HOW REA INTEGRATES SUSTAINABILITY IN ITS CORE PRACTICES THROUGH CERTIFICATION
Sustainability 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 establishing higher premia for certified products. Standards are embodied in various certification schemes, specifically the Roundtable on Sustainable Palm Oil (RSPO), Indonesian Sustainable Palm Oil (ISPO) and International Sustainability and Carbon Certification (ISCC). These schemes focus on minimising deforestation, transparency 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.
Multiple certification schemes and standards focused on palm oil production exist, such as the Roundtable on Sustainable Palm Oil (RSPO) standard and the Indonesian Sustainable Palm Oil (ISPO) standard. Further, general schemes and standards exist, such as the International Sustainability and Carbon Certification (ISCC) scheme, focused on zero-deforestation and transparent feedstock supply chains and measurement of greenhouse gas emissions. The group remains committed to ensuring that all of its plantations and mills achieve and maintain, amongst others, RSPO, ISPO and ISCC certification.
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 ion of palm oil. The RSPO standard is voluntary and consists of a set of Principles and Criteria designed so that entities can be audited against RSPO Supply Chain Certification Standard.
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 after a two year independent audit process. Surveillance audits are conducted annually to ensure continuing compliance and recertification audits take place every five years. Annual surveillance audits for POM and the COM kernel crushing plant (KCP) and their supply chains together with the group’s downstream bulking station were successfully completed in 2022, securing renewal of its PalmTrace licence. The five-yearly recertification audit of COM was also completed in 2022, with certification successfully renewed until 2026, subject to annual surveillance audits results.
|As previously reported, the RSPO certification for the group’s third oil mill, SOM, requires resolution of an RSPO compensation liability in respect of two small land areas within SYB that were cleared in 2008 prior to changes in the regulations that required conducting HCV assessments. The group’s proposal in respect of some 129 hectares of land at Satria estate and the final HCV compensation liability in respect of 44 hectares at SYB’s Tepian estate were both approved during 2021. For each liability, the group has developed a concept note for a conservation and rehabilitation programme in accordance with the RSPO’s Remediation and Compensation Procedure. The concept note for Satria estate was approved in December 2022 and currently the Compensation Plan is being reviewed by RSPO for final approval. The concept note for Tepian Estate was approved in April 2023 and the Compensation Plan will be submitted next.
In March 2023, SOM started the initial certification audit while Tepian Estate has been audited within POM’s 1st annual surveillance audit in April 2023. Once the Compensation Plan is fully approved, the certificates for SOM and Tepian Estate will be issued. Certification of SOM and Tepian Estate is expected to be achieved by the end of 2023.
Certification of SOM’s KCP remains unaffected by the ongoing compensation liability cases and the five-yearly recertification audit was completed in 2022, with certification successfully renewed until 2027, subject to annual surveillance audits results.
In addition, the group is working with RSPO to resolve compensation liabilities and agree 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. The social liability assessment in respect of the CDM area was conducted in March 2022, with the result being no liability in the CDM area. The Compensation Plan has been reviewed by RSPO and is awaiting their final approval, expected in October 2023. For the two plasma cooperatives, the completion of the Compensation Plan is ongoing. The RSPO is currently reviewing the Compensation Plan and it is expected that it will be approved no later than October 2023.
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|
For more detailed information on the traceability data at each crusher to plantation, click here.
At present, 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 may be sold for biofuel under the European Union Renewable Energy Directive (EU RED). Following recertification audits, certificates for each of the three mills and the bulking station were renewed in 2022. Recertification audits for the current year took place in February 2022 with zero non-compliances recorded at POM 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. This has necessitated the temporary withdrawal of COM and its supply base from the ISCC certification system. That being said, COM can be certified as a standalone certified mill that can process certified products from certified estates such as Perdana, Sentekan, and Lestari Estates. The impact of this withdrawal is not expected to be material as the group is currently selling more CPO as RSPO certified for which the premia are on a par with ISCC certified oil.
The group uses the RSPO PalmTrace system for certifying transfers of oil palm products from mills to refineries. RSPO PalmTrace also offers a marketplace and the option to register off market deals through a “Book and Claim” system for RSPO credits; such registration confirms that the applicable CPO or CPKO was produced by an RSPO certified company.
Each sale of CPO and CPKO can be made with only one certificate, so the group must decide which certification should apply to each sale. Most CPO is sold with ISCC certification because, in the context of the overall CPO market, buyers offer higher premia for ISCC certified CPO than for RSPO certified CPO. There is no market for ISCC certified CPKO, but demand for RSPO certified CPKO has increased significantly over the last 18 months with a consequential increase in premia, as shown under “Revenues”. Where CPO and CPKO cannot be sold with ISCC or RSPO certification, available CPO and CPKO sustainability credits are sold through the PalmTrace system or off market to specific buyers.
2022 sales of CPO and CPKO are shown below:
|Other (not certified)||112,200*||51.6||7,337||45.3|
|* Includes some certified CPO production that was sold as uncertified or without any sustainability premium|
Indonesian Sustainable Palm Oil (ISPO)
The ISPO standard is a policy adopted by the Ministry of Agriculture on behalf of the Indonesian government 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 Institute 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 fourth annual surveillance audits in 2022. ISPO does not apply to immature or development estates.
The initial audits for KMS and CDM will commence in the second half of 2023, and it is expected that stage 1 will be completed by the end of 2023, and stage 2 in early 2024. ISPO certificates for KMS and CDM are expected to be achieved no later than the second half of 2024.
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 2022 with certification successfully renewed until early 2023.
The group’s mills are also rated annually under The Program for Pollution Control, Evaluation and Rating (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 2022 were: