The Effect of Sustainability Certification for Export on Operational Profitability of Malaysian Palm Oil Companies

Abstract

Malaysia is the world's second largest palm oil producer with 17.4 million tonnes palm oil produced in 2016. The production is for both domestic and export which contribute towards country's income and economic growth. Despite the significant contribution to the economy, being one of the plantation sectors, Malaysian palm oil has been criticized by the western communities for causing environmental problems such as deforestation and open burning. Hence, it is important for the palm oil companies to ensure sustainable operation and production. The introduction of certified sustainable palm oil (CSPO) or sustainability certification, for instance, Roundtable on Sustainable Palm Oil (RSPO) and Malaysian Sustainable Palm Oil (MSPO), encourages the sustainable practices by the industry players. Recently, the government had announced the mandatory MSPO-certification in Malaysia by end of 2019. At present, there are only 43.6% Malaysian palm oil companies with at least one certification. The mandatory certification had raised concern among companies on additional costs of adoption which eventually will affect profitability. Moreover, sustainability certifications will only benefit the exporting companies for international market penetration. The question is how important does this certification to the exporting companies as compared to others? This study will analyse the effect of sustainability certification on operational profitability of Malaysian palm oil exporting companies. This study employs generalised least square (GLS) estimation on 17 listed palm oil companies in Bursa Malaysia from 2009 to 2015. The result shows that there is no significant difference in operating profitability due to sustainability certification between the palm oil exporting than the non-exporting companies. The findings indicate that sustainablity practice through RSPO or/and MSPO motivates Malaysian palm oil companies to produce certified palm oil for international and domestic markets, which in line with sustainable development goal (SDG) no. 12 (Ensure Sustainable Consumption and Production Patterns) by the United Nations (UN).

The Impact of Sustainable Certification on Financial and Market Performance: Evidence from Indonesian Palm Oil Companies

“…This is different from small companies with limited funding sources and uses internal financing because of the high costs and risks [41]. Previous research found that firm size has an impact on company performance [15,42]. • Firm Age.…”

“…Previous research has investigated the performance of palm oil companies in Malaysia and found a positive effect of sustainable certification on palm oil companies' profitability performance [25]. Other studies have found that sustainable certification for exports has no impact on palm oil companies' operational performance in Malaysia [15]. The timing in adopting RSPO certification influences the profitability of the palm oil companies [26].…”

“…In general, there is no difference in financial performance for companies that implement sustainable development [14]. Sustainable certification for exports does not improve the profitability performance of palm oil companies, especially in Malaysia [15]. As a result, companies that adopt RSPO have the potential to withdraw from RSPO certification and membership either temporarily or permanently.…”

Efek sertifikasi RSPO dan determinan lainnya terhadap kinerja keuangan perusahaan perkebunan kelapa sawit di Indonesia

“…Non-Governmental Organization (NGO) juga turut serta dalam meningkatkan tekanan terhadap industri sawit dengan mendorong kewaspadaan konsumen dan perusahaan terhadap dampak negatif yang ditimbulkan pada produksi kelapa sawit. Pada akhirnya, peningkatan tekanan konsumen internasional berujung pada diperkenalkannya skema sertifikasi untuk memproduksi minyak sawit yang berkelanjutan (Brandi et al, 2013;Shahida et al, 2018) Salah satu sertifikasi keberlanjutan kelapa sawit adalah Roundtable on Sustainable Palm Oil (RSPO) yang didirikan pada tahun 2004. RSPO merupakan organisasi nirlaba yang menyatukan kepentingan pelaku pada industri sawit diantaranya produsen, pengolah atau pedagang kelapa sawit, produsen barang konsumsi, pengecer, bank atau investor, dan Lembaga Swadaya Masyarakat (LSM) untuk menerapkan standar global dalam produksi minyak sawit berkelanjutan (RSPO, 2022).…”

“…Penentuan variabel dependen dalam penelitian ini merujuk kepada beberapa penelitian terdahulu (Tabel 1). Model ekonometrika dalam penelitian ini merupakan adopsi dari studi Shahida et al (2018), Hafizuddin-Syah et al (2018) dan Ramasamy et al, (2005) serta dikembangkan sesuai dengan kebutuhan analisis. Model ekonometrika yang digunakan dalam penelitian ini dirumuskan sebagai berikut:…”