General Assembly 18-2C

Background:

Acknowledging the fact that 100% CSPO production can only be obtained through strong and robust certification schemes such as SG or IP, MB currently remains an important part of the volumes of CSPO sold on the market. With a final target of shifting the industry to physical certification as the most direct and efficient scheme to achieve control over the supply chain, this proposition aims to enhance the robustness of the MB model, recognizing its role as an intermediary way to drive overall industry uptake of CSPO.

Today, significant volumes of palm Fresh Fruit Bunches (FFB), produced after natural forest land clearing, enter RSPO certified mills through the conventional palm oil part of the RSPO Mass Balance (MB) system, allowing companies sourcing from deforestation-based concessions to promote themselves as “sustainable” or RSPO certified.

Different studies from Eyes on The Forest and Greenpeace highlighted how the uncertified FFB part of MB systems are “tainting” the supply chain of major brands and the overall RSPO’s credibility. This so-called conventional proportion of the product has even been proven to come from illegal deforestation and national parks, showing that the RSPO MB system has not improved the level of safeguards of the most at-risk stakeholders and the RSPO Principles & Criteria lack proper implementation.

Moreover, even if the RSPO P&C include continuous improvement that should push RSPO mills to certify their entire supply base, CSPO production stagnates below 20% of the global palm market. This is partly driven by an overall low demand for certified volumes in key consumption geographies and markets. For example, Asia is the largest consumer of palm oil (c. 61% of global production), yet the uptake of RSPO CSPO in these markets is limited. Recent research by WWF shows that the consumption of RSPO CSPO across five countries in the region (China, India, Indonesia, Malaysia and Singapore) only accounted for 3-4% of the total volume consumed in 2019, with the majority of these volumes covered through the B&C and MB supply chain models. Improving the credibility of the MB supply chain can help accelerate the transition to a more sustainable palm oil sector across Asia, thereby increasing the overall demand for RSPO CSPO.

At the same time, important market sectors such as the cosmetics and oleochemicals industry still massively rely on the RSPO MB system, which represented 28% of the total CSPO volumes sold in 2020, and half of the total supply. Despite a strong demand for segregated volumes, the transformation required in complex supply chains as well as the complicated logistics efforts associated with this process have not yet allowed the development of SG schemes in the oleochemicals industry. Thus, oleochemicals users base their sourcing of certified volumes almost exclusively on MB certified products, or the B&C credits system. Important traders have also communicated that they will still rely on the MB scheme for their trading activities in the long-term.

With a strong reliance on the MB model, but shortages in availability of CSPO volumes, downstream players faced important difficulties in 2021 to purchase MB volumes, with important price increases and a shortage of PKO volumes linked to a surplus of MB PO volumes often sold as credits.

Moreover, the RSPO MB model suffers from a weakened trademark and claims communication and publicity, constraining both the Mass Balance model and the RSPO's legitimacy.

As sustainable production has not yet become the norm and given the risk of allowing palm oil sourced from deforestation-based concessions to enter the certified market, the RSPO could consider the development of due-diligence regulations to address these issues proactively through the building of a more robust MB system aiming to mitigate the identified risks in the palm oil sector.

Different examples show that it is possible to increase the safeguards level of conventional sourcing in order to properly implement the RSPO Principles as already acknowledged by the 2018 RSPO P&C. In other commodities, the FSC mix system for paper and wood with Controlled Wood requires that the certificate holders use Controlled Wood to mitigate the risk of using wood products from undesirable sources in FSC-labeled products. Another example would be the recent project in France for controlling the soybean importation. The French government is currently launching a risk-mechanism approach enforced at trader level. In the proposed system, traders supplying soy in France will have to implement additional mitigation activities in the case of sourcing from municipalities identified as high-risk areas.