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Kuala Lumpur. An industry body for eco-friendly palm oil has censured Malaysia’s second-largest palm oil planter, IOI, saying it has drained peatlands and felled forests on Borneo Island to expand and that it could face further sanctions.

The Roundtable on Sustainable Palm Oil, a group of planters, nongovernmental organizations and consumers, said its grievance panel found IOI to have breached its membership obligations, making it the second firm after Indonesia’s Smart to face censure.

RSPO said IOI’s current applications to certify its plantations as environmentally and socially responsible have been suspended. However, a key buyer, consumer goods giant Unilever, said it would keep supply ties with the firm.

“Failure to deliver the required proposal … will result in the RSPO considering further sanctions, which may include the suspension of [the] IOI license,” RSPO said in a statement on its Web site on Thursday. IOI has until May 2 to come up with an acceptable solution to the issues raised, the RSPO said.

The censure follows complaints by green groups over IOI’s environmental practices in the Malaysian state of Sarawak, including a protracted land dispute with a local community. RSPO’s move will invite further scrutiny of the $30 billion palm oil industry that has tried to boost its green credentials in the wake of an aggressive campaign by activists as well as consumers shunning palm oil-based products.

Unilever said on Thursday that it would continue to buy palm oil from IOI’s mills that have already been certified green, playing down concerns that IOI’s customers would sever ties and hit earnings.

“IOI can still trade the oil from mills certified in the past,” said Jan-Kees Vis, global director of sustainable sourcing development at the Anglo-Dutch consumer goods giant.

Based on RSPO data, IOI has four green certified mills. Another three have been audited and the remaining five mills were scheduled to be audited by the end of this year.

Vis declined to say how much palm oil Unilever sourced from IOI, but it is one of the biggest buyers of the tropical oil. IOI shares were up 3 percent after the Unilever statement, recovering from losses notched the previous day.

“For now, we do not expect the suspension to affect the group’s operations as it will merely delay the certification of new estates,” Malaysian investment bank CIMB said in a note. “[But] this is a negative surprise and may tarnish the group’s image as a sustainable palm oil producer.”

IOI said on its Web site that the company accepted the RSPO’s decision and would work with the industry body to find a solution, especially for the land dispute issue. However, it complained that activists were making unfair and false statements against the planter.

“Merely pressuring one party will not guarantee or facilitate the successful conclusion of the discussion,” IOI said.

Rainforest Action Network, a US-based green activist group, welcomed the RSPO statement and called on agribusiness giant Cargill, the largest palm oil importer to the United States, to review its relationship with IOI.

“This ruling reinforces RAN’s demand that Cargill institute basic safeguards on its supply chain to ensure it is not selling palm oil from stolen indigenous lands to American consumers,” said Lindsey Allen, RAN forest program director.

The spotlight has fallen on IOI as Golden Agri Resources, the parent of Indonesia’s Smart, joined the RSPO and pledged to commit to producing green palm oil as both companies raced to win back their customers. Major palm oil consumers like Unilever and Nestle stopped buying from Smart because of environmental concerns and have yet to resume supply ties, according to traders.

Reuters