PrOCTER & gAMBLE

CHAPTER 1IntroductionIndonesia is one of the fastest lost areas of tropical rain forest in the world. The rate of deforestation in Indonesia is number two in the world after Brazil until 2011 ago. According to research led by Matt Hansen of the University of Maryland, found that Indonesia lost 15.8 million hectares between 2000 and 2012, ranking fifth behind Russia, Brazil, USA, and Canada in terms of forest loss. As for the approximately 7 million hectares planted during the period (Greenpeace, 2014). However, of the five countries in the woods above, based on a percentage, then Indonesia is in the first rank of the rate of forest loss of 8.4 percent. By comparison, Brazil only lost half of the proportion. Of the 98 percent of forest loss in Indonesia, deforestation occurred in forest areas of high density in Sumatra and Kalimantan, the location where the conversion due to industrial timber plantations and oil palm plantations developing very widespread during the last 20 years.Greenpeace investigations found that the palm oil supply manufacturers of consumer products giant, Procter and Gamble (P & G) is obtained from sources that are allegedly destroying forests of Indonesia, Malaysia and Africa (Saturi, 2014). Palm Oil needed for this company from 2012-2013, amounting to 432 thousand tons, only 10 percent certified. The rest, 90 percent indicated because of undetected damage forests. Production of palm oil and its derivatives such as detergent, shampoo, Handbody, bar soaps and others. One of the famous Head and Shoulders shampoo. As a global manufacturer, Greenpeace took P & G in order to use the position for the sake of saving the forest by using the palm from the responsible sources. Its products, available over 18 countries and serves 4.8 million customers. Procter & Gamble, founded in 1837 and based in Cincinnati, OH, is recognized as the world's largest producer and distributor of household and personal products. PG is organized into three global business units: Beauty; Health and WellBeing; and Household Care. PG Procter and Gamble operates in over 80 countries and offers products and services to more than 180 countries worldwide. PG has a strong global market presence. In 2009, PG generated 61% of its total sales in international markets.

P&G and Competitors (2009)Source : Student Investment Fund Stock Report, Washburn School of BusinessThe company started building factories in other countries besides United States due to product demand has exceeded the capacity of the Cincinnati facility. The leaders of the company started to diversify, in 1911, began producing Crisco. When radio became more popular in the 1920s and 1930s, the company sponsored a number of radio programs. As a result, these events often become known as a "soap opera.Palm Oil is used broadly across the consumer products industry as a high quality, cost effective, versatile oil that can used in a wide variety of food, personal care, and cleaning products. According to the World Wildlife Fund, palm oil is used in about 50% of all packaged food products in supermarkets today. Palm is a highly productive crop, requiring much less land use than alternatives, and can contribute to economic development and poverty alleviation in areas where it is produced. While expansion of palm production to meet increasing global demand has raised real concerns regarding deforestation, when produced and managed responsibly, palm production can have positive economic, social, and environmental results.As giant in this industry, P & G must applying the Corporate Governance. In this paper, writer will analysis the GCG of P&G di Indonesia : how they facing the conflict and what they do. The principles of good corporate governance in Indonesia refers to the principle made by KNKG and some other laws. The principle according to KNKG are : transparency, accountability, Responsibility, Independence, Fairness and Equality. While by law, for a public company listed in bursa efek to the rules issued by Bapepam LK and for the Bank must according to Peraturan BI dan Basel III.

CHAPTER 2Ethical Theory

The ethics of ecology Five arguments from those who advocate corporate social responsibility from an ecology- based organizational ethic include the following:1. Organizations responsibilities go beyond the production of goods and services at a profit.2. These responsibilities involve helping to solve important social problems, especially those they have helped create.3. Corporations have a broader constituency than stockholders alone.4. Corporations have impacts that go beyond simple marketplace transactions.5. Corporations serve a wider range of human values than just economics.Enforcement of Environmental LawA number of governmental regulatory agencies have been created to develop and enforce policies and laws to protect the general and workplace environment. If United States has the EPA (Environmental Protection Agencies), Indonesian government has BKSDA (Balai Konservasi Sumber Daya Alam) in order to control and keeping eye on the conservatory area throughout Indonesia.Beside that, the BKSDA also responsible in monitoring and supervising the distribution of plants and animals that are protected in the Indonesia; including the breeding and maintenance of plants and animals protected by individuals, companies and institutions related conservation. BKSDA is a government institution under the Departmen Kehutanan Republik Indonesia. The specific law regarding environmental protection in Indonesia will be explained later in section 4.3.1. Causes of Environmental PollutionSome of the most pervasive factors that have contributed to the depletion of resources and damage to the environment include:1. Consumer affluence. Increased wealth as measured by personal per capita income has led to increased spending, consumption, and waste.2. Materialistic cultural values. Values have evolved to emphasize consumption over conservation a mentality that believes in bigger is better, me first, and a throwaway ethic.3. Urbanization4. Population explosion. Population growth means more industrialization, product use, waste, and pollution.5. New and uncontrolled technologies. Technologies are produced by fi rms that prioritize profi ts, con ve nience, and consumption over environmental protection. Although this belief system is changing, the environmental protection viewpoint is still not mainstream.6. Industrial activities. Industrial activities that, as stated earlier, have emphasized depletion of natural resources and destructive uses of the environment for economic reasons have caused significant environmental decay

CHAPTER 3Case Study

Palm oil is an ingredient commonly used in soap, shampoo, cosmetics and goods of daily needs were produced by consumer companies such as P & G. Palm oil is not the source of the problem, but the problem is dirty palm oil that comes from forest destruction. Greenpeace investigation showed P & G purchased from several companies that palm oil comes from controversial plantations.Based on the Greenpeace report, palm oil supply chain to P & G identified in connection with cases of forest destruction, forest fires and damage to wildlife habitat such as the Sumatran tiger and orangutan, below are some of following issues.2013PT. Adhyaksa Satya Dharma (ADS), located in Kalimantan with an area of 5,466 hectares. The concession is still happening in the forest clearing orangutan habitats. Almost the entire concession orangutan habitat, and already 4,330 ha opened, only 200 hectares of remaining forests (saturi 2014).PT. Wana Catur Jaya Utama, a member of the RSPO, which has a concession in Central Kalimantan 9490 hectares. Since 2011-2013, covering an area of 1,400 hectares of forest have been cleared for palm oil. Then, 5,900 acres of forested and threatened into palm oil plantations as well. This Forest is very important for orangutan but not guaranteed can be protected.In Riau, July 2013, PT Adei, a subsidiary of KLK, tripping the case of forest fires, and in December 2013, company officials have become suspect. Still owned KLK, PT Karya Makmur Abadi Estate II in Central Kalimantan area of 13,127 hectares. The Company does not have a study of high conservation value (HCV) and about 1,000 hectares of forests are cleared for two years. Now, there is an active opening around the boundary in orangutan habitat.2014. Procter & Gamble has been shown to actively damaging a primary forest in Papua, Indonesia. The findings are revealed in conjunction with Greenpeace activists in several cities in the world perform a number of protest on March 26, 2014, demanding the company to guarantee its products, such as Head & Shoulders, be friendly to the forest (Greenpeace, 2014).Greenpeace field team and mapping analysis has documented large-scale permits recently in the concession owned by PT Rimba Matoa Lestari (PT RML), which is located in Sarmi district and Jayapura, Papua Province. Landsat imagery also showed activity in the opening of the mapped region as primary forest land cover data according to the Ministry of Forestry in 2011. PT RML is controlled by industrial conglomerate RGE Group Indonesia, oil palm division includes Asian Agri. This group sells palm oil to Cargill, suppliers of P & G.On March 11 2014, Greenpeace unfurled a large banner right in the midst of the destruction of orangutan habitat in the concession area of PT. Multi Persada Gatramegah (MPG) (Transindonesia, 2014). Dozens of Greenpeace activists with indigenous peoples Karumuan Village, North Barito, South Kalimantan unfurled banners reading "Head & Shoulders dandruff and eliminate rainforest over forest clearing for palm oil plantations". Based on the analysis of Landsat, deforestation in the concession MPG has occurred since 2012, including in the area of High Conservation Value (HCV), home to a number of endangered species that should be protected. Their involvement for the extinction of orangutans and Sumatran tigersOn March, 2014 activists in Indonesia climbs building where P & G offices, and hung a banner measuring 10x20m reads 'Head & Shoulders, 100% Forest Destruction'.The ConsequencesGreenpeace found that orang-utan habitat cleared in plantations that are connected to the P & G supply chain. Land used for the cultivation of oil palm plantations BW Group, the same company that is connected with the death and the grave orang-utan adjacent to the Tanjung Puting National Park. In other cases, Greenpeace documented ongoing forest clearance in the concession of two producers who are known as two direct supplier of P & G.According to greenpeace statement, companies without strong policies to eliminate deforestation relationship with the products they were exposed an illegal practice in the area of high risk, such as Riau Province in Sumatra. The main example is the concession PT. Rokan Adi Raya, which includes the area of tiger habitat and peat forests, and includes areas of forest were destroyed and exposed to uncontrolled forest fires.Biodiversity is threatened, protected habitat of endangered species, such as tigers, and Sumatran orangutan. The tiger and orangutan is symbolic, that no wildlife disturbed due to forest clearing. Value of forest ecosystems have been invaluable.

CHAPTER 4Ethical reviewAccording to an article released by www.theguardian.com, In the wake of severe criticism by a Greenpeace report, P&G commit the end of 2015 it would ensure that the palm oil and palm kernel oil it sources is traceable to the supplier mills. It also pledged to ensure no deforestation is involved anywhere along the supply chain by 2020. The policy appears to go further than the assurances made at the time of Greenpeaces report, that it would have 100% sustainably purchased palm and palm kernel oil by 2015, and 100% recycled or third-party certified paper products by 2020.P&G stated in their sustainability 2014 report, The will buy palm oil from companies that do not do the destruction of tropical rain forests. Commitment no deforestation P & G in the palm oil supply chain is not negotiable. Their goal is to build long-term effective solution to the issue of sustainability in oil palm. They are committed to positive change through the entire supply chain, not only for company, but also for the industry as well as small-scale farmers who depend on this commodity. They will do following works : Partnering with the Malaysia Institute for Supply Chain Innovation (MISI), part of the Massachusetts Institute of TechnologyMISI is conducting two six-month in-field studies to understand the highly segmented supply chain and the challenges facing farmers so we can help them continue working while also protecting the environment. Communicate new goals and the expectation that our supply chain will not contribute to deforestation with all our palmContinue to work with their industry peers and NGOs to develop consistent industry standards and practices that will ensure sustainable palm oil sourcing for the long term.Sustainable Foresty (based on their report)Although they do not own or manage forests, many of their products and packages are dependent on raw materials from the forest based supply chain. Therefore, they recognize the key role they can play, through their procurement practices, to ensure the sustainability of the worlds forest resources. For example, P&G and other members of the Consumer Goods Forum have committed to help achieve zero net deforestation in their supply chains by 2020. At P&G they have identified three strategic commodities where their sourcing practices can have the greatest impact on ensuring responsible use of the worlds forest resources: wood pulp for tissue and absorbent hygiene products, wood pulp used in paper packaging and palm oil for their laundry and beauty products. The supply chains for these materials are significantly different. Ultimately, however, all of these programs are tied to our commitment to ensuring the sustainability of the worlds forests.WWF commends Procter & Gamble for exceeding its FSC goal for tissue and towel products, said Linda Walker of WWF, who is director of GFTN-NA. Action by companies to increase the volumes of FSC-certified and recycled material in their supply chains plays an integral role in ensuring the worlds forests are managed sustainably. By meeting and exceeding its goal a year ahead of its commitment, Procter & Gamble is demonstrating its ongoing dedication to the advancement of sustainable forestry. The Forest Stewardship Council applauds Procter & Gambles remarkable progress in FSC-certified fiber procurement for its tissue and towel products, said Corey Brinkema, President of Forest Stewardship Council - US. P&G is proof positive that setting robust sustainability goals and a commitment to implementation can bring great results.Responsible Forest Management in Their Wood Pulp Supply ChainsThere are a number of third-party forestry certification systems that are now available around the world. P&G relies on the use of these systems within their supply chain wherever possible: Forest Stewardship Council (FSC global) Sustainable Forestry Initiative (SFI North America) Programme for the Endorsement of Forest Certification (PEFC global) Brazilian National Forestry Certification Scheme (CERFLOR) Canadas National Standard for Sustainable Forest Management (CSA-SFM)They give preference to pulp from Forest Stewardship Council (FSC)-certified forests when it is available and meets product performance requirements and competitive market conditions. FSC has the worlds most widely recognized forest certification scheme and is supported by internationally recognized environmental nongovernmental organizations (NGOs). P&G is committed to the following core principles: Ensuring the safety of forestry and manufacturing operations for employees and the environment. Ensuring that wood is legally harvested and that all legal requirements are met. P&G will not knowingly use illegally sourced materials in our products. Ensuring that our supply chain is incorporating the principles of sustainable forest management and continuous improvement in their own operations and that these are verified by independent forest and chain-ofcustody certification. Ensuring that trees are not harvested from high-conservation value forests. P&G supports multi-stakeholder efforts to develop information sources and tools that will help suppliers identify these areas on their own forestlands and in their procurement of wood raw materials from third parties (e.g., www. hcvnetwork.org). Ensuring that there is no sourcing from genetically modified trees. Ensuring that supplier practices reflect our social values and support of universal human rights through work with local governments and communities to improve the educational, cultural, economic and social well-being of those communities. Ensuring that our supply chain does not contain fiber from conflict timber (timber that was traded in a way that drives violent armed conflict or threatens national or regional stability).Commitments & Actions (sustainability report, 2014):Commitment : Their Commitments:1. Develop a traceable supply chain2. Ensure our suppliers meet RSPO criteria and have policies and procedures in place to ensure: No development of high conservation value (HCV) areas and high carbon stock (HCS) forests. No new development of peat lands regardless of depth. No burning to clear land for new development or replanting. Compliance with P&Gs existing Sustainability Guidelines for External Business Partners. Respect for human and labor rights.a. Respect for land tenure rights, including rights of indigenous and local communities to give or withhold their free, prior and informed consent for development of land they own legally, communally or by custom.2. Work with suppliers, industry peers, NGOs, academic experts and other stakeholders to promote consistent industry standards and practices in palm oil sourcing with the aim of achieving full traceability and eliminating deforestation.

Their Actions:1. Palm Oil and Palm Oil Fractions The following actions will apply to our purchases of palm oil and palm oil fractions: Establish traceability to palm oil mills by December 31, 2015. Require suppliers to submit plans by December 31, 2015, to demonstrate how they will ensure no deforestation in their supply chain by 2020. As we advance progress against the goals above, we also will continue to purchase 100% RSPO certified palm oil.2. Palm Kernel Oil The following actions will apply to our purchase of palm kernel oil: Establish traceability to palm kernel oil mills by December 31, 2015. Invest in and work with palm kernel oil suppliers, and the smallholders who supply them, with the aim of improving both practices and livelihoods to establish zero deforestation in our supply chain by 2020.3. Palm Oil Derivatives and Palm Kernel Oil Derivatives Require suppliers to put forward time-bound plans by end of 2016 to demonstrate how they will ensure no deforestation in their supply chains.Now, actually P & G already bought RSPO certified palm oil (Roundtable on Sustainable Palm Oil). P & G is a member of RSPO and make purchases according to standards set by the organization criteria. However, through this new target, commitment P & G determined to do more than the standard set by the RSPO, degan goal to build sustainability practices reliable, effective and durable throughout their suppliers.

CHAPTER 5ConclusionsAlthough not P & G doing deforesting, but their demand for the palm oil is very massive, at the end public beliefs that P & G caused environmental damaging. The sustainability report of P & G showed us, how they take concern to these environmental issues. In the future we believe there is growth of CSR from others companies to forests in Indonesia. P & G already gave good response about the deforestation issues, they are take responsible and formulate the strategy. The goals, commitment, and actions they do are proven P&G conducting Good Corporate Governance

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