Those palm fronds, waving against a blue sky, are the essence of the buoyant tropics. Palms have another use besides aesthetics that please tourists, however. The oil from palm trees is a big component in a host of consumer products, like soap, cosmetics, perfume and food (everything from piazza dough to ice cream).
The trouble is that the main way most consumer goods corporations get palm oil is through clear-cutting palm forests. Palm oil producers chop down vast virgin forests in Malaysia, Indonesia and other equatorial locales and then wring out their oil and sell it to Procter & Gamble, General Mills, Unilever and the like. The sustainable alternative is to grow the trees on plantations for harvesting.
And the rain forest tree-felling approach ain’t good. Although not as obvious as other environmental threats, the despoiling of woodlands is a big climate threat. Trees are nature’s filter, removing carbon from the air, before it floats up to trap the earth’s heat. Some 70% of this tree-clearing is due to agriculture, according to Chain Reaction Research.
Trying to stop the deforesting of palm trees is a challenge, because demand for palm oil is strong. Compared to other vegetable oils, palm oil costs less, is more versatile and yields more, meaning one palm tree contains a lot of the stuff. “It’s in everything,” says Matt Piotrowski, senior analyst at Climate Advisers, a Washington, D.C., environmental consultancy that is working to reverse razing palm forests.
On the plus side, thanks to the efforts of Climate Advisers and others, the palm problem is finally getting attention. Financial heavyweights are joining the fight to stop forest palm-tree cutting. An advocacy organization called the Investor Working Group on Sustainable Palm Oil has enlisted 56 institutional investors to sign a pledge the requires them to support only environment-friendly palm tree treatment. Part of that is tracing the origin of the palm oil used by the companies in their portfolios.
The pact’s signatories include Aegon Asset Management, a leading asset manager; French international banking company BNP Paribas; and the California Public Employees Retirement System (CapPERS), the U.S.’s largest public pension fund.
Financial strategists have long argued over whether green investing gives decent returns. Well, environmentally minded assets are increasingly in vogue. Some $30.7 trillion in assets under management by funds are in sustainable investments, up 34% from 2016, the Green Sustainable Investment Alliance finds.
And for palm oil, there’s evidence that stock in companies adhering to sustainability standards have done better than the despoilers' shares. An index that Climate Advisers has created, with the help of S-Network Global Indexes, measures the market performance of stocks belonging to something called the Roundtable of Sustainable Palm Oil (RSPO). This benchmark, called the Climate Advisers Better Palm Oil Index, has over its seven-year existence done better than have non-RSPO members.
To be sure, these investments haven’t blown the roof off the investing world. Commodities are in a long-term slump, at least for now. The Standard & Poor’s GSCI commodities index is down by 34% since 2012, or negative 5.76% annually. But the contrast between RSPO stocks and the rest is telling. The Climate Advisers index is off just 1.54% annually, while non-RSPO shares are down 9.03%. When commodities turn around, odds are that the RSPO stocks will do well, certainly better than their less environmentally conscious competitors.
The palm oil producers that make up the firm’s good-guy list carry hefty market values. The largest is Wilmar International ($15.2 billion, listed in Singapore), followed by Sim Darby Plantation ($8.7 billion, Malaysia) and Kuala Lumpur Kepong ($6.5 billion, also Malaysia). And the non-RSPO bunch is led by Ta Ann Holdings ($4 billion), TH Plantations ($1.6 billion) and Far East Holdings Berhad ($6 billion), all headquartered in Malaysia.
The likely reason for the greener palm oil producers’ out-performance? Reputational. At least since the 2016 Paris Accords on limiting greenhouse gases, environment foulers have been, for the most part, on the defensive. Exxon Mobil, for instance, has promised to reduce emissions at its plants that make chemicals and fuel.
On the palm front, one major objective, Climate Advisers’ Piotrowski says, “is to get regulations changed so that deforesting land is banned.” Meanwhile, companies that continue to chop down palm trees “will run a greater risk in the market.”
