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Barriers and bottlenecks: How to bring innovative management practices to scale in Indonesian palm oil

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The Indonesian palm oil industry is currently undergoing a fundamental transformation in business practices. Campaigns led by critics have created unprecedented demand for upstream producers to mitigate social and environmental impacts. Producers are responding, and growing numbers are now treating impact mitigation as a core facet of their investment strategy and operational planning. This reflects an ongoing shift in the corporate mindset that views sustainability as a source of innovation and brand value rather than a cost of production. This trend is unquestionably good, and should be rewarded, but the pace and extent of change throughout the industry must accelerate. We highlight below key barriers and bottlenecks to change that must be overcome to bring innovative management practices to scale.

Knowledge and human resources. One leading impediment to change is the slow rate of information flow on innovative practices developed by corporate leaders throughout the industry. This has created a wide knowledge gap between those with the resources to innovate and their peers. Poor information flow reflects competitive relationships between companies and corporate reluctance to advertise success, because of fear of becoming a target. Structured learning networks are urgently needed to overcome this gap by accelerating knowledge transfer via peer-to-peer exchanges throughout all levels of corporate governance. A related challenge is the growing shortage of human resource capacity to implement innovative practices at scale. Companies struggle to attract and retain skilled employees in sufficient numbers to implement new programs. Concerted effort is required to retrain existing staff and equip new entrants with the necessary social engagement and environmental management skills. Training schools/programs are being developed and must be expanded rapidly, with multi-stakeholder support.

Corporate culture. Indonesia’s system of palm oil governance affords companies wide latitude to define and pursue their own vision of sustainability. This creates obvious challenges to scaling innovation, especially where senior managers are hostile towards the concept of sustainability. It also creates an opportunity to shape sustainability policies of large companies by changing the mindset of decision-makers at the top. When top management accepts that meeting the expectations of key stakeholders often requires going beyond legal compliance, this facilitates nurturing of more ambitious sustainability goals. Work is needed to develop effective modes of outreach to embolden corporate leaders to take decisive action, to adopt sustainability as a core principle and to make operational changes required to implement their vision.

Governance conflicts. Under Indonesia’s decentralized system of palm oil governance, local authorities hold far-reaching powers to license development, approve EIAs and enforce regulations. At the same time, they are under pressure to generate revenues and accelerate development from palm oil. Under these conditions, bad actors are tolerated because they deliver investment, and responsible actors face challenges implementing voluntary commitments – which are seen by local authorities as undermining development goals (e.g. protecting forest on land zoned for plantations). This situation undermines sustainability efforts, and must be addressed before innovative conservation policies can be brought to scale. Emerging discussion of “jurisdictional approaches” has the potential to address this problem, but only if local authorities are incentivized to support sustainability.

Deforestation and spatial planning. Many facets of Indonesia’s regulatory framework reinforce sustainability, whilst others are at odds with emerging “norms of good practice”. Companies in the expansion phase of their business are increasingly under pressure to establish new plantations on low carbon, deforested land. Such land is widespread in Indonesia, but much of it is unavailable to agriculture due to spatial planning. In addition, producers are under pressure to manage forest set-asides within plantations to mitigate their deforestation footprint. Yet current rules make it difficult for companies to retain management authority over unplanted areas within their plantations. These policies are significant impediments to low impact oil palm, especially zero deforestation commitments, and are top priorities for advocacy.

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