Sustainability stewardship: Does roundtable on sustainable palm oil certification create shareholder value?

Abstract

The adoption of sustainability standards is often viewed as a profitability conundrum by palm oil firms and their shareholders. This study examines whether, considering the inherent risk, the Roundtable on Sustainable Palm Oil (RSPO) sustainability initiative creates shareholder value. Based on the panel information of plantation firms listed on the Indonesia and Kuala Lumpur Stock Exchanges, RSPO‐certified firms earned mixed risk‐adjusted performance results relative to non‐RSPO and total palm oil portfolios. They also demonstrated a limited probability for upside growth. Additionally, it is possible that institutionalized sustainability standards do not address all the environmental, social and governance pillars that should constitute sustainable investing. Consequently, business operators and investors seeking improved performance should focus on the fundamentals whilst incorporating sustainability standards.

Innovating ESG Integration as Sustainable Strategy: ESG Transparency and Firm Valuation in the Palm Oil Sector

“…Mixed results were observed in another study of 64 palm oil firms, where Malaysian RSPO-certified firms had poorer risk-adjusted performance than their respective non-certified peers, while the Indonesian RSPO-certified portfolio fared better than its peers, implying RSPO had limited influence on stock performance [37]. Tey and Brindal (2020) [37] identified that RSPO certification requires economies of scale that are more suited for larger farm operations and that palm oil investors may benefit more from small-cap companies in Malaysia. They also raised the need for an easily understood and accepted ESG framework, as opposed to RSPO certification, to provide a more robust view for developing the basis of investing for growth through a sustainability standard.…”

“…Climate Advisers also established a palm oil index that found 18 RSPO-certified firms outperforming non-certified counterparts by about 25% over 6.5 years [36]. Mixed results were observed in another study of 64 palm oil firms, where Malaysian RSPO-certified firms had poorer risk-adjusted performance than their respective non-certified peers, while the Indonesian RSPO-certified portfolio fared better than its peers, implying RSPO had limited influence on stock performance [37]. Tey and Brindal (2020) [37] identified that RSPO certification requires economies of scale that are more suited for larger farm operations and that palm oil investors may benefit more from small-cap companies in Malaysia.…”

“…This provides an opportunity to assess trends across different factors. Referencing the SPOTT assessment will respond to Tey and Brindal (2020) [37], who acknowledged RSPO certification was exclusive to larger companies and called for a more easily understood and accepted ESG framework. The SPOTT assessment framework addresses this by going beyond the requirements of certification to assess ESG performance, having attained a point of maturity [93], making it more inclusive towards smaller companies.…”

“…Additionally, some studies found that larger firms are equipped with more resources and capacity to engage in ESG, suggesting that firm size has a moderating role in strengthening the relationship [32,33]. Only a handful of direct relationships have been found within the palm oil sector using financial indicators such as stock performance [34][35][36][37]. Research on the moderating role of firm size in the sector is absent.…”

Certification of sustainable palm oil plantations in the co-optation of global vegetable competition: Dialogue and dialectics

“…Cluster 1, symbolized in red, includes terms related to studies with the dominant keywords "Government, Governance, Initiative, Actor, Value Chain", for example these keywords discuss studies that lead to how markets interact on a local and international scale [4], corporate sustainability standards may only cover some environmental, social and governance pillars that should be included in sustainable investments [5], certification standards can be improved by including provisions to improve restoration habitat on plantations and smallholder land, the need to increase inclusion and value in sustainable supply chains [6], study of the challenges of certified farmers related to implementing ISPO certification but their marketing activities are still controlled by intermediaries [7], study related to the public policy agenda which focuses more on environmental aspects, aspects of the global poor, as well as public participation and dialogue [8], studies of economic feasibility and competitiveness in developing countries vary but contribute significantly to energy supply [9]. Cluster 2, symbolized in green, consists of studies that tend to lead to almost the same conditions as the previous cluster, there are also several dominant keywords, namely Deforestation, Palm Oil, Policy, Area, Benefit, Use.…”