“We should stop eating Nutella, for example, because it’s made with palm oil. Oil palms have replaced trees, and therefore caused considerable damage to the environment.” – French Minister of Ecology, Ségolène Royal 
Why the controversy?
One of the key ingredients in Nutella is palm oil, a controversial commodity mainly produced in Malaysia and Indonesia that is celebrated for its crop efficiency and low cost of production but also criticized for its contribution to deforestation and pollution.
Exhibit 1: Palm oil is the most efficient oilseed 
Exhibit 2: Palm oil is also the lowest cost 
However, due to the potential for lucrative gains in this industry, deforestation through cheap slash-and-burn techniques has resulted in catastrophic environmental degradation.
Exhibit 3: Pollution in Indonesia due to deforestation
The resulting air pollution has plagued Southeast Asia, especially during the El Niño period when the effect of man-made deforestation is combined with exceedingly hot temperatures. Negative press coverage has surrounded the causes of the severe air pollution. Because of this, governments have started to clamp down on companies (especially in palm oil) that contribute to unsustainable deforestation and pollution by banning cultivation of carbon-rich peatlands and imposing penalties on companies and farmers that use the slash-and-burn technique .
Additionally, palm oil is impacted by changes in the climate, such as high rainfall variability . The resulting crops are lower in quality and yield less quantity. It has also become more difficult to extract the fruit bunches due to flooding and weatherworn road conditions.
Threats to Nutella
These challenges in the palm oil industry threaten to disrupt a steady and cheap supply of raw materials for many consumer product companies that rely on palm oil, including Nutella.
With increasing public awareness of palm oil and its role on environmental sustainability, Nutella will need to pay attention to its supply chain to avoid negative publicity and potential consumer backlash. Additionally, regulation in the palm oil industry and climate change threaten to limit the supply of palm oil, which will likely result in higher palm oil prices if palm oil producers are not sufficiently equipped to operate sustainably. This would remove the competitive advantage of palm oil and significantly increase raw material costs for Nutella.
Nutella’s course of action
In order to overcome these challenges, Nutella has achieved 100% sustainable palm oil certification by the Roundtable on Sustainable Palm Oil (RSPO)  . Nutella has elected to comply with the most stringent level: sustainable and segregated certification. This means that the palm oil sourced by Nutella is traceable back to the source and is economically, ecologically and socially sustainable in accordance with RSPO principles and criteria . Through its best-in-class practices, Nutella has become one of the leading voices in the RSPO panel, with influence over policy development in the arena of sustainable palm oil.
To advance palm oil sourcing sustainability beyond the framework of RSPO, Nutella’s parent company (Ferrero) has also put in place the Ferrero Palm Oil Charter , which breaks down in greater detail the areas Ferrero aims to address to drive sustainability in its palm oil supply chain. In order to implement their commitment, they have partnered up with an NGO, The Forest Trust (TFT), to monitor their suppliers and hold themselves accountable to the Charter.
What more can Nutella do?
To bring about further improvement in ensuring a sustainable supply chain, Nutella should adopt breakthrough technology that will help remotely spot deforestation in its palm oil supply chain in real-time. One such program is Global Forest Watch’s PALM (Prioritizing Areas, Landscapes and Mills) Risk Tool . Using this tool will provide a check against RSPO and TFT’s standards and remove doubt from critics of RSPO who claim that RSPO certification is unreliable and unverified by independent parties .
Exhibit 4: PALM Risk Tool assessing a high-risk area (left-hand screen) vs. low-risk area (right-hand screen)
Understanding that creating a sustainable supply chain will result in more costs being borne by the producer of palm oil, Nutella will need to share the cost of “going green” with producers by paying a slight premium for sustainable palm oil . This would jumpstart interest for RSPO certification from palm oil producers, increasing the supply of sustainable palm oil for Nutella to source from and long-term sustainability of a highly valuable crop.
If Nutella were truly committed in the cause of sustainable palm oil production beyond its own supply chain, it would also dedicate resources to support NGO projects that will help more plantations comply with RSPO, in the same way that IKEA has provided resources to WWF to increase FSC-certified forest areas. This would increase the supply of sustainable palm oil, not just for Nutella but also for the world, while generating positive brand equity for Nutella.
 The Guardian, “Stop eating Nutella and save the forests, urges French ecology minister” (Jun. 16 2015), https://www.theguardian.com/environment/2015/jun/17/stop-eating-nutella-and-save-the-forests-urges-french-ecology-minister
 Sime Darby, Palm Oil Facts and Figures (2013), http://www.simedarby.com/upload/Palm_Oil_Facts_and_Figures.pdf
 Conservation International & World Wildlife Fund, Sustainable Sourcing Guide for Palm Oil Users: A practical handbook for US consumer goods and retail companies (May 2015), http://www.conservation.org/publications/Documents/CI_Palm-Oil-Sourcing-Guide.pdf
 The Star Malaysia, “Fewer hot spots in Indonesia as authorities clamp down on Sumatra forest fires” (Jul. 9, 2016), http://www.thestar.com.my/news/regional/2016/07/09/fewer-hot-spots-in-indonesia-as-authorities-clamp-down-on-sumatra-forest-fires/
 Indonesian Oil Palm Research Institute, Climate Change on Oil Palm: Its Impact and Adaptation Strategies, https://www.researchgate.net/publication/265201096_CLIMATE_CHANGE_ON_OIL_PALM_IT’S_IMPACTS_AND_ADAPTATION_STRATEGIES
 Ferrero, Corporate Social Responsibility Report (2014), https://www.static.ferrero.com/globalcms/documenti/2163.pdf
 Ferrero, “Only sustainable traceable certified palm oil for Ferrero” (Feb. 3, 2015), https://www.ferrero.com/group-news/ONLY-SUSTAINABLE-TRACEABLE-CERTIFIED-PALM-OIL-FOR-FERRERO
 Roundtable on Sustainable Palm Oil, Principles and Criteria for the Production of Sustainable Palm Oil (2013), http://www.rspo.org/publications/download/4b4296c7bb85cb3
 Ferrero, “Ferrero Palm Oil Charter” (Nov. 11, 2013), https://www.ferrero.com/group-news/Ferrero-Palm-Oil-Charter
 World Resources Institute, “Companies can now spot deforestation in their palm oil supply chains before it happens” (Jun. 8, 2016), http://www.wri.org/blog/2016/06/companies-can-now-spot-deforestation-their-palm-oil-supply-chains-it-happens
 EurActiv, “France adopts watered-down palm oil tax” (Mar. 21, 2016), https://www.euractiv.com/section/agriculture-food/news/france-adopts-watered-down-palm-oil-tax/
 Eco-Business, “Indonesia to Europe: Pay for sustainable palm oil” (Mar. 22, 2016), http://www.eco-business.com/news/indonesia-to-europe-pay-for-sustainable-palm-oil/