KUALA LUMPUR, March 5, 2015:
Malaysian palm oil producer Kuala Lumpur Kepong (KLK) has denied a recent environmental research report which accused it of failing in its commitment towards a zero deforestation policy.
The allegation came after KLK announced a sustainability policy last December and committed itself to stop clearing forests and peatlands for new plantations, and establish protocols in dealing with local communities and workers, according to a report by Mongabay.
The environmental science and conservation news site claimed KLK’s commitment did not extend to third party suppliers, unlike other palm oil majors.
Citing the analysis by Chain Reaction Research, a project involving several environmental consultancies, the report stated that the failure also put KLK’s financial performance at risk.
The research found that KLK could lose customers to other palm oil companies due to not having stronger policies and also risked losing its membership in the Roundtable on Sustainable Palm Oil (RSPO) that could trigger a 30% drop in sales.
The analysis stated that although only a minority of KLK’s profits came from materials sourced from third party suppliers, the majority of their products sold were derived from third-party suppliers’ material.
“The vast majority — about 70%— of the palm oil products that KLK sells to its customers are derived from raw materials that come from third-party suppliers, which are not publicly disclosed and may include significant environmental and human rights risks,” Chain Reaction Research was cited as saying in a statement.
“Yet that is not how KLK generates most of its profit: the revenue generation from KLK’s own palm oil plantations and crude palm oil mills accounted for 76% of KLK’s total pre-tax profits in 2014.
“This business model means that KLK has the opportunity to rapidly address the serious risks in its supply chain by reforming its operations while eliminating its irresponsible third-party suppliers,” added the research company.
Albert ten Kate of Aidenvironment, a partner to Chain Reaction Research, reportedly said that KLK should take immediate action to eliminate deforestation and human rights violations from its supply chain.
“This could also make KLK more profitable by securing and expanding the company’s access to a rapidly changing market,” Kate was quoted as saying.
Jan Willem van Gelder of Profundo, another partner, said: “There is no reason for it to be exposing itself to even more risk through non-transparent palm oil it introduces into its supply chain, which is not even generating the lion’s share its revenue.”
When contacted by The Rakyat Post on these findings, KLK maintained that it abided by its commitments in its sustainability policy.
Their policy contained three main governing pillars, which were no deforestation, protection of peat areas and driving positive socio-economic impact for people and communities.
When asked whether these policies extended to third party suppliers, Lim Poh Poh, KLK senior manager of Investor Relations & Corporate Communications, merely said these suppliers were bound by rules and regulations.
“It (the policy) clearly states that KLK will continuously work with suppliers, contractors or trading partners to ensure compliance.”
On claims of the financial performance risk posed and the potential loss of customers, Lim said: “This is an inherent business risk in ensuring sustainability of business, which is applicable to all companies, and not just to a single company.”
Without elaborating further, Lim said the company was in midst of replying to Chain Reaction to explain all the allegations in the analysis report.
“We will respond to the report accordingly as there are many claims which are untrue.”
According to a claim by Chain Reaction, a draft of the report was sent to KLK on Nov 24 last year for review. However, it said KLK had not responded to the researchers.
In response to this claim, Lim denied that KLK had received such a draft.