Episode 12 - Roll for Credits: Understanding RSPO Independent Smallholder Credits with WWF and Nestlé

You are now listening to the Palm Pod brought to you by RSPO, a global partnership to make Palm Oil sustainable. Hi, I'm Farah Rom and you're turning into the Palm Pod where we host engaging discussions, expert insights and industry updates on sustainable palm oil guiding consumers and businesses to make better choices for the planet. Did you know that there are about 7 million small holders around the world that rely either fully or partially on palm oil cultivation for their livelihoods? These small holders are typically divided into two groups, which is Skim small holders who are generally connected to mills through formal agreements and they receive support. And also the other type would be independent small holders or ISH for short who run their farms on their own and make independent decisions about how and where to sell their crops. So while both groups can get certified by the round table on sustainable palm oil or RSPO, the road to certification is a lot more challenging for independent small holders. It can take anywhere from 3-5 years just to get certified. And that's why RSPO has created specific tools to support them including one called RSPO Independence Smallholder Credit or RSPO ISH Credits. The topic for today is on small holders and RSPO ISH Credits and these credits offer a market-based incentive for sustainable practices and over time, they've been shown to improve productivity and yields too. So while ISH Credits aren't the only way to support small holders, they've proven to be an effective and impactful mechanism so far. But like many sustainability tools, their value and challenges can look different depending on where you stand in the supply chain. So that's why in this episode, we are joined by two guest speakers, each representing a different part of the palm oil supply chain, bringing unique perspectives to help us unpack what RSPO independent smallholder credits are and how they're driving real support for smallholders on their path to sustainability. So in the first segment, we will touch on ISH Credits support smallholder sustainability journey and I would like to welcome Kamal Seth, the global palm oil director from Worldwide Plan for Nature or better known SWF. Welcome to the palm pod Kamal. Thanks for our glad to be here and happy to be a part of this very important discussion. Can you briefly share with audience your role in WWF? Sure. We play a multi faceted role in supporting independent smallholder farmers to benefit from the RSPO independent smallholder standard and of course the credit mechanism that we have. I can outline a few ways on how WWF contributes to this important priority of the network. So in terms of capacity building and training, we do a lot of work on developing and sharing best case practices for palm oil cultivation with the smallholders supporting them with the legal land registration process, training materials and so on and so forth. We also work a lot with them in terms of creating a market for the buyers who would be, who are appreciative of the hard work done by the farmers to produce the fresh wood bunches sustainably. So we also look at market access and the economic incentives that come from the ISH Credits market. So we're talking about almost like a buyer's coalition or buyers downstream of the palm oil who are happy to buy the ISH Credits because this serial impact on the ground by supporting smallholders to get certified and then stay certified. We also work a lot with the independent smallholder cooperatives around the world to work on continuous monitoring and improvement plans so that everyone is learning from each other. So if you're working with X number of cooperatives in Indonesia, we make sure that they also come together and visit each other in terms of knowledge sharing and otherwise. And to do all of that, we of course have dedicated sustainable palm oil teams in our target countries like Malaysia and Indonesia, who make sure that on a day-to-day basis through our field offices they're fully involved and very hands-on at the ground level. So yeah, that's just a few ways on how we work with the standard as well as the credits to work with the farmers. From your experience in the field of sustainable palm oil and also your work with smallholders, so ISH Bureau has created this support tool which is the ISH Credits. In your perspective, do you see it as a transitional tool or would you say it as a long-term solution for smallholders? And why? That's a very good question and I would answer that in a way that it depends on the landscape, the geography and the location we're talking about whereas in some places, it might be easier for smallholders to find a certified mill in the local vicinity. And therefore they are able to sell their certified threshold bunches to a autospio-certified mill but that's not the case in many, many places and therefore whether the credit mechanism is transitional or long-term is a question of how many certified mills are available, where the smallholders are and their farms are. And if the answer to that question is yes, it's very easy to get mills are a certified and therefore the ability to buy the certified FFBs, then it is a transitional mechanism that in the short term you might want to still use the credits mechanism till the mills are up and running and they are certified and they're happy to pay the premiums to the farmers whereas there are cases in which despite the best efforts, it's not possible for those smallholders to travel a long distance and to supply certified FFBs to a certified mill. In that case, it's much more practical that they're able to find a buyer who recognize the additional efforts that goes into producing and selling certified FFBs. So while they might sell their FFBs to a conventional mill which might not be certified, they would then receive a premium in the form of five-stage credits from a buyer anywhere in the world. Just to clarify for the audience, FFB means fresh fruit bunches, so that's the produce that we get from the oil pump. Okay, so I think you've mentioned several challenges that smallholder face in terms of certified and I think I want to look at your experience in working in this sector, working with smallholders who have gone through the RSV certification process and also benefit from the RSV RCH credits, so can you share a little bit about real life examples that you've seen where RSV credits have contributed to improved livelihoods and maybe empowerment among the smallholder communities and if possible, can you share the ones that you encountered personally in your world? Absolutely, and there are lots of stories but in the interest of time, I would focus on the ones that we have seen make the maximum impact of a work in Malaysia and Indonesia. So let me start with a larger figure in terms of what is the impact of the smallholder standard and the credits. So, since 2017, more than 850,000 independent smallholder credits have been sold in the global market generating about 21 million US dollars of income for the smallholder. So that's the scale we are talking about in the last eight to ten years. Now within that, where WWF comes in is that we have worked with very dedicated groups of smallholders and helped them form cooperatives. So I'll just name a few from Indonesia, Mitra Bersama is one of the cooperatives based in West Kalimantan and they are supported by WWF Indonesia as well as corporate partners like Bias Taf and Ivanik from Germany. And the aim here is to get the first few hundred smallholder certified and in terms of the benefits, they obviously you would imagine that as you explain at the beginning, it's not a very easy process for smallholders to get our certified and the first click takes anywhere between three to five years. So what we are trying to do here is to ease the path or the load the barrier of intrigue by working on the management side of things to making sure that all the documentation is in place that they are getting ready for certification. Once they are just stirred on our sphere platform, then the work is mainly to connect them with the buyers who appreciate the efforts that they have taken to get certified. And that's the impact that we are creating. So it creates a stable income for those communities for that cooperative. And the reason in this case, Mitra Bersama got certified is because they got inspired by another cooperative, Rainbow Harapun, which is in the Sintang this. Yeah, so one of the reason the cooperative is talking about Mitra Bersama got even interested in getting our sphere certified was because they got inspired by another cooperative called Rainbow Harapun, we are supporting in Sintang. And they saw the benefits that that community had in terms of their livelihoods, stability of the income, being recognized for the additional efforts they are putting in to stay certified and which helps them obviously in terms of, you know, their local communities or in terms of schools, hospitals, lots of things that a cooperative like them could do. So I think that just a few examples from Indonesia, in terms of Malaysia, we also have a combination of work that happens with smallholders, but also medium sized growers. So we have created a few cooperatives there in Saba, for example, with the first few hundred smallholders who have got certified in which we are looking at working with them to find the buyers. And one of them is Unilever in which they recognize the efforts put by the smallholders from Saba and is a consistent purchase of credits that happens in the market. So we want to inspire a lot more companies, a few I have mentioned, to make sure that they recognize that it might not always be possible to source physically, certified, sustainable partners of device because the logistics might not be there and lots of other factors are there. So in that case, they should consider like the companies I mentioned on buying ISH credits because it directly incentivizes the smallholder cooperatives and improves their livelihood. I think you mentioned a few interesting points where you were saying that the smallholder groups were inspired by other smallholder groups that did pretty well in cultivating Sasingal Palm Oil. I think it's really inspiring. Also, there's one trip that I went to for a jump in Jambi where I see actually they were sharing with us like what do they use the premium from the credits for and it's for woman empowerment for the shoulders education and also for conservation activities in Vietnam. So I think it's a really great look from what I've also personally observed. When you were saying there's maybe some challenges for people to source a physical, sustainable palm oil. Do you think there are risk of greenwashing when companies opt for RSPO ISH credits instead of sourcing Sasingal Palm Oil physically and if so, how can this risk be managed? That's a very good point and I must say on the previous point that one of the best ways for NGOs like us to support this is a word of mouth marketing and that's what you're talking about, right? So companies should talk to each other so that we don't have to spend a huge digital marketing campaign to talk about this, right? And obviously thanks to the RSPO Secretary for organizing this podcast series. So I think the point is the good work has to be shared. We need more companies in the market and the same time we need more cooperatives who are inspired to get certified. Now on the point of greenwashing definitely that risk exists because people who don't understand the complex supply chain of palm oil might get the impression that an NGO or a company is trying to promote something to offset a damage being done on the other side. So I just want to clarify that while there is a certain risk that risk is only for companies who are not transparently publicly talking about why they are doing it, why they are buying independence monologue credits, how are they buying it, where is the money going to, who's the receiver of the money, who's the beneficiary eventually. So I would say that this risk of greenwashing primarily exists with companies which are not talking enough about it publicly. And in which case they should become more transparent, put it in the sustainability report, put it in the reporting to stock exchanges, go to your investors and talk about it, make it part of your strategic communications campaigns. So if all those things are done in a way, transparent manner, use videos, articles, blogs, different comms from ads, then the world knows the rationale as to why the company is buying a combination of certified sustainable physical palm oil and then independence monologue credits. But it should be a combination. I don't think this is a case in which a company could say I buy zero tons of physical certified material and it's 100% is such credits. So my advice would be anyone looking at this or hearing this should consider a combination approach in which case, only a x percentage should be is such credits because in almost no geography, it's like you can buy zero tons of certified sustainable palm oil. And so it should be done in a combination that avoids the risk of greenwashing as well. I see. I think we've reached the end of this segment from the challenges that you mentioned earlier. And from your experience, what would an ideal support system for small does look like in your opinion? And where do RSBLI such credits fit into that vision? Sure. I can outline a few ideal support systems that we have seen in real life that work at the down level. So one is capacity building and technical assistance where they said the training on good agriculture practices, access to agronomic advice, digital tools for farm monitoring and a cardkeeping can all be done by supporting partners like WWF because to expect small holders and the cooperatives to do that, I think is asking for too much. And that's where it becomes a collaboration. The second is on financial inclusion. So making sure that there is affordable credit and insurance schemes, which are tailored to small holders, making sure that there are subsidies or grants for certification cost and infrastructure because that's not something you would expect a cooperative to identify a huge grant that we could apply for. So that's another part of this discussion as well. The third is on market access and fair trade. So creating direct linkages to mills and bias is a very important role that we see. Group formation of the cooperatives, making sure there are legal entities that can sell the credits in the market, recognizing them through certification, of course, making sure that places like the RSBLI and our conference at RTV are recognizing the small holders who are working with NGOs like. And then the last couple of them are more on the legal and land-in-your support. So sometimes there's a struggle and documentation. So then we work with the local authorities who have those requirements for documentation requirements to be met. And then there is the social empowerment side of thing in which you're looking at gender-inclusive programs, including women in the supply chain and at the farm level as well as beyond. Looking at youth engagement as well and making sure that there are enough young people who are continuing the good work being done for sustainable production practices. And to the last, which is not the least, of course, is the environmental safeguard. So making sure that we are training the small holders and the cooperatives on zero burning practices by diversity conservation and having a healthy buffer zone. So if all of that is done, we could expect a future in which there is enough support for even reforestation and agroforestry initiatives. And that's the ambition that we have as WWF, that if small and low cooperatives are doing RSBLI production and getting the benefits from our credits, we should now think next and look at even reforestation and agroforestry initiatives so they have additional source of income coming in as well. I believe that sums up the support that we can do for small holders. Pretty comprehensively. Thank you so much, Kamal. And we have explored how I sage credits empower small holders on accessibility journey by providing financial incentive, recognizing their efforts, bridging market access gaps. And it also allows them to link with other small holders and also learn from what are the success stories, right? And Kamal also highlights about the opportunities and challenges small holders face and shares real life impacts from the ground and reflects how RSBLI sage credits can be a stepping stone with a long-term sustainable practices and improved livelihoods. Thank you so much, Kamal, for gracing the palm pod. I really appreciate your perspective and we hope that WWF can continue the great work that you're doing for small holders. Thank you so much for our RSBLI inviting us to be a part of this discussion and happy to scale up our work and hopefully this will create more awareness to whoever is listening to provide more ways to support small holders around the world. Amazing. Come back and move on to the next segment on business shortly after this break. So now we're shifting gears to explore the business case for RSBLI sage credits from a buyer's perspective and why they matter to companies and how they fit into the broader strategy of sourcing sustainable palm oil. So to help us unpack this segment, we're joined by Nadine's tour Global Responsible Sourcing Lead for Palm Oil from Nestle. Welcome Nadine. Hello, thank you very much for having me. Okay, so of course as usual, we want to know you and your role in Nestle. Can you share a little bit about yourself? Sure. So yeah, I'm Nadine's tourer, I'm the responsible for single tour palm oil at a global level. So essentially that means that my role is about making sure that the palm oil that we buy for all the factories that we have at a global level at Nestle is producing a way that respects people and protects the environment. So essentially I work very closely with our procurement team on their procurement strategy linked to palm oil, but also a lot with our suppliers and external partners and NGOs on a variety of topics such as environmental in terms of traceability and assuring that there's no deforestation, but also on human rights topic and human rights due diligence. And so it's great to be here today with you to talk about independent smallholder credits, which of course also make up a part of our strategy for palm oil. Just to share with the audience, why we have Nadine representing Nestle today is because Nestle is one of the biggest companies that continues to support smallholders, to the purchase of RSPU-ISH credit when procuring sustainable palm oil. So let's get into it. So Nadine, what are the key drivers behind Nestle's decision to support independent smallholder through the purchase of credits? And can you share a bit of the timeline when does it start and also what inspired the decision? Was it compliance per se or is it CSR or is it just a good business decision? So as I was saying, independent smallholder credits make up a big part of the responsible sourcing strategy for palm oil at Nestle, and at Nestle we have this commitment to response resource 100% of our key ingredients, high 2030, and this means as I was explained before with my role about making sure that this is produced in a way that respects people and protects the environment. And as we heard in the previous section, smallholders actually make a big part or make up a big part of the volumes that are produced globally in the palm oil industry. And so independent smallholder credits are a way that we can incentivize smallholders and cooperatives that are producing palm oil that is in line with our responsible sourcing core requirements, which are, for example, making sure that they are not linked to deforestation. The farms are managed in a sustainable way through good agricultural practices and are so in line with certain human rights requirements. And so by purchasing independent smallholder credits, we can make sure that we have a direct contact and can incentivize these cooperatives that are already producing palm oil in this sustainable manner. And I would say we started this in around 2020 when we first started buying some independent smallholder credits. At that point, the amounts were still smaller around 10,000 credits per year. And now as we are integrating this more and more into our responsible sourcing strategy, we have increased this to almost 64,000 credits in 2024. And the idea is really that throughout this time, we started by supporting a small amount of cooperatives by purchasing a percentage of their credits. And now we've really scaled this up in some cases and buying 100% of their credits, which allows them to also increase their volume and integrate more smallholders and more members to their cooperatives. And the idea is really just also to support these smallholders that are linked to our supply chain where we physically source, but potentially might not have that access to an RSPO certified mill as we had heard in the last section. And so for us, I think it might have started a little bit more from a CSR perspective, but the idea is really to make sure that in the long term, there is enough palm oil that is produced responsibly. And so it really is also a long-term investment into responsible palm oil supply chain, and we're sure that there are volumes that align with RS or similar credits. Let's talk a bit about the numbers, because I think this is quite interesting. Can you share how many RSPO ICH credits that Nestle has purchased over the years? And we have highlighted some of the most significant impact these purchases have had on small holder communities. Maybe you can share the ones that you've heard from smallholders themselves, the ones that you've experienced on the changes that RSPO ICH credits have done to the smallholders that you are engaged in. Sure. So as I was saying, we've really increased this amount a little bit. We started with about 10,000 in 2020 and increased this every year to almost 64,000 now in 2024. We are buying the smallholder, independent smallholder credits from various different cooperatives, but I think the one thing that's really interesting when we buy independent smallholder credits in comparison to maybe other ways that we also support smallholders is that we can make sure that the financing reaches the cooperatives directly. And they have the decision making power to decide how they want to implement activities. They want to implement which make most sense on the ground for them. And so in this way, we see that there are some similarities, especially when we look at different cooperatives in Indonesia that we have supported. Many of them decide for example, also use some of their financing to improve their roads, which can have an impact on the transportability of their palm oil, but also on their quality of life in general. Some of them have given their members the opportunity to make sure that they're linked to the national social security system access to loans tends to be something that is also quite often a advantage of being part of a cooperative and coming together and therefore kind of be risking their financial points view. And then women empowerment is actually something that we see quite a lot as well across different cooperatives. And then maybe more specifically, it's also interesting to see a little bit what how things are different. We're saying, of course, we've purchased a lot from Indonesia, which is one of the biggest producing countries, but there are also smallholders in Mexico or in Peru or in Brazil, where the context might differ slightly. So in those areas, we also saw the importance of how independent smallholder certification, exactly smaller farmers who might not have full-time workers all the time where they come together. We can these workers to no longer be casual workers and also evaluate aspects such as how many bathrooms are there across different farmers and in finding ways to implement these together, to improve also healthcare systems that are there for the workers that work with these as smallholders together. Just FYI for our listness, so globally, there's less than 1% of independent smallholders that are specified, and even though they manage significant oil pump assets in their respective countries, while certification rates are slowly increasing, one of the key mechanisms that currently is helping smallholders on the sustainability journey is the RSBO/ISH credit system. And as Nending mentioned earlier, that you can see there's sort of empowering the smallholder to be sites for themselves on where the resources be allocated and it's actually a sort of empowerment for them compared to the usual initiative, like a certain rules and regulation on how the budget or the sponsorship certain companies give. And through Nestle's involvement or decision that Nestle has made by buying RSBO/ISH credits, personally, have you seen any ripple effect in terms of internally in Nestle itself, maybe in terms of employee pride or consumer trust or sustainability benchmark due to Nestle's decision in supporting RSBO/ISH credits and has the purchase of the credits helped your brand in any way? Sure. So I think one of the key points with independent smallholder credits is that it kind of puts the narrative back on the smallholders in a commodity, which is often focused on large plantations. And by focusing on these smallholders and looking a little bit more also at the human aspect, I think we can find a side that is that many people are can more easily connect you as well and see that behind, you know, a palm oil that can sometimes be a complex commodity. There are also aspects of livelihoods behind it. And I think so the independent smallholder credits can really help support this. And as I was mentioning, although of course we buy smallholder or we buy volumes, palm oil volumes from Indonesia and Malaysia, the main producing regions. We also actually buy a lot of some volumes for our local factories in Latin America, in Peru, for example, in Mexico and Brazil. And making that connection specifically to the independent smallholders, and this is actually also correct for Indonesia, can be quite empowering for our employees, but also for consumers to see that, you know, this palm oil has been produced in their own country. And that these independent smallholder credits are supporting these farmers that tend to be the most vulnerable within the supply chain. And so independent smallholder credits, as you were saying before, is really interesting because yeah, as Neste, we can make sure that the money that we give to them is given to them directly. And we don't depend on, for example, maybe a third party like a supplier or even an NGO. We also support in other ways that sometimes just provide good agricultural practices to the farmers, which is great as well. But is a different way that the farmers can have a decision making power. So I would like to also ask you in a different angle, so some businesses perceive our SPO independence moreholder credits as expensive. And it's not considered, put unquote, not a sound business decision. How would you respond to that perspective? So I think when you look at it first, it can potentially seem as something that is a cost, but I think it should really be seen as an investment, and a long-term investment into a responsible supply chain or a responsible industry because the idea behind it right is to make sure that there is a long-term production of humble volumes that are produced sustainably in alignment with human rights and environmental requirements. And I think also with the new regulations coming in, such as CISRT, or CSRT, it can also help to address those kinds of requirements whereby we need to make sure that we address our human rights risks or any ado, also environmental due diligence and address them. So in the finance moreholder credits might not be a way to directly address the physical volumes that we purchase as we've seen in the past. Sometimes the smallholders don't have access to our SPO certified mills, but it's a way to address these risks almost at a landscape level or at an industry level in that sense. So it's really about kind of future-proofing the supply chain, I would say. I think this is a really important perspective for even the consumers to hear, and it's a really admirable direction that next day is going towards, because understandably a lot of businesses prioritize the pricing, the convenience, what's their convenience, and it's beautifully put, as you mentioned, that purchasing ISP or ISH credit is actually an investment for future-proof supply chain, and if it's not from the businesses themselves, who us will be supporting in the finance moreholders. I guess I would like to know what would be your message? So Nestle can be considered one of the business leaders that take a positive direction in supporting smallholders to ISP or ISH credits. What would be your message or pitch to the other fellow procurement leaders that is maybe in the same industry who are trying to navigate the volatile market, and why should they actually consider purchasing credit? It's a good question. I would say, yes, volatility might be part of it, but be very honest. I think volatility nowadays is part of almost any conversation that's especially a procurement team is having, so I don't think it's very specific to independent smallholder credits. But as I was saying, I think the, well, first of all, the cost of inaction is probably more expensive than investing in these smallholder credits. So in the long term, this probably makes most sense, as I mentioned, it's also a way to reduce risk within the supply chain in regards to deforestation, land rights, but also labor conditions, which are topics that specifically companies that are based in the EU have to address more based on regulatory requirements as well. And I think it's also a direct way that companies can contribute, like I was saying, to the most vulnerable on the ground. And so having that direct contact can make sure that the contribution that companies are making actually reach those cooperatives and farmers and that they can decide how they want to implement it. And I think it's also a way to incentivize farmers. Like you were saying, getting certified can be quite an administrative procedure. It takes a lot of time. It's a lot of work for the smallholders. And so sometimes it can also be questionable for them to decide why should they implement all these requirements that make it even more difficult to produce their palm oil. And so it's also a way to provide that incentive from brands, like Nestle, that otherwise don't have that direct contact to these farmers. Okay. If we're looking at the regulations that we've been hearing about, although there's a postponement in UDR yet again, but it's still lingers in the minds of smallholders how it might restrict them from continuing to supply sesame oil and to get to continually getting support through our sparse edge credits. With these regulations, how do you think our sparse edge credits are relevant? How should actually companies approach smallholders or supporting them through credit in this context? Because it might also put businesses in the back seat and making them lose the competitive edge in certain markets. So instead of looking at it as taking away a competitive edge, I think it's also about aligning that everyone has the same or similar requirements, which I think kind of lifts the bottom line a little bit. And I think like you were saying, potentially independent smallholder credits aren't directly linked to UDR requirements, where maybe the RSPO segregated system is more applicable. But I do believe that independent smallholder credits can support smallholders to prepare for this, right? It helps with making sure that they have all their land rights requirements. It can help with the polygon GPS tracking. It can help with making sure that they have the human rights and due diligence assessment, probably the one point where it is missing is that sometimes these smallholders might not have that traceability to mill or to a specific supplier. But it already sets the base for being able to integrate into UDR. But I think beyond this, maybe some topics like I was saying before, these are triple D or CSRD or ones which also focus on the importance of human rights due diligence or the importance of supporting the most vulnerable actors within a supply chain. And there, of course, these are smallholders. So independent smallholder credits can be a way that companies can show that they're contributing towards this and are taking action within their supply chain and that independent smallholder credits are a way to do this. I guess we've reached the final question, then. I think it's such a refreshing take from business, I believe. I might be biased, but I'm really passionate about the conversation of RSPO and RSP credits. It's really endearing to see a business that actually cares about the supply chain in the way that Nestay is taking the direction of. Even though RSPO I just tried it can be seen as a bit more expensive than the usual route in sourcing palm oil, but I believe the step that Nestay is taking will continue to support smallholders and it will be copied by other businesses as well. Thank you so much Nadine for being in the palm pod. Thank you very much for having taken time. It was a pleasure of the year and yes, I am completely agree with you. I have to say personally, I'm also quite a big fan of the independent smallholder credits. I really like this idea that as a big brand, it allows us to have that more closer connection to these cooperatives and also see how they decide to implement this and how this has a direct impact on their livelihoods. So, and it's something that I would like to see more and more as well to kind of bring the smallholders a little bit more into the center of the conversation that surrounds palm oil in general. Absolutely put. So, with that, we are at the end of our special episode of speaking about RSPO ICH credits and a big thank you to both of our guest speakers for joining us on the palm pod and sharing their insight, experience as well as perspective on ICH credits and how they support the sustainable community journey of independent smallholders. Don't forget to rate, review and subscribe to the palm pod on your favourite podcasting platforms. Feel free to share your feedback for our next episode. I was speaking to both of our guests, come out from WWF and Nadine Stuber from Nestle. I am Farahum and this is the palm pod. (upbeat music)