SUSTAINABLE GREEN SUPPLY CHAINS: UNILEVER- A CASE STUDY

SUSTAINABLE GREEN SUPPLY CHAINS: UNILEVER- A CASE STUDY Sara Drnach, MBA, University of Connecticut, Stamford, CT USA Timothy Dowding, Ph.D., University of Connecticut, Stamford, CT USA Abstract: This paper examines Unilever s corporate strategy of sustainable efforts in Asia, particularly in the sustainable sourcing of palm oil. This paper discusses the need for sustainable palm oil, Unilever s position and influence on the palm oil trade, and the measures that Unilever is taking to ensure that not only its suppliers, but also all suppliers, of palm oil are environmentally sustainable. Keywords: Sustainable, Supply Chain, Palm Oil, Roundtable on Sustainable Palm Oil, Unilever, Indonesia, Allanblackia Introduction "Sustainability is a condition of existence which enables the present generation of humans and other species to enjoy social wellbeing, a vibrant economy, and a healthy environment, and to experience fulfillment, beauty and joy, without compromising the ability of future generations of humans and other species to enjoy the same. 1 This quote by author and sustainability advocate Guy Dauncey nicely summarizes the underlying motivation behind the sustainability efforts and green initiatives that are sweeping the world. Such emphasis is becoming increasingly popular among international citizens, governments, and corporations. As world populations continue to rise, and as the demand for finite resources grows, often the health and availability of natural resources and habitats are threatened, prompting many government and corporate leaders to ask the question of just how long this can go on. More importantly, it has prompted many corporations and governments to take action and make the changes required to ensure longer sustainability of resources and the protection of the environment. A notable sustainable movement relates to the efforts surrounding the sustainable sourcing of palm oil as it has engaged world governments, corporations, and citizens alike toward promoting change in the development, sourcing, and even the use of the oil. Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 156

Palm Oil Palm Oil is often regarded as nature s gift to the world because of its nutritional value, health benefits, natural availability and abundance, and the fact that it is relatively inexpensive. 2 The source, the Elaeis Guineensis tree, also known as the oil palm, originated in West Africa and was originally introduced by the British into Malaysia in 1870 as a decorative plant. 2 However, once the nutritional and commercial benefits of its oil were realized, the oil palm became a viable and leading agricultural product. A bountiful plant, the oil palm produces fruit all year long. The fruit contains two types of oil that originate in two, different parts of the fruit, the mesocarp, which is the flesh of the fruit, and in the lauric palm kernel, or the fruit s core. 2 It is the only fruit that possesses two different oils that originate in 2 different locations, and have two different chemical compositions. As a result, the fruit of the oil palm contains 50% oil. 2 Because of its ability to bear fruit all year and because of the chemical composition of the fruit, the oil palm is a highly efficient producer, producing more edible oil per hectare than any other oil producing plant. 3 The bounty of the oil palm has led to a wide variety of commercial applications, and today, palm oil is a predominant raw material in the production of many consumable and non-consumable products. In fact, in today s production, 90% of all palm oil goes into food applications such as margarines, shortenings, pastas, and cookies, while 10% is used in non-food applications such as soap, beauty products, and chemicals. 2 The appeal of palm oil in the production of processed food relates to the health benefits derived from the oil. Palm oil is packed with essential nutrients, such as betacarotene and Vitamin E, which are often linked to lower risks of cancer and heart disease. 2 Moreover, palm oil is cholesterol and trans-fat free. Because palm oil is odorless, tasteless, and a semi-solid at room temperature, it can serve as a healthier alternative to hydrogenated oils, and still add desired texture and shelf appeal to a given product. 2 It is because of these aforementioned benefits of palm oil that many consumer packaged goods manufacturers use it as a major ingredient in their products. Such commercial value explains why the international demand for palm oil has grown by 43%, in the past 20 years to make palm oil the largest traded vegetable oil in the world. 3 Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 157

The commercial value of palm oil has led to an increased desire to produce the oil among the palm oil producing nations. Because oil palms thrive in tropical conditions, the oil palm is cultivated in 17 countries with tropical climates in Africa, Asia, and South America. 3 The top 5 countries that grow the oil palm are Indonesia, Malaysia, Thailand, Nigeria, and Colombia. Malaysia and Indonesia represent more than 85% of all global production, and employ more than 4.5 million people in some aspect of the palm oil value chain. 3 The majority of palm oil cultivated, or 75% of total production, is exported from the producing nations to more industrialized nations in Asia, Europe, and the US. 3 In 2008, some 34 million tons of palm oil were exported around the globe, and 17% went to India, 16% to China, 15% to the EU, and 7% to Africa. 3 As international demand for and dependence on palm oil has rapidly increased over the past 20 years, palm oil production has expanded significantly to meet this demand. As a result, new, commercial plantations have sprung up rapidly in Indonesia and Malaysia. The development of such plantations has sparked international debate and concern, as not all development is sustainable. The sustainability concerns stem from the fact that the mass production of the oil palm by way of the oil palm plantation results in deforestation of the native rain forests. Green Palm, a certificate-trading program aiming to promote and facilitate the sustainable cultivation and production of palm oil, notes that such deforestation results in issues relating to biodiversity, soil degradation, local people, land rights and many other matters. 3 The World Wildlife Fund (WWF) reported in its 2007 study of the Sumatran rain forest that deforestation is occurring at a rate of 2 million hectares (roughly the size of Connecticut and Rhode Island combined) per year. 4 If deforestation continues at this rate, it is estimated that 98% of the rain forests in Indonesia and Malaysia will be destroyed in the next 15 years. 3 This has major implications to the citizens and species of not only these oil producing countries, but also the world. In Indonesia, the rapid, nonsustainable development of palm oil plantations, has posed a substantial threat to the natural habitat of the orangutan. At the turn of the 20 th century, the Indonesian rain forest was home to more than 315,000 orangutans. 3 With such prevalence of the palm oil plantation, and the deforestation that has resulted, just 55,000 orangutans inhabit Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 158

Indonesia today. 3 And, it is estimated that this population will dwindle to extinction in the next 12 years if the deforestation continues at the current rate. 3 Orangutans are just one of the many species endangered by the deforestation associated with development of the palm oil plantation. In fact, the clearing of the conserved lands in Indonesia and Malaysia disturbs the rich biodiversity in their rainforests and ecosystems, and as a result, the world s environment suffers the consequences. The disturbance of the rain forest relates primarily to the disturbance of the peat bio-system that is the foundation of many South East Asian rainforests. Peat is the dead organic plant material, carefully formed over thousands of years by a mixture of water saturation, low oxygen levels and soil acidity. 5 Environmentally speaking, peat is highly important because of its ability to store carbon, retain water and support great biodiversity by providing a home to thousands of rare and even endangered species, such as the orangutan, the Asian elephant, and the Sumatran tiger and the rhinocerous. 4 Peat also known as a carbon sink, has the ability to store more carbon than any other ecosystem and is therefore essential to the earth s environment. Peat has the capacity to store 25-30% of the world s CO2, and so it aids in the reduction of greenhouse gases in the earth s atmosphere. 4 The destruction of peat results in significant carbon emissions. Indonesia, one of the largest palm oil producing nations, is now the 3 rd largest emitter of greenhouses gases, behind China and the United States, as a result of the disturbance of peat in favor of the development palm oil plantation. 6 Indonesia recognizes the importance of conserving these natural resources, and for that reason, they have instituted regulation that prohibit the development of land that sits on peat greater than 3 meters deep. 7 However, the Indonesian government s enforcement of such regulation has been inconsistent, and today, many new plantations can be found on protected land. In fact, it is estimated that 80% of all timber logged in Indonesia is logged illegally, or taken from these protected lands. 7 Promoting Change and the Sustainable Sourcing of Palm Oil The controversy surrounding the non- sustainable sourcing of palm oil has been under a great deal of scrutiny recently, and so it has inspired many key, international stakeholders to take action. These key stakeholders include the media, non-government Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 159

organizations, environmentalist groups, governments and even, multi- national corporations. Together with the media, many non-government organizations, such as Greenpeace, Round Table on Sustainable Palm Oil (RSPO) and Green Palm, have helped to expose the situation and its dire consequences, successfully lobby governments to protect the environments and motivate corporations to change their practices. The Round Table on Sustainable Palm Oil (RSPO) was founded in 2004 with the objective promoting the growth and use of sustainable oil palm products through credible global standards and engagement of stakeholders. 8 Seven sectors from the palm oil industry are represented in the RSPO including producers, processors, consumer goods manufacturers, retailers, banks, environmentalist groups, and social development organizations. The RSPO aims to develop global standards for the sourcing of sustainable palm oil through their Principles and Criteria for Sustainable Palm Oil Production. 9 The eight guidelines include 1) commitment to transparency 2) compliance with local, national, and international regulations 3) commitment to long term financial and economic viability 4) use of best practices by growers and millers 5) environmental responsibility and conservation of natural resources and biodiversity 6) responsible consideration of individuals and communities affected by growers and mills 7) responsible development of new plantings 8) commitment to continuous improvement. 9 RSPO s guidelines promote sustainable sourcing among all actors in the palm oil industry, while the RSPO certificates guarantee traceability and transparency in the palm oil supply chain for both buyers and suppliers of sustainable palm oil. Because palm oil supply chains are highly involved with various inputs throughout the value chain, there is a need for a metric, which measures sustainability at each aspect in the chain. The RSPO certification was created to serve that need, as it analyzes, traces and approves all activities in the supply chain, and stamps worthy sustainable chains with a seal of approval signaling to consumers that the palm oil used in the product is truly sustainable at all levels. In other words, the seal of approval signals that the palm oil used is free from any association with suppliers that contribute to deforestation and peat destruction. RSPO approved sustainable palm oil can be derived from 3 different supply chain systems: Segregated, Mass Balanced, and Book and Claim. 10 The Segregated supply chain is the purest sourcing system available as certified palm oil is segregated thorough Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 160

out all aspects of the chain. All players are RSPO members and all processors are RSPO certified. All logistics and transportation activities are recorded and monitored to ensure further purity. 10 Probably the most important aspect of the Segregated supply chain, is that it is the only supply chain system that permits users to quantify the value of sustainable palm oil in their products. 10 It is the most expensive supply chain to implement because it requires an entirely separate tracking system and supply network in the palm oil value chain. Those companies that are not yet fully sustainable would have to maintain two separate supply chains in order to claim fully segregated sustainable palm oil. The current costs associated with building a Segregated supply chain are the costs of building a fully Segregated chain (which interestingly are not widely published), plus all general and administrative expenses. A Segregated supply chain owner must be a RSPO member, and pay RSPO membership dues of between 100-2000 per year based on annual consumption. 10 Additionally, the owner must obtain a supply chain certification and participate in one audit per year. Finally, the owner is responsible for contributing to the CSPO premium including $3 per metric ton in administrative costs, and $1 per metric ton in contribution fees. 10 The Mixed Balanced supply chain is the next level in terms of sustainability because it does allow for the supply chain of the sustainable oil to mix with supply chains of non-certified oils. 10 Like the Segregated supply chain, the Mixed Balanced chain requires that all operators in the chain are RSPO members that processors are certified, and that logistics is monitored. Because the chains do mix, however, firms that use this system cannot claim or quantify the value of sustainable palm oil in their products but they can comment on the fact that their products are committed to the advancement of sustainable palm oil. 10 The general and administrative fees associated with utilizing this chain are equal to that of the Segregated chain. However, as the Mass Balance chain does not require complete segregation of non-sustainable and sustainable oils, it does not require the dual maintenance of supply chains, and so it is less expensive alternative to the Segregated supply chain. The final supply chain is the Book and Claim chain, which does not segregate the oil or the chains at all. In the Book and Claim supply chain, suppliers participate in the Green Palm Program by registering their output with Green Palm, a certificate-trading Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 161

program, endorsed by RSPO. 10 For every ton of sustainable palm oil produced, Green Palm awards these producers with one Green Palm certificate, which can then be sold on the open Green Palm trading platform. 3 and claim that their products use sustainable palm oil. 3 Manufacturers can then purchase the certificates This is the cheapest supply chain system to implement because it does not require an alteration to the existing supply chain. Because it does not segregate oil at all, this system does not permit the user to quantify the sustainable palm oil in their products. However, as in the Mixed Balance supply chain, the producer can discuss their commitment toward sustainable sourcing. This Green Palm Program may sound a bit like the carbon trading system. However, unlike the carbon trading system, where heavy polluters can continue their levels of harmful emissions by purchasing credits from their more efficient and environmentally proficient counterparts, the Green Palm certificate program does not allow constituents to trade or resell their certificates. 3 In fact, to ensure honesty and integrity of the program, Green Palm endorses only RSPO certified producers to supply certificates and mandates audits to ensure that certificate sales do not exceed production. 3 To prevent resale, Green Palm allows only those institutions that have received certificates to make claims about Green Palm and sustainable palm oil. 3 The rigid standards set forth by the RSPO have been instrumental in guaranteeing traceability and transparency in the palm oil trade. The RSPO has been successful in stimulating interest in the sustainable movement and motivating change in the palm oil industry. To date, 15 palm oil growers and 52 mills have been awarded the RSPO grower certificate, while another 44 companies and 83 facilities have received the supply chain certificate. Moreover, RSPO membership continues to expand to numbers that exceed 430 total partners including 136 processors and traders, 85 growers, 76 consumer goods manufacturers, and 22 retailers.error! Bookmark not defined. As the RSPO aims to set a standard for sustainable development, governments worldwide are making decisions to mitigate the non-sustainable development. Palm oil producing nations are beginning to understand the implications of the non-sustainable trade, and despite their inconsistencies, are small making steps toward sustainability. As mentioned, the Indonesian government has instituted regulation to protect land, and they have committed to the re-planting of 1 billion trees per year. 7 In other areas of the world, Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 162

governments attempt to influence change through trade policy and financial aid. In the European Union for example, governments are looking to ban the importation of the illegal timber that results from deforestation associated with palm oil plantation development. 7 Additionally, the British government aims to contribute financially to deforestation concerns in the oil palm producing nations. 7 Heightened participation from government and non-government organizations has inspired corporations to realize the importance of supporting the sustainability movement. Corporations have been demonstrating their commitment to sustainable palm oil sourcing by participating in the RSPO, by purchasing Green Palm certificates, by seeking sustainable sources and even developing a network of sustainable suppliers. They are stamping their products with sustainable marketing because they want to highlight their commitment and gain consumer buy into the movement as well. After all, if consumers demand sustainable products, the industry will commit to even further change. In some cases, corporations, such as Unilever are investigating alternatives to palm oil, such as Allanblackia oil, altogether. Unilever s Involvement Unilever is a leading consumer packaged goods (CPG) manufacturer of food, home and personal care products. Well known brands include Dove, Lipton, Ragu, Suave, Lever 2000, Bertolli, Degree, and Axe. 11 Its top 13 brands, account for more than 23 billion. 12 Unilever employs more than 160,000 people worldwide and sells its products in more than 170 countries. 11 products are used by 2 billion people world-wide every day. 12 The multi-national corporation estimates that their With such popularity and influence, Unilever is poised to be a leader, not only in matters of economics and finance, but also in environmental and social movements. Unilever is dedicated to social and environmental leadership and the corporation outlined their commitment in the Sustainable Development Report 2009. In this report, Unilever announced to the world its new corporate vision: to double the size of the company while reducing their overall impact on the environment. 12 Unilever recognizes that their environmental impact stems from every aspect in the value chain, from their own manufacturing to their sourcing to the consumption of their products. Over the past Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 163

15 years, Unilever has worked to improve the eco-efficiency of their factories, to seek sustainable suppliers and sources, and to educate consumers. 12 More than 50% of all raw materials come from agriculture and forestry, and Unilever is committed to obtaining them from sustainable sources. 12 Unilever has already made great strides in the sourcing of tea, acquiring 15% of all tea from sustainable sources today, and aiming to acquire 100% to their tea from sustainable sources by 2015. 12 This same commitment has been made in palm oil sourcing. Today, 15% of Unilever s palm oil input is purchased by way of Green Palm Certificates. 12 As with tea, Unilever aims to achieve a full sustainability in palm oil sourcing by 2015. Unilever is no stranger to the sustainable palm oil movement. The corporation was a founding member of the RSPO in 2004. The largest buyer of palm oil in the world, Unilever purchases 3% of the total volume. 12 Unilever currently aims to lead the industry into more sustainable practices, but the corporation has not always led by the best example. Despite Unilever role in the founding of the RSPO just 3 years prior, Unilever, along with other major consumer packaged goods manufacturers, was exposed for using non-sustainable practices by Greenpeace s 2007 Cooking the Climate report. In this report, Greenpeace revealed that the world s largest consumer products manufacturers were contributing to the destruction of the Indonesian rainforests in the cultivation of their palm oil, and urged the major manufacturers to commit to more sustainable practices. Since Cooking the Climate, Unilever has made several strides in sustainability and established themselves as a leader in the movement. In 2008, the corporation founded a coalition of corporations and non-government organizations to fight deforestation while supporting a moratorium on deforestation for palm oil in South-East Asia. 11 In 2009, Unilever supported sustainable suppliers by purchasing enough Green Palm certificates, roughly 185,000 tons of palm oil, to support 15% of their raw material needs, and they hope to double that next year. 13 This quantity was enough to support the manufacturing of all of Unilever s products in Europe, Australia and New Zealand. 13 At the same time, Unilever publicly opposed their suppliers who continued to use nonsustainable practices. The conglomerate dropped its $32.6 million contract with supplier Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 164

record. 14 As a result of these strides and improvements in 2009, the WWF recognized PT Smart, a subsidiary of Sinar Mas, as a result of the company s poor environmental Unilever as one of the top 5 palm oil purchasing companies in Europe. This rating was the result of WWF s assessment by way of the WWF Palm Oil Buyer s Scorecard, which scored 59 European companies on their sustainability practices. 15 The final rating was based on a company s score in the following criteria: 1) RSPO: active participation in the RSPO 2) Policy: the existence of a responsible palm oil policy 3) System: system capability to support certified sustainable palm oil4) CSPO (certified sustainable palm oil): current use of certified sustainable palm oil. 15 The 2009 scorecard awarded the same number of points to any company sourcing CSPO, regardless of volume. Next year, the card will assess total volume of CSPO and the rate at which the company is moving towards CSPO. 15 The card categorizes its companies by levels of sustainable commitment and rates them with the palm rating of 3 palms for excellent behavior, 2 palms for good behavior, 1 palm for poor behavior, and 0 palms for no behavior at all. 15 In the 2009 WWF Palm Oil Buyer s Scorecard, Unilever scored in the 3 palm category, indicating that Unilever was an active member of the RSPO with a commitment to sustainability and the use of CSPO, a quick respondent to WWF requests, and a role model to other competitors looking to achieve greater sustainability. 15 The highest score possible was 29 and Unilever s individual score was 24.5 making it the 5th best scoring company. 15 On the top of the list with a score of 26 was British grocery chain Sainsbury s, a retailer, which has been internationally recognized and praised for its commitment to environmental sustainability. Also in the top 5 were Unilever competitors Cadbury and L oreal. 15 As a result of these top scores on the scorecard, the WWF commended Unilever and the others for contributing to the RSPO process for several years, for implementing sustainable palm oil policies, for setting up internal systems to control palm oil use, and for motivating their suppliers. 15 Already this year, Unilever has further demonstrated commitments to sustainable sourcing. Early in 2010, the consumer goods manufacturer warned its Indonesian suppliers to stop sourcing from Duta Palma, due to concerns of deforestation. 14 Finally, Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 165

as mentioned, Unilever issued its Sustainable Development document in March of 2010. In that document, Unilever announced its goal to be fully sustainable by 2015. Challenges to Unilever s Sustainable Development Unilever has demonstrated some improvements in sustainable sourcing, and the corporation continues to profess their intentions for full commitment to sustainable efforts. However, at times, their actions have been somewhat inconsistent. By nature of being the largest palm oil purchaser, Unilever has been the company most impacted by the negative press surrounding the issue. Their size, ambitious targets, history of inconsistencies, and tendencies to backtrack, make it undoubtedly challenging for Unilever to succeed in and lead this movement. Despite their leadership and participation in the RSPO and countless press releases expressing their full commitment, Unilever has been exposed for supporting nonsustainable practices. And after each exposure, the consumer products conglomerate has responded by fully auditing their supply chains. In almost all cases, as a result of the audits, Unilever discovered that its suppliers and connections had infringed upon RSPO guidelines, Indonesian law, or both, in some way. 16 Moreover, Unilever realized that it was not as in touch with its supply network as it claimed to be. Each audit brought about such realization, which ultimately led to Unilever taking corrective action against irresponsible suppliers. Unilever s response to public exposure tends to follow this pattern. First, they audit, then they take action, but then after some time, they are exposed again for supporting non-sustainable suppliers. As mentioned, just 3 years after Unilever helped to establish the RSPO, it was uncovered by Greenpeace s Cooking the Climate that Unilever was in fact still supporting non-sustainable sources. Unilever immediately tried to repair its tarnished image by further participating in coalitions, publicly denouncing questionable suppliers, and by buying Green Palm certificates. The image was somewhat restored until early this year, when a BBC documentary Dying for a Biscuit publically unveiled the palm oil controversy and targeted Unilever as a prime contributing factor to the destruction of the Indonesian rainforest. In this documentary, reporter Raphael Rowe investigated Duta Palma and Wilmar palm oil plantations to shed light on their non sustainable and even Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 166

illegal practices. 7 He blatantly pin-pointed Unilever as a major buyer of Duta Palma oil, and even sat with Unilever s Chief Procurement Officer, Mark Engel, to discuss the controversy, Unilever s involvement, and to illustrate just how difficult it would be to achieve a fully sustainable supply. 7 In this interview, Rowe called attention to the fact that many Unilever product labels omitted the term palm oil. Engel responded that the label omission was the result of the dynamic nature of the product ingredients, ingredients that changed every day, and for that reason, it did not make sense to input the oil names on the label. 7 Worse, Rowe highlighted the fact that 85% of all of Unilever s oil is still derived from non-sustainable sources, and that sustainability was incredibly difficult to trace in the current supply chain system. 7 Needless to say, Dying for a Biscuit did not paint a favorable picture of Unilever. Unilever immediately responded by warning its Indonesian suppliers to stop sourcing from Duta Palma. 7 documentary also put added pressure on the RSPO because both Unilever and Duta Palma were RSPO members. 7 Surprisingly, just two months after the release of Dying for a Biscuit and the subsequent, public denouncing of Duta Palma for non-sustainable practices, Unilever publically announced that it would reinstate its support of another questionable supplier, PT Smart, just months after it cancelled its contract. 13 Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 167 The Unilever promised to partner with PT Smart only if the company could prove that allegations of deforestation and peat land disturbance were untrue. 13 As the consumer product giant reconsiders its relationship with the questionable PT Smart, it is also touting its sustainable efforts, leaving many environmentalists to wonder if such contradictions will be characteristic of the Unilever sustainable movement altogether. Possibly worse than Unilever s inconsistent behavior, is the inconsistent behavior of the industry. Critics maintain that this inconsistent behavior is the direct result of a weak and feeble champion of the sustainability movement. That champion, the RSPO, has been critically dubbed Really Slow Progress Overall 16, because of its lax policies, inability to create green house emission standards, and its limited geographic focus. 16 Currently, only 40% of palm oil suppliers are RSPO members, and the RSPO only requires that its members certify a portion of their crop, not the entire operation. 16 Moreover, the RSPO focuses the majority of their campaigns exclusively on western

users, and has somewhat ignored Asian users. 16 Bottom line, the RSPO has been slow to inspire an industry wide movement. Ian Duff, Greenpeace Forest Campaigner noted that, "Until there is an industry wide agreement by palm oil producers to stop destroying rainforest and peat lands, Green palm certificates will offer no guarantee of sustainability. Greenpalm certificates are only as good as the standards that underpin them. That s why Greenpeace is calling for a moratorium on all further rainforest and peatland clearance for palm oil in Indonesia. 13 Unilever has been responsive to deforestation concerns, while other companies in the industry have been slow to respond, if they respond at all. Without an industry wide movement, Unilever, Greenpeace, RSPO, and others will certainly have a difficult time making change. So far, Greenpeace, rather than the RSPO, has served as the industry watch dog, exposing large companies and relentlessly inspiring change. As mentioned, it was Greenpeace, not the RSPO, that issued Cooking the Climate in 2007, targeted Unilever as an irresponsible supplier, and challenged Unilever to lead the charge in auditing their supply chain and making responsible changes. It was Greenpeace that asked Unilever to stop buying palm oil from non-sustainable sources. 16 In 2009, it was Greenpeace that uncovered that Unilever supplier SMART was illegally deforesting and it was Greenpeace that asked Unilever to sever the ties. 16 Unilever has been incredibly responsive to Greenpeace s demands. As a result of Unilever s actions following Greenpeace s suggestions, more than 20 consumer goods companies, including Mars and Proctor and Gamble, have followed suit. 16 In fact, like Unilever, most consumer products companies have targeted 2015 to be the year when they will be fully sustainable. However, not all companies have been so quick to respond to Greenpeace, and slow responsiveness has put Greenpeace on the attack. Nestle, a member of the RSPO, believed their role in the palm oil industry to be an insignificant one. Buying just 320,000 tons of palm oil per year, Nestle Supply Chain Manager Jose Lopez quipped, you d have to look through a microscope to find palm oil in our products. 16 Greenpeace disagreed and launched a smear campaign against Nestle, highlighted by a viral video that showed a man eating a Nestlé s Kit Kat bar, which resembled an orangutan s finger. 16 The video was viewed 1.5 million times and some 200,000 emails were sent in protest to Nestle. 16 Nestle immediately suspended all Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 168

contracts with Sinar Mas. 16 For more than 2 years prior to the release of the Kit Kat video, Greenpeace diplomatically tried to convince Nestle to change. Just 2 months after the release of the controversial video, Nestle was moving toward change at a faster rate than any other company had moved before. 16 The company hired Forest Trust, a Swiss charity, to independently audit their supply chain, and the company severed all relationships with plantations and suppliers linked to deforestation. 16 Greenpeace s interactions with both Unilever and Nestle demonstrate the power and influence of the organization. Greenpeace has sent a message to corporations to either work with them and move toward sustainability, or suffer the consequences of negative press. Greenpeace s relentless pursuit of major purchasers of non-sustainable palm oil has inspired change. Whether the change is a direct result of the desire to be more environmentally sustainable or simply the fear of facing Greenpeace s wrath, more corporations are making changes, placing the industry in a better position for wide-spread evolution. Industry-wide agreement and further guarantee the sustainability of Green Palm certificates can only be achieved if the RSPO tightens their regulations and broadens their range, if Greenpeace continues to serve as the industry watch dog and exposes nonsustainable suppliers and manufactures, and if corporation, namely Unilever, steps up as the leader in the movement. Unilever is the most attractive leader for the movement, primarily because it is the largest buyer of palm oil, but other corporations have stepped up and shown leadership. British grocery chain, Sainsbury s, is one of the only corporations to claim sustainable palm oil in its products. Boasting its position as the first major company to purchase sustainable palm oil at a large scale, Sainsbury s is targeting 2014 as its year to become totally sustainable in all products and processes. 17 The grocery chain aims to employ sustainable practices and also to educate consumers. Sainsbury s is marketing and labeling their products with sustainable icons and verbiage. Sainsbury s has already achieved full, palm oil sustainability in their fish finger product. They proudly stamp the fish fingers with a Made with Sustainable Palm Oil icon, and explain that the product does not contribute to illegal deforestation, and is sourced with consideration to the environmental, social and economic aspects of palm Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 169

production. Additionally, rather than state that the product contains generic vegetable oil as a main ingredient, as is standard in the industry, Sainsbury s is proud to list palm oil as a main ingredient in their fish fingers. Sainsbury s achieved the number one position on the 2009 WWF Palm Oil Buyer s Scorecard because of its commitment and achievements thus far. Sainsbury s was praised in Dying for a Biscuit for its sustainable efforts. While the media and environmentally concerned organizations praise Sainsbury s for its strides, consumers are also responding. The sales figures of the sustainable fish fingers have more than doubled over the past 12 months as a result of the sustainable angle of the products. Sainbury s credits their achievements in sustainability to their relationships with their suppliers. The British grocery chain established their own tracking system to trace and identify the sources of all of their palm oil. This system helped them to identify their top 20 suppliers and to work with them to ensure CSPO. On the RSPO site, Sainsbury s credits their achievements to 1) collaborating with other UK processors to understand obstacles in Sainsbury s Supply Chain 2) maintaining a clear and consistent message around RSPO support and rapid conversion 3) promoting palm oil strategy internally and externally 4) mandating that all suppliers show where palm oil is an ingredient in mixed materials 5) developing a Palm Oil tracking system to log all suppliers, trace oil, and generate volume statistics. Alternatives to Palm Oil The controversy surrounding palm oil sourcing has inspired corporations to research other angles in sourcing and distributing of the product. The complexity of the alternatives has even led some corporations to search for a viable alternative to palm oil altogether. Unilever is one company that is investing heavily in both. To foster a sustainable program from the onset, Unilever has established the Good Agricultural Practice Guidelines which lay the framework for sustainability standards in agriculture through 11 environmental indicators, including water, pesticide, bio diversity, energy, social capital and animal welfare. 11 The goal of this program is to create new sources of supply, distribution and materials that will be brought up to consistently meet Unilever s quality and sustainability standards. 11 Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 170

To bypass the controversy all together, Unilever is in the process of researching a complete alternative to palm oil, and building the necessary infrastructure to support that alternative. That alternative is oil cultivated from the Allanblackia tree. Indigenous to the African rainforest, the Allanblackia tree has seeds which produce a natural vegetable oil consisting of triglycerides of stearic- and oleic fatty acids that can be used as a viable substitute for palm oil in manufacturing. 18 Unilever began investigating this oil as an alternative to palm oil. In 2002, Unilever co-founded the Novella Partnership, a program designed to facilitate the increased production of Allanblackia trees in Ghana, Tanzania, and Nigeria. Through this partnership, Unilever and the International Union for Conservation of Nature (IUCN) focused on producing sustainable growing and harvesting guidelines. The goal of this partnership was twofold: first and foremost, Allanblackia oil substitutes palm oil. By building the infrastructure from the ground up, Unilever, IUCN, and the Novella partnership could ensure best practices and solid sustainable practices. Secondly, the promotion of a new industry that could one day mirror the size and prosperity of the palm oil industry could only bring enterprise and jobs to Africa, and a subsequent rise in income and reduction in poverty in the continent. Today, the partnership has led to participation in 5 countries: Cameroon, Ghana, Liberia, Nigeria and Tanzania. 19 In Ghana, some 200 communities are involved in the collection of Allanblackia seeds. The West African nation cultivates more than 150 tons of seeds each year, which equates to 50 tons of edible oil. 18 support one half of Unilever s Ghana s required input. 18 Unfortunately, these figures cannot Part of this scarcity relates to the fact that the Allanblackia tree s production is unpredictable. In fact, some studies observed that some Allanblackia trees took more than 15 years to flower. 18 This, of course, is in sharp contrast to the oil palm, which provides fruit all year round. Farmers and agriculturists have been working to speed up the rate by which the Allanblackia tree flowers. In some cases, researchers have been able to reduce the flowering period from 15 years to just 2 or 3. 18 In 2008, some 40,000 Allanblackia trees were planted in Ghana and Tanzania. 18 By 2017, the Novella Partnership aims to have education and infrastructure in place to support some 200,000 farmers and 25 million trees. 18 Such figures would not only support international, commercial demand, but also help to raise household income in Africa to $175 per Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 171

annum. 18 Unilever is currently the only major corporation buying the Allanblackia oil. 18 To support Unilever s current demands, and fully substitute palm oil, Allanblackia production would have to be greater than or equal to 1.4 million tons of oil, or 4.2 million tones of seeds, roughly 28,000 times more than Ghanna s current cultivation. Obviously Allanblackia oil is still in its infancy and is not even close to supporting Unilever s needs, let alone other corporations. Perhaps the answer lies in another alternative. British soap producer, Lush, indentified a viable alternative to palm oil after 3 years of research. This alternative is a mixture of sunflower, rapeseed, and coconut oils with sodium hydroxide and water. 20 It has reduced Lush s annual palm oil use by around 250,000kg, of the equivalent to 36 acres of rainforest. Lush is actively sharing its formula and urging other soap manufacturers, such as Unilever, to test and use it. In 2009, the British soap manufacturer launched its Wash Hands of Palm Oil campaign, and wrote to 300 palm oil purchasing companies, urging them to use the Lush formula, or research other alternatives to palm oil. Measuring Success Unilever has set an ambitious target to source all palm oil from sustainable sources by 2015. Achieving this target would certainly demonstrate its ability to achieve sustainable objectives but also send a message to the rest of the industry and the world that Unilever is truly committed to change. While working towards this target achieved 5 years from now, Unilever can measure its progress in a variety of ways. Internally, Unilever will measure success by the percentage of sustainable palm oil tracked, traced, and used. Externally, Unilever will measure success by consumer response, WWF Scorecard ratings and rankings, and industry response. First, Unilever will measure the success of its sustainable efforts on all aspects of the value chain by being able to clearly trace the path of palm oil throughout the chain and thereby ensure its purity and substantiate the sustainable claim. Unilever should emulate Sainsbury s by developing a tracking database that not only traces supply but also generates volume statistics. Unilever should set short term goals to ensure that it is on track with its 2015 target. Already at 15% sustainability, Unilever should aim to achieve 17% increases in sustainability by the end of each year. Sainsbury s credits its success with promoting the movement internally, and so should Unilever, by tying internal performance to meeting Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 172

these objectives. Sustainable palm oil should become part of the balanced scorecard, and the 17% increase per year should be the target. As Unilever improves its sustainability percentages, Unilever should also test sales response. As mentioned, Sainsbury s sales figures doubled as a result of their full sustainability claims. The British grocery chain effectively targeted change in just one product, fish fingers, and traced and tracked the product from creation to sale. Perhaps, Unilever should follow suit and target sustainability improvement by brand. Unilever would measure their success by one, achieving full transparency and sustainability in this brand, and two, by achieving at least double sales volume in this brand. Such sales figures could achieve a domino effect, motivating Unilever to quickly convert other brands, while motivating competitors to follow suit. Another metric of external success is the score on the WWF Palm Oil Buyer s Scorecard. Unilever should aim to improve their score each year, and be the number one company on the scorecard by 2015. In 2009, Unilever achieved maximum points in the RSPO and Systems categories, but showed room for improvement in policy and CSPO. Unilever should target these 2 categories, and aim to achieve at least a 1 point improvement per year, over the next 5 years, in their total score. The WWF will be grading its CSPO category based on volume. As the largest purchaser of palm oil, this factor can either benefit Unilever significantly, or damage their current position. Thus, Unilever must insure that their focus is on maximizing their CSPO use. The response of the consumer and the response of the WWF will undoubtedly influence the response of the industry. Unilever should monitor the response of its competitors. Already, Unilever is aware that its actions, when responsible, influenced change in 20 other corporations. A measurement of success for Unilever will be the behavior of their competitors, their competitors percentage sustainability, and their competitors score on the WWF scorecard. In other words, a measure of Unilever s successful leadership will be the success of the industry. Unilever should grade itself on the sustainability of the industry. A barometer for success or failure has always been media opinion. Unilever can measure its success as a company and as an industry leader by staying out of the negative Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 173

press related to palm oil. A measure of success for Unilever would be continued positive press (and zero negative press) related to its actions and its leadership. Conclusion Unilever is in a poised position to set the tone in the industry and to change manufacturing mindset to more sustainable alternatives not only in palm oil, but in other agricultural products as well. For that reason, Unilever must continue its efforts in promoting sustainable practices, and also by researching and developing viable alternatives to non-sustainable products. Unilever s volume needs are just too significant to rely on any one substitute, so Unilever should implement a blend of 1) fully sustainable palm oil 2) allanblackia oil 3) other alternatives. Unilever should aim to first maximize its use of alternatives, and then supplement the rest of its needs with sustainable palm oil. To achieve sustainable palm oil objectives by 2015, Unilever must subscribe to the Sainsbury s model. First, Unilever should develop its own system to track, trace and monitor all sources of supply, and further ensure that the corporation is fully aware and in touch with their palm oil supply chain. Second, Unilever must regularly and randomly audit its supply network. For those suppliers that are not recognized as sustainable by the RSPO, Unilever must break ties but aid them in gaining RSPO status. For those suppliers already endorsed by the RSPO but exposed for using non-sustainable practices, Unilever should not break ties, but instead work as a responsible mentor and leader to move them toward full sustainability. Along those same lines, Unilever must develop and mentor smallholder and new farmers and educate and facilitate best practices among those communities. If successful in building these sources, Unilever will be less dependent on larger, corporate farms, and will have a much easier time breaking ties with those suppliers that prove to be non-sustainable. Such efforts by the world s largest buyer will undoubtedly inspire other major manufacturers to follow suit. In terms of supply chain requirements, Unilever should continue to support the Book and Claim system. The Segregated chain would require Unilever to maintain two supply chains until it became fully sustainable, and thus, carry the costs of two chains Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 174

until fully sustainable. The Mass Balance chain could be a viable option for Unilever, but does not have the scalability of the Book and Claim chain. Because the ultimate goal can only be achieved if all actors, large and small, make changes, the Book and Claim seems most viable. The Book and Claim system enables all actors to participate in sustainable efforts, with honesty, integrity and at the least cost to the business. Unilever s full support of the Green Palm system could be the driving force in the program that leads other actors to achieve their sustainability goals. Cost savings achieved by sticking with the Book and Claim system can be leveraged to continue research and development on alternatives. Unilever should continue their efforts with Allanblackia oil because it is a viable substitute to palm oil and because it is providing a cost of living enhancement to the participants in Africa. However, for this oil to be considered as an alternative, for the infrastructure to be developed, and for the cost of living enhancement to be sustained, Unilever must recruit other major manufacturers and actively persuade them to purchase and produce with the oil. Understanding that Allanblackia oil has a long way to go before it can replace palm oil, Unilever should research and develop another alternative. Unilever should review the formula invented by Lush, and review the viability of implementing it partially or fully in their soap products. Unilever should actively partner with smaller firms such as LUSH and Sainsbury s. These smaller firms have made tiny impacts that if copied by Unilever, could be massive. Imagine the impact if Unilever refused to buy non-sustainable palm oil and then wrote to the top 300 users, as LUSH did, asking them to stop using it as well. Unilever should be consistent. Consistency is not limited to palm oil. It applies to all other sources and raw materials that Unilever buys. It applies to its partnerships and its network. Unilever is already laying a solid framework in the Good Agricultural Practice Guidelines. In the tea industry, Unilever already partners the Rainforest Alliance, the RSPO of the tea world, to ensure its tea supply is sourced from certified suppliers. As in palm oil sourcing, Unilever aims to be fully sustainable by 2015. Unilever is not limiting their sustainable efforts to palm oil or tea; they are applying the framework to other ingredients as well. Unilever emulated Sainsbury s and created their Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 175

own tracking system, Quickfire, to store and track assessments of their fruits and vegetables suppliers against the Good Agricultural Practice Guidelines. Unilever s scale and broad and consistent commitment to sustainability serves as a model for other competitors, and further strengthens their position as a leader in the sustainable sourcing movement. Finally, leadership is not just about the ability to react, but also to be proactive. Sainsbury s was praised by the WWF for preemptively addressing sustainable sourcing in its supply chain before the industry moved to do so. Understanding the industry, government, and societal trends, Unilever should proactively research and resolve issues and concerns. Unilever should no longer wait to change because Greenpeace or BBC has smeared them, Unilever should change because Unilever proactively understands that the industry is heading in that direction. Unilever s leadership and behavior is essential to industry change. As mentioned to achieve full sustainability, the palm oil industry requires stringent and consistent guidelines from the RPSO, industry leadership and mentoring from top corporations such as Unilever, and an industry watchdog, such as Greenpeace, to provide necessary checkand- balances. The demand for sustainable palm oil has been slow because these three pieces have not been in concert. However, over time, it seems as though the 3 roles have begun to understand the importance of their roles, and the greater importance of their collaboration. The future for Unilever can be summed up by this quote from B. Gail Smith in the paper Developing Sustainable Food Supply Chains, the benefits of being seen as a role model for corporate citizenship or as a leader on social and environmental issues can be significant for businesses Working voluntarily to high environmental and social standards may even result in competitive advantage and the experience and insights gained can be used to develop mutually beneficial partnerships with suppliers. 22 Unilever has the ability to be a role model corporate citizen and a leader in the palm oil industry and manufacturing community as long as they maintain consistent behavior, partner with the RSPO and Greenpeace, and continue to research and develop improvements in the palm oil industry as well as other alternatives. Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 176

1 Dauncey, Guy. Towards Sustainability. Retrieved from http://www.towardssustainability.co.uk/infodir/susquote.html 2 Amerian Palm Oil. American Palm Oil Council. Copyright 2003-2004. http://www.americanpalmoil.com 3 Green Palm Organization. Green Palm Organization. http://www.greenpalm.org/ 4 World Wildlife Fund. Peatland Swap and Lowland Forests of Sumatra (Indonesia). World Wildlife Fund. 12 November 2007. http://assets.panda.org/downloads/sumatra_forest_cc_final_12nov07.pdf 5 About Peat Lands. Wetlands International. Wetlands International Organization. http://www.wetlands.org/whatwedo/peatlandsandco2emissions/aboutpeatlands/ tabid/1362/default.aspx 6 Palm Oil, Greenpeace. Greenpeace Organization. http://www.greenpeace.org.uk/forests/palm-oil 7 Grandison, Steven (producer and director). (2010). Dying For a Biscuit. BBC. 2010 8 Round Table on Sustainable Palm Oil. Round Table for Sustainable Palm Oil. http://www.rspo.org/?q=page/9 9 Round Table on Sustainable Palm Oil. RSPO Supply Chain Systems Overview. Round Table on Sustainable Palm Oil. Sept 2009. http://www.rspo.org/?q=page/516 10 Round Table on Sustainable Palm Oil. RSPO Supply Chain Systems Overview. Round Table on Sustainable Palm Oil. Sept 2009. http://www.rspo.org/?q=page/516 11 Unilever. Unilever. www.unilever.com 12 Unilever. Sustainable Development Overview 2009. Unilever. 13 Hance, Jeremy. Unilever backtracks: may purchase palm oil from Sinar Mas. Mongobay.com 07 April 2010 http://news.mongabay.com/2010/0407-hance_unilever.html 14 Koswanage, Niluksi. Unilever stops buying palm oil from Indonesian planter. Reuters. 24 Feb 2010. ://www.reuters.com/article/idustre61n1le20100224 Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 177

15 World Wild Life Fund. WWF Palm Oil Buyers Scorecard. 2009 16 The Campaign Against Palm Oil. The Economist. 24 June 2010. http://www.economist.com/node/16423833 17 Sainsbury s. http://www.j-sainsbury.co.uk/cr/index.asp?pageid=48 18 Allanblackia. Allanblackia Oil.com. http://www.allanblackiaoil.com/allanblackiaoil.html 19 Novel Approach for Allanblackia. New Agriculturist. New Agriculturist. July 2009. ://www.new-ag.info/focus/focusitem.php?a=829 20 Siegle, Lucy. Mo Constantine's innovation: finding an alternative to palm oil. The Guardian. Guardian.uk.com 30 May 2010. http://www.guardian.co.uk/environment/2010/may/30/lucy-siegle-innovator-lushcosmetics-war-palm-oil 21 Smith, B. Gail. Developing Sustainable Food Supply Chains. The Royal Society. 2007. Proceedings of the First Annual Kent State International Symposium on Green Supply Chains 178