Why is IFC investing in the palm oil sector?

IFC believes that investing in the palm oil sector is an effective way of promoting private sector development.

Oil palm can be readily cultivated in many developing countries and is highly efficient in producing a valued commodity with a variety of uses. Palm oil production can be the basis of a thriving local economy, producing jobs and other benefits for local people.

Global palm oil production and demand are forecast to reach record levels. This steep increase means a significant boost to the economy of local communities supporting its production, and of all other players directly or indirectly involved in the supply chain. The industry supports thousands of people, and women make up for nearly half the number of people working on plantations.

In addition, because IFC applies environmental and social standards to the projects it invests in, IFC feels that its participation in the palm oil sector has the potential to help increase sustainability in that sector.


Why support a sector that is known to pose social and environmental management challenges?

IFC recognizes that the palm oil industry poses a number of social and environmental challenges. These include the impact of palm oil production on local communities, forests, wildlife habitat, and endangered species.

IFC believes that these challenges can be managed within IFC’s sustainability framework, which provides guidelines on how to address and resolve issues related to community engagement, as well as protection of biodiversity and wildlife.

IFC’s environmental and social Performance Standards lay out specific requirements for clients companies. IFC reviews all of its investments to ensure they are consistent with these standards, and does not finance new business activities that cannot be expected to meet them over a reasonable period of time.

The quality and management capabilities of the client are very important to IFC’s decision to invest. IFC develops financial relationships with companies that fully commit to meeting their social and environmental responsibilities, that are willing to work closely with IFC to integrate and respect IFC’s standards all throughout the life of the project and beyond, and that understand the long-term benefits of managing their social and environmental risks and impacts.


When IFC invests in palm oil production, how does it ensure that the client conducts its palm oil production operations in a sustainable way?

When a project is proposed for financing, IFC conducts a social and environmental review of the project as part of its overall due diligence. Palm oil production projects are always reviewed carefully to determine their level of environmental and social impacts. If significant potential social and environmental impacts are identified, IFC works with the client to determine remediation measures, and helps the client build its capacity to manage these impacts.

IFC is a member of the Roundtable on Sustainable Palm Oil (RSPO), which is currently working on establishing sustainable practices in the sector. The RSPO is a multi-stakeholder association which includes palm oil producers, users and civil society groups.

In November 2007, the Roundtable launched a certification process to validate and certify claims by palm oil companies of compliance with RSPO principles and criteria. Certifications under this system are expected to start in the first quarter of 2008. These will allow certified palm oil companies to market their palm oil products as “sustainable”. IFC has shown strong support for this unprecedented initiative.


When IFC invests in oil palm plantations, how does it ensure the protection of forests, of wildlife habitat and endangered species that could potentially be affected?

IFC understands the environmental challenges associated with oil palm plantations. As part of its policy on environmental sustainability, IFC is firmly committed to protecting and conserving biodiversity.

When an oil palm plantation project is believed to have potential adverse effects on forests, wildlife habitat or endangered species, IFC requires the company to establish and maintain an effective system to manage those potential impacts. Concretely, this means having a plan in place to avoid illegal or unsustainable deforestation, to refrain from using fire to clear land, to respect national and international laws protecting biodiversity, and to take all necessary measures to avoid further threats to endangered species, such as the orangutan, and their habitat.

IFC requires that the company manages the environmental impacts of its oil palm plantation throughout the life of the project. The conditions imposed by IFC will be proportionate to the level of vulnerability and conservation value of the biodiversity potentially affected.


When IFC invests in oil palm plantations, how does it ensure there is local community support for a client’s plantation, and that Indigenous Peoples’ rights are protected?

IFC understands that the support and involvement of communities affected by an IFC-funded project is key to its sustainability and success.

IFC requires its clients to engage in an on-going process of effective consultation with affected communities and disclosure of relevant information. The consultation process must allow affected communities to express their views on the project’s risks, impacts and mitigative measures.

IFC recognizes that Indigenous Peoples are social groups with identities that are distinct from the dominant groups in national societies, and that these peoples can be among the most marginalized and vulnerable segments of the population.

If Indigenous Peoples are affected by a project, IFC requires the company to take all measures to guarantee their engagement in the project, to respect and preserve their culture and way of life, to allow them to continue to have access to the resources on which they depend, and to allow them to continue to flourish freely as a community.


How does IFC deal with alleged or demonstrated violations of the performance standards by a client?

After IFC financing is committed, IFC monitors its investments as part of its portfolio supervision. This supervision involves the review of monitoring reports prepared by the client, independent audits, and supervision visits by IFC.

If any non-compliance is identified, IFC works with the client to bring them back into compliance. If this fails, IFC can exercise other remedies, such as withdrawing from the project.

Accountability is highly important to IFC. Individuals and communities adversely affected by an IFC-funded project have the opportunity to address their concerns and grievances to the Compliance Advisor/Ombudsman (CAO) office, an oversight authority independent from IFC which reports directly to the President of the World Bank Group.


What is IFC’s stance on the expansion of oil palm cultivation in East Asia?

IFC supports the sustainable and socially responsible development of the palm oil industry in East Asia. IFC believes that the expansion of oil palm cultivation can be done sustainably and responsibly as long as it follows strict guidelines.

IFC expects the Roundtable on Sustainable Palm Oil (RSPO) to lead in implementing guidelines for sustainable and responsible palm oil production across the industry. These will include strict criteria for the sustainable and responsible expansion of oil palm cultivation.