Sustainable palm oil supply currently outstrips demand since much of the consumption is based in emerging markets where present market focuses may differ, according to a report by HSBC.
However, in a separate report by London-based Environmental Investigation Agency (EIA), HSBC is accused of being a leading financier of the palm oil industry, providing huge loans which fund “some of its [the palm oil industry’s] worst elements”.
Certified surplus
The HSBC report said despite major debates on palm oil’s environmental costs, particularly via bad practices which have led to deforestation, 48% of certified sustainable palm oil was unsold in 2012.
The banking group said this could be the result of different market priorities for the regions which consume the most palm oil. “That 80% of palm oil is consumed by emerging markets, where demand elasticity is underpinned by price, not sustainability, is a key reason for the current disconnect, in our view,” it said.
The banking and financial services company also said that there was little differentiation between the share price performances of palm oil producers when looking at the varying degrees of sustainability disclosures.
However, it explained that while switching to sustainable palm oil may not spell automatic business sense now, market tides are changing.
It suggested that growth and sustainability momentum should “define outperformers”.
“Investors looking to play this evolving long-term theme should choose companies that have demonstrated a strong commitment to sustainability while also offering medium term growth visibility to protect against downside earnings risks,” said HSBC.
Funding the problem?
Yet the EIA said that despite the bank’s adoption of certain environmental policies to keep it from financing deforestation, it is still funding the problem of unsustainable palm oil and breaching its own forests policy through its investment portfolio.
“HSBC’s 60 million customers around the world would be surprised and appalled to learn that such a high-profile and trusted brand is profiting from large-scale deforestation even as it projects a wholesome public image of sustainability,” said EIA forests campaigner, Jago Wadley.
In its report Banking on Extinction, the EIA identifies RSPO members Bumitama Agri Ltd and Triputra Agro Persada as cases of what they see as dubious investments. The organisation suggests that membership of the RSPO does not necessarily equal sustainability.
“HSBC’s reliance on the Roundtable on Sustainable Palm Oil (RSPO) as an indicator of third-party compliance with its own sustainability policies is fundamentally misguided,” it said.
The report accuses these two companies of proceeding with clearance of rainforest prior to required HCV assessments. The group said that the bank should do more to ensure its investment choices are ethical.
“HSBC is one of the world’s largest banks and is a key player in the plantation sector,” Wadley said. “It now has a clear choice between choosing to be a force for good or to carry on hiding behind a fig leaf of sustainability while making huge profits from deforestation.”
HSBC was unable to provide comment before the publication of this article.