Johanna
Englundh:
Welcome
to
Morningstar.
Investing
in
palm
oil
companies
can
be
a
controversial
topic
due
to
the
industry’s
association
with
environmentally
unfriendly
practices,
with
palm
oil
cultivation
associated
with
deforestation,
soil
erosion
and
greenhouse
gas
emissions.
But
it
can
also
present
opportunities
for
positive
change.
And
with
palm
oil
being
part
of
almost
50%
of
the
packaged
products
we
find
in
supermarkets,
it’s
definitely
an
interesting
area
for
investors
to
look
at.
Joining
me
to
talk
about
this
is
Ruby
Jeng.
She’s
a
senior
analyst
for
Stewardship
at
Morningstar
Sustainalytics.
It’s
great
to
have
you
here,
Ruby.
Let’s
start
by
saying
that
I
think
investors’
minds
quickly
turn
to
negative
things
when
palm
oil
is
mentioned.
What’s
your
take
on
the
industry
and
its
challenges?
Ruby
Jeng:
Yes.
Firstly,
I
would
like
to
highlight
the
importance
of
the
palm
oil
industry.
As
you
mentioned,
50%
of
our
products
in
the
supermarket
contain
palm
oil.
So
that
shows
the
versatile
properties
of
this
product.
And
what’s
more,
palm
oil
production
can
be
quite
efficient.
So,
for
example,
each
hectare
of
land
can
produce
0.7
tonnes
of
sunflower
oil.
The
same
land
can
produce
5
times
more
palm
oil.
So
this
means
that
palm
oil
production
can
be
quite
sustainable
and
efficient
if
we
manage
the
risks
properly.
And
undeniably,
over
the
past
decades,
the
palm
oil
industry
has
come
under
scrutiny
from
various
stakeholders,
such
as
non-governmental
organisations,
academia,
civil
society
groups
and
other
responsible
investors.
The
main
reason
is
that
palm
oil
production
may
be
associated
with
or
have
a
high
tendency
towards
certain
negative
environmental
and
social
impacts.
For
example,
deforestation,
which
is
also
associated
with
biodiversity
loss
and
negative
impact
change.
And
on
the
social
side,
there
were
some
conflicts
around
forest
labour
and
also
poor
working
conditions
throughout
the
supply
chain.
So
in
a
nutshell,
palm
oil
production
can
only
be
sustainable
and
effective
if
we
have
a
robust
strategy
and
management
in
place
throughout
the
supply
chain.
Englundh:
Indonesia
and
Malaysia
account
for
over
85
per
cent
of
the
global
supply
of
palm
oil.
And
I
know
you’ve
been
to
this
part
of
the
world
to
visit
some
of
these
companies.
And
when
you
were
there,
could
you
see
a
willingness
to
change
to
a
more
sustainable
practice?
Jeng:
Yes,
definitely.
Earlier
this
year,
I
spent
maybe
a
week
and
a
half
in
Malaysia
and
Singapore
to
visit
with
some
of
our
investors
some
palm
oil
companies
and
their
plantations
and
also
related
NGOs.
So
we
see
that
there
are
some
improvements
across
the
landscape
and
it’s
not
just
me
saying
this,
but
also
according
to
some
other
research
institutes,
we
see
for
example
that
the
Malaysian
primary
forest
loss
has
been
historically
low
and
there
have
been
some
improvements
also
on
the
forestry
labour
front.
So,
overall,
we
are
seeing
improvements
across
the
landscape
and
maybe
also
a
little
bit
about
the
engagement
trip
that
I
had
earlier
this
year.
The
purpose
of
the
trip
was
not
only
to
build
trust
and
a
relationship
with
the
palm
oil
companies
that
we
already
work
with,
but
also
to
really
understand
what
trends,
opportunities
and
challenges
they
face
in
the
industry.
Englundh:
Yes,
that’s
right.
Can
you
give
some
examples
of
good
practice
that
you’ve
seen?
Jeng:
Yes.
One
of
the
companies
that
we
visited
this
time
is
called
Sime
Darby
Plantation.
We’ve
actually
been
in
dialogue
with
them
for
more
than
five
years
now
and
we
see
that
there
have
been
some
improvements
in
terms
of
environmental,
social
and
governance
issues
in
those
five
years.
Just
to
give
you
some
examples,
I
think
last
year,
early
last
year,
the
US
lifted
a
ban
on
their
product
because
of
these
forestry
results.
That
means
that
Sime
Darby
Plantation
has
improved
a
lot
in
terms
of
labour
conditions
throughout
the
supply
chain
and
also
working
conditions.
So
it
also
means
that
Sime
Darby
Plantation
will
be
able
to
import
its
product
again
to
the
US
market.
And
another
thing
I
want
to
mention
is
that
at
the
end
of
last
year,
they
also
got
their
climate
target
verified
by
science-based
target
initiatives.
So
that
also
means
that
that’s
a
pretty
big
milestone
for
their
climate
journey
and
that
their
climate
targets
are
now
not
only
science-based
but
also
take
into
account
forest
land
and
agriculture-related
guidance
on
science-based
target
initiatives.
So
they
are
on
track
towards
1.5
degrees
by
2050.
Englundh:
So,
for
investors,
what
would
you
say
is
the
most
important
thing
for
investors
to
consider
when
investing
in
palm
oil
companies?
Jeng:
Yes.
For
investors,
it’s
important
to
identify
and
ensure
that
the
company
can
manage
its
material
ESG
risks.
So
how
do
you
do
that?
You
can
look
at
their
public
disclosures
to
see
if
they
have
a
robust
strategy
and
commitments
in
place
and
how
they
can
ensure
that
they
are
properly
monitoring
their
performance
and
working
in
the
right
way
to
realise
their
commitments.
And
secondly,
if
investors
still
have
concerns
or
doubts
about
the
company’s
performance,
they
can
establish
a
transparent
dialogue
with
the
company
to
really
show
the
company
that
we
as
investors
care
about
this
issue
and
that
we
want
you
to
address
it
properly.
Because
as
investors,
we
don’t
want
our
money
to
be
spent
in
a
way
that
has
negative
consequences
for
society,
people
and
the
environment.
So
before
you
as
an
investor
put
your
money
in
other
people’s
pockets,
make
sure
they
have
good
and
sustainable
practices
in
their
roadmap.
Englundh:
Thank
you
very
much
for
joining
us
today,
Ruby.
Until
next
time,
I’m
Johanna
Englundh
for
Morningstar.
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