IMPACTS OF PALM OIL PRODUCTION
The Economics of Ecosystems and Biodiversity (TEEB) is a global, UN initiative focused on “making nature’s value visible”. Thereby, it wants to explicate the natural and social capital dependencies and externalities of production systems on ecosystems to all involved stakeholders.
Palm oil production in developing countries such as Indonesia has negative externalities, such as deforestation and underpayment. These need to be assessed, quantified and monetized when possible.
Using Trucost and Impact Institute methodologies and data provided by TEEB, environmental externalities under different land use types and using alternative farm management were calculated to be $28bn. Social externalities were assessed to be comparable to environmental ones. Finally, it was demonstrated that internalizing part of these externalities would lead to a profitable business model.
Benefits to the client
The business case analysis conducted by True Price showed the impact of improving working conditions. ROI analysis of palm oil farms was conducted by constructing a benchmark, collecting recommended practices and calculating their impact on the P&L of the farm over time. This demonstrates the value of internalizing externalities when seen as investments instead of costs that lead to future profit in the form of prevented costs. The analysis was conducted under moderate assumptions both on the impacts and the prevented costs. The results empower TEEB to influence stakeholders towards reduction of externalities on ecosystems and associated beneficiaries.
* The customer was working with the Impact Institute under its former name, True Price