Ferrero’s ingredients to climate change success
Opening a jar of controversy
Nutella has long been known as a decadent delight enjoyed around the world. However, the Italian delicacy is inspiring guilt in consumers not only for its effect on the waistline, but its environmental impact.
In mid-2015, French ecology minister, Ségolène Royal, ignited an international firestorm when she declared “We should stop eating Nutella, for example, because it’s made with palm oil” and that it should be made with “other ingredients”. [1] The comment generated an impassioned defense from Italians as well as Nutella’s parent company, Ferrero, which issued a statement explaining the company sources its palm oil responsibly. The controversy concluded with a formal apology from Royal. [2]
Digging deeper into the impact
Palm oil is the cheapest vegetable oil and is used to create the balanced taste profile and spreadable texture in Nutella. Nearly 85% of the oil is sourced from palm fruit in Indonesia and Malaysia. Demand for palm oil is expected to increase exponentially as global production rose from 14.5 million tons in 1990 to 67.3 million tons in 2013. [3] This explosive demand expedited widespread deforestation to replace forests with palm fruit plantations. [4] Scientists believe that deforestation, especially in tropical areas, contributes approximately 15-17% of global greenhouse gas emissions worldwide. This magnitude exceeds annual carbon emissions from all forms of transportation combined. [5]
Exhibit: Link between palm oil and deforestation [3]
Climate change impacted Ferrero by forcing the company to rethink how a key ingredient (palm oil) is sourced. Ferrero needed to assert a minimum standard on its suppliers, ensure that its palm oil is sourced responsibly, partner with other stakeholders (non-profits, communities, and governments) to mitigate the impact of deforestation, and communicate its actions clearly so consumers understood its stance on preventing climate change.
Spreading the word about actions taken
Ferrero has taken three key steps to address its palm oil production and limit its contribution to climate change. The company publishes a public report to consumers every six months about the progress toward its goals.
• In 2015, the Roundtable on Sustainable Palm Oil (RSPO) certified that 100% of Ferrero’s palm oil is sustainable and segregated, ensuring a separation from non-sustainable palm oil and complete traceability to certified sustainable plantations. This announcement came one year ahead of schedule and concluded a nearly ten-year process. [6]
• In November 2013, Ferrero launched the Ferrero Palm Oil Charter in conjunction with the non-profit, The Forest Trust (TFT). This charter establishes ten standards to be implemented in the palm oil plantations that supply Ferrero. The criteria reflect principles that safeguard human rights in local communities and improve forest protection. The company worked with TFT to trace 99.5% Ferrero’s palm oil supply to their original 63 mills and 301 plantations. With this new insight and traceability, Ferrero and TFT teams visited the most critical mills and plantations to communicate the Charter’s principles, verify documentation, and establish a time-sensitive goal to address any issues. Ferrero will now develop its approach to verify and monitor compliance with agreements adopted in its one-on-one meetings with growers. [7]
• In November 2015, Ferrero joined the Palm Oil Innovation Group (POIG) which supports the RSPO by “creating innovations in the palm oil industry and the promotion of these innovations”. Partner organization range from consumer players such as Danone to non-profits such as the World Wildlife Fund. [8]
A taste that leaves many hungry for more
The standard set forth by the RSPO is too weak and there is more work to be done by Ferrero. Scott Poynton, founder of the NGO Forest Trust explains, “Ten years ago people sat around a table and came up with the lowest common denominator standard. That’s rubbish.” [9] This view is supported by the fact that industry-leading companies ranging from PepsiCo to Walmart to Starbucks called on the RSPO to increase its standards. Their complaint letter recommended the immediate adoption of standards that will conserve high carbon stock areas, protect peat, and set minimum traceability levels. In addition, they ask RSPO to improve its transparency by reporting on greenhouse gas emissions against reduction targets and improve its auditing capabilities. [10]
Ferrero should take steps to ensure additional progress is made:
• Sign the letter to the RSPO to join the public call for increased palm oil standards
• Work with members of POIG to test and develop true innovations that will provide equally inexpensive and viable alternatives to palm oil
• Ensure compliance to Palm Oil Charter standards by auditing plantations on a more frequent basis and increasing the stakes or instituting penalties for not meeting the agreed-upon goals
• Provide reports to the public on the percentage of Ferrero’s original source plantations that are complying with agreed upon goals
By doing so, Ferrero will delight consumers and who will bring sweet success.
Endnotes
[1] “Stop Eating Nutella and save the Forests, Urges French Ecology Minister.” The Guardian. Guardian News and Media, 16 June 2015. Web. 04 Nov. 2016
[2] Sola, Katie. “Italian Politicians Sent Into Sweet Rage By Ségolène Royal’s Comments About Nutella.” The Huffington Post. TheHuffingtonPost.com, n.d. Web. 04 Nov. 2016.
[3] http://www.ucsusa.org/global_warming/solutions/stop-deforestation/palm-oil-infographic.html
[4] Kirchgaessner, Stephanie. “Nutella Spat: French Minister Says Sorry over Call to Stop Eating Spread.” The Guardian. Guardian News and Media, 17 June 2015. Web. 04 Nov. 2016.
[5] http://whatispalmoil.weebly.com/the-palm-industrys-role-in-deforestation-and-climate-change.html
[6] https://www.ferrero.com/group-news/ONLY-SUSTAINABLE-TRACEABLE-CERTIFIED-PALM-OIL-FOR-FERRERO
[7] https://www.ferrerocsr.com/news/Ferrero%E2%80%99s-fourth-palm-oil-progress-report?lang=EN
[8] http://poig.org/
[9] Mathiesen, Karl. “You’re Really Spoiling Us: Has Ferrero Been Wrongly Accused over Nutella?” The Guardian. Guardian News and Media, 19 June 2015. Web. 04 Nov. 2016.
[10] https://www.ceres.org/files/rspo-letter
Word count (excluding sources): 794
Thanks, Daniel. While I’d imagine Ferrero has fairly high margins on Nutella, I’m concerned that some of your suggestions might be quite costly for the company to fully implement. Regarding the potential tests/development on alternatives to palm oil, this could be a long and arduous process. Perhaps there is no equally inexpensive alternative and that Ferrero will just have to accept lower margins. I also think plantation auditing, while effective to ensure compliance, would add a fair amount of overhead with no real addition to the bottom line.
Daniel – to be fair, I may or may not know some people who eat Nutella and never feel guilty because it just tastes like drops of heaven. I am pretty sure that many people are really glad that Ferrero is making Nutella more sustainable.
My only concern is that Ferrero is not really negatively impacted by climate change – that is, climate change is not putting pressure on the availability of its raw material, palm oil in this case. Comparing this situation to Ikea’s for instance, where climate change is making their most common resource (wood) more scarce on the long run, you can tell that Ikea is much more incentivized to combat climate change and find alternative solutions to source their raw material. Today, Ferrero have these corporate ethics standards addressing social responsibility and sustainability (available in their Code of Ethics on the following link: https://www.static.ferrero.com/globalcms/documenti/1963.pdf), but I only fear that few years down the road, when climate change puts even more pressure on organizations, they might review these practices to survive. In a way, Ferrero actually benefits from deforestation and climate change.
I completely agree that the standard set forth by the RSPO is way too weak. During my time at The Dodo, we wrote many articles and videos about the terrible effects the palm oil industry has on animals, particularly orangutans. I still remember this harrowing statistic: every hour, 300 football fields of forest are cut down across South East Asia to make way for palm oil plantations. Every single hour. Every hour, orangutans’ homes are completely destroyed all because of how lucrative the palm oil industry is.
While I appreciate the effort to put forth some sort of legislation that helps prevent this type of mass deforestation, it’s debatable whether or not anything has really changed. Forests continue to be cut down and animals are the ones who pay for it. I sincerely hope that Ferrero takes your advice and signs the public letter put forth by Starbucks, Walmart, PepsiCo and others. The more companies that can take a hard stance against the unsustainable palm oil industry, the better chance we have at protecting the lives of thousands of animals.
Great blog Daniel. I agree with Kelly that the RSPO is far too weak, but also with Wissam that they really do not have any short term impact from this. The deforestation causes massive decrease in biodiversity and contributes to climate change, but the ones who will feel this are the local communities, the cities affected by rising oceans, and the generations to come – not Ferrero. I think then the only way to keep the companies accountable other than government action, is for the RSPO to come together (including Ferrero) and realize that it is in the best interest for everybody to have sustainable practices (reducing impact of regulation, increases supply certainty, etc.) and set visible more aggressive targets around the table. Companies alone will not be able to make these commitments if the landscape is too competitive – the desire to “cheat” for short term profits is too high. With a mutual commitment, it goes to a “everybody loses” so “everybody wins” type of game. It does seem unlikely though that they would do this voluntarily, so I suspect government regulation would have to be the jump starter and that may not happen anytime soon unfortunately.
I must ask, is there really no substitute for Palm Oil here? That might just be an easier option in the long run…
Huge +1 to joining the public call for increased palm oil standards. I think Nutella could even up its volume in this dialogue, reaching out to more consumers with this POV a la Dove’s natural beauty campaign, which not only supports a worthy cause and much needed change in palm oil agriculture, but also can help bolster their public image and be a point of differentiation in its product vs substitute products.
Thanks, Daniel, for the interesting article. While I appreciate Nutella’s involvement and support for the RSPO, POIG, and other organizations focusing on the impacts of climate change, I feel that the company has an obligation to take a more proactive, hands-on approach to addressing the problem. Given the significant impact that deforestation has on greenhouse gas emissions, I would hope to see Nutella focus on identifying and working directly with sustainable mills and plantations. A collaboration with the growers to discover sustainable solutions would be more effective than simply testing their operations for compliance with sustainability standards. Some ideas include identifying new technologies that enable palm fruit cultivation without having to clear forests, or working with an innovative company like Indigo to develop more resilient or high-producing palm fruit seedlings or substitutes. In my opinion, corporate responsibility means using the resources at your disposal to make a bigger impact where possible.