Suspension by the Roundtable on Sustainable Palm Oil (RSPO)

# I. What happened?

In late March 2016, the Roundtable on Sustainable Palm Oil (RSPO) announced that as of April 1, 2016, they were suspending the RSPO certification of IOI Corporation Berhad (IOI Group), a leading Malaysian palm oil producer, due to complaints it had received about its subsidiaires, PT Sukses Karya Sawit, PT Berkat Nabati Sawit, and PT Bumi Sawit Sejahtera. The RSPO claimed that the IOI had breached RSPO Principle 2: Compliance With Applicable Laws and Regulations, and Principle 7: Responsible Development of New Plantings.

Following the suspension, Moody’s announced that it was reviewing a possible downgrade of the credit ratings of the IOI Group and warned that the company’s earnings could deteriorate as a result of the suspension. Moody’s also warned that the company could face reputational damages, as this was IOI’s second suspension in five years.

Numerous multinational companies including Colgate-Palmolive, Hershey’s, Johnson & Johnson, Kellogg, Mars, Nestlé, Procter & Gamble, and Unilever then announced that they would cease trading with the IOI Group due to the RSPO suspension.

In May 2016, IOI Group filed an appeal with the RSPO Complaints Panel, announcing that it had filed a case with the Zurich District Court in Switzerland on the grounds that the suspension was disproportionate to the complaints. However, in June 2016, the company dropped its lawsuit and announced that it would actively work with the RSPO to resolve the problems.

# II. Consequences for IOI Group

Following the RSPO’s suspension, announced on March 14, 2016, IOI Group’s share price fell by about 7 percent. Analysts however warned that the main damage caused by the RSPO suspension would be to the company’s reputation as a sustainable palm oil producer, and claimed that even if the company took action, it could still take a year for the suspension to be lifted.