Palm Oil Certification Schemes: Putting Some Roar into Paper Tigers

Palm oil has a bad name. The expansion of palm oil plantations is often criticised for contributing to deforestation and biodiversity losses in Malaysia and Indonesia, where most of the world’s palm oil supplies come from.

Today, there is a myriad of sustainable palm oil certification schemes that incentivise producers to improve their environmental practices. These schemes work as market-based mechanisms that reward certified producers as customers increasingly signal a demand for their goods. Loose standards and low participation of certification schemes have limited its efficacy. However, rather than viewing such schemes as failures, they should be seen as opportunities where promising alternative models of regulation can emerge.

Loose Standards and Poor Participation

In Southeast Asia, producers are likely to participate in one of the three schemes: the Roundtable on Sustainable Palm Oil (RSPO), the Malaysian Sustainable Palm Oil (MSPO), and the Indonesian Sustainable Palm Oil (ISPO) schemes. Their standards have varying levels of stringency: RSPO is branded as ‘global’, given its origins as a collaborative effort between the World Wildlife Fund and palm oil stakeholders in various countries, and its utilisation of fairly detailed and strict requirements. On the other hand, MSPO and ISPO were created by their respective governments and deemed ‘national’ with requirements that are pegged to local labour and environmental laws that tend to be weaker. For instance, the RSPO is the only scheme that has a well-defined procedure on how to handle concessions with High Conservation Value (HCV), which are natural habitats deemed critical to local ecosystems.

Enforcement tends to be difficult as certification schemes are voluntary in nature. While schemes need to ensure standards are upheld, pushing too hard on enforcement can potentially scare off producers.

Research has pointed out that ISPO and MSPO utilise much looser standards compared to other rival schemes. A 2020 study by Palm Oil Network Switzerland highlighted disparities in standards between available certification schemes, using a ranking system based on an amalgamation of past studies.

Enforcement tends to be difficult as certification schemes are voluntary in nature. While schemes need to ensure standards are upheld, pushing too hard on enforcement can potentially scare off producers. This can partially explain why participation rates in the weaker MSPO and ISPO schemes have been much higher than the RSPO.  

Based on 2019 figures, certification participation rates are substantially higher for the ISPO and MSPO schemes. In Indonesia, ISPO certification constituted 33 per cent of total palm oil production compared to 13 per cent for RSPO. In Malaysia, the figure for MSPO stands at 51 per cent compared to the RSPO’s 21 per cent. The latest 2021 MSPO figures have leapt substantially higher — at 93 per cent — resulting from a mandatory implementation deadline set by the government back in 2017.

While it is tempting to view the ISPO and MSPO schemes as attempts at greenwashing, one needs to consider the trade-off between stringency and participation. ISPO and MSPO’s participation rates are likely to be comparatively higher because of lower costs of compliance and weaker standards; their respective governments have also made participation compulsory. Thus, it may be unrealistic to require all palm oil producers in Indonesia and Malaysia, especially smallholders with fewer resources, to take the leap in joining the ‘gold standard’ of RSPO.

Stringent standards and broad participation in sustainable certification schemes need to go hand in hand. A 2020 peer-reviewed study focused on Kalimantan in Indonesia showed that while RSPO certification had indeed led to reduced deforestation in palm oil concessions, deforestation in adjacent non-certified areas had increased. The study concluded by arguing that stronger sector-wide participation needs to occur in order to prevent such spill-over effects.

A Better Model

The double whammy of weak standards and low participation in the schemes may be seen as failures. A better model should adopt a jurisdictional approach to certification, which regulates entire districts rather than individual producers. As the coordinator, the jurisdictional certifying authority — which will take the form of a collective body with representation from existing schemes, local governments and civil society actors — will work with producers, transporters, and buyers to achieve three goals: align interests, distribute certification costs, and reduce free-riding. This takes pressure off individual producers. The jurisdictional model also leverages the economies of scale for management training and data analytics. Most critical is the engagement with the right level of authorities: the states in federalist Malaysia and districts in Indonesia.

A jurisdictional model has emerged in Aceh Taminiang, Indonesia, showing results at a small scale without the involvement of the major certifiers. The RSPO is in the midst of experimenting with jurisdictional certification. MSPO and ISPO could follow suit as they already have links to local or district authorities. Keen supporters of the jurisdiction model are not naïve about the challenges in developing a new system for auditing, verification, mapping, and remediation. Hence, they will implement the model in stages, allowing adaptation to unforeseen free-riding behaviours.

History can teach us that this multi-stakeholder model may well lose its initial focus after attempting to incorporate too many interests and objectives. Interestingly, recent implementation of the jurisdictional model for a deforestation initiative across Indonesia ran into the same set of problems faced by the old non-jurisdictional models: lack of capacity, data, policy alignment, and material incentives. Sustainability certification schemes may be paper tigers for now. But the embrace of the jurisdictional model, if properly resourced, might well put some roar into them.

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