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PepsiCo updates sustainable palm oil policy to close supplier loophole

Environmental activists have welcomed food and beverage giant PepsiCo’s move to update its palm oil sustainability policy, following years of pressure over a supply chain tainted by deforestation, peatland conversion, and labour rights violations.

PepsiCo’s new policy of “No Deforestation, No Peat, No Exploitation,” or NDPE, addresses a previous loophole by applying to a wider network of suppliers and business partners. “It applies to all palm and palm kernel oil that we use globally and covers our entire supply chain, from direct suppliers to production sources at the group level, meaning NDPE should be applied across their entire operations and third-party supply chain and not limited solely to the palm oil sold to PepsiCo,” the company says.

“We commend PepsiCo for adopting a comprehensive policy and leading actions that, if implemented, will drive change in its palm oil supply chain as well as the broader palm oil industry,” said Robin Averbeck, agribusiness campaign director with the Rainforest Action Network (RAN), the U.S.-based advocacy group that worked with PepsiCo to update the policy.

Sustainability loophole

PepsiCo, the world’s second-largest F&B company and a major buyer of palm oil, first rolled out its sustainability policy in 2013. The company, owner of brands including Pepsi, Lays, Doritos and Quaker Oats, says it will now only buy palm oil from sustainable sources with no further development of high carbon stock (HCS) forests or high conservation value (HCV) areas, and no new conversion of peatlands.

Previously it had committed to no longer buying palm oil from cleared forests or peatlands as of the end of 2015. And in 2018 it updated its policy by setting 2020 as the deadline for the full implementation of its NDPE commitment.

But the sustainability policy had a large loophole: it applied only to PepsiCo’s direct suppliers, and not third-party suppliers, thus allowing the company to maintain business partnerships with suppliers that were actively abusing workers’ rights and destroying tropical rainforests and peatlands.

We commend PepsiCo for adopting a comprehensive policy and leading actions that, if implemented, will drive change in its palm oil supply chain as well as the broader palm oil industry.

Robin Averbeck, agribusiness campaign director, Rainforest Action Network

“Even though they already had a sustainability policy, it didn’t apply to their business partners such as Indofood,” said Fitri Arianti, the RAN coordinator for Indonesia.

The updated policy addresses this, with PepsiCo now requiring its business partners to ensure sustainability throughout their respective groups.

“[We aim to] use our leverage and grievance management process to help enable our suppliers and business partners to address grievances and non-compliances and provide remedy where they have caused or contributed to impacts,” PepsiCo says.

This key change puts PepsiCo top of the palm oil sustainability rankings among major brands graded by RAN, Fitri said.

“PepsiCo used to be in the ‘laggards’ category, but because of this [updated policy], they have become a front-runner,” she said. “Unilever and Nestlé, which we perceive as progressive [in terms of their palm oil sustainability policy] only apply their policies at the group level, but PepsiCo is one step ahead now because their policy also applies to their business partners.”

Labour rights violations

Part of PepsiCo’s previous lagging on its sustainability commitments is its association with Indofood, the biggest food producer in Indonesia. The pair run a joint venture to produce some of PepsiCo’s brands for the Indonesian market, and one of their palm oil suppliers was an Indofood subsidiary, Indofood Agri Resources (IndoAgri).

But in 2016, RAN and a group of labour rights NGOs published a report on alleged labour rights abuses at IndoAgri’s London Sumatra Indonesia (Lonsum) plantation in North Sumatra province, prompting PepsiCo to cut off IndoAgri as a supplier in January 2017.

follow-up report published later that year revealed little progress in addressing the problems, which had also caught the attention of the Roundtable on Sustainable Palm Oil (RSPO), of which Lonsum was a member at the time. In 2018, the certification body found Lonsum in breach of its standards and local labour laws, and set it a deadline to address the violations.

IndoAgri refused to comply, saying it disagreed with some of the findings and that the deadline was unrealistic. It subsequently pulled Lonsum out of the RSPO in early 2019, prompting criticism from PepsiCo.

“This is unacceptable and inconsistent with our policy and commitments on sustainable palm oil,” PepsiCo told industry news site Just Food. “We support the RSPO’s Complaints Panel process and continue to urge IndoAgri to act immediately to resolve the identified issues and strengthen their palm-oil policy and grievance mechanism.”

Lonsum’s withdrawal from the RSPO drew an immediate financial backlash against Indofood. In May 2019, Citigroup cancelled a $140 million revolving credit facility to Indofood and divested from the company entirely. The following month, Standard Chartered dropped Indofood as a client, while Rabobank stopped loans for its palm oil operations. While Indofood insisted it would go ahead with planned expansions funded by other foreign and domestic banks, it nevertheless slashed hundreds of jobs, many of them in the Lonsum plantation.

This signaled a cost-cutting measure, said Herwin Nasution, the executive director of labour rights advocacy organisation OPPUK.

Most of these workers used to work as temporary casual workers with no job security in Indofood’s plantations in North Sumatra, South Sumatra and East Kalimantan, he added.

“In total, there had been 362 people fired,” Herwin said. “For full-time employees, they got severance pay twice, but for casual workers, they didn’t get anything.”

Nearly 60 per cent of workers in Indofood plantations are casual workers, according to him.

“[Indofood] uses their labours for decades, but once they’re out of RSPO, they fired these workers,” Herwin said. “So they [Indofood] are running away from their responsibilities.”

PepsiCo will need to address IndoAgri’s problems now that the Indofood subsidiary falls under the remit of the updated sustainability policy, said RAN’s Fitri.

“IndoAgri still hasn’t complied with the new sustainability policy, so [PepsiCo] is still refraining from buying [palm oil from IndoAgri],” she said. “But since this new policy applies to all Indofood [businesses], we hope PepsiCo will discuss [with Indofood] about its new policy.”

Fitri said PepsiCo had told RAN it they would visit the country to assess the labour issues.

“They will meet the government and independent labour union organisations to learn about labour issues in palm oil plantations and find the solutions. And they will push Indofood to improve labour condition on their plantations,” she said.

Addressing deforestation

In addition to worker welfare, PepsiCo’s NDPE policy also commits it to addressing the problem of deforestation. In Indonesia, that centers on the alleged clearing and planting activity by a PepsiCo supplier inside the Leuser Ecosystem in North Sumatra.

The area is an ecological hotspot celebrated as the last place on Earth where Sumatran tigers, rhinos, orangutans and elephants coexist in the wild, but much of it isn’t protected. A 2018 field investigation by RAN found that palm oil grower PT Surya Panen Subur II (SPS II), named on PepsiCo’s 2017 mill list, had cleared a large swath of rainforest in its concession in the Leuser Ecosystem.

PepsiCo subsequently launched an investigation. Two years on, however, it still can’t guarantee that the palm oil it gets from the Leuser plantation is truly sustainable and free from deforestation and loss of peatland or other habitat, according to a recent report by RAN.

PepsiCo has acknowledged the difficulty of monitoring and enforcing sustainability in the Leuser region, and said it will accelerate the implementation of its NDPE policy there this year.

“PepsiCo, working with others, will also aim to establish a consistent forest monitoring system across the Leuser Ecosystem in 2020, learning from piloting efforts in Aceh Tamiang and other priority landscapes,” the company said.

It said it would also establish consistent traceability systems to identify the provenance of palm oil all the way back to where it’s grown.

“Our hope is for the deforestation monitoring system to be scaled up in Leuser,” Fitri said.

This story was published with permission from Mongabay.com.

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