Forests and agriculture | Qa

Complex biofuel supply chains and the deforestation risks

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Feedstock origin is crucial for biofuels

Neste Oil’s Simo Honkanen explains why supplier transparency and knowledge where your resources come from are essential for tackling deforestation

As a fuels company, what are the supply chain risks from deforestation that most impact your business?

Any supply chains where the end producer does not know the origin of its feedstock, or is not determined to improve knowledge about its supply chain is at risk.

The renewable fuels industry is strictly regulated, particularly for example in the EU, and fuel producers are accountable to trace back their feedstock. The companies in this sector are now making significant efforts to manage their supply chains from a traceability and regulatory point of view.

There is a common, global task for all supply chains that are using large areas of agricultural or industrial land to take forests and ecosystems better into account in their business.

Collectively, we simply have to become better at this. In today’s world where information is seamlessly moving from one continent to another, and everybody has access to the data, it is also in the interests of producers to develop transparent and responsible operations. These, in  turn, contribute to a more positive general perception of businesses with forests in their supply chains.   

I personally believe that there has to be a commitment to improve continuously knowledge across the whole value chain and expand the scope to see the wider impacts of companies’ operations.

What are the checks you use for assessing deforestation risks your supply chain?

Companies should think about the origin of their feedstock and learn how their potential suppliers are thinking about sustainability.

At Neste Oil, we are firm believers in stakeholder engagement and try to have a dialogue with as many relevant stakeholder groups as possible – in order to learn but also to try and ensure we have as positive an impact as possible.

It can be a good idea to have external partners to work with risk assessment. We have been in cooperation with The Forest Trust (TFT) now for a year and half. In 2013, they started by doing an external risk assessment of our suppliers,  and now they are moving forward with engagement sessions focusing particularly on deforestation. It is a good experience so far for all parties involved, including our suppliers. 

How do you assess the risk to your supply chains from deforestation?

We always want to know how and where our feedstock is produced before we sign a supply contract. Biofuels are very strictly regulated in our main markets and knowing the whole supply chain is a legal requirement.

Before a contract is signed we also carry out our sustainability due diligence procedures for the supplier, where we go through supplier’s sustainability practices and how sustainability related matters are being managed. By following this procedure for a number of years we have gained quite a good picture of the awareness of sustainability-related matters among producers.

Our experience is that that vegetable oil industry has made significant progress in sustainability awareness and practices in last six to seven years.

We require that, for instance, all our palm oil suppliers are engaged in recognised certification systems, such as RSPO-membership, and ISCC or RSPO-RED certification.

It is very important that our vegetable oil, or any other feedstock, does not come from “no-go” areas that are forbidden by European legislation. Therefore all agricultural land history has to be transparent, and if the land has recently become used as agricultural land, it has to be proven that no valuable land or forest has been converted to oil crop use.

What does this look like in practice – and what sort of partnerships do you need to develop? 

Our sustainability and supply teams have a very close working relationship with our suppliers. We also talk to many other stakeholder groups, including regulators and NGOs in our various markets, and assist our suppliers to understand legal regulations in detail. Issues concerning (for example) greenhouse gas emissions are important in this sense.

Our latest initiative is our cooperation with TFT. They did a risk assessment of our suppliers and now we are moving forward with an engagement programme, led by TFT, and based on our commitment to zero deforestation.

We have seen a number of companies, both producers and buyers,  moving in the same direction with deforestation commitments. This is a very positive development.   

While some are making some definite steps forwards, is deforestation still a risk that many companies don’t appreciate?

Supply chains are getting longer and more complicated. There is now a clear public expectation that companies should take wide responsibility over their whole value chain.

Where a company does not know its supply chain thoroughly, deforestation can possibly become a “hidden” risk.

On the other hand at Neste Oil we have seen a tremendous development among the commodity companies over the years we have been active in biofuels. Improving supply chain transparency and engagement is a topical question among all stakeholders at the moment. Good evidence for this is the rise of voluntary certification systems and stakeholder engagement pushing towards “no deforestation” pledges.

What do you think are the pros and cons of a certification and/or a no deforestation approach to the problem?

Both certification and no deforestation approaches are needed.

Certification forms a common, measurable basis for performance. It is a system that can be audited and offers a systematic way to see a company’s performance. In many cases certification schemes are multistakeholder initiatives, which requires dialogue and interaction between many stakeholder groups. Therefore, developing a certification system may sometimes be a bit time consuming.

A no deforestation approach is an important commitment from a company to operate business in a certain manner. It is looking to the future and is in some cases a commitment or statement of change. We at Neste Oil believe in engagement and recognise that the issues surrounding deforestation are sometimes very complicated. Therefore it is important that all relevant stakeholders are included in the dialogue and work for jointly accepted solutions.

Both approaches are important, and they should be seen inclusive rather than exclusive.

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