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By: Chermaine Yap

As the world races towards a net-zero future, navigating the labyrinth of carbon footprints and emission jargon can feel like deciphering a cryptic language. Terms like “Scopes 1, 2, and 3 emissions” can leave one feeling adrift. In this blog, we aim to demystify Scopes 1, 2, and 3 emissions, particularly in the context of the palm oil industry, offering some insights into some of the initiatives to reduce emissions in the palm oil sector.

The Origins of Emissions Scoping

The concept of emission scopes originated from the Greenhouse Gas (GHG) Protocol, a widely accepted international standard for measuring and managing greenhouse gas emissions. The purpose of categorizing emissions into scopes is to provide a standardized framework for organizations to identify and account for different sources of greenhouse gas emissions and drive emissions reduction actions across supply chains.

Definition of Scopes 1, 2, and 3 Emissions

In a nutshell, Scopes 1, 2, and 3 represent distinct categories of emissions based on their source and control. Scope 1 covers direct emissions from owned or controlled sources; Scope 2 pertains to indirect emissions from purchased energy, and Scope 3 encompasses indirect emissions from the entire value chain.

We Cannot Manage What We Do Not Measure

Just as we meticulously plan our financial goals, the initial step involves evaluating our expenditures to pinpoint areas of high spending. Setting specific targets based on our financial aspirations, we strategically budget and work towards reducing expenses in those identified high-impact areas.

In a similar fashion, approaching the measurement, reporting, and reduction of carbon footprints requires a relatable, meticulous process. Understanding one’s Scopes 1, 2, and 3 emissions is the cornerstone, much like analyzing our spending habits, forming the basis for targeted initiatives to reduce greenhouse gas emissions and minimize environmental impact. Having established the crucial foundation of understanding Scopes 1, 2, and 3 emissions, let’s now delve into the specific context of the palm oil industry.

Scope 1 Emissions: Taking Responsibility for Direct Emissions

Scope 1 emissions encompass direct emissions from sources within a company’s control (e.g., combustion in owned or controlled boilers and furnaces). In the palm oil industry, these can arise from various sources, such as plantation soil management, combustion of biomass for electricity and heat in processing facilities, fuel combustion of vehicles and equipment across plantations or ships owned by the company, and processing of harvested palm fruits.

Scope 2 Emissions: Accounting for Indirect Emissions

Moving to Scope 2, these are indirect emissions resulting from purchased energy, such as the electricity received from the grid and heat or steam received from a third party.

Scope 3 Emissions: Considering the Full Lifecycle Impact

Scope 3 emissions encompass all other indirect emissions that result from a company’s activities across the value chain (e.g., production of purchased materials, transportation of products by a third party, and even the use of sold products). Scope 3 emissions, or Corporate Value Chain1 emissions, go beyond an organization’s direct emissions – Scope 1, and indirect energy purchases (Scope 2). It often presents most of an organization’s total greenhouse gas (GHG) emissions. The GHG Protocol categorizes Scope 3 emissions into 15 categories, where categories are intended to be mutually exclusive to prevent double counting of emissions between categories.2

In the palm oil industry context, Scope 3 emissions may include (but are not limited to):

Reducing Emissions Within the Palm Oil Industry

Recently, Musim Mas announced its commitment to achieve net-zero emissions by 2050, aligning with climate science as per the Science Based Targets initiative (SBTi). Over the years, we have worked to reduce deforestation and carbon emissions across our operations and supply chain. Since the publication of our No Deforestation, No Peat, and No Exploitation (NDPE) Policy in 2014, Musim Mas’ own operations have been monitored and remain 100% free from deforestation and ecosystem conversion. Musim Mas was the first major group in the palm oil industry to commit to extending methane capture facilities to all its mills. In 2022, we commissioned our 17TH methane capture facility and avoided a combined 619,749 MT CO2e into the atmosphere, with the captured methane converted into electricity that powers our mill and estate facilities and the workers’ housing and social facilities.

Palm oil producers must work closely with suppliers, engage in sustainable farming and production practices, and advocate for responsible land use to mitigate Scope 3 emissions. Musim Mas actively engages our suppliers on our NDPE policy obligations and requires them to attend workshops and submit their NDPE commitments. We also ask suppliers to complete the Musim Mas Self-Assessment Tool (SAT) on sustainability commitments and performance. Their answers help us identify improvement areas and develop custom roadmaps with time-bound plans to help them meet our policy commitments.

In addition to individual company efforts, there is a need for collective action. To address emissions in the palm oil industry, it is crucial to implement sustainable practices and collaborate with stakeholders throughout the supply chain. To that end, Musim Mas and 13 other Agri-commodities companies committed to the Agriculture Sector Roadmap to 1.5 Degrees, facilitated by the Tropical Forest Alliance 12. This initiative is designed to halt commodity-linked deforestation, aligning with the 1.5-degree pathway.

Producers are not all large plantation companies. Actually, 40% of the palm areas in Indonesia are controlled by smallholder farmers. Since 2015, Musim Mas has continuously adapted and expanded its independent smallholders programs to better integrate them into our palm oil supply chains. We engage with smallholders and assist them in reaching efficient farming standards by providing training modules covering good agricultural practices (GAP) and NDPE commitments. Our programs utilize a landscape-level approach, establishing and running initiatives with local governments and stakeholders. We have found this to be the most effective approach for addressing smallholder barriers and ensuring long-lasting impacts.

Navigating the Challenges Ahead

While there undoubtedly remain challenges on our journey to achieving net-zero emissions, it is evident that we are on the right path. Although this may seem daunting, a defined objective and a means of attaining it are imperative. Our long-standing commitment to sustainable practices, enshrined in our No Deforestation, No Peat, and No Exploitation (NDPE) Policy, as well as our “continuous improvement” company culture, positions us to navigate the rough seas of sustainability favorably. To achieve reduced emissions, active involvement from our suppliers, their vendors, and the smallholders in our supply chain is also essential on this collective journey. As we embark on this impactful path, we remain steadfast in our commitment to fostering a sustainable future for all, continually innovating to diminish our environmental footprint.

1 and 2: Corporate Value Chain (Scope 3) Accounting and Reporting Standard: https://ghgprotocol.org/sites/default/files/standards/Corporate-Value-Chain-Accounting-Reporing-Standard_041613_2.pdf

By Devane Sharma

Behind the commercial aspects of the agribusiness industry that determine the supply and prices of food around the world are the lesser talked about academics that study ways to make agriculture more sustainable, productive, and inclusive for smallholder farmers. Musim Mas had the opportunity to interview Dr Diana Chalil, Head of the Master’s Program in Agribusiness in the Faculty of Agriculture, Universitas Sumatera Utara, and Indonesia Founder & Coordinator, Consortium Studies on Smallholder Palm Oil (CSSPO).

Dr Diana Chalil

In 2003, Dr Chalil began a long and illustrious career in studying sustainable palm oil supply chains, with a focus on smallholder farmer inclusion. In 2015, she founded CSSPO together with other academic partners. Since 2016, CSSPO has been partnering with the Agricultural Research Centre for International Development (CIRAD), the French think tank and international cooperation organization for sustainable development of agriculture in the tropics and the Mediterranean, conducting joint research projects. CSSPO also manages a training program for oil palm smallholders, engages in replanting programs for Indonesian smallholders whose plantations are no longer commercially viable, and actively participates in the Indonesian Palm Oil Platform. Since 2018, Dr Chalil has been involved in the North Sumatra Sustainable Palm Oil Platform as a scientific member, and in 2023, she became a consultant for the Roadmap Team of Aceh Sustainable Palm Oil.

Q: Could you tell us about your background and what motivated you to enter the agribusiness industry?

I took both my undergraduate and postgraduate courses in agribusiness. I started studying palm oil in my bachelor’s thesis and continued to do so for my doctoral dissertation. During my studies, I found negative perceptions of the palm oil industry that were not based on objective information/data. This motivated me to be involved in providing accurate information to clarify misconceptions. I became more motivated when my colleague and I, together with two other universities from Indonesia (UNJA and Unimal), one from Thailand (PSU), and one from Malaysia (UPM), founded the Consortium Studies on Smallholder Palm Oil (CSSPO) and started working together with CIRAD.

Q: You have many years of experience researching sustainable agriculture, especially in the palm oil industry. What motivated you to specialize in this area?

The palm oil industry presents a multifaceted landscape for a researcher—comprehensive, sophisticated, yet intertwined with persistent challenges. It embodies both constructive and detrimental aspects, offering a fertile ground for exploring research inquiries and potential resolutions. Within the industry, sustainability emerges as a pivotal focal point, encompassing various subjects and analytical levels, from environmental to social issues such as smallholder livelihoods. As my research advanced, I often had more interesting topics and questions to explore. My engagement with the Indonesian Sustainable Palm Oil platform further enriched my understanding and involvement in this critical domain as it promotes the commercial adoption of a sustainability standard. This is very important to ensure that sustainability becomes a “must” rather than an option in the industry.

Q: We read that you teach a summer course called “Inclusive and Sustainable Palm Oil Industry,” among others. Could you tell us about this and what this course aims to achieve?

The palm oil industry serves as a compelling illustration of the intricacies within an agribusiness supply chain. We designed this summer course to include academics, representatives from various universities, NGOs, and industry stakeholders.

This course aims to stimulate discussion on the future trajectory of palm oil sustainability rooted in factual insights, real-world scenarios, and empirical data. It also endeavors to equip participants with the practical application of academic methodologies to evaluate sustainability claims objectively.

Structured around three key components, the course involves online classes that cover the concepts of inclusivity and sustainability, the presentation of empirical cases by experts, field visits to smallholder plantations and mills, and ends with a field trip to an orangutan conservation area to foster appreciation for nature and first-hand observation of orangutans in their natural habitat.

Q: How does the university maintain neutrality and promote a robust debate in this course?

In this course, we encourage free and open discussion. When presenting their arguments, we encourage the participants to use measurable indicators where possible and to draw upon the concepts they’ve learned in their various academic backgrounds.

Q: Sustainable production is predicated on balancing market needs and environmental protection. What are some of the first-hand challenges you’ve witnessed on the ground between stakeholders in the landscape?

The environment is a vital resource as it provides essential ecosystem services and is the foundation for human well-being and economic activities. The latter includes the production of commodities like palm oil which meet the world’s demand for fats and oils.

Indonesia has not developed the palm oil industry effectively, requiring more resources and having lower production. To operate efficiently in the palm oil industry, the producers should have sufficient business scale and technical, managerial, and financial abilities. However, the area of oil palm smallholdings is significantly increasing, and many smallholders lack these abilities and thus need support from other stakeholders. There are at least two challenges in providing said support. First, there is a big gap between the smallholders and larger plantations and downstream companies, which often increases their dependency and risks the sustainability of the smallholdings. Second, some general policies and programs are often difficult to accommodate, considering the heterogeneous nature of smallholders, and exclude groups that are the weakest and most needing support.

Indonesia faces challenges in effectively developing its palm oil industry in terms of improving resource efficiency and yields. Palm oil producers must have substantial business scale and possess technical, managerial, and financial capabilities to optimize production. However, smallholders make up over 40 per cent of production now and are expected to increase both in numbers and in their share of production.

Many smallholders lack the skills to optimize production and require support from various stakeholders, and that is where the challenges lie. Firstly, a significant disparity exists between smallholders and larger plantations and downstream companies, making smallholders wary of working with them. Secondly, it makes it harder for the government to implement policies that benefit all producers, with the vast numbers of smallholders geographically dispersed across the Indonesian archipelago.

Q: You’ve worked a lot with smallholders, including promoting sustainable practices among them. What are some interesting experiences you’ve had working with smallholders?

Education and awareness are essential for driving positive changes in the palm oil industry and influencing future decision-makers, governments, policies, and companies. A well-informed and conscious industry, including smallholders, can contribute to a more sustainable and ethical future of sustainable palm oil production.

Resources and incentives are also essential. Not all bad agricultural practices among smallholders stem from a lack of knowledge. Sustainable practices require enough financial support and incentives to be viable. Without these resources, smallholders become short-sighted and risk-averse, prioritizing short-term gains. The impact of sustainable practices, both in productivity and selling prices, often takes time to be realized and cannot be guaranteed, making it hard for smallholders to get the necessary financing. Therefore, the industry needs the combined support of buyers, traders, processors, and off-takers of palm oil to improve productivity—producing more without expanding land use and while implementing sustainable agricultural practices.

By Carolyn Lim

Smallholders in Indonesia make up over 40% of oil palm planted areas and are an integral part of the Musim Mas Group’s supply base, directly and indirectly. Musim Mas leads Indonesia’s most extensive and innovative independent smallholders’ program. Over 40,700 smallholder farmers have been trained under this program, and they represent planted areas of over 78,300 hectares. Over 3,500 have achieved the Roundtable on Sustainable Palm Oil (RSPO) certification, and 1,600 have received the Indonesian Sustainable Palm Oil (ISPO) certification.

Here are three reasons why we will continue to source from smallholders to meet the triple bottom line of Planet, People, and Profit.

Planet: Smallholders Hold the Key to Stopping Deforestation

There is an estimated number of over 2.6 million oil palm smallholders in Indonesia as of 2022. This number is set to rise to 60% more smallholders by 2030. To make sustainable palm oil the norm, independent smallholders are a critical group that needs to be engaged. Independent smallholders have the potential for increased productivity and better sustainability impacts.

However, these smallholders face many barriers and challenges toward better productivity. Smallholders often lack access to quality planting material and technical advice and find it difficult to secure loans.

Smallholders facing lower yields might resort to clearing forests to increase their livelihoods. They may rely on slash-and-burn techniques, often the lowest-cost practice.

Musim Mas has developed and implemented programs to support independent oil palm smallholders since 2015. We assist them in adopting efficient farming techniques by bringing training to them, with modules covering good agricultural practices (GAP) and No Deforestation, No Peat, No Exploitation (NDPE).

People: Smallholders form the Backbone of Indonesia’s Development Agenda

According to the World Bank, around 43% of Indonesia’s population resides in rural areas, and nearly 29% of the Indonesian workforce works in the agricultural sector. Primary agricultural production accounted for 13.7% of GDP in 2020.

Around half of Indonesian farmers in the agricultural sector are smallholders – earning an average of US$3.2 per day and are vulnerable to climate and price shocks.

The Indonesian government estimates that the palm oil sector has lifted millions out of poverty thanks to industry growth over the last three decades.

Today, palm oil represents roughly 14% of Indonesian exports, mostly made of refined and processed palm products, making it the second largest export from the archipelago nation.

Growing oil palms and harvesting their fruits provides a significant source of income for around 3 million smallholder farmers who depend partly or solely on palm oil for their livelihoods. Oil palms can be harvested year-round, so their cultivation provides families with a steady source of income.

Profit: Smallholders are the key to the future growth of the palm oil industry

Smallholder farms provide a large proportion of the food supply in developing economies, and they have to be part of any solution for achieving the higher food production required to feed the world’s projected 2050 population of nearly 10 billion people.

With limited land expansion for new oil palm plantings, increasing smallholder yields is essential for increasing the total production of palm oil.

Additionally, two or three decades after their establishment, many smallholder oil palm farms will require replanting soon. Replanting offers a unique opportunity to redesign farms, close yield gaps, and secure livelihoods without sacrificing more forest.

Providing opportunities for improved incomes, industrial development, and, ultimately, resilience, palm oil is integral to the economic development of Indonesia.

Conclusion

Smallholders are an integral part of any responsible sourcing strategy, given the long-term opportunities that smallholders present to the triple bottom line.

Regulations should aim at supporting and integrating them as a priority. Regulatory changes such as the European Union Deforestation Regulation (EUDR) should be designed with a long-term view. While the EUDR might exclude deforestation from the EU market in the short term, it will not stop deforestation or create the conditions for a durable development pathway for small farmers. Smallholders face the burden of proof as they cannot meet the rigorous traceability and legality requirements. They will most likely be excluded from the EU market.

Certification schemes such as RSPO and ISPO have prepared a better future for oil palm farmers. The EUDR needs to recognize and build upon the work of the RSPO and ISPO. Musim Mas believes that recognizing the existing standards of the RSPO will be more impactful in encouraging the uptake of sustainable palm oil production. Incentivizing the uptake of RSPO certification among smallholders will contribute to halting deforestation. Since the smallholder program started, the Group has been onboarding independent smallholders for the certifications.

Over the years, Musim Mas has gone beyond training smallholders directly to include landscape-based collaborations. Musim Mas’ six Smallholder Hubs unite smallholders, palm oil dealers and refiners, off-takers, governments, and civil society to consider sustainable land use across broad landscapes. Musim Mas will continue to invest in farmers, as it is the right thing to do for long-term sustainability and profitability.