Key takeaways
Palm oil production has more than tripled during the past two decades. It is used in many goods that people use regularly, from processed foods and cosmetics, to detergents, chocolate, and biofuel.
Palm oil sourcing has attracted significant and growing attention and debate by NGOs, investors, companies, and consumers due to the commodity’s significant environmental and social challenges.
The palm oil sector employs millions, and a large proportion are smallholders. While the industry is creating economic opportunity, the rapid and poorly managed expansion of production is linked to human rights challenges, large scale deforestation, and significant greenhouse gas emissions from the clearcutting and burning of tropical forests.
About 85 percent of palm oil is grown in Indonesia and Malaysia, where production is the leading driver of habitat and biodiversity loss—notably for endangered animals, such as orangutans and Sumatran tigers.
Investors should address business risks in the palm oil supply chain through direct engagement with their portfolio companies and support of relevant policies and multi-stakeholder collaborations. Effective implementation of a company’s policies requires promoting commodity traceability and having a clear approach to supplier engagement, verification, and disclosure of progress.