Pratheepan Karunagaran, executive director of Apical, a member of the RGE group of companies, outlines measures across the supply chain ecosystem to drive sustainable palm oil production.

Imagine our world in 2050 when we need to feed 2 billion more people, and food demand is expected to be 56% higher as compared to 2010. Juxtaposed against climate change, as well as land and water scarcity, the pursuit of food security is at the top of the global agenda.

There is a need to act with urgency, at scale and in concert to respond to the acute food insecurity. In the face of surging food prices and supply chain disruptions, sustainable production can strengthen the stability of supply chains for the long term.

Feeding the world efficiently

Addressing increasing global food demands, the overall production of food crops has increased. In particular, palm oil has recorded a 56% expansion in market share over the past 30 years. This growth has been propelled by a number of factors, including its efficiency, affordability, versatility and wide-ranging applications. When you walk into a supermarket anywhere in the world, you will find that more than 50% of the packaged products have palm-based ingredients in them.

With the highest yield per hectare compared to other oil crops, oil palm is the most efficient plant in land use. Every hectare of land produces 4 tonnes of palm oil, more than fivefold compared to other oil crops like soybean, rapeseed and sunflower. It supplies close to half of the world’s vegetable oil demand, but utilises only about 6% of agricultural land globally.

Deriving value, the responsible way

In addition to efficiently meeting the global food demand with palm-based products, there is potential for greater value through sustainable farming practices and transparent supply chains.

As one of the top vegetable oil processors and exporters of sustainable vegetable oil, Apical supports food, feed, oleochemicals and renewable fuel needs globally. In our journey, we have learnt that we can only achieve sustainable growth by balancing the needs of people and nature and enhancing the livelihood of smallholders.

Sustainability starts at the source. Our strict commitment to no deforestation, no peat development and no exploitation (NDPE) forms the backbone of our operations. We have invested heavily in the transparency of the supply chain to address issues related to its high fragmentation and complexity.

Our traceability to plantation stands at 99.98%, with an aim to be 100% traceable by 2025.

In the 2022 Sustainable Palm Oil Transparency Toolkit (SPOTT) Assessment, we increased our score from 89.4% to 91.7%, maintaining our top three position as the most transparent company and outperforming the industry average in all ESG categories.

These initiatives require a huge amount of investment and commitment, but we have found that the value we derive from doing so is far greater, offering end-consumers the peace of mind that the daily products they use are sustainable, traceable and produced responsibly. This is an industry that creates extensive employment as well as empowering and improving the livelihood of farmers.

Driving value through circularity

Our company has established supply chains that span from upstream to downstream, making us a vertically integrated player in our industry. As our business expands, so too does the availability of waste and residue, which we utilise through our closed-loop ecosystem. By transforming agriculture waste and residue feedstock, we are able to generate energy and produce biofuels, thus putting waste to good use.

Together with our joint venture partner Cepsa, we are constructing the largest second-generation biofuels plant in Southern Europe. When this is completed, we will supply agricultural waste and residue as feedstock for the production of sustainable aviation fuels (SAF). The wider use of SAF and renewable diesel provides significant benefits on a global scale by mitigating the effects of climate change and promoting sustainable economic growth.

Working with our communities, we also collect and recycle used cooking oil into biodiesel – a clean-burning and fully degradable renewable source – to power Indonesia’s energy needs. This provides a range of environmental benefits, supports the Indonesian economy and offers a pathway for social development.

Partnering for the future

With deeper partnerships and collaborations within the larger ecosystem, the sector can create greater multi-faceted impacts on food security, nature, climate and the community. Financial institutions have a considerable role in influencing and maximising the positive and sustainable impact of the palm oil sector.

It is encouraging to see financial institutions increasingly adopting a more progressive mindset by stepping up partnerships to develop the right financing mechanism for a positive impact on ESG and financial returns.

One of the ways to do this is to integrate ESG standards and best practices, as well as science-based, measurable sustainability targets, into viable financing structures. Some examples may include raising the level of verified traceability to plantations, increasing engagement of suppliers to promote sustainable practices and traceability, increasing the number of RSPO certifications among smallholder farmers, and reducing greenhouse gas emissions.

By working with credible independent consultants and applying appropriate levels of due diligence on an ongoing basis, banking risks are minimised. To raise transparency, borrowers are also required to monitor, report and verify their progress in meeting sustainability targets.

At Apical, for example, in order to drive real sustainability impact, we are moving the bulk of our financing to sustainability-linked loans (SLLs) to support our growth in the region. This financing option, which requires borrowers to meet clear ESG targets, has become a common driver of more sustainable business impacts – creating a win-win situation for both parties. In 2022, Apical raised a total of US$787mn in SLLs to support our growth as a global agribusiness with strong downstream segments.

By bringing the entire ecosystem on this journey, establishing strong partnerships with stakeholders and creating value where we can, we can ultimately bring sustainable palm oil production to a whole new level. We believe that by doing things right from the start is the only way forward.