May 21, 2014

Palm oil: shouldering responsibility for the conservation of rain forests together

For a global bank, minimizing environmental and social risks is a complex challenge. Deutsche Bank avoids transactions and client relationships in which negative consequences for mankind and the environment are not justifiable. If adverse effects are unavoidable – at present – our goal is to mitigate them to as great an extent as possible by means of concrete improvement measures. One example of how we can influence general conditions positively in the interest of the environment and society together with our stakeholders is the controversy around palm oil and monocultures.

Enjoy a crusty roll with chocolate hazelnut spread for breakfast, then brush your teeth, shower, wash your hair … A chocolate bar as a snack in the afternoon and a frozen pizza in the evening –because you do not really have enough time to cook - again. That is actually a “quite normal day” for many people. Not just millions of times over in Germany and Europe, but pretty much the same all over the world. But there is something many people today are not aware of, even though it is also part of that sort of day: Every one of the products mentioned contains palm oil. Only about five percent of palm oil production worldwide is used for fuel. In food it is usually declared as vegetable oil or vegetable fat, in cosmetics as palmitate or sodium laureth sulfate. In future, most Europeans will be able to recognize it more easily: Because by the end of 2014 food within the EU will have to be labelled in such a way that the type of oil used is obvious to the consumer.

Catchword: health

Palm oil is produced from the pulp of palm fruits; it is predominantly used in foods, for example baked goods and sweets or in margarine. The fat molecules of the oil contain saturated palmitic acids as well as unsaturated fatty acids , which makes it controversial as far as health is concerned. Indonesia and Malaysia are the most important palm oil producing countries by far.

Growing need

Palm oil serves to cover the need for oils and fats, which is growing constantly worldwide – especially because oil palms produce substantially greater yields per hectare (in comparison with soybeans or rapeseed). And that need will continue to grow rapidly in future, above all in the emerging markets in Asia. Forecasts are proceeding on the assumption that global production of palm oil will have doubled by the year 2030 in comparison with the year 2000 and will even have tripled by 2050.

Ecological and social challenges

If palm oil is produced without using responsible processes, it can result in ecological and social challenges: For example, entire forests are sometimes clear cut to make room for palm oil plantations, in some cases without the required permits. However, those forests are important for reducing CO2 in the atmosphere. In addition, peat lands are also drained for that purpose, which leads to an additional release of CO2. If the areas are cleared by means of illegal slash and burn methods that causes additional damage to the environment.

All in all those practices result in the destruction of entire habitats. Endangered animal and plant species are at risk of extinction because of the resulting monocultures. Moreover, again and again they lead to conflicts with the local people because of illegal land grabbing as well as human rights violations on the plantations themselves.

Catchword: violations of human rights

We profess our adherence to human rights through commitments such as the UN Global Compact. Human rights aspects are firmly established in our internal guidelines, for example as part of the review process within the scope of our framework for dealing with environmental and social risks (ES Framework). In addition, we constantly strive to improve our guidelines for dealing with human rights issues and we take part in the discussions of the Thun Group, for example.

Those aspects tend to be ignored because of the fact that the boom in the palm oil industry is promoting the economic development of Asian countries and enabling them to enter into international markets, an aspect that also has to be taken into consideration.
In order to constantly keep abreast of these conflicting positions and the specific challenges of the palm oil sector, we regularly compare notes with international experts and research institutes, some of which have experience on location in Asia.

We feel it is necessary to deal with all of the vested interests mentioned above in a responsible manner. That is why we already introduced guidelines for transactions in the palm oil sector in 2012 in order to promote production geared to sustainability criteria. That guideline reflects our sustainable banking business approach. Among other things, one of its minimum requirements is that clients have to present a certification plan in line with the criteria of the Roundtable on Sustainable Palm Oil (RSPO) for their plantation or factory.

Catchword: Roundtable on Sustainable Palm Oil (RSPO)

The Roundtable on Sustainable Palm Oil was founded by the WWF, among others. It promotes dialog between manufacturers, processors and purchasers of palm oil, as well as banks and investors. One of its shared goals is to develop criteria for sustainable cultivation, because many western standards are not a matter of course in the countries where it is cultivated. Because the general view is that many of the required criteria do not go far enough, Deutsche Bank also maintains regular contact with the Forum for Sustainable Palm Oil (FONAP).

In addition, in 2013 we refined our framework for dealing with environmental and social risks and also developed the training programs for all staff even further. We undertake to incorporate ecological and social factors into the approval processes for all transactions by means of this framework, particularly in the case of business in sensitive sectors. The growing number of transactions in which the team of experts from the sustainability department was involved in an evaluation of potential environmental and social risks is an indication of our employees’ heightened awareness of those risks.

Open dialog with non-governmental organizations, producers and other banks

Deutsche Bank welcomes a constructive dialog about its entrepreneurial behaviour. Therefore, since November 2013, we have conducted an open exchange of views with representatives of non-governmental organizations such as the Friends of the Earth and Robin Wood, for example.

We are also in discussion with producers: The company Bumitama Agri Group is under fire for being a production company with an especially ruthless approach. Accordingly, a major German news magazine published an article about it entitled “Land robbery for margarine”. Among other things, the author of the article asserted that Deutsche Bank “supports” the Wilmar and Bumitama companies through their investment funds.

Catchword: ESG criteria

Firmly establishing sustainability in the core business of the bank is closely linked to the assessment of ecological, social and governance factors (ESG). Therefore, a newly founded ESG head office in the Deutsche Asset & Wealth Management division is responsible for implementing the ESG strategy as well as for coordinating, developing and strengthening capacities in that area.

Even though we do not comment on existing client relationships as a rule, we have made it clear that we consider it to be expedient to jointly initiate a dialog with Wilmar in order to look for potential solutions together.

Independently of that, in December 2013 the company already published its extensive initiative against deforestation and exploitation, which also includes a voluntary commitment to a sustainable supply chain. In it Wilmar undertakes to only use palm oil of documented origin by the end of 2014.

If those goals can be implemented, that will simultaneously constitute an important step against destruction of the environment, human rights violations and global warming: For Wilmar is currently one of the world’s largest palm oil traders. If sustainable criteria are fulfilled there, that will cover a large proportion of the market.

Deutsche Bank does not have any direct client relationship with Bumitama. The involvement of the bank was limited to two Asian investment funds of DWS. One has sold all its shares in the meantime; in the case of the second fund we are contractually bound to the investment decision of our client. Nevertheless, the shareholding has almost been reduced completely in the meantime. Therefore, from the financial standpoint the current position of Deutsche Bank is of such minimal significance that it is impossible for us to exert any influence on Bumitama.

Nevertheless, our efforts to promote sustainable economic activity and consideration for the concerns of non-governmental organizations continue to be of great importance to us.

Approaches to solutions beyond the Roundtable for Sustainable Palm Oil

In order to exert influence on the fundamental challenges of the palm oil sector even beyond its pure risk management, Deutsche Bank has concluded the so-called Soft Commodities Compact with other banks and 50 large consumer goods corporations, which also encompasses wood, soybeans, beef and cellulose / paper in addition to palm oil. Deforestation for the purpose of producing those commodities is ultimately responsible for roughly half of the greenhouse gas emissions worldwide – and so the goal of the participating companies is to reduce net deforestation in their supply chains to zero by 2020. The Compact not only sets minimum standards for the lending policies of the participating banks, it also calls for them to work towards sustainable financing solutions in their client relationships. You can read more about one innovative result - the Sustainable Shipment Letter of Credit – here. Sabine Miltner, Group Sustainability Officer, expresses the central concept in a nutshell: “Deutsche Bank wants to use its financial expertise in order to support consumer goods producers in conjunction with their goal of limiting deforestation and introducing sustainable production methods for soft commodities such as palm oil.”

Infographic: Case study palmoil

Infografik Palmoel

“Deutsche Bank wants to use its financial expertise in order to support consumer goods producers in conjunction with their goal of limiting deforestation and introducing sustainable production methods for soft commodities such as palm oil.”

Sabine Miltner Group Sustainability Officer

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