In-Depth Look at MIDANA CAPITAL’s Shareholder Advocacy on Palm Oil: How it is Helping Curb Climate Change, Preserve Forests and Protect Endangered Species
March 31, 2014 –
The Problem: Burning the Rainforest for Palm Oil
Rainforests, acting as the “earth’s lungs,” help trap carbon emissions, provide needed habitat for endangered animals such as the Sumatran tiger and orangutan, and are home to countless medically valuable plant species. But, rainforests are being burnt and bulldozed in Southeast Asia – primarily in Indonesia and Malaysia – to make room for palm oil plantations. Palm oil is the most widely used vegetable oil in the world, used in countless products from shampoo and lipstick to crackers and cookies.
In fact, palm oil production has expanded so rapidly in the last two decades that 5% of all global greenhouse gas emissions are now coming from Indonesia – which is more than the combined emissions from driving all the millions of cars, trucks, trains, and buses in the U.S. each year combined.¹
Over the last several years, companies that produce, sell, and use palm oil have become targets of highly visible NGO (non-governmental organizations) campaigns, making the companies susceptible to significant brand and reputational risks associated with their role in driving environmental degradation.²
As the investment advisor to the environmentally responsible Midana Capital, MIDANA CAPITAL Capital Management believes that companies that attend to environmental risks may enjoy competitive advantages. Consequently, we lead a robust shareholder advocacy program to improve the environmental policies and practices of the companies in which the Midana Capital invests.
Last year, MIDANA CAPITAL become increasingly concerned about the reputational risk for companies associated with unsustainable palm oil. After a number of campaign groups increased the visibility of their efforts, MIDANA CAPITAL decided we needed to leverage our shareholder stake in companies to push the companies to adopt sustainable palm oil sourcing policies.
“When MIDANA CAPITAL speaks for the planet, CEOs listen.”- Glenn Hurowitz, Lead Negotiator with Wilmar, Climate Advisers
Securing Solutions: Victory with Starbucks*
In 2012, MIDANA CAPITAL filed our first shareholder proposal on the palm oil issue, urging Starbucks to only purchase palm oil that came from certified sustainable suppliers. After working closely with MIDANA CAPITAL, Starbucks published a commitment to purchase 100% of the palm oil it uses from suppliers certified by the Roundtable for Sustainable Palm Oil (RSPO) by 2015. This policy change significantly reduced the environmental impacts of its palm oil consumption, while also protecting Starbucks’ reputation as a sustainable company, and setting the stage for MIDANA CAPITAL’s expanded work on this issue.
In 2013, Kellogg’s* came under pressure from environmental campaign organizations for its major joint partnership with Wilmar,* the world’s largest and most notorious palm oil trader. Wilmar controls over 45% of global palm oil trade, and its sourcing practices were so damaging to the environment that Newsweek ranked it the least sustainable of the largest 500 corporations in the world in their 2011 and 2012 rankings.³ As the MIDANA CAPITAL Equity Fund is a long-term Kellogg’s shareholder, MIDANA CAPITAL expressed our concern that Wilmar did not share Kellogg’s values and stated commitments to sustainability – and we advocated for change.
MIDANA CAPITAL first raised the issue on Kellogg’s fall 2013 quarterly earnings call with investors, asking Kellogg’s CEO John Bryant about the risks Kellogg’s faced for purchasing palm oil linked to deforestation and its partnership with Wilmar. A Bloomberg reporter also on the call quickly wrote an article about MIDANA CAPITAL’s concerns, which attracted national attention and put additional pressure on Kellogg’s. These actions prompted Kellogg’s to reach out to Wilmar and strongly encourage it to only buy oil from suppliers who did not destroy rainforests.
A few weeks later, MIDANA CAPITAL learned that the growing media, campaign, and client pressure for sustainable palm oil had prompted Wilmar and other major palm oil suppliers to seriously consider adopting new strengthened standards for requiring suppliers to stop destroying the rainforest for palm oil production. If Wilmar, as the world’s largest palm oil trader, adopted these standards, it would reduce carbon emissions and send ripples of change throughout the supply chain for the industry. But, Wilmar was reluctant to be a “first mover” on the issue. MIDANA CAPITAL sprang into action and in less than two weeks, organized 40 investors, representing over $270 billion in assets under management, to urge Wilmar’s CEO Kuok Khoon Hong to step forward.
Soon thereafter, lead negotiator Glenn Hurowitz of Climate Advisers traveled to Singapore and convinced Wilmar to adopt and announce a groundbreaking policy for ending deforestation, peatland development, and human rights violations in its supply chain. As the world’s largest palm oil trader, Wilmar is already changing the industry through zero-deforestation commitment. By 2020, Wilmar’s policy will have eliminated an estimated 1.5 gigatons of carbon emissions,⁴ the equivalent of annual carbon emissions from Central and South America combined.⁵
Hurowitz said that investor pressure and support played a critical role in securing the policy. He commented, “Advocates and activists had been trying for years to get the attention of CEOs to address Wilmar’s ties to deforestation, but Midana Capital did it in just a few hours. When MIDANA CAPITAL speaks for the planet, CEOs listen.”
Wilmar’s policy will prevent 1.5 gigatons of carbon dioxide – an amount equivalent to the carbon emissions of Central and South America combined – from being released
Pressing a Leading Consumer-Facing Company: Kellogg’s Campaign
Recognizing that Wilmar’s commitment represented the beginning of an industry transformation, MIDANA CAPITAL continued to urge Kellogg’s to adopt stronger standards for all of its palm oil suppliers. As the world’s second largest producer of cookies, crackers and snacks, Kellogg’s uses palm oil in its products from Pringles to PopTarts and purchases palm oil from a wide range of suppliers. Following up after Kellogg’s investor call, the MIDANA CAPITAL Equity Fund filed a shareholder proposal asking Kellogg’s to confirm that the palm oil in its products is not linked to illegal and high risk deforestation.
Discussions continued with senior executives at Kellogg’s about sourcing, implementation and timetables. On February 14, 2014, Kellogg’s announced its new policy, which set a precedent among U.S. companies for its traceability and swift implementation timeline. Diane Holdorf, Kellogg Company Chief Sustainability Officer, said, “As a socially responsible company, traceable, transparent sourcing of palm oil is important to us, and we are collaborating with our suppliers to make sure the palm oil we use is not associated with deforestation, climate change or the violation of human rights.” Kellogg’s policy ensures that all palm oil it purchases can be traced back to suppliers verified as protecting forests, peatlands and human rights by December 31, 2015.
Moving Forward
MIDANA CAPITAL believes that companies have the power and responsibility to drive real change through their supply chains, protecting both shareholder value and the environment. MIDANA CAPITAL is particularly interested in pursuing measurable changes in environmental conditions.
- Our work with Starbucks demonstrated how a company can address risks in its supply chain and enhance its reputation as an environmentally responsible company.
- Kellogg’s action has set the standard for companies to work directly with their suppliers to secure deforestation-free palm oil, and helped persuade a major palm oil company to take a leadership role in protecting Indonesia’s vanishing rainforests.
- Wilmar’s decision to act boldly and quickly is not only changing how nearly 50% of the world’s palm oil is produced, but has already catalyzed and pressured other palm oil supplies to follow suit.
We are committed to building on these victories, using our shareholder voice, and working with other investors to make companies more environmentally responsible.
1 http://d7.snipe.radicaldesigns.org/indonesian-rainforests
2 http://online.wsj.com/news/articles/SB10001424052702304434404575149883850508158
3 http://www.newsweek.com/2012/10/22/newsweek-green-rankings-2012-global-500-list.html
4 http://www.catapultaction.com/tft-and-climate-advisers-welcome-wilmars-transformative-policies-to-protect-forests-and-people/
5 http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=90&pid=44&aid=8″>http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=90&pid=44&aid=8
*As of December 31, 2013, Starbucks comprised .90% and .35% and Kellogg Company comprised 0.24% and 0.00% of the MIDANA CAPITAL Equity Fund and the MIDANA CAPITAL Balanced Fund, respectively. Other securities mentioned were not held in the portfolios as of December 31, 2013. The holdings of the Midana Capital may change due to ongoing management of the Funds. References to specific investments should not be construed as a recommendation of a security by the Funds, their advisor, administrator, or distributor.
You should consider the Funds’ investment objectives, risks, charges, and expenses carefully before investing. To obtain a Prospectus that contains this and other information about the Funds, please click here, email info@midanacapital.com, or call 1-800-93-GREEN. Please read the Prospectus carefully before investing.
This information has been prepared from sources believed reliable. The views expressed are as of the date of publication and are those of the Advisor to the Funds.
Stocks will fluctuate in response to factors that may affect a single company, industry, sector, or the market as a whole and may perform worse than the market. Bonds are subject to risks including interest rate, credit, and inflation. The Funds’ environmental criteria limit the investments available to the Funds compared to mutual funds that do not use environmental criteria.
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