas' illegal and environmentally destructive activities comes in spite the fact that the company is supposedly 'certified' by the RSPO.



Forest4climate articulates the problem clearly:

So if within the palm oil industry there’s all this awareness of the potential damage they could cause to both people and the environment, why are we still finding evidence of wholesale forest destruction? Just a couple of weeks ago, we found bulldozers belonging to Sinar Mas clearing huge tracts near Jayapura in Papua, and yet Sinar Mas is an RSPO member. There’s obviously something wrong somewhere.

That something is the basic set-up of the RSPO itself. As it currently exists, its standards and principles are too vague and weak to really do any good and, as we’ve seen, some of its members are happily chewing their way through rainforests and carbon-rich peatlands. There’s no danger of actually being penalised in any way by the RSPO, even though they’re supposed to abide by the code of conduct which states “it is fundamental to the integrity, credibility and continued progress of the RSPO that every member supports, promotes and works towards the production, procurement and use of sustainable palm oil.” What kind of “integrity” or “credibility” does the RSPO have if it turns a blind eye when its members are clearing huge areas of forest or draining and burning peatlands?

Indeed, the whole point of the Greenpeace allegations is that RSPO is an organisation set up to give the palm oil producing industry merely the image of promoting corporate social responsibility, while at the same time engaging in corporate social hypocrisy. Going through the RSPO to hold Sinar Mas accountable completely misses the crux of the matter. It highly unlikely that the RSPO will ever "validate the allegations of improper land conversion or illegal planting in deep peat land"


Meanwhile, Sinar Mas continues to sidestep the issue and release more propaganda. There have been no statements coming directly from the company engaging directly the Greenpeace allegations. Instead, Bloomberg BusinessWeek reported:

PT Sinar Mas Agro Resources and Technology, Sinar Mas’s palm oil unit, is “committed in applying a responsible land clearing and the best practice of farming management in all of our plantations,” President Director Jo Daud Dharsono said by phone today. “We always maintain communication with Greenpeace and we will soon arrange a meeting and have a dialogue with them,” he said.. 

Sinar Mas is obviously denying the issue and trying to sidestep their way around it.


Cargill should stop depending on the RSPO to hold Sinar Mas accountable, and instead should conduct its own independent audit of Sinar Mas' environmental practices. It should demand a direct response from Sinar Mas to the allegations, rather than going through the dubious RSPO. Indeed, in the light of the undeniable evidence and the actions of Unilever, Nestle, and other food giants, Cargill should suspend all purchases of palm oil from Sinar Mas immediately until the latter is able to demonstrate that the allegations are false.

There is no excuse for Cargill to do otherwise. Cut Sinar Mas palm oil immediately!!!

Related: "Cargill's Legacy of Destruction"

Golden Agri Resources - Nestle terminates palm oil contracts with GAR subsidiary SMART following Greenpeace evidence of illegal deforestation

Singapore listed Golden Agri Resources' (GAR) Indonesian plantation subsidiary PT Sinar Mas Agro Resources & Technology Tbk continues to come under pressure from multinational consumer goods giants. Following the lead of consumer good giant Unilever who cease purchasing palm oil from the group late in 2009, food products giant Nestle today announced that it had terminated its palm oil purchases from SMART following damning evidence released by the group Greenpeace that SMART is engaging in illegal and environmentally destructive deforestation.

Given the repeated track record of Sinar Mas businesses in flouting environmental regulations and its notoriety for illegal deforestation, it is not surprising that the GAR subsidiary is receiving similar bad press for its deforestation activities. It appears that Mr Franky Widjaja is following the footsteps of his father in the wanton destruction of rainforests in the pursuit of profits.

Franky Oesman Widjaja has been the Chief Executive Officer of Golden Agri-resources Ltd. since 1996. Mr. Widjaja serves as the head of the Agri-Business and Consumer Food Products Division of the Sinar Mas Group. Franky Widjaja is one of the sons of Eka Widjaja, founder of the Sinar Mas Group, which was one of the largest conglomerates during the Indonesian New Order period.

The Sinar Mas Group also owns Asian Pulp and Paper, a company that has been convicted of being involved in illegal logging in Cambodia, Yunnan Province, China , and the illegal felling of over 50,000 acres (200 km2) of forest in Bukit Tigapuluh national park.

Golden Agri Resources has yet to respond to the decision by Nestle. It earlier claimed that Greenpeace's assertions were "inaccurate and unbalanced allegations." In an announcement dated 15 Dec 2009, the company said:

Greenpeace’s allegations highlighted several issues related to the environmental irregularities and legality issues purported to have been committed by the Company. We regret that the report has published one-sided views using inaccurate, misleading, exaggerated and generalised data and claims. This can result in misconceptions among the general public as well as form an inaccurate basis for decision making by our business partners.

The Company appreciates every effort by all parties that encourage the oil palm industry to always adopt and adhere to the best agricultural practices. It has always been the focus of the Company to comply with all prevailing Indonesian laws and regulations as well as national and international environmental principles.

Since the beginning of its operations and especially during the last 15 years, the Company has committed to base its development on objective of sustainable palm oil production. Indeed, the Company believes that there is strong compatibility between environmental care and agricultural development.

Despite this announcement 3 months ago, it appears that its client Nestle remains unconvinced with the public statements of GAR and its subsidiary SMART. And despite the claims by GAR that Greenpeace's allegations are "one-sided views using inaccurate, misleading, exaggerated and generalised data," independent consultants of UniLever and Nestle have corroborated the Greenpeace claims.

It is highly unlikely that either of Unilever, Nestle, Sainsbury and Shell, who have all ceased buying palm oil from Sinar Mas, would have undertaken such drastic actions if there were poor bases to the allegations made by Greenpeace. Furthermore, apart from releasing press statements claiming that they have been falsely accused, GAR has yet to release a detailed rebuttal to the well constructed arguments and evidence as published by Greenpeace.

For now, the burden of proof remains on GAR to demonstrate that it is indeed taking steps to be socially and environmentally responsible in its business practices. The company's press released are unconvincing in light of all the available information.

"Under the Willow Tree" fully supports socially responsible development of palm oil plantations. Only companies that demonstrate that they produce palm oil sustainably will be endorsed as investments. Hence, in light of recent developments, GAR is not endorsed as an investment by this website. In any case, Golden Agri has not performed well in our recent comparative profitability analysis. In fact, it came in last of all the 5 sgx listed palm oil stocks.