Regional elections in Indonesia have increased the ethical risks for businesses sourcing palm oil from the country.
A briefing paper by Verisk Maplecroft senior analysts Ryan Aherin and Hugo Brennan warned the recent polls could exacerbate existing ethical, social and corporate governance risk, as they create an opportunity for corruption.
Local politicians have a huge amount of power in allocating which companies receive commercial licenses or permits to grow palm oil. The polls last month saw the election of 17 provincial governors, 39 mayors and 115 district heads, all of which could have “a real impact... on the future development of the palm oil industry over the coming months and years”, the paper said.
However, the report said the “astronomical cost” of getting elected creates opportunities for businesses to corrupt candidates by financially supporting campaigns in exchange for licenses or permits.
It added that weak central authorities leave the onus on businesses to ensure any palm oil from the country is sourced ethically.
Illegally issued licenses are a problem because they often grab land from smallholders and indigenous farmers or encroach on protected forests or peatland, leading to the destruction of the environment through slash and burn farming techniques. Farms built with illegal licenses are also less likely to comply with other responsibility requirements or pay the correct taxes.
The paper said: “A lack of political will, legal powers and resources means that the central authorities are ill-equipped to crack down on the worst excesses within the palm oil industry, including land grabs, labour rights violations and widespread environmental degradation.
“This stark reality shifts the onus onto responsible companies to ensure that the Indonesian palm oil in their supply chains is [ethically] sourced.”
The paper highlighted a number of particularly high-risk areas that are worth monitoring, including the biodiverse South Aceh district in the Leuser Ecosystem rainforest and the Seruyan district in Central Kalimantan, which has a reputation for corruption.
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