As investors increasingly prioritize sustainability, the palm oil industry has come under growing scrutiny due to its significant environmental footprint.
Candriam, as a responsible investor, actively engages with companies involved in palm oil production and consumption to address these pressing concerns.
Key Takeaways for Investors
- Biodiversity loss poses significant risks to both investments and the broader economy, making it essential for investors to integrate environmental factors in their decision-making processes.
- Active engagement with companies on sustainability issues can drive positive change and encourage more responsible business practices.
- Our responsible investment strategies aim to mitigate environmental risks while promoting sustainable practices and contributing to a more resilient financial system.
Understanding the Environmental Impact of Palm Oil
Palm oil is ubiquitous in daily life, found in a vast array of food and household products. Its high yield and low production cost have made it the most widely used vegetable oil globally, accounting for roughly 40% of the world's vegetable oil consumption. However, the rapid expansion of palm oil cultivation has led to widespread deforestation, ecosystem degradation, and biodiversity loss, particularly in Southeast Asia and Latin America.
Candriam's Proactive Engagement Strategy
In response to these environmental challenges, Candriam launched a comprehensive biodiversity engagement campaign from 2023 to 2025. The campaign focused on nine key companies across the palm oil value chain, from production and processing to consumer goods. By utilizing our proprietary Biodiversity Impact Model and a dedicated Palm Oil Assessment Framework, Candriam aimed to evaluate and enhance these companies' practices regarding sustainable sourcing, traceability, and biodiversity protection.
The engagement campaign yielded several key findings:
- Companies demonstrated progress in governance, traceability, and biodiversity disclosure, although there remains room for improvement.
- Many companies expressed concerns about the postponement of the European Union Deforestation Regulation (EUDR), citing potential competitive disadvantages for firms that had already invested in compliance systems.
- The need for standardized regulatory frameworks for commodity certification is becoming increasingly important to ensure effective implementation of sustainability standards.
Investment Implications and Policy Developments
Candriam's engagement efforts have directly influenced our investment policies. The campaign helped shape our Biodiversity Policy, which now includes a deforestation-linked exclusion criterion for companies that fail to respond to biodiversity-focused engagement efforts. As a result, three companies with significant exposure to palm oil were excluded from our Sustainable Investment universe due to their lack of responsiveness and inaction on deforestation risks.
By understanding the complexities of sustainable investing and the challenges associated with palm oil industries, investors can make more informed decisions that align with their values and long-term financial goals.