HOW REA INTEGRATES SUSTAINABILITY IN ITS CORE PRACTICES THROUGH CERTIFICATION

Certification provides third party verification that a company is operating in accordance with national and international standards.

Further, it encourages companies to improve their policies and practices by generating higher premia for certified products. Standards are embodied in various certification schemes, specifically the RSPO, ISPO and ISCC. These schemes focus on minimising deforestation, transparent feedstock supply chains, human rights and safety, and measurement of GHG emissions. The group aims to achieve and maintain certification under these internationally recognised schemes for all of its plantations and mills.

The sustainability department is responsible for monitoring the sustainability of all of the group’s estates and mills and has expanded as new estates have been developed. The department is not just responsible for ensuring that the group complies with the standards of each certification scheme, but also provides regular in-house training on sustainability-related issues in an effort to ingrain sustainable working practices into the everyday operations of the group. The sustainability team also works with the heads of each department to develop key performance indicators for the workforce and sustainability agreements for third party contractors that are in line with our sustainability commitments.

Sustainability milestones

Roundtable on Sustainable Palm Oil (RSPO)

The group has been a member of RSPO since 2007. RSPO is a multi-stakeholder organisation that has developed a standard to promote the sustainable production of palm oil. The RSPO standard is voluntary and consists of a set of Principles and Criteria designed so that entities can be assessed against the RSPO Principles and Criteria.

The group’s two oldest mills, POM and COM, and their supply chains, were first certified in 2011. The supply chain for COM includes the group’s most recently matured estate, KMS, which attained RSPO certification in 2020. RSPO surveillance audits are conducted annually to ensure continuing compliance and recertification audits take place every five years.

Annual surveillance audits for POM, COM and the COM and SOM KCPs and their supply chains together with the group’s downstream bulking station were successfully completed during 2023, securing renewal of PalmTrace licences.

Following resolution of certain liabilities and approval of compensation plans during 2023 in respect of two small land areas within SYB (together amounting to 173 hectares) that were cleared in 2008 prior to changes in the regulations that required conducting HCV assessments, the initial audit of the group’s third oil mill, SOM, and its supply base was also successfully completed during 2023. Compensation plans include long term conservation programmes and remediation plans, such as a collaboration with the Orangutan Foundation.

Certification of SOM is now valid until 2028, subject to annual surveillance audit results, and its PalmTrace licence has been issued.

Certification of 157 smallholders from one cooperative supplying both POM and COM was successfully achieved in 2022. 19 further smallholders that are within the SOM supply base were submitted for RSPO certification in 2023 and are expected to be certified later in 2024.

Compensation liabilities, involving annual payments of agreed fixed amounts for a period of 25 years, and remedial actions relating to minor historic errors in the application of RSPO criteria, affecting 959 hectares of planting at CDM, land clearing at two plasma cooperatives, and the establishment of riparian reserves along rivers in two of the group’s estates were also agreed in principle with RSPO towards the end of 2023. The annual compensation liability payments are not material.

RSPO Supply Chain Certification

This certification allows the group to sell its RSPO certified CPO and CPKO to buyers committed to purchasing RSPO certified sustainable palm oil (CSPO).

If it can be proven that a specific batch of CPO or CPKO originated from an RSPO certified estate and mill, it can be sold as identity preserved or segregated certified sustainable CPO or CPKO. If the certified product mixes with non-certified products in the supply chain, then it can be sold as certified sustainable CPO or CPKO using a mass balance system. This requires records to be kept that demonstrate that the volume of CPO and CPKO sold as sustainable palm oil does not exceed the amount produced by the upstream RSPO certified mills over a specified time period.

REA operates two KCPs attached to the Cakra and Satria oil mills. These KCPs crush all of the palm kernels (PK) produced at the group’s 3 mills. In 2022 the group KCPs crushed a total of 46,376 tonnes of PK, of which 23,341 tonnes (50%) were from RSPO certified sources and produced by the processing of 612,867 tonnes of certified FFB from group owned plantations. The remaining 22,694 tonnes (49%) of PK crushed in 2022 originated from the processing of 368,143 of uncertified FFB, of which 123,340 tonnes were supplied from uncertified group plantations, 171,300 tonnes from independent smallholders, 69,254 tonnes from associate smallholders (PPMD), and 4,250 tonnes from corporate outgrowers. REA currently does not crush PK from any other sources.

Summary of 2022 RSPO supply chain data:

Raw material supplied FFB processed (tonnes) PK crushed (tonnes) KCP Cakra Processed (tonnes) KCP Satria Processed (tonnes) Uncertified PK sold to third parties
Certified Uncertified Certified Uncertified Certified Uncertified (tonnes)
Certified FFB:
Own plantations: 612,867 23,501 5,571 19,680 3,661 5,491 45
Subtotal 612,867 23,501 5,571 19,680 3,661 5,491 45
Uncertified FFB:
Own plantations 123,340 5,976 2,549 3,241 120
Independent smallholder 171,300 8,216 3,957 4,032 116
Associate smallholder 69,254 3,325 1,853 1,371 56
Corporate outgrower 4,250 210 51 150 4
Subtotal 368,143 17,726 8,410 8,794 296
Total 981,011 23,501 23,298 19,680 8,410 3,661 14,285 341

For more detailed information on the traceability data at each crusher to plantation, click here.

Historically, the mass balance system is preferable for REA because it enables the group to continue to purchase FFB from independent smallholders who are not yet RSPO certified.

By continuing to engage with these smallholders, the group can assist them in improving their farming practices, which should enable them to obtain RSPO certification in the future. If REA had chosen to produce segregated CSPO, REA would have had to exclude these smallholders from its supply chain. For many of these smallholders, this would prevent them from obtaining income from their land due to there being very few alternative palm oil mills near enough to process their FFB. More information about how REA is working with smallholders to improve their practices can be found here.

International Sustainability and Carbon Certification (ISCC)

CPO produced from mills certified under the voluntary ISCC scheme since 2012 may be sold for biofuel under EU RED. Following recertification audits, certificates for each of the three mills and the bulking station were renewed in 2023. Recertification audits for the current year took place in February 2023 with zero non-compliances recorded at POM, SOM and its supply base. However, under a change in ISCC regulations in 2021, a non-compliance was recorded at COM and its supply base in respect of a small area of land clearing carried out at Damai estate in 2011. COM continues to be ISCC certified, but this has necessitated the temporary withdrawal of the affected area from supplying COM under the ISCC certification system. The impact of this withdrawal is not material.

Indonesian Sustainable Palm Oil (ISPO)

The ISPO standard is a policy adopted by the Indonesian Ministry of Agriculture and is mandatory for all oil palm companies operating in Indonesia. REA Kaltim’s estates and its two mills, POM and COM, first achieved ISPO certification in 2016 and have passed annual surveillance audits by the SGS Indonesian Certification body each year subsequently. The first five-yearly ISPO recertification audits for POM and COM were successfully completed and certification renewed. SOM and the SYB estates first obtained ISPO certification in 2018 and successfully completed their five yearly recertification audits in 2023. ISPO does not apply to immature or development estates.

The ISPO initial certification audits for KMS and CDM were conducted in 2023 and final audits are due to be conducted during the first half of 2024.

Certified sales

During 2023, not all of the FFB harvested from the group’s estates was RSPO or ISCC certified and almost all of the FFB purchased from third parties was similarly not so certified. As a result, not all CPO and CPKO produced in the group’s mills was eligible to be certified as RSPO or ISCC oil.

Where CPO is eligible to be certified as RSPO or ISCC oil, such oil can be sold only with one certification. Accordingly, the group must decide which certification should apply to each sale to achieve the highest premium. Although the same is true of CPKO, in practice there is no market for ISCC certified CPKO as ISCC supplies the biofuel market for which CPKO is not cost effective.

2022 sales of CPO and CPKO are shown below:

CPO CPKO
tonnes % tonnes %
RSPO sales 4,035 1.8 8,856 54.7
ISCC 101,390 46.6
Other (not certified) 112,200* 51.6 7,337 45.3
Total 217,625 16,193
* Includes some certified CPO production that was sold as uncertified or without any sustainability premium

The group uses the RSPO PalmTrace system for certifying transfers of oil palm products from mills to refineries. Where RSPO certified oil is sold as uncertified, the group is able to obtain RSPO credits and can sell those credits separately from the oil. RSPO PalmTrace provides a marketplace for such sales. Similarly, there is a mechanism for realising value for ISCC credits when detached from the oil to which these relate. However, the value realisable for detached RSPO and ISCC credits during 2023 was low and the group therefore elected to carry forward such credits with the expectation that their realisable value would improve.

The group is working to increase the percentage of its CPO and CPKO production that can be sold as certified. Agreement of the compensation liabilities detailed under RSPO above, will mean that, going forward, almost all of the group’s own FFB crop will be classified as RSPO or ISCC certified. As detailed under Smallholders below, the group is also taking steps to facilitate its smallholder suppliers obtaining sustainable credentials.

Additionally, the group is preparing to segregate a proportion of its CPO and CPKO production so as to produce oil that will comply with the requirements of EUDR that come into effect for products sold into the EU in 2025. It is expected that sales of compliant oil to refineries supplying refined oil to Europe will attract premia that are additional to the ISCC and RSPO premia that are currently available.

Environment

ISO 14001 is the international standard for effective environmental management systems that support organisations in the development and implementation of environmental policies and objectives. The group maintains ISO 14001 certification, which is subject to annual renewal, for all of the REA Kaltim and SYB estates and mills as well as the bulking station. Annual surveillance audits were conducted for REA Kaltim and SYB in March 2023 with certification successfully renewed until early 2024.

The group’s mills are also rated annually under PROPER. PROPER is an initiative of the Indonesian government’s Environmental Impact Agency which seeks to mitigate risks of pollution and associated consequences. The group is rated at both provincial and national levels. A blue rating denotes that environmental management standards meet the regulatory requirements; a green rating denotes that the company’s standards go beyond the standard regulatory requirements. The ratings given to the group’s mills in 2023 were:

Provincial National
POM Green Blue
COM Green Blue
SOM Green Blue
Title Downloads
RSPO certificates
ISCC certificates
ISPO certificates
ISO 14001 certificates