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As a sustainable investor, Robeco is convinced that engaging with companies on the most material sustainability issues enhances their competitiveness and profitability. In addition, it generates measurable benefits for investors and society as a whole. Our engagement with Olam is a case in point.
Olam International is one of the most diversified companies supplying raw and processed agricultural commodities to large food manufacturers and retailers. In March 2014, Temasek, a Singapore based sovereign wealth fund, acquired an 80% stake in the company. Our portfolio managers supported this. In 2016 Temasek reduced its stake to 51.4% in another deal with Mitshubishi, which bought 20% of the shares. Since we started our engagement theme ‘Social issues in the food and agri supply chain’ in 2014, we have had multiple meetings with Olam’s Global Head of Corporate Social Responsibility & Sustainability to discuss social risks in palm oil, cocoa, and cotton cultivation.
Cocoa is one of the most important parts of Olam's business. Cultivating this crop is mainly in the hands of smallholders and is characterized by low yield and involvement of child labor. We visited Olam in London in June 2014, to discuss their strategy towards managing cocoa more sustainably in its supply chain. The company appeared to be aware of the cocoa challenges and one of their initiatives in this area is their ‘Cocoa program’, which focuses on improving yield and thus on improving the economic outlook for the smallholders. The company has also identified a clear business case for collaboration within the cocoa sector to further the building of smallholder capacity. Olam is involved in a large number of industry initiatives that are combatting child labor on a large scale.
With 3% annual global growth in cocoa demand, and falling production levels in key countries such as Ivory Coast and Ghana, where Olam operates, the cocoa price on the global market is likely to rise. This will make it increasingly attractive for smallholders to produce cocoa and for Olam to buy it and trade it on the global market.
Olam was also one of the companies for engagement within the sustainable palm oil working group of PRI and we joined the group as a lead investor for dialogues. Olam’s Global Head of Corporate Social Responsibility & Sustainability visited our office in October 2014. We used this opportunity to get insights into Olam’s approach towards managing its palm oil plantations in Gabon.
We also communicated investors’ expectations in terms of RSPO (Roundtable on Sustainable Palm Oil) certification and smallholder capacity building. With the help of a consultant, the company identified the parts of their land that should be classified as high conservation value forest (HCVF) and protected wetlands which are not developed, but rather managed as conservation areas. On smallholder capacity building, the company committed to an ambitious plan to develop 30,000 hectares for smallholder palm oil production. This will have a major impact on the agricultural sector in Gabon, which represents just 5% of GDP – small compared with other African countries. This model makes Olam International a sector leader when it comes to smallholder capacity building.
Later in June 2015, the company renewed its palm oil policy which also covers suppliers. By doing this, Olam is part of a growing group of companies that have developed a policy stipulating strict sustainability requirements on plantations, traceability of trade and transparency on the status of the objectives outlined in the policy.
Another area of importance to us was Olam’s cotton purchasing in Uzbekistan. This country is known for widespread practices of child and forced labor. This was also confirmed by a Human Rights Watch report. To take our dialogue forward, we visited the company in London in September 2015. The company mentioned that it reduced its activities in Uzbekistan by 90% and moved to other neighboring countries. However, they faced another challenge. Trade with neighboring countries must be exported via a port in Uzbekistan and the government only issues a permit if the company continues to buy in the country itself. Meanwhile, the child labor schemes organized by the government have largely been resolved by deploying military personnel and teachers during the three weeks of the harvesting season.
Olam, along with other leading international cotton purchasers have joined the Association for Cotton Merchants (ACME) to work closely with International Labor Organization (ILO), the UN Global Compact Labour Working Group, as well as international governments, to influence Uzbekistan government to enforce recognized labor standards. Olam noted that progress by the Uzbek government has been slower than desired. However, it firmly believes that a withdrawal from Uzbekistan at this stage would be ineffective, and would instead inadvertently undermine the advances that have been made, particularly as the Uzbek government has not been short of other international buyers. Having voluntarily reduced its purchases since 2012, Olam is still able to retain a level of access (through ACME) to apply pressure on the government. We expressed our appreciation for the proactive approach by Olam.
The regular meetings with Olam gave us the desired confidence in the company’s commitment and willingness to manage the inherent risks in the cocoa, cotton, and palm oil business. Olam’s openness and readiness to engage with us turned out to be mutually beneficial as the company has used our guidance to fine-tune its strategy. In turn Olam has increased our understanding of the company and its effective program to increase smallholder capacity building.