On Thursday 15 November 2018, moments before the RSPO General Assembly which saw the adoption of new and improved RSPO Principles and Criteria, attendees gathered for a panel session and Q&A with members of the RSPO’s Financial Institutions Task Force (FITF). The event was an opportunity to explore the role of the FITF in strengthening the RSPO, helping drive Certified Sustainable Palm Oil (CSPO) supply/demand and the diverse ways in which its representatives can help foster mutually beneficial relationships between RSPO members. Here are some of the main questions, answers and takeaways from the event moderated by Clara Melot, SPOTT Engagement and Impacts Manager at ZSL.
What benefits do financial institutions (FIs) see to joining the FITF?
The FITF provides its members with various knowledge sharing opportunities, with monthly calls to discuss new developments and relevant news about the palm oil industry. An example of this being a recent webinar organised for WWF to present a paper about its work with ASEAN banks on sustainability. More importantly, it offers a platform for representatives of the banking sector within the RSPO to speak with one voice and coordinate on governance issues. As one of the panellists recalled, the FITF provided a space to discuss the upcoming votes at the General Assembly: “even if as an organisation we vote on our own, we could share thoughts and know what other FIs were thinking and understand the view that the board was recommending”.
Do FIs have a distinct role and contribution within the Board of Governors (BoG) of the RSPO?
While they might not be its most visible members, FIs have been on the RSPO since its very beginnings. One of the main contribution of FIs is to bring governance best practice and a broader perspective to RSPO, gained from financing the multiple sectors involved. The FIs have particularly been involved in developing enhanced governance, particularly with regards to accurate management information so that the BoG can be aware of new developments, what are the risks to the organisation and is able to disseminate this information to all the RSPO stakeholders.
Some of the FIs in the FITF sit on the RSPO’s complaints panel – has the knowledge gained from being on the panel impacted how they interact with clients?
There are three on the Complaints Panel who deliberate on different cases, dictated by any conflicts of interest that they might have. When it comes to financing within the palm oil sector, the FITF members described the Complaints Panel as an essential mechanism to identify whether clients are addressing potential complaints, what they are doing about them in terms of actions and progress which in turn can inform and influence financing decisions. When asked about the main common traits between different types of complaints – be they around labour issues or land conflict – one of the panellists stated that “a lot of the times, it could be communication breakdowns, it could be inconsistent application of national laws, or systemic failures that lead to the lack of implementation of effective policies or RSPO guidelines.”
What was the role of FIs in the RSPO P&C review?
Seven distinct groups were set up to tackle the P&C review: Indonesian growers, Malaysian growers, growers of the rest of the world, smallholder growers, supply chain stakeholders, social NGOs and environmental NGOs. Two FITF members sat on the supply chain group: “What we try to achieve is really convergence within the RSPO – making sure that our policies are well represented and that we achieve confidence in the RSPO standard through the P&C”.
When asked about the new P&C, all the panellists agreed that they were fully supportive of the proposed changes which they considered “strong additions compared to the previous standard”, particularly regarding human rights where improvements are in line with the UN Guiding Principles on Business and Human Rights.
Another “strong statement to the outside world” was the integration of new requirements around “no deforestation”, “no burning”, no clearing of HCV and HCS areas and no new developments on peat. The panellists were quite enthusiastic about “having found common grounds and creating something which is applicable and actionable.”
With only part of the industry considered sustainable and many regional banks financing less sustainable palm oil production – what could the FITF members do to level the playing field?
The FITF members noted similar difficulties in trying to engage other financial actors to support the sustainability agenda and to meet the RSPO vision regarding making CSPO the norm. While this was presented as work in progress by the panellists, a member of the audience enquired about what more they could do to engage local banks: “It may not be us alone that can achieve change, primarily because we are seen as competitors .” The panellists highlighted the fact that support from NGOs, investors and regulators is instrumental in effecting change across the financial sector.
One positive trend noted by another panellist is that the biggest players are looking overseas, towards Europe and the US, and require financing or refinancing in these locations, in which case, a united front from international financial institutions may mean a level playing field: “If we can be in the lead [in a transaction or deal], our role is to make sure that every bank taking part applies a single sustainability standard.”
How do FIs respond to accusations, legal action or RSPO suspensions?
The first response from all panellists was the need to investigate: “we will immediately undertake a high-level, in depth review of what is going on, which will trigger a review of whether they have breached our policies and whether we would need to review actions related to their facilities”. Everyone concurred that in such cases they look to see a strict action plan, timeline and progress milestones to be achieved. Some of the panellists also highlighted their use of the Complaints Panel as a mechanism to see how the client is dealing with the situation: “we’d like to see things go through the Complaints Panel because it is a RSPO mechanism, it is public, everything is transparent, and we can see progress.”
FIs may involve third parties to monitor the situation where required, but more importantly, the panellists agreed that what was needed above all was “self-awareness and acknowledgement from the company itself”. Where issues are potentially required to be taken up with clients, relationship managers are often involved, but some institutions might ask their sustainability teams to step in as a neutral party: “The main purpose is to let the client understand that the bank is trying to help them to achieve their objectives, through working together.”
A common feeling among panellists was that exiting the relationship is a last resort: “The very last thing we will do is exit the relationship with a customer, which effectively means we failed, as there is no more engagement at that point.” By far, the preferred option is constant information flow and early responses: “we have briefings with our relationship managers to make them aware of sustainability concerns and risks, so that they know that they have to discuss these issues proactively and regularly when they meet the client. This acts as a pre-warning, so that we don’t get ourselves into trouble or otherwise we will have problems continuing.”
Should FIs exit relationships with suspended clients?
One of the NGO participants at the panel raised their concern regarding an ongoing complaint against a company, and highlighted that the parties at the centre of the complaint were not able to participate in the resolution process. A request was also made to financial institutions involved with the company and in the Complaints Panel to remain engaged and closely follow the developments around this complaint to ensure that corrective action is effectively taken. The panellists acknowledged the need to stay engaged, and confirmed that engagement is very much in line with the approach taken by the FITF members to drive change and action on the ground to resolve issues and concerns on an ongoing basis. Dis-engagement is the last resort.
How can responsible investors support industry progress?
Investors, particularly those with exposure to the palm oil sector, led by the PRI have engaged with the RSPO and FITF to understand more about the role of sustainable palm oil and some of them were present at the panel session. When asked about the role of investors, a panellist stated that approaches are complementary: “We talk to our clients, to our potential clients and also having larger investment houses doing this could be of benefit.” Another noted that influence over any supply chain stakeholder was really down to material relevance “If I represent only 2% of the total [lending] provided within the banking group [facility], I’m probably not [materially] relevant to the client. (…) where you are a minority investor (or lender), it is very difficult to have impact on the corporate governance, but if you are a majority investor (…) it will give you a lot of room to influence the governance of a company” and drive the engagement process.
It was noted that while investors can join forces and collectively engage with specific companies, banks are legally forbidden to share information about clients and therefore cannot act collectively or as a single entity. However, banks and FIs rely more on policy convergence between the institutions and the adoption of robust international standards, such as the RSPO certification process, to evidence sustainability.
In this context, the added value of the FITF in terms of learning and coordination, and its central role within the RSPO through various governance bodies means that RSPO membership in general, and membership in the FITF in particular, presents financial institutions with a timely opportunity to bring positive change in the industry.