JAKARTA — When the Roundtable on Sustainable Palm Oil (RSPO) was set up two decades ago, as the palm oil industry struggled in the wake of major Southeast Asian forest fires that provoked global outrage, reining in tropical forest losses was a top priority.

But today, critics question the palm oil watchdog’s continued relevance as it struggles to manage other fast-rising concerns, from the industry’s climate change impact to its limited benefits for small-scale farmers — and whether price-sensitive Asian buyers can be persuaded to buy greener oil.

Octogenarian MR Chandran — the head of Malaysia’s palm oil growers’ association when he helped create the global standard for sustainability — said reducing emissions and tackling climate change will be crucial in the coming decades.

“Addressing climate change (is something) we have to do,” Mr. Chandran, now an advisor to the watchdog, said at the organization’s 20^th anniversary meeting last month. “Our carbon footprint has to be addressed.”

Palm oil is the world’s most widely used edible oil, found in everything from margarine to soap, but it has faced scrutiny from green activists and consumers, who say its production has provoked rainforest and peatland loss, fires and worker exploitation.

Since its start in 2004, the RSPO has grown to more than 5,500 member growers, traders, retailers and advocacy groups.

It has gradually tightened standards to include a ban on felling forests and converting peatlands for plantations, as well as greater protection for labor and land rights.

Cutting down forests has major implications for global goals to curb climate change, as trees absorb about a third of the planet-warming emissions produced worldwide, but release carbon back into the air when they rot or are burned.

The Kuala Lumpur-based RSPO recently completed a five-year review of standards and expects to roll out changes by mid-2024. No-deforestation rules — which founding father Mr. Chandran called the RSPO’s greatest achievement — will not be watered down, said chief executive officer Joseph D’Cruz, better known as JD.

But he also stressed that the industry should look to reduce emissions and tackle climate change. “We certainly have a lot of work being done to understand and minimize those GHG (greenhouse gas) emissions,” Mr. JD told the Thomson Reuters Foundation.

“But there is a qualitative shift from there to really looking rigorously at carbon through our entire lifestyle and supply chain, and demonstrating that we are really optimizing that — there is a lot more that we can do as an industry,” he added.

Mr. JD, who was appointed in March last year, said improving soil carbon and cutting methane releases from palm oil mills are some of what’s needed.

Over the last two decades, pressure from environmentalists and consumers has pushed big companies that produce, trade or buy palm oil to tackle labor abuses on plantations and commit to ending deforestation — with some success.

Deforestation rates in both Malaysia and Indonesia — the world’s top two palm oil producers — have fallen in recent years, according to nonprofit World Resources Institute.

But smallholders, who account for about 40% of palm oil plantation areas in Indonesia and Malaysia, have largely been left behind, say industry analysts.

Globally, there are more than 7 million small-scale palm oil growers and only about 170,000 are RSPO-certified.

“The greatest difficulty for RSPO is to be relevant to independent smallholder palm producers,” said Matthew Spencer, global director for landscapes at sustainable trade foundation IDH.

“As the gold standard for palm, it struggles to be simple and cheap enough to attract big numbers of smallholders.”

Joko Prasetyo is head of the Association of Independent Oil Palm Smallholders, a collective of RSPO-certified farmers on Sumatra island that is backed by Indonesian producer Musim Mas.

Mr. Prasetyo, who has a 10-hectare farm, has seen his yields rise 60% to 75% by adopting better farming practices through RSPO certification. But he does not receive a better income for the ethical oil he produces.

“I really want to have a premium price but, for now, with the benefits of increased yields we can offset it,” the 49-year-old said on the sidelines of conference.

Becoming RSPO-certified involved organizing a collective, planning fertilizer use, and carrying out tracking and accounting, all of which would not have been possible without the help from a major palm oil company, Mr. Prasetyo said.

“Small farmers really get very little benefit flowing back down to them,” said Grant Rosoman, a forest advisor at Greenpeace International.

Mr. Prasetyo is not alone in missing the premium price benefits RSPO certification is supposed to bring. RSPO-backed palm oil represents about 20% — or 15.4 million tons — of global production, but just 80% of certified oil is sold at a premium, according to the watchdog.

Smaller growers are often reliant on one mill located near their farms, which can impact demand and prices paid for certified fruit bunches, Mr. JD said.

While the RSPO certification scheme is backed by many major European buyers, boosting demand for sustainable palm oil in India, China and Indonesia — where buyers are more price-sensitive — will be important in the years to come.

These Asian markets care about sustainability and are trying to figure out how to build sustainability into their sourcing, said JD.

But without a boost in demand for certified oil from Asian markets, RSPO could lose its relevance, especially as the European Union and the United States increasingly turn to regulation in place of reliance on voluntary standards like RSPO, green groups said.

A new European Union law to curb deforestation, agreed last December and due to take effect within two years, will force global suppliers of commodities such as palm oil, soy and cocoa to prove their supply chains are not fuelling forest destruction.

The RSPO must now “crack the Asian market,” where the majority of palm oil is consumed, said IDH’s Spencer. — Thomson Reuters Foundation