Using higher know-how to hint emissions inside provide chains could show handiest for Malaysian palm oil firms and smallholders concerned to decarbonise within the quick and long run amid more and more stringent international laws, based on trade watchers.
Palm oil, for one, is a significant commodity and financial driver in Southeast Asia. In Indonesia, it contributes roughly 3.5 per cent to the nationwide gross home product and round 3 per cent to Malaysia’s GDP. Each nations are answerable for round 84 per cent of the world’s palm oil, with Indonesia alone producing 43.5 million metric tons and Malaysia producing greater than 19 million metric tons in 2020.
Regardless of being a supply of financial development, palm oil cultivation has been linked to deforestation for years, and blamed for environmental degradation, threats to biodiversity, and a contributor to local weather change since forests are key carbon sinks.
The palm oil provide chain entails 5 key levels – manufacturing, the place oil palm bushes are grown on large-scale plantations owned by firms and by smallholder farmers; processing, the place recent fruit bunches are processed into crude palm oil and crude palm kernel oil at mills positioned close to the plantations; and refining, the place the oils are transported to refineries to be processed into refined oils, fat, and oleochemicals.
The final two levels contain manufacturing, the place refined palm oil is used as an ingredient in a variety of meals, beauty, and biofuel merchandise by client items producers; and consumption, the place finish merchandise containing palm oil are offered to shoppers by retailers and types.
As a result of the palm oil provide chain entails totally different stakeholders, together with smallholder farmers and enormous firms, many firms wrestle to trace and measure their emissions – in addition to the supply of the palm oil itself – making it difficult to enhance sustainable practices.
Implementing initiatives to measure Scope 3 emissions and guarantee traceability of palm oil – necessities which have develop into more and more necessary – have develop into extra complicated as a consequence of provide chain fragmentation, mentioned Tan Boon Hien, the pinnacle of sustainability within the APAC area for international know-how firm HCLTech.
Tan was talking at a collection of talks on the Malaysian palm oil trade, which gathered consultants to debate how know-how might be leveraged for efficient ESG compliance and sustainability reporting within the sector. The half-day occasion was collectively organised by Eco-Enterprise and HCLTech, and was joined by palm oil trade professionals, in addition to stakeholders from banks and certification our bodies.
Rising regulatory stress
Stress has been mounting on the trade from clients and stakeholders, Tan mentioned, particularly because the sector races to fulfill regulatory deadlines following the complete implementation of the European Union’s Deforestation Regulation (EUDR) on the finish of 2024.
First proposed in November 2021, the EUDR prohibits the import and export of merchandise linked to deforestation, requiring firms to make sure their provide chains are free from deforestation and forest degradation. The regulation was adopted by the European Parliament and Council on 31 Might 2023 and entered into power on 29 June 2023, with the principle prohibitions and obligations outlined within the regulation to take impact on 30 December 2024.
To handle these challenges, firms within the palm oil trade should prioritise the digital integration of their provide chains to make sure the success of such sustainability initiatives, Tan famous.
“By leveraging digital transformation alongside sustainability initiatives, companies can improve their operational effectivity and drive down prices,” he mentioned.
A holistic, data-driven strategy to sustainability may end in firms constructing robust knowledge structure and integration, which might help each enterprise development and sustainability objectives, Tan added.
Nonetheless, to fulfill EUDR necessities, suppliers would want to offer real-time traceability and deforestation knowledge for every consignment, which can pressure many firms’ assets, particularly smallholders, warned Unnikrishnan Unnithan, co-founder and chief government officer of DIBIZ, a digital platform that gives authenticated real-time traceability and deforestation metrics to adjust to sustainability laws.
“Present trade approaches use satellite tv for pc knowledge and the provider’s inner provide chain, that are inadequate to fulfill EUDR necessities as this data should be linked to particular shipments,” Unnithan defined.
The palm oil trade’s emissions can certainly be grouped beneath 15 totally different Scope 3 emission classes, identified Kingsley Tam, director of consumer operations for Hong Kong-based software program supplier MioTech, highlighting the influence of oblique emissions that end result from operations inside the palm oil provide chain.
Inside Scope 3, this consists of emissions similar to bought items and providers; capital items; fuel- and energy-related actions; upstream and downstream transportation and distribution; waste generated in operations; enterprise journey; worker commutes; in addition to the processing and buy of offered merchandise, to call a couple of.
Tam additionally touched on how instruments similar to MioTech’s software program may assist purchasers to trace and cut back such emissions and meet targets similar to these set by the Science Based mostly Targets initiative’s (SBTi) Forest, Land and Agriculture Steerage (FLAG), which is a framework that goals to assist firms in land-intensive sectors set science-based emissions discount targets for his or her land-related emissions.
Trying past EUDR
Joseph D’Cruz, chief government officer of the Roundtable on Sustainable Palm Oil (RSPO), famous that Malaysia’s palm oil trade, for instance, was shortly capable of shift to extra sustainable practices and show it. The RSPO is a worldwide certification physique that promotes the manufacturing and use of sustainable palm oil by environmental and social requirements.
“With a strong nationwide system of land use and tenure reviews, Malaysia is in an excellent place relative to different markets. There’s additionally reporting with RSPO and the Malaysia Sustainable Palm Oil (MSPO) certification, which supplies loads of knowledge by a well-regulated nationwide system, [which helps us] to supervise legality,” mentioned D’Cruz.
Sustainability traits are additionally going past emission reductions within the palm oil sector, D’Cruz added.
“Past simply local weather change, emissions and deforestation, sustainability can also be shifting to give attention to labour and social circumstances, biodiversity, water utilization and voluntary efforts by the trade,” he famous, including that governments and even banks are more and more imposing sustainability laws and disclosure necessities.
In flip, that is piling stress on palm oil producers and different stakeholders within the provide chain to reveal extra granular knowledge on their operations.
“The EUDR has accelerated some growth, similar to constructing and redesigning the palm oil’s reporting and digital knowledge administration,” D’Cruz mentioned. “However there’s a particular want for credible, fine-grained knowledge on sustainability throughout the [palm oil] provide chain to fulfill evolving laws and client expectations.”
Long run worth investing in monitoring platforms
Audio system additionally mentioned the position of smallholders and the way digital instruments may very well be employed to hint provide chain emissions to scale back them over time.
With over 300,000 smallholders – every proudly owning 100 acres or much less throughout the nation – smallholders’ are answerable for roughly 40 per cent of Malaysia’s palm oil output, making the phase a key part for any dialogue in attaining decarbonisation in Malaysia’s palm oil trade.
Digital monitoring applied sciences, Unnithan famous, have the potential to organise emissions knowledge and tracing throughout the complete smallholder palm oil provide chain, which may assist them – and corporations that depend on smallholders – adjust to impending EUDR regulation, in addition to meet long-term targets.
“After you have knowledge visibility, it turns into clear that this knowledge mining is significant to bettering the long-term yields of those firms, similar to their greenhouse gasoline emission ranges and their decarbonisation routes,” Unnithan concluded.
“So whereas these firms have set web zero objectives, they stand an opportunity at bringing ahead their long-term targets with this know-how.”
