[Press Release] Korean Companies’ Impact on Palm Oil Leakage Market Reported

Korean Companies’ Impact on Palm Oil Leakage Market Reported

• Korean Companies have an outsized impact as providers and buyers on “leakage market” where unsustainable palm oil is traded
• Fundings from financial institutions to Korean companies keep the “leakage market” afloat
• Palm oil producers should adopt the No Deforestation, No Peat, No Exploitation (NDPE) policy to contribute toward building a sustainable palm oil supply chain
• Palm oil buyers should set up internal policies to monitor whether the suppliers’ products have infringed on environmental and social values
• Korean government should require Korean companies developing overseas resources to manage their supply chains’ sustainability issues by adopting due diligence measures

Seoul, January 21, 2021 –

1. Chain Reaction Research (CRR), a research institution specialized in sustainability issues, hosted a webinar on January 21, 2021 at 10 PM KST titled, “Korea’s Links with Unsustainable Palm Oil”
2. As concerns over environmental destruction such as deforestation and human rights violation of local residents and laborers being exploited grow with the rapid expansion of the palm oil industry, the industry and its investors have adopted and made commitments to voluntarily comply with the No Deforestation, No Peat, No Exploitation (NDPE) policy. The production and distribution process of the palm oil industry takes an hour glass shape; a large number of growers produce Crude Palm Oil (CPO) and sell it to a small number of refiners, who refine the CPO into various palm derivatives which are then sold to many producers. It therefore has been strongly encouraged that the refiners adopt the NDPE policy, which will in turn prompt the palm growers and refined palm oil buyers to adopt the NDPE policy as well. As a result, the NDPE policy has slowly spread within the industry, and as of April 2020, companies taking up 83% of the refining capacity of Indonesia and Malaysia, which play a significant role in the global palm oil industry, have adopted the NDPE policy.
3. Sustainability Consultant Sarah Drost of CRR presented at the webinar on how Korean companies contributed to the unsustainable palm oil leakage market. Leakage market refers to a market where non-NDPE palm growers, refiners and product manufacturers trade unsustainable palm oil. Multiple Korean companies were found to be contributing to this leakage market. Drost reported that Korean companies producing CPO at Indonesian palm plantations are causing environmental, social and human rights issues and are supplying CPO to non-NDPE Indian refiners.
4. Drost’s presentation also investigated how Korean companies importing palm oil contribute to the leakage market. Korean palm oil imports have doubled during the last ten years, most of which are used in food processing and biodiesel industries. More than half of palm oil imports to Korea are covered by NDPE, but 33% is sourced from companies listed as leakage players or refers that either do not have an NDPE policy or have a policy but fall short on implementation. Yet, most Korean buyers of palm oil or palm derivative materials do not have public NDPE commitments or pay attention to their suppliers’ NDPE implementation, resulting in their contribution to the leakage market as buyers of unsustainable palm oil.
5. CRR’s Asset Analyst Gerard Rijik presented that financial institutions are contributing to palm oil leakage market by investing in Korean companies which engage in unsustainable production of palm oil. In particular, the National Pension Service, Samsung Life Insurance, BlackRock, Vanguard and Norges Bank were found to have the biggest share. Korean investors do not have any policy on deforestation, and European financial institutions continue to issue bonds to Korean companies with non-compliance issues despite having adopted the zero-deforestation policy.
6. Attorney Shin Young Chung of Advocates for Public Interest Law (APIL) was present at the webinar and presented on the ongoing responses by the Korean civil society to address the environmental, social and human rights issues that occur during palm oil production and as well as the future plans. The Korean government has been supporting companies developing overseas resources on a policy level by means of providing financial loans among others. The companies which received such support have been involved in the environmental, social and human rights issues in the countries of operation. Chung emphasized that instead of blindingly supporting resource development operations, the Korean government needs to monitor and provide assistance to the environmental, social and human rights issues at the operation site. She also pointed out the need for a legal measure which requires mandatory human rights due diligence in the whole supply chain.
7. Activist Hye Lyn Kim of Korea Federation of Environmental Movements (KFEM) said, “It is important for palm oil suppliers to adopt the NDPE policy because it is the company’s official promise that they will stop deforestation resulting in huge amounts of carbon emission and take responsibility for the destroyed forests as well as conflicts in the communities. Companies that have adopted NDPE policy are obligated to regularly disclose the implementation process and to continuously communicate with the stakeholders, which is the starting line for boosting transparency in the supply chains. Purchasing companies also need to take responsibility for their supply chains by adopting policies to monitor whether the supplied products are involved in any violations of environmental or social values.”
8. CRR’s report, “South Korean Companies Have Outsized Impact on Palm Oil Leakage Market” which contains the main information presented in the webinar can be found on CRR’s website.

For further inquiry, please contact:

Shin Young Chung (Attorney at law, APIL), sychung@apil.or.kr, +82-2-3478-0529