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YUM! Joins the Growing Corporate Commitment to 100% Responsible Palm Oil
By Holly Testa, Director, Shareowner Engagement

Trillium Asset Management and First Affirmative Financial Network joined forces last fall to file a shareholder resolution at Yum! Brands asking for quantitative information that demonstrates the extent to which Yum! is curtailing the impact of its palm oil supply chain on deforestation and human rights.

This resolution was withdrawn after productive dialogue with the company resulted in meaningful improvements to the Yum! Brand policy on palm oil. The newly published YUM! Palm Oil Policy, along with the many other commitments that have been secured recently, represents an important step in the right direction; however, effective implementation is what really matters.

What Does Responsible Palm Oil Mean?

The new YUM! Policy reflects some of the features that exemplify best practice in the industry:

  • No development on High Conservation Value landscape or High Carbon Stock forests.
  • No development on peatlands and use of best management practices for existing plantations on peat.
  • Prevention and resolution of social and/or land conflicts consistent with the principle of free prior and informed consent.
  • Traceability to the extraction mill and validation of fresh fruit bunches.
  • Not employing underage children or forced laborers and prohibiting physical abuse.
  • Compliance with country laws and regulations and our supplier code of conduct.

What seems to be a rapid and firm commitment to transforming how this industry does business is heartening, demonstrating that major structural change is indeed possible when a diverse—and sometimes conflicted—group of stakeholders work together. But why has palm oil catalyzed such a far-reaching movement among a broad coalition of nongovernmental organizations, the United Nations, investor groups and corporations?

Palm Oil Plantations Wipe out Rain Forests

As is so often the case, the industrial scale production of a valuable commodity brings “unintended consequences.” The rapid development and growth of the palm oil industry has brought with it a host of environmental and social ills that have transformed a potentially sustainable industry into one of environmental and social degradation.

Although palm oil plantations can thrive on marginal land, this is not where many plantations are located. Instead, virgin forests have been cleared, causing a cascade of environmental and health effects:Yum 2

  • Malaysia had the highest deforestation rate on the planet between 2000 and 2012, according to mapping project published in Science and powered by Google. It lost a staggering 14.4% of its rain forest, and Indonesia was not far behind at over 8%.
  • Peatlands, swamplands that are rich in organic matter, are being drained and burned to accommodate palm oil plantations, releasing disproportionate levels of carbon. Research published in Nature Geoscience indicates that while peatlands only cover 2% to 3% of the planet, they may store as much as 25% of all soil carbon.
  • These forests are prime habitat for a wide range of endangered species including orangutans, pygmy elephants, Sumatran rhinos, and clouded leopards. Orangutan numbers have plummeted, primarily due to loss of habitat and habitat degradation.
  • An investigation by Bloomberg uncovered widespread human rights abuses of the labor force and “land grabs” are robbing local communities of their homes.
  • A fast acting strain of malaria is now the leading cause of hospitalizations in Malaysia, and there are indications that the rapid deforestation is the cause.

Commitments Are Not Enough

Major companies who purchase the world’s palm oil have made substantial commitments to source only sustainable palm oil, but we will have our work cut out for us to monitor the implementation of policies and practices that will make these commitments reality on the ground.

Yum! is a good example. The company has made a commendable commitment to sustainable palm oil, but living up to that pledge involves tracing supply chains; and what about franchises?

As Sum of Us points out, Yum! faces formidable challenges if they truly wish to completely disassociate its brands from deforestation by the end of 2017 as its commitments to sourcing sustainable palm oil will be difficult to apply consistently throughout its supply chain and global brand.

Yum 1For example, Yum! owns Pizza Hut, but the Asian Pizza Hut franchise rights are owned by Jardine Matheson, which also operates Kentucky Fried Chicken franchises throughout Asia. Palm oil for these franchises is provided by Astra Argo Lestari, which is also owned by Jardine Matheson. Unfortunately Astra Argo Lestari has not made any commitments to improve practices associated with deforestation and peat land destruction. It’s complicated!

As you can see, it will be a challenge for companies to navigate—and for activist investors to follow—this tangled web of corporate interrelationships and supply chains.

First Affirmative understands that the ways we save, spend, and invest can dramatically influence both the fabric and consciousness of society. We believe that in addition to the benefits of ownership, investors bear responsibility for the impact our money has in the world. Are you making conscious decisions about the impact of your consumer purchase and investment decisions?

NOTE: Mention of specific companies or securities should not be considered an endorsement or a recommendation to buy or sell that security. Past performance is no guarantee of future results.

Posted: July 15, 2015