Calculating the Stranded Assets of Indonesia’s Palm Oil Sector

Indonesian palm oil companies face the risk of ‘stranded land’ for forest or peatland on undeveloped concessions. This risk is created by the growing number of traders, refiners and end users of palm oil that have adopted ‘No Deforestation, No Peatland, No Exploitation’ (NDPE) policies. Last month Aidenvironment, as part of Chain Reaction Research, published a groundbreaking new study that calculated the amount of ‘stranded land’ on palm oil concessions in Indonesia.

The NDPE policies being adopted by a growing number of companies ensure that they do not source palm oil linked to the destruction of tropical forests in Indonesia and elsewhere. We compiled a composite concession map of Indonesia and used satellite imagery to identify forests and peatland on these concessions. This showed us that that there is a total of 6.1 million hectares of land that cannot be converted to palm oil plantations without violating NDPE policies. This is roughly equivalent to 1.5 times the total landmass of the Netherlands.

The implications of these findings are significant. They illustrate that continuing commitments to source sustainable palm oil remain vital, as much forest and peatland could still be lost. They also show that traditional models of valuing palm oil companies need to be revisited, as undeveloped land banks are no longer a reliable proxy for a firm’s growth potential.

In accompanying publication, Aidenvironment showed that there is very little potential for the sector to expand beyond currently licensed areas because the government of Indonesia announced a moratorium on new palm oil licenses. Together with the demands to comply with NDPE requirements, this forces the palm oil sector to seek alternative growth strategies that do not lead to any further deforestation.

For more information, please contact Tim Steinweg or Eric Wakker.