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, is 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 greenhouse gas 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.

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 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. The annual surveillance audits were successfully completed in 2020 securing renewal of the PalmTrace licences. The five yearly recertification audits of POM and COM, the COM kernel crushing plant (“KCP”) and their supply chains together with the group’s downstream bulking stations are due to take place in 2021.

As previously reported, in 2017, one of the approved certification bodies awarded the group’s third oil mill, SOM, RSPO certification for its mill and KCP. Subsequently there was a change in the regulations whereby a mill is no longer eligible for certification unless the estates supplying that mill are also certificated in accordance with the RSPO Principles and Criteria. This led to the SOM certification being rescinded pending certification of the Satria estate that supplies it, although SOM’s KCP has retained its certification which remains valid until 2022. The annual surveillance audit for SOM’s KCP was successfully completed and its PalmTrace licence renewed in 2020.

In 2020, after a number of years, RSPO completed its review of compensation liabilities in respect of two small areas of land within SYB that were cleared in 2008 prior to conducting HCV assessments. The group’s proposal in respect of some 129 hectares of land at Satria estate and the final HCV compensations liability in respect of 44 hectares at SYB’s Tepian estate, that were exercised from the POM supply base in 2019, were both approved. For each liability, the group has developed a concept note for a conservation and rehabilitation programme in accordance with RSPO’s Remediation and Compensation Procedure. Once these are approved, SOM can be audited to secure certification and the Tepian area will be reinstated within the POM certified supply base.

The social impact assessment (”SIA”) required to be conducted by third party consultants in respect of 959 hectares cleared at CDM prior to conducting an HCV assessment was delayed in 2020 owing to Covid-19 travel restrictions. This is now scheduled to take place during 2021. A compensation plan has already been agreed in principle with RSPO and payments will be settled over several years as part of a time-bound plan agreed with the RSPO for RSPO certification of CDM by 2023.

RSPO has also reviewed certain incidences of land clearing prior to HCV assessments in respect of two plasma cooperatives which could result in a small compensation liability. These were reported to the RSPO under a land use change assessment (“LUCA”) in 2019, with additional supporting materials provided by the group regarding the environmental and social impact assessments (“ESIAs”), free prior and informed consent (“FPIC”), participatory land use maps, the land acquisition process, any unresolved land disputes, corporate social responsibility (“CSR”) activities and consultation with the relevant communities demonstrating that the group has no social liability in respect of the areas in question. The final conservation liability was determined in March 2021 and the group is now developing the concept notes for RSPO approval.

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 2020 total crushed PK was 41,260 tonnes, of which 25,931 tonnes (62.85%) were from RSPO certified sources, with the remaining 15,328 tonnes (37.15%) being from uncertified sources. REA currently does not crush PK from any other sources.

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 (“ICC”)

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 2020 and again in 2021.

Certified sales

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 and CPKO was produced by an RSPO certified company.

Each sale of CPO and CPKO can only be made with one certificate, so the group has to decide which certification should apply to each sale. Most CPO is sold with ISCC certification because, in the context of the overall market for CPO, the group’s monthly production is relatively small and this makes it challenging to find buyers for the group’s CPO as RSPO certified. The same is true for CPKO but there is no market for ISCC certified CPKO. 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.

Production and Sales of certified CPO and CPKO are shown below:

   CPO CPKO
   tonnes   %   tonnes   %  
  RSPO sales 12,049   5.6   7,101   45.8  
  RSPO credits –   –   –   –  
  ISCC 109,321   50.8   –   –  
  Other (not certified) 93,931*   43.6   8,402   54.2  
  Total 215,301   100.0   15,503   100.0  
 *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 current certification is valid until the end of 2021. SOM and the Satria estates first obtained ISPO certification in 2018, which is valid until mid 2023 and have also passed the annual surveillance audits. ISPO does not apply to immature or development estates.

ISO 14001

ISO 14001 is the international standard for effective environmental management systems that supports 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.

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 that the company’s standards go beyond the standard regulatory requirements.

 

    Provincial   National 
  POM  Green   Blue 
  COM  Green   Blue 
  SOM  Green   Blue