Highlights, News

Further funding allows Aidenvironment to continue its focus on palm oil leakage markets

Aidenvironment was very happy to receive further funding in 2020 to continue our Chain Reaction Research (CRR) project. CRR is a research consortium made up of Aidenvironment, Profundo and Climate Advisers. CRR conducts free sustainability risk analysis for financial analysts, credit analysts, commercial bankers, institutional investors, corporations, and other stakeholders. Since the project began in 2013, CRR has identified and reported on several companies involved in deforestation, and has helped develop the concept of deforestation as a material financial risk.

The focus of the latest project is on addressing leakage in the global palm oil sector and assessing new, or previously unresearched, markets. This follows a report we wrote in June about the palm oil spot market. The spot market refers to one-off purchases of palm oil that companies make, usually to plug a shortfall in supply. Spot purchases can be made during business-to-business transactions, from bulking facilities, at auctions, from agents at ports or during delivery. There are likely spot markets in every supply chain sector. In the palm oil sector, palm oil suppliers suspended by buyers for violations of No Deforestation, No Peat, No Exploitation (NDPE) policies have compensated for this loss in business by selling their products on the spot market. As buyers are not applying the same due diligence to spot purchases as they are to long-term contracts, these palm oil suppliers have been able to re-enter supply chains they have previously been suspended from.

The spot market paper highlighted a leakage market that needs to be closed if the palm oil sector is to become truly sustainable. It followed several reports CRR has published into different leakage markets, including geographical markets like India, strategies companies use to hide problematic subsidiaries (referred to as shadow companies) and the domestic South East Asian biofuel markets.

This new funding will allow us to continue this research. Our first report will focus on South Korea and the country’s role as an owner of oil palm concessions, buyer of palm oil and timber products, and a financier of palm oil operations. This will be followed by similar studies into the Chinese and Japanese markets.

This research will allow us to continue to highlight the markets that still receive palm oil from companies suspended by the NDPE market, and undercut efforts to achieve market sustainability in the process.