Responsible sustainability management is not something you do on the side
Taking a closer look at responsible sustainability management
This article is based on a report titled The best way to pay back employees is to look after their children: Wilmar’s path towards responsible sustainability management. The report forms part of a series of company reflections for the Global Child Forum on how companies address children’s rights and child-related issues.
What you will find here is one organisation’s journey to incorporate responsible sustainability management into its way of doing business. But first, various forces – the organisation’s own realisations, external pressure, damning NGO reports, and the willingness to talk, acknowledge shortcomings and put measures in place – had to converge to make this happen.
In general, the oil palm industry does not come with a sterling reputation. Its shadow side has been associated with deforestation, health and safety abuses, water and air pollution, child labour, and habitat destruction that threatens both biodiversity and the livelihoods of indigenous people. It has also been associated with tension between corporates, government, and smallholders. If you are an organisation in this industry, how do you change this narrative? How do you operationalise your commitments to people and the environment where these have been neglected for years?
Palm oil producer Wilmar, headquartered in Singapore, has been on a learning curve to incorporate responsible sustainable management into its way of working. By its own admission, it still has work to do. However, lessons have been learnt and wisdom has been acquired.
“In general, the oil palm industry does not come with a sterling reputation … If you are an organisation in this industry, how do you change this narrative?”
But first, who is Wilmar?
Wilmar is a diversified agribusiness with oil palm cultivation and palm oil production at “the heart of the business”. Its story began in 1991 as a palm oil trading company in Singapore with five employees. It has since grown into a leading agribusiness group in Asia and one of the largest globally. Its activities encompass the entire value chain of the agricultural commodity business, from research and development to cultivation, harvesting, processing, manufacturing, storage, transport and merchandising. The Group operates over 900 manufacturing plants in 32 countries across Asia, Australia, Africa, Europe, and North America.
“The nature of oil palm cultivation – always rural, often remote, and large in scale – means that the industry’s development is entwined with the development of company villages that are home to workers and their families.
What were the main challenges they were facing?
As a business with a global footprint, Wilmar typically needs to deal with challenges such as bringing all operations up to the same high standards while also dealing with issues outside the four corners of its own mills and plantations as it increasingly takes on the role of global leader. These include issues that arise in its supply chain, and those that are made harder by the relative weak rule of law in many of the countries in which Wilmar does business.
“The “why” of social responsibility first emerged from the demand side as external stakeholders started voicing concern over human rights and environmental issues, and workforce leaders became well educated about their rights.
The plantation economy and sustainable development
Wilmar has a large footprint in Malaysia. The oil palm industry in Malaysia comes with both good and bad sides. With more than one million workers, the industry is the largest employer in the country after the government. The industry produces roughly 7% of the country’s GDP.
The nature of oil palm cultivation – always rural, often remote, and large in scale – means that the industry’s development is entwined with the development of company villages that are home to workers and their families. From the earliest days, migrant workers were part of the employment mix and needed to be housed. Today, workers come to Malaysia from Indonesia seeking jobs. Usually, it is young men who first make the journey. Some start families in Malaysia; others after establishing themselves send for their family from back home. These social dynamics necessitated churches and temples, clinics, schools, and childcare facilities in addition to migrant worker housing.
Oil palm production and its village social structure is part of Malaysia’s national success story. The percentage of the rural population living below the poverty line dropped from nearly 60% in 1970 to 5,5% today. Progress was achieved across multiple dimensions simultaneously – for example poverty, education, health, sanitation, life expectancy, and gender parity. Acute ethnic tension was reduced.
“The company management systems became increasingly permeable to the perspectives, concerns, ideas, and solutions that civil society actors and others bring to the table.
The “why” of social responsibility first emerged from the demand side
From the company’s beginnings through most of the 1990s, Wilmar managers reflect that ‘sustainability’ concepts were not part of its core vocabulary. For the most part, Wilmar was inheriting its company culture as it bought up plantations and estates one by one. Within these legacy operations, it was understood that some level of worker care was a social responsibility of the company, and some degree of fairness a business necessity.
In the late 1990s, Wilmar became an increasingly global company. The “why” of social responsibility first emerged from the demand side as external stakeholders started voicing concern over human rights and environmental issues, and workforce leaders became well educated about their rights.
“Managers realised that their good work would only be recognised if it could be compared with international standards.
Concepts such as sustainability, international standards and human rights entered the Wilmar vocabulary, and senior leaders found that they did not have the management information to assess company performance in this regard, let alone to reassure stakeholders.
From a human perspective, this was not the company that Wilmar leaders wanted to build. From a corporate perspective, such a situation presented reputation and financial risks. As a company that mills and refines more oil palm from outside its own plantations than from within them, it meant that Wilmar needed to become attentive to performance within the operations it owns and controls, as well as across a diverse supply chain including thousands of smallholders. And as a large player within an industry under intense scrutiny by environmental and human rights advocates, the company would need to influence developments outside of its own direct sphere of control to avoid getting caught up in advocacy or policy initiatives directed at the industry as whole.
“More effective sustainability management started to move from being a question mark, to an obligation, to a responsibility, to a point of pride.
What compelled Wilmar to change?
As Wilmar’s senior management became attentive to global expectations, international standards, and benchmarked performance, a team was tasked to learn about sustainability in the global context and move the sustainability conversation forward within the company. This included children’s rights. At first, there was resistance. But slowly, mindsets changed and sustainability was brought into the management conversation as a result of the following:
- The application of a management lens to social performance: Commitments are made, goals are set, and performance is measured through progressively rigorous business processes.
- The willingness to engage: The company management systems became increasingly permeable to the perspectives, concerns, ideas, and solutions that civil society actors and others bring to the table. The experience of positive partnerships on labour, social, and environmental issues has convinced Wilmar leaders of the need listen and respond to stakeholders, and to find solutions together with others.
- External scrutiny: Managers realised that their good work would only be recognised if it could be compared with international standards. Resources to improve their operations could only be mobilised if they had sound operational and financial assessments of social and environmental issues. Paying attention to these standards and benchmarking against them could be positioned as a benefit to individual site managers and to the smooth functioning of their operations.
- Positive peer pressure: Managers exposed to better performing divisions within Wilmar and to well-performing companies in the global context began to hear, “You can do business as usual, or you can do better”. More effective sustainability management started to move from being a question mark, to an obligation, to a responsibility, to a point of pride.
- The adoption of standards: If one could measure and improve operational performance, or financial performance, one could also do the same for social performance. Wilmar adopted the ISO Environmental Management Systems. Also, ISO principles and practices provided a framework for the progressive integration of new standards into Wilmar’s planning and operations, be they environmental or social. Indeed, Wilmar was the first company in the industry to apply its “No Deforestation, No Peat, No Exploitation Policy” (NDPE) policy beyond its own operations to its entire supply chain, with the express goal of “a supply chain free of deforestation and conflict”.
- Buy-in from senior leadership: To bring all of the pieces together, senior leadership played its role: speaking internally and externally about sustainability; asking pointed questions in management meetings in ways that put sustainability issues – including education and child protection – on the same level of importance as operations and finances; and spending time in the field to assess challenges and celebrate successes together with line managers. Strong leadership from Wilmar’s chairman helped to harmonise systems across the company. He has insisted, for example, that there be no separate sustainability budget; it is considered an integral operating expense of the company.
- Transparent reporting: Wilmar was an industry pioneer in transparent reporting when in 2015 it introduced its sustainability dashboard to track its progress towards RSPO and national certification of mills and estates; progress towards traceability in the supply chain; and progress towards specific environmental commitments, for example, on water use and emissions. The company publishes aggregate data on median wages for all the countries in which it has employees in relationship to the local minimum wage, as well as on social issues, such as school attendance of children living with their parents on its estates.
- Outward accountability: Wilmar accesses loan facilities with banks that are tied to sustainability criteria.
“Collective action is the only way to go for sustainability and change.
The paradox of surprise despite enhanced management frameworks
Progress was being made in the 2000s with respect to both integration of international standards into management processes, and the company’s own vision for its social responsibility. Yet, there were signs that Wilmar’s leadership mindset, institutional culture, and management systems still needed to develop further to address the complexities of its own operations and of the broader industry.
In 2004 and 2005, two authoritative reports linked the oil palm industry to, among others, deforestation, pollution, the undermining of land rights, the killing of aquatic wildlife, and corruption. Both reports named Wilmar as a major industry player without further specifics about the company’s role in the issues raised.
Wilmar’s leadership was often enough surprised by such NGO reports and the associated negative press. The company in turn issued its own statements, for example, that it adhered to a zero burning policy and did not engage in any logging activities. In many cases, Wilmar and its critics appeared to be largely talking past one another.
These dynamics came to a head when, in 2007, NGOs, smallholders and indigenous peoples‘ organisations living and working in Indonesia filed a complaint with the Compliance Advisor Ombudsman (CAO) of the World Bank Group (WBG), which had made four investments in Wilmar through the International Finance Corporation (IFC). In 2009, the CAO issued a damning audit report. The report was a key catalyst in the suspension of WBG financing of oil palm development globally while the issues identified could be investigated and addressed.
From this case, as difficult as it was, emerged important insight that made the disconnect between Wilmar and advocacy groups more comprehensible. Through its international associations and partnerships Wilmar made strides in incorporating international standards and good practice benchmarks into its management structures. But these relationships did not help Wilmar to have its ear sufficiently to the ground to hear what was being perceived, felt, and said with respect to its increasingly far-flung, day-to-day operations.
“Why did the company – despite its sophisticated sustainability management systems, collaborative relations with partners, and progress across a variety of indicators – still have such blind spots?
Increasing the permeability of company management systems
Wilmar’s response to the CAO case led to a new era of stakeholder relations. On the front page of the first edition of Wilmar’s CSR Tribune in 2009 appeared this quote from the organisation’s chairman and CEO: “We are now dedicated to a collaborative process, listening carefully to key stakeholders and addressing their concerns in our business strategies and actions.”
The accompanying article explained that “openness and intensive engagement with relevant stakeholders” – facilitated by the parallel CAO mediation process – “led to the settlement of a long-standing conflict with local communities in West Kalimantan, Indonesia”. Even though the company acknowledged that there were still issues on which there were differences of perspective, it went out of its way to state that, “Throughout the process, all parties concerned exhibited goodwill and determination to resolve their differences.” It noted that settlement agreements were reached with communities with respect to land and compensation, as well as with the broader stakeholder group on a variety of policy issues.
Perhaps more profoundly, the company reflected: “From this incident, Wilmar has learned to appreciate the importance and value of continual engagement with civil society, especially through the principles of Free Prior and Informed Consent (FPIC) to address issues as they emerge.” In the future, the article stated, Wilmar’s strategies, plans, and operations would be designed and implemented in accordance with “informed, non-coercive negotiations between companies and their multi-stakeholders – including indigenous communities, governments and other companies – prior to oil palm development”.
Since that time, Wilmar management have set their sights not only on listening to civil society actors and other critics, but on engaging them in joint problem-solving. As one manager expressed it, “Collective action is the only way to go for sustainability and change”.
“Managers realised that they would have to revisit, and perhaps moderate, the narrative of progress on sustainability management within the company.
Blind spots and lessons relearned
Partnerships with international labour experts and other stakeholders were launched and solidified. At the same time, Wilmar’s management continued to digest difficult truths to make progress in its stakeholder relations as well as in its management systems and processes.
Intense internal conversations followed. “Let’s not fool ourselves”, they said. Up until 2016, when the company talked about children, it was primarily talking about education, or about the need to ensure that children were not hired as workers. Wilmar could not claim that it was considering the full impact of the company’s policies, practices, and operations on children’s rights and child-related issues. This led in 2017 to the adoption of Wilmar’s Child Protection Policy, and it influenced the emergence in 2019 of Wilmar’s Women Charter.
But a larger question also arose: Why did the company – despite its sophisticated sustainability management systems, collaborative relations with partners, and progress across a variety of indicators – still have such blind spots?
Managers realised that they would have to revisit, and perhaps moderate, the narrative of progress on sustainability management within the company. Yes, it was true that Wilmar had made substantial progress. From that perspective, Wilmar was maturing. But from another perspective, some parts of the organisation – whether new operations in a context less familiar to the company, a new acquisition with its inherited problems, or a new manager who had not yet internalised Wilmar’s balanced approach to operational, financial, and social performance – would always be less mature, and therefore in danger of falling short of the company’s performance expectations for “profit, people and planet”.
As it grew in size and global reach, the company would need to become more vigilant to the need for every person in the extended enterprise to make the “paradigm shift” to seeing workers, their families, and the surrounding communities as “people to whom I have responsibility”.
Wilmar is adjusting to the realities of leadership and management within an ambiguous and therefore uncomfortable space. Developing wise solutions for the planet, for children, and for their families and communities requires a different quality of engagement: overcoming fears and frustrations with diverse parties to listen, to learn and, with practice and commitment, to engage in more creative and constructive conflict that can lead to collaboration.
Said Jeremy Goon, Wilmar’s Chief Sustainability Officer, “There are clear commercial benefits that can be reaped from becoming a more responsible and sustainable company. Not only does it drive positive changes for our employees, as well as their families, it also improves management systems – it makes the business more efficient. The industry, especially companies that have yet to embark on their journey to protect the rights and wellbeing of children, need to view this as an opportunity. It is the principle of improving business that should drive their transformation.”
Supporting the efforts of governments and social actors, the company has now built over 143 crèches to cater for 4 655 children within its global operations. It also manages or supports over 70 schools.
The organisation’s hands-on approach to support better education is resulting in a sense of shared responsibility and shared interest across the Wilmar community. Whereas at the beginning of the sustainability journey managers might have said, “We follow the law”, they now assert, “The best way to pay back employees is to look after their children.”
- This case story was written for the Global Child Forum by Professor Brian Ganson of the Africa Centre for Dispute Settlement at Stellenbosch Business School.
- Find the original report here: Ganson, B (2021). The best way to pay back employees is to look after their children: Wilmar’s path towards responsible sustainability management. GCF Case Story Series No. 4. (GCF, ed.). Stockholm: Global Child Forum.
- Prof Brian Ganson is Professor and Head of the Africa Centre for Dispute Settlement at Stellenbosch Business School. He received his J.D. from Harvard Law School. His research explores the positive and negative impacts of the private sector on peace and development in conflict-prone environments.
“Whereas at the beginning of the sustainability journey managers might have said, “We follow the law”, they now assert, “The best way to pay back employees is to look after their children.”