Are ethical indices really greenwashing the palm oil sector?
There are days when it feels like the industry I am in, the palm oil sector, has the dubious honour of being the sector that everyone loves to hate.
Take for example this article in the Financial Times about Friends of the Earth claiming that the Dow Jones Sustainability Index is carrying out “greenwashing” of GAR. This is apparently based on the fact that GAR has been included in the DJSI for the second year running, despite its investment in Golden Veroleum Liberia (GVL) which is currently contending with complaints about social, community and environmental issues.
The DJSI assessment is carried out by sustainability research firm RobecoSAM which every year invites companies who have reached a certain market capitalisation to take part in the assessment. It is over 100 pages long, touching on around 500–600 data points depending on the sector you are in. It takes a large chunk of time and resources to complete the questionnaire and the assessors require documentary proof to back up the disclosures with participants having to quote chapter, verse, page and hyperlink in their references. Changes in the most recent questionnaire also mean that participants have to refer to more publicly available documents to back up their information in order to receive a score for certain questions.
The cut-off scores for inclusion in your particular industry and particular geographical index increase each year, with participants unaware of by how much, making it impossible to predict whether a company will be able to get into the index, or indeed stay there. The scoring methodology is complex and the gist of it is that participants do not know how RobecoSAM will score their responses till they get the final breakdown.
When we took part for the first time in 2017, we were not vying for a spot in the index. We were simply responding to the growing demands on the part of investors hungry for ESG (Environmental, Social and Governance) data. We realised that RobecoSAM analysts would assess GAR regardless of whether we chose to actively participate, and we decided to take up the invitation to disclose data in the interests of transparency and completeness of information.
Assessing the whole business, not just problem areas
RobecoSAM is fully aware of the GVL controversy and anyone looking into GAR as a possible investment would immediately find the controversy monitoring notes and the points deducted from GAR’s overall score due to that issue, and others we are still working to resolve.
The DJSI assessment is actually a wide-ranging questionnaire which attempts to assess all salient ESG points, and in so doing it covers the issues NGOs are concerned about and more. This includes corporate governance, supply chain management and support, social and community aspects, labour relations, human rights and well, you get the idea, as I said there are about 500–600 data points captured. This means that the assessment while penalising us in areas where we need to improve also gives us points for areas where we are showing progress.
Taking part in these assessments have made us more aware of the concerns of investors, shining a light on the issues that we need to pay more attention to in our own business. For example, we have improved our transparency on tax matters by disclosing a tax policy on our website. We are also trying to improve how we measure OHS incidents and widening the scope to include contractor OHS. Assessments like the DJSI questionnaire expose us to external worldwide trends and standards that will help us become a better company.
Finally, investors should be given more credit for their prudence and due diligence. Our major investors and banks do not rely solely on reports and assessments by third parties; most of them engage with us directly and regularly regarding issues like GVL and receive constant updates.
Investors and financial institutions are all trying to work out how best to integrate ESG considerations in their portfolios. Indices like DJSI help investors and companies alike understand each other better. Rather than throwing the baby out with the bathwater as FOE appears to be suggesting, isn’t it better to have investors informed of where they can use their leverage to help companies continue on the path to improvement? Isn’t it time to acknowledge that companies, like people, are neither all bad nor all good, but they can all do better, which is what indices like DJSI help to demonstrate.
If you’d like to learn more about GAR’s commitment to responsible and sustainable palm oil production, you can find our latest sustainability report here.
About the author: Lim Shu Ling is the Head of Sustainability Communications at Golden Agri-Resources (GAR). She oversees the writing, production, publication, and dissemination of the annual GAR Sustainability Report. She is also responsible for other GAR ESG disclosures (DJSI, FTSE4Good etc.) and manages queries from investors, customers and other stakeholders on sustainability issues.