Palm Oil and the Importance of Participation in Sustainability Regulatory Schemes

Palm Oil and the Importance of Participation in Sustainability Regulatory Schemes


This paper focuses on three regulatory standard setting schemes: the Performance Standards for environmental and social performance (Performance Standards) published by the International Finance Corporation (IFC); the Equator Principles; and the Roundtable on Sustainable Palm Oil (RSPO). Two palm oil case studies show how the IFC’s Compliance Advisor Ombudsman (CAO) and nongovernmental organizations (NGOs) promote, with mixed success, the responsiveness of the IFC to people affected by projects it supports.

The first case concerns IFC investments in the Wilmar Group, which were connected to Wilmar’s oil palm plantations. The CAO’s June 2009 compliance audit report criticized the IFC’s supply chain assessment in light of its Performance Standards, and prompted development of an IFC palm oil sector strategy. World Bank Group palm oil investments were suspended pending development of the strategy. Similar complaints regarding Wilmar to the RSPO received a weak response in which the RSPO aimed to resolve disputes without making adverse findings against Wilmar.

The second case concerns the IFC’s April 2009 loan agreement with Corporación Dinant (Dinant) in Honduras for oil palm plantations, amongst other things. Dinant was allegedly connected to violent evictions of farmers following a military coup in June 2009, yet the IFC executed the first disbursement five months later. The Wilmar case shows how transparency and review measures facilitate the enforcement activities of NGOs and the CAO, which involve interactions with the IFC that set the standards and influence reviews of the Performance Standards. The case studies also demonstrate the relative weakness of the RSPO complaints mechanism, and the lack of transparency under the Equator Principles.

The paper argues that the Equator Principles need transparency and review to promote responsiveness to project-affected people whose interests the Principles claim to uphold. The paper also argues that the IFC must advocate for such responsiveness-promoting measures to ensure its legitimacy as a promulgator of sustainability standards

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Swee Leng Harris, LLB (Honours) (University of Melbourne); BA (Honours) (University of Melbourne); LLM (New York University).