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Investor Relations

Climate change

Climate change has profound effects on agriculture and global food security in terms of its availability, accessibility and stability of supply. Conversely, agriculture is a major contributor to climate change. Agriculture, forestry and other land use are responsible for 24% of global greenhouse gas emissions (GHG). Mitigating and adapting to climate change is an ever increasing focus for our own operations and for our farmer suppliers.

Key 2016 focus areas

  • Reducing GHG emissions from our own farming and processing operations1
  • Adapting our own farming operations to build in climate resilience
  • Encouraging our farmer suppliers and logistics providers to reduce their GHG emissions and build in climate resilience

Key sector collaborations and commitments

  • 2nd year as joint Co-Chair of the World Business Council for Sustainable Development (WBCSD) Climate-Smart Agriculture project. Olam is leading the development of Priority Area 1: building smallholder/ family farmer resilience
  • Presented at the UN Climate Talks in Marrakesh (COP22) and the 2016 Global Landscapes Forum

We are guided by

In this section we cover:

 

Incentivising the transition to a low carbon economy

If something is free, we will use it indiscriminately. And the global community has.

Fossil-fuelled growth, and the emission of greenhouse gases that accompanies it, has led the world to climate change that will have major consequences for millions of people and the natural world around us.

This is why we, despite being a profit-driven company, have called for a tax on carbon. Commercial enterprises must be incentivised to decouple growth from carbon – and there must be a higher cost to doing‘business as usual’ if companies are unwilling to change.

Only then can we stimulate a concerted effort to increase fossil-fuel efficiency and, more crucially, encourage innovation into alternative energies and efficiency measures.

On our part, Olam is already actively undertaking valuation studies in collaboration with other companies and agencies to determine a viable carbon-pricing framework. Based on our work so far, we believe it would be fair to set an initial global tax of US$35 – US$50 per tonne. This would take into account the social costs linked with impacts of greenhouse gas emissions, such as subsidies for crop failure or for health costs as a result of pollution.

We are exploring 3 types of carbon pricing: shadow pricing for our investment cases and business models to test planned projects under a range of potential carbon prices; internal pricing where a fixed price is assigned to each metric tonne of emissions which could then be incorporated into profit-and-loss statements; and finally internal taxes which could be levied upon the business units for their direct operational emissions to support investment in clean technologies.

We are already making good progress, having consistently cut our carbon footprint year-on-year, and we will continue to limit our footprint even as we grow to scale. But even with this progress, we know more needs to be done.

Energy efficiency on its own is not sufficient to limit the global temperature rise to 2oC by 2100, as described by the Paris Climate Agreement at COP21 in 2015. It may sound insignificant but given the difference between today’s average global temperature and the average global temperature during the last Ice Age is only about 5oC, it really isn’t. Carbon pricing is one way to contribute to achievement of this objective, but there are other options that are not mutually exclusive. For example, we’re also actively exploring alternative energy, including biomass and solar.

We have also called for incentives including a greater backing for robust and validated financial mechanisms, such as REDD+1 carbon credits to stimulate the reduction of emissions from deforestation and forest degradation.

This will foster conservation, sustainable management of forests, and enhancement of forest carbon stocks, while ensuring that indigenous communities and biodiversity are not impacted.

Our Wood Products business in the Republic of Congo has undertaken such projects and while the process is lengthy and complex, progress is being made.

But incentives must also come into play for the smallholder farmers. How do we convince them to take up these ‘new methods’ called ‘Climate-Smart Agriculture’ when their family has been farming a certain way for generations? Or help them understand why they can’t expand into the forest next door to grow more cocoa when their yields are so low after decades of under-investment? Explaining these concepts to farmers with little or no education can be very challenging. Certification premiums are one incentive but not every customer wants to pay for certification. We must therefore focus continually on helping farmers to increase yields and quality by working directly with them, while collaborating with peers, NGOs and governments at a country and sector level. For many farmers, there is no short-term incentive, rather they are putting their trust in our hands, which is not always easy to carry when disease or weather means a harvest is not as abundant as hoped.

But it is clear that incentives, in their many guises, are crucial if we are to have any hope of preventing that 2oC rise.

1 REDD+ Reducing Emissions from Deforestation and forest Degradation in developing countries’ scheme.

Decoupling carbon from business growth in direct operations

As we grow our business, we cannot allow emissions from our operations to grow at the same pace. By 2020, our target is to reduce GHG intensity by 10% (per tonne of product) in Olam-managed plantations, concessions and farms; Tier 1 processing and manufacturing operations; and our marine vessels. We do this through:

  • Increasing operational efficiency
  • Avoiding High Carbon Stock approach to lands for development (see the Land section within this report)
  • Adopting Climate-Smart Agricultural (CSA) practices.

Reducing fossil fuels

At processing facilities, ‘Fossil Fuel Flightpaths’ are being developed to promote efficiency and renewable resources. At the Olam Cocoa processing plants in San Pedro and Abidjan in Côte d’Ivoire, the cocoa beans shells/husks are used as biomass while a proportion is going to the poultry industry, as the residual fat can be used in animal feed.

Olam’s carbon footprint

We have seen a 29% improvement on FY15 in our carbon footprint per tonne of product produced (intensity). This has been driven by our upstream productivity and the carbon positive result of our palm plantations in Gabon. In processing, the intensity has increased due to 8 new processing facilities made through the ADM acquisition at the end of 2015, as well as the Brooks peanut shelling acquisition in 2016.
Carbon footprint graphs

Promoting Climate-Smart Agriculture in our supply chain

The majority of emissions associated with our business are not from our direct operations. Farmers, especially smallholders, are on the front line of changing weather patterns with limited capacity to adapt to its impacts. Moving to Climate-Smart Agricultural practices can play a significant role in addressing global challenges by way of 3 main pillars:

  • Sustainably increasing agricultural productivity and incomes
  • Adapting and building resilience to climate change
  • Reducing and/or removing greenhouse gases emissions, where possible.

Supporting healthy, carbon-rich soil

Soil is the second biggest reservoir of carbon on the planet after the oceans, and holds 4 times more carbon than all the plants and trees in the world. However, 33% of the world’s soil is moderately to highly degraded due to erosion (as topsoil is washed or blown away) and nutrient depletion. Across supply chains, we promote contour ploughing or contour tillage, micro‑catchments and surface mulching, as well as crop rotation to protect the soil and achieve higher yields.

Nutrient loss is estimated to cost sub-Saharan Africa US$68 billion per year. Although many smallholders still cannot afford to buy synthetic fertiliser, globally it is one of the fastest growing sources of agricultural emissions. Through the Olam Livelihood Charter, we help farmers to learn how to compost and mulch and, where appropriate, to use synthetic fertilisers.

Reporting to CDP

Reducing methane emissions

About 25% of global man-made warming is from methane emissions, including significant proportions from dairy and rice production. Rice is unusually water tolerant, so to prevent weeds and pests, farmers typically flood fields. However, not only does this use vast amounts of water but as submerged weeds and vegetation rot they release methane – between 50 and 100 million tonnes each year.

We partnered with UNEP, International Rice Research Institute (IRRI), German development agency GIZ, Mars and others to establish the Sustainable Rice Platform (SRP), and the first projects were vetted using the scientifically verified SRP standard in 2016.

In Thailand, Olam has partnered with Better Rice Initiative Asia (BRIA), GIZ, Bayer and the Thai Rice Department to roll out a trial project in Ubon Ratchathani province in northeast Thailand, which 71 rice farmers joined in its pilot year. The Standard goes beyond methane reduction and helps farmers improve their farm management systems, as well as improve labour conditions, environmental sustainability and business profitability. Our 5-year commitment will bring the Standard to 16,000 farmers in Thailand and 10,000 in Vietnam by 2022. We are currently the only private company to back the Thai Government’s Nationally Appropriate (GHG) Mitigation Action (NAMA).

Ensuring livelihoods are not compromised

One of the challenges in smallholder programmes is gaining farmer’s trust and motivating them to change their traditional ways of farming. For the Ubon Ratchathani project, Olam was able to reach more farmers by partnering with the well-known Thai Rice Department. We also ensured a ‘best price’ and quality guarantee. We engaged a specific miller and our buyers ensured the farmers could claim the highest observed paddy price to save them from risking a lower price at our delivery point.

Creating biodiverse, resilient micro-climates

Planting leguminous shade trees brings many benefits to cocoa and coffee landscapes. They increase productivity and resilience of crops, support biodiversity and natural pest deterrents, help maintain soil quality and contribute to carbon sequestration through reforestation.

Through the OLC and other initiatives, we work to educate smallholders, as shade trees often have been cut down for firewood or saplings removed during droughts as they are believed to be too ‘thirsty’. In Cote d’Ivoire, in partnership with local timber companies and in-line with the new Rainforest Alliance Sustainable Agricultural Network standards, we now encourage cocoa farmers to plant 400 forestry and shade trees per hectare. This is a big ask but we are seeing improvements. In 2015, the average planted was 50 per hectare and in 2016 it had increased to 100. In 2016, cooperative farmers planted 193,000 leguminous shade trees covering 1.9 million hybrid cocoa seedlings.

The full report is available to download here.