CIRAD research featured in new book on corporate governance
CIRAD research featured in new book on corporate governance
At a sustainably certified sawmill in Jepara, men carefully cut logs of wood that are then measured and marked. Photo by D. Ramsay/CIFOR
FTA COMMUNICATIONS TEAM
How does the complex pattern of shareholdings and subsidiaries – entangled, hierarchical and pyramidal – influence actions, decisions, policies and strategies? It could be said that the behavior of conglomerates and mega corporations is influenced by their ownership structure.
How the structure of commodity corporates could impact the sustainability of agricultural landscapes is of direct interest to the French Agricultural Research Centre for International Development (CIRAD), one of the CGIAR Research Program on Forests, Trees and Agroforestry’s (FTA) partner institutions.
This is because many activities linked to deforestation; forest management; the sustainability of palm oil, rubber and timber plantations; biomass and biofuel strategies are driven by the choices of international finance and mega corporations.
CIRAD’s activities concern the life sciences, social sciences and engineering sciences, applied to agriculture, the environment and territorial management. Its work centers on food security, climate change, natural resource management, the reduction of inequalities and poverty alleviation.
In particular, in Southeast Asian countries such as Malaysia and Indonesia, research by CIRAD and its public- and private-sector partners focuses on natural resource management, food security, biodiversity studies and the sustainability of tree crop-based systems, paying particular attention to island agro-ecosystems, which are particularly sensitive to climate change.
The paper’s coauthor Norfaryanti Kamaruddin, who also contributed to the recently launched book, previously completed a PhD that was partially supported by FTA.
An important debate on global trade and sustainability relates to the role that corporate governance has on the uptake of sustainability standards. The paper suggests that financial factors, such as ownership structure and flexibility in decision-making, may have a fundamental role in understanding the adoption of sustainable standard systems in the corporate sector. This is based on the analysis of four major Asian agribusiness transnationals comprising about 931 companies.
In addition, this paper explores as a way forward the convergence of environmental sustainability with long-term family business sustainability.
Research tools developed throughout the project proved extremely accurate for deciphering any kind of corporate financial structure. Such quantitative methods of ownership structure analysis, initially designed for the analysis of the forest and agriculture financial sectors, were successfully employed to independently confirm and illustrate previously published results from ET Gomez.
Roda and his team were able to demonstrate how a core of 26 corporations controlled the Malaysian corporate sector and to provide details on how that control spread throughout the financial network, leading to the chapter “Understanding the network typology of the seven government-linked investment companies (GLICs)”.
The book was launched by the Institute for Democracy and Economic Affairs (IDEAS) in August 2017. It covers all Malaysian financial sectors, with Chapter 4 focusing on the plantation sector and on quantitative methods used for comparison and validation.
Adapted from the article by Jean-Marc Roda, originally published by CIRAD.
This work is linked to the CGIAR Research Program on Forests, Trees and Agroforestry (FTA), which is supported by CGIAR Fund Donors.
Canal blocking is seen from above in Dompas, Riau. Photo by M. Edliadi/CIFOR
FTA COMMUNICATIONS TEAM
Fire and haze, a recurring problem in Indonesia, must be addressed not only within the country but also on a regional level, according to Centre for International Forestry Research (CIFOR) scientist Herry Purnomo.
The issue, which often sparks a debate of environmental conservation versus livelihoods, needs to be resolved by taking into account the economic, environmental and social aspects of sustainability.
Purnomo and other scientists working in the field hope relevant research, leading to outputs that create an academic narrative to inform policymakers, will create the possibility of legal changes. This, in turn, could help to alleviate the annual blazes.
Recognizing the problems at hand in terms of communication and synergy, CIFOR and partners are coordinating a National Policy Dialogue on Laws and Best Practices for Reducing Fire and Haze, in collaboration with the University of Riau, set to be held in Pekanbaru, Riau, on Aug. 30. The event will come close to home for many participants, as the province has seen more than its fair share of fire and haze events.
The dialogue aims to maximize opportunities provided by the Indonesian legal system at national and subnational levels to reduce fires and share lessons learned from best practices, and is expected to develop ways to strengthen laws to reduce fires and haze, communicate strategies from communities and companies, and support common action among ASEAN member countries.
Purnomo sat down with FTA to discuss the value of the national dialogue and what he hoped would be achieved between stakeholders.
How does research inform the debate about fire and haze in Indonesia?
The research has led to outputs that have created an academic narrative, which has led to the possibility of changes in the law. Last year we provided research inputs for this year’s legislation program through a legal drafting workshop and consultative meetings with various stakeholders including governments, parliament members, private sectors, NGOs/CSOs and academics. We then developed the national dialogue to communicate and also to scale up and scale out the project, not only in Riau.
Peat fires are seen as a means to quickly and cheaply clear land for plantations. But what about the economic and social consequences that result from the haze, which also cost money?
CIFOR is working to find the right balance between conservation and economic development. If we stopped burning altogether, it would be difficult for local people to have a livelihood. Local authorities also need to help find the appropriate balance. To me there’s no magic formula unless you can understand the situation in a particular area and move forward.
We can incentivize other ways of clearing the land and ‘disincentivize’ the burning. In the local law we have put that local governments need to invest, working together with the national agency for technology application, to find the cheapest technology for preparing land without burning.
There also needs to be a willingness from the community. It’s not cheap at all. You need to learn; you need new technology. Communities need champions.
Why is CIFOR holding the event in Riau?
When fire starts in Riau, it causes haze problems not only in Indonesia but also in Malaysia. Meanwhile, fires in South Sumatra can cause problems in Singapore. Fires typically start in Riau, then Sumatra, Kalimantan and Papua. Whatever happens becomes not only a domestic problem but a regional problem.
Why are laws to protect against expanding plantations on peatland not always well enforced in Indonesia?
Because of patronage. Who burns the land? On the ground you can see farmers. But who owns the land? Actually not those farmers. The land is owned or managed by what we call oknum or cukong, free riders and rent seekers in economic terms. Oknum want to obtain a lot of benefits without appropriate investment. Oknum can be investors, scientists, members of parliament, government officials, police, members of the army, corporate staff… They are linked with lawmakers, and linked with bad police. So it’s a bit complicated on the ground.
Corruption is often involved. But it’s getting better in Indonesia. We have been giving inputs to the law draft at the local level, to provide incentives, and provide more equipment for the police to better carry out law enforcement.
Currently it’s hard for the police to find evidence about who burns land, because to find it, they have to go to remote areas. I went there; I had to rent a 4WD car and it took four days just to reach the area. For example, if there is land burning in a national park, it’s difficult to get there.
You need to spend money if you want to understand the actors. But there is not much money available at the local level to prevent fire and haze. Can we give more support to the local police, to make it possible for them to find evidence? In court we need proof. Proof is important for laying blame.
What needs to be done to ensure that laws and regulations are upheld by the central governments, local administrations, smallholders, the private sector and other actors?
That’s something we included in our inputs to the local law drafts – that local governments have to provide support and money to the police, and also to improve the capacity of the judges. There’s a big difference between environmental charges and criminal charges.
We are working step by step. From the evidence on the ground, when we tried to develop canal blocking or improve farmer organizations, the districts said they didn’t have a budget for it. They said there was no legal umbrella, and asked why they had to put aside money for it.
So, we thought, why don’t we help make a legal basis for them to be able to provide money for this issue? That is the purpose behind the national dialogue.
What are some of the best practices that should be shared and implemented by these actors?
We have several examples of community-based restoration. In the private sector, Asia Pulp and Paper (APP) has a program and APRIL has the Fire-Free Villages program. So I invited them to share lessons and challenges.
Restoration in nine villages, for example, costs a lot through this type of program. A hundred villages would cost a lot more. The companies would like the government to help by taking responsibility for giving incentives for preparing land without burning. It’s good but we need to out-scale.
APP, for example, has 500 villages to deal with inside and around its concession. It’s impossible without involving public money and public investment.
What needs to be done regionally – across ASEAN – to address this issue?
A lot of high-level talks happen but there needs to be more done on the ground. I met with the second secretary of Singapore to discuss what Singapore could do to collaborate and invited them to the national dialogue. Government and private sector representatives from Malaysia and Singapore are expected to attend the national dialogue, as well as academics, and representatives from the ASEAN Secretariat. The Singapore, Thai and Malaysian embassies have been invited.
There is a vision, led by Thailand, for a “haze-free ASEAN by 2020.” It’s very ambitious. We also have a transboundary agreement on haze that has become law. But to me it seems like there is not much action on the ground. We want them to be more involved in the on-the-ground activities. If you have something on the ground, people will respect you. Why not have a district model – one or two hectares showing how fire prevention and livelihood improvement can work together?
It’s part of a huge debate between peat conservation and oil palm. Not only between government and private sectors, but actually among government representatives themselves – for example, with the minister of environment on the one hand and the minister of industry on the other hand. It’s about how to find synergy.
Incorporating 40 years of maps of Borneo (the world’s third largest island), the tool reveals both the forest remaining and what is being reshaped due to degradation and extraction industries. With the ability to search by oil palm or pulpwood concessions, and view the locations of intact peatland, as well as determine the speed with which forest is converted to plantation, the atlas offers the first significant opportunity to distinguish companies that are avoiding deforestation to a large degree.
CIFOR scientist David Gaveau, who developed the atlas, said, “The tool is an open platform for researchers, advocacy groups, journalists and anyone interested in deforestation, wildlife habitats and corporate actions.”
The data provided by the atlas is free to download, and informs whether a particular oil palm concession is certified by the Roundtable on Sustainable Palm Oil (RSPO)- the organization that implements a global standard for sustainability in the palm oil industry.
In addition to providing data on deforestation and land use for individual land concessions, the tool allows users to search by company, as companies often own multiple concessions.
One can also filter information by country, province and peat area remaining, which allows users to get the big picture of corporate land use on the island shared by Malaysia, Indonesia and Brunei.
Map developer Mohammad Agus Salim said of the feature, “Large companies with sustainability commitments, such as zero deforestation pledges, may not have complete information at their disposal about their individual concessions. The baseline deforestation we present in this atlas allows them to track those pledges.”
In Indonesia, for example, where oil palm covers approximately 10.5 million hectares of land, companies have vowed to halt deforestation and the draining of peat swamps, thereby certifying their products as not having contributed to the destruction of forests or increased greenhouse gas emissions.
Gaveau said, “We hope with the transparency enabled by the tool, we can assist companies to work toward sustainability standards like RSPO, or its Indonesian and Malaysian equivalents.”
Beyond the transparency of attributions to direct deforestation, there are plans for the tool to reveal additional cogs in the supply chain wheel.
“We plan to add the location of mills and refineries where palm oil bunches are brought from plantations to be processed,” Salim said, thereby allowing one to track the relationship between mills and concessions. “Our aim is to trace palm oil and pulpwood from production to consumption.”
But the tool’s collation of Landsat-based maps, which offer striking visibility, also present a larger story of deforestation and its processes.
According to Matt Hansen of the University of Maryland, an expert in the use of satellites to monitor deforestation, “At 30 meters we see more of the change and the human footprint. We can get a clear picture of our appropriation of natural environments.”
Allowing one to see how humans have reshaped Borneo is essential amid competing demands for cheap oil and conserved forest.
Hosting about eight million hectares of industrial oil palm plantations – about half of the estimated global planted area of 18 million hectares – Borneo is the world’s second-largest center of palm oil production. Indonesia and Malaysia are the world’s number one and two producers of palm oil, together amounting to 85 percent of global production.
But Salim notes that the map shows more that just the impacts of plantations. Zooming into a section splashed with blue amid the green of intact forest, he pointed out two hydro-power dams that have caused serious forest loss in Malaysian Borneo.
The long timespan allows for in-depth analysis, including the monitoring of the draining of peatlands, and there are plans to include the ownership history of concessions, as land titles have significantly changed hands over the years.
“Not all the deforestation in a concession is due to companies. The time delay analysis information enables certain attribution, and for us to ask whether deforestation is caused by a company or not, and when,” said Gaveau.
Looking at landscapes
And while the intricacies of land rights and boundaries remain discussed and debated, this tool created from satellites orbiting far overhead allow users to see the ground-level issues.
At the Global Landscapes Forum, where he participated in the launch of the atlas, Hansen said, “Even with satellites, you don’t look at a single pixel – that would make no sense. You wouldn’t even look at a forest patch. You need to back up. It only makes sense when you look at it on a landscape scale.”
And it is the landscape scale that reflects the map’s usefulness across sectors, terrain and time.
“At the landscape scale, all these parties are interested, so you have a nice multi-stakeholder framework. It makes a lot of sense,” Hansen said.
With plans to expand to Sumatra, Papua and peninsular Malaysia, the tracking of land use and land-use change over the decades will incorporate even more stakeholders, so that the sound of trees falling doesn’t fall on deaf ears.
The idea of creating multiple agricultural alternatives for farmers within oil-palm landscapes has attracted interest from large industry players at a conference in Malaysia, the world’s second-biggest producing nation.
Oil palm (Elaeis guineensis) is one of the most controversial agricultural commodities of our time. To its supporters, it is the ‘golden crop’ that grows smallholders out of poverty and which offers salvation to the global food and energy crisis. For its critics, it is the single biggest driver of the destruction of peatlands and rainforests that accelerates greenhouse-gas emissions, posing a fundamental threat to existence as we know it.
‘Mainly because of consumer concerns, but also because of the realisation that resources are not infinite’, said Faisal Mohd Noor, speaking at the International Palm Oil Congress and Exhibition in Kuala Lumpur in October 2015, ‘the industry is changing’.
Noor, an oil-palm researcher working with the oil-palm sentinel landscape theme of the CGIAR Research Program on Forests, Trees and Agroforestry, met with a warm reception from industry leaders to his research team’s proposal for ‘livelihoods insetting’, which simultaneously addresses consumer concerns about oil-palm sustainability and industry concerns about productivity. ‘Insetting’ involves embedding sustainable activities directly into a business’s supply chain and leads to the build-up of human capital in the communities involved.
Photo: World Agroforestry Centre
A working example of insetting is the African-orphan-crops consortium funded by Mars Inc. Bruno Roche, Mars’ chief economist and Catalyst program managing director, has claimed success for insetting, stating that, ‘We know that investing in the human capital of communities in our sourcing landscapes leads to a higher productivity and profit for us’.
In response to Noor’s presentation, head of certification for the Roundtable on Sustainable Palm Oil (RSPO), Jan van Driel, asked what RSPO could do to help and how it could participate; Faris Adli Shukery, head of marketing with Sime Darby Foods and Beverages, said that the oil-palm industry has been the driving force behind the development of the rural people of Malaysia and Indonesia and livelihood insetting is an interesting concept that would make the contribution of the industry more visible to consumers of palm-oil products.
Speaking on the sidelines after Noor’s presentation, Genting Plantations’ Chew Jit Seng, vice-president for sustainability, stated that insetting was a good idea to pursue, as did International Sustainability and Carbon Certification’s managing director Norbert Schmitz, while the Malaysian Palm Oil Council’s chief executive Dato’ Dr Makhdzir Mardan said it was something to be encouraged with his full support.
‘Insetting isn’t a new idea but is usually only used in the context of mitigating environmental impacts, such as land degradation, biodiversity and climate change. What is new is that we are asking the industry to work together with other partners to set up market structures and functional value chains for other agricultural and forest products’, explained Noor. ‘Put simply, insetting would see the oil-palm industry investing in building alternative agricultural livelihoods’ options for farmers in oil-palm landscapes’.
Research by the World Agroforestry Centre and others has shown that farmers with diverse livelihoods are more resilient towards fluctuating global prices as well as climate shocks. But as well as better serving the smallholding producers of oil palm, insetting also promises to support the main aim of the oil-palm industry.
‘It’s important to note that insetting isn’t simply a different packaging of corporate social responsibility’, continued Noor. ‘It’s actually directly linked to the industry’s core business: increasing productivity. Farmers who are happier and better off are more likely to produce high palm-oil yields than farmers who eke out a marginal existence’.
Diverse agroforestry systems have been proven to broadly improve farmers’ livelihoods unlike monocultural crops that put farmers at the mercy of market and climate fluctuations.
‘The presentation was just an introduction of the concept to industry,’ explained Noor. ‘However, the message is clear that the palm-oil industry must change its strategy. With forward thinking, such as widespread adoption of insetting, the industry can stop being in defensive mode and prove it is really serious about sustainability.
‘But to do that, the industry has to change itself. One of the biggest challenges is how most people in the industry think about agriculture. The concept of mixed crops, or integrated farming, seems to have almost vanished from the mindset of the agriculturalists I spoke with at the conference. So it is critically important to get the industry leaders interested in diversification, produce research that will guide implementation and help them promote it widely amongst all players’.
The situation is critical for governments not only because of the falling revenues from the palm-oil industry but also for the security of incomes and food supply for citizens. Oil palm is not a very suitable crop for smallholders because it requires high upfront investment, is difficult to manage—especially for older people—and needs intensive input to produce high yields. Countries with higher incomes and ageing agricultural workforces, such as Malaysia, are experiencing a critical labour shortage. Malaysia has a high dependency (> 70%) on migrant workers, mainly from Indonesia. Now that Indonesia has become the main palm-oil producer and is offering the same wage levels, most migrant workers have returned to their home country. Addressing the problem through mechanization is not looking plausible owing to only poor-quality machinery being available.
At the same time, for most Indonesian and Malaysian farmers, oil palm has become the only possible use for their land, because there are no, or weak, market structures for other agricultural products.