Weighing Business Transactions Case study: Palm oil

WEIGHING BUSINESS TRANSACTIONS RISK ASSESSMENT Deutsche Bank examines potential business transactions with the aid of a comprehensive system. Particularly in sensitive sectors, potential risks to the environment and society are taken into account. Assessment Regional / Group 1 2. Trans- within busi- Divisional Reputational action ness division Assessment Risk Committee Risks are identified by In the case of risks Final decision by the highest the business divisions, for which no conclu- risk body at the corporate group which are supported by sive assessment is level, if the previous levels have control teams. reached at Level 1. not led to any decision. Examples for sectors fraught with risk Agricultural Coal Hydroelectric Nuclear Monocultures/ commodities power power palm oil Protection against risks to the environment and society CASE STUDY: PALM OIL The boom in the palm oil industry is promoting the economic development of the producing coun- tries in Asia above all. However, production of the oil also entails ecological and above all social challenges. In its business activities in this sector, Deutsche Bank pays attention to sustainable cultivation of palm oil. What does palm oil have to do with me? One out of every two items from a supermarket contains palm oil. It is frequently impossible for consumers to determine. According to the EU Food Information Regu- lation, manufacturers will only be obligated to specify what type of vegetable oil a pro- duct contains on the packaging as of the end of 2014. Palm oil according to use in % Food Margarine, chocolate, cake, cookies, chips, dough and rolls, soups, sauces, French fries and convenience foods 71% Cosmetics Skin cream, soap, sun cream, body lotion, lipstick and other cosmetic products 24% Energy Raw material for production of electricity and heat as well as green fuel 5% Source: Süddeutsche Zeitung How great is the need? •. Global production of palm oil in million tons 55,8 52,0 48,7 46,1 2012/13 2011/12 21% 2010/11 In the last 2009/10 four years According to the World Wide Fund For Nature (WWF), the plantations cover an area of over twelve million hectares worldwide – that is approximately half the area of the United Kingdom. Source: www.fao.org Who produces it – to whom is it sold? Palm oil is booming: Roughly 56 million tons are currently produced every year. Europe is the largest purchaser after India. Imports in million tons Exports in million tons China India 6.589 8.307 EU 6.781 - Malaysia USA 18.524 2.246 Pakistan 1.285 Papua New Guinea 564 Thailand 550 Indonesia 20.373 Source: United States Department of Agriculture, 2012 * What are the advantages and disadvantages? The great demand has its price – again and again forests are clear cut and peat landsca- pes are drained in order to cultivate oil palms – at the expense of the climate, biodiversity and the indigenous population. Efficient Less carbon Oil palms require much less compensation Unlike rain forest, oil palms cultivated area than other oil CO2 plants, such as rapeseed or store only 40 tons of carbon soybeans, for the same yield. per hectare instead of 300 tons. Large amounts of CO, are released when slash and burn methods are used. Conserves resources Threat to environment Palm oil as a fuel for vehi- and habitat cles and heating conserves The development of culti- petroleum reserves. In additi- on, it decreases dependence on petroleum, which is often imported from politically un- vation areas leads to land robbery and displacement of indigenous peoples as well as destruction of ani- stable countries. mal habitat. The use of herbi- cides is an additional strain. Economically significant Palm oil is not only an im- Working conditions Most of the local plantation portant food in the producing workers do not have any countries. Small-scale far- employment contracts; they mers earn their living with it and cultivating it makes it possible for them to escape poverty. are poorly paid and do not wear any protection against herbicides. Source: Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, Zeit, Spiegel, BBC, Misereor, WWF How can the disadvantages be mitigated? The Roundtable on Sustainable Palm Oil (RSPO) was founded by the WWF in 2004, and today certification according to the principles and criteria of the RSPO is one of the recognized minimum standards for cultivation and distribution of palm oil. In addition to environmental protection associations and other NGOS, its members are primarily com- panies and institutions from the palm oil value added chain, including plantation opera- tors, trading companies and industrial purchasers of palm oil, as well as investors and banks. The prerequisite for certification according to the RSPO is fulfilment of specific criteria in the following areas: Palm oil production is Replanting measures must initially pass a comprehensive en- vironmental impact monitored and plans of action are impro- ved continuously assessment TM AUSTAINABLE Transparent project Statutory guidelines management are observed RSPO %24 Treating the environ- ment responsibly Operating methods are documented, syste- matically implemented and monitored. Consideration shown to em- Project management aims at economic and financial ployees and municipalities that are adversely affected by palm oil production viability in the long term Source: RSPO The Soft Commodities Compact brings together the international initiatives of the Consumer Goods Forum (CGF) on the manufacturers' side and the Banking Environment Initiative (BEI) on the side of the financial institutes: Banking Consumer Environment Goods Forum Initiative over 400 companies 10 international banks, from the consumer including Deutsche goods industry Bank Soft Commodities Compact Minimum requirements placed on develops sustainability strategies, e.g. zero net deforestation to preserve reconciles economic in- lending standards in line with CGF guidelines. terests and sustainability goals globally, e.g. through investments in clean the rain forests For palm oil, the RSPO criteria serve as the basis. energy generation Source: Deutsche Bank, Consumer Goods Forum, Banking Environment Initiative THE STANDPOINT OF DEUTSCHE BANK We are aware of the complex of problems surrounding the palm oil sector, but at the same time we recognize its positive effect on economic development in some countries. At present we also do not perceive any adequate and environmentally friendly substitutes for palm oil. We apply minimum standards for transactions in the palm oil sector: There must be proof of a certi- fication plan for plantations or mills that is in line with the criteria of the RSPO. However, our in- volvement in that issue goes even beyond requiring the fulfilment of standards: DEUTSCHE BANK Dialog with to better understand the specific e.g. non-governmental organi- sations, experts and research challenges of the palm oil sector institutes on location Dialog with to develop strategies for sustainable palm oil production, e.g. Soft Com- modities Compact other banks and companies Dialog with to exclude risks to the environment customers from the and society palm oil industry Do other problem areas exist? e.g. inadequate imple- mentation of the existing e.g. lack of control systems in the supply chain Are the guidelines of Deutsche Bank regarding guidelines outside of the monocultures fulfilled, producing country e.g. the RSPO criteria? Deutsche Bank conducts a Deutsche Bank conducts a Deutsche Bank demands dialog on the implementa- dialog on the manage- proof of an RSPO certifi- tion of new guidelines ment of the supply chain cation plan as a minimum standard Sustainability goals are developed together with palm oil manufacturers, then continuously reviewed and improved. Thus, Deutsche Bank does not only protect itself from risky business transactions, it also reduces risks to people and the environment. © 2014 Deutsche Bank OIL PALM