Sustainability certifications and financial profitability: An analysis on palm oil companies in Malaysia

Abstract

ABSTRACT As the second largest palm oil producer in the world, Malaysian palm oil industry has contributed significantly to the national GDP. However, this industry has been under criticism for serious deforestation and open burning activities, which obviously opposing to the objective of the oil palm Good Agricultural Practice on zero burning. As a result, sustainability certification of Roundtable Sustainable Palm Oil and Malaysia Sustainable Palm Oil had been introduced towards achieving sustainable development governance in this industry and fulfilling the needs of importing countries on certified palm oil. However, the number of companies with sustainability certification is relatively low due to the concern on potential additional cost, which then could affect firm profitability. Therefore, this study aims to examine the impact of sustainability certification on financial profitability among 39 palm oil companies in Bursa Malaysia, from 2009 to 2016. Based on the GLS estimation model, the finding shows that the profitability of firms with sustainability certification is almost 2% higher than firms without certification. The finding of this study provide useful input for industry players and could encourage palm oil companies to subscribe sustainability certifications to improve their sustainability practices and good governance as well as increase their profits. Keywords: Malaysia; MSPO; RSPO; profitability; SDG; oil palm ABSTRAK Sebagai pengeluar minyak sawit kedua terbesar di dunia, industri minyak sawit di Malaysia merupakan penyumbang utama kepada KDNK negara. Walau bagaimanapun, industri ini dikririk disebabkan oleh penebangan hutan yang serius dan pembakaran terbuka, yang jelas bertentangan dengan objektif Amalan Pertanian Baik dalam industri minyak kelapa sawit, iaitu polisi pembakaran sifar. Hasilnya, pensijilan kelestarian Roundtable Sustainable Palm Oil dan Malaysia Sustainable Palm Oil telah diperkenalkan untuk mencapai pembangunan lestari dalam industri kelapa sawit dan memenuhi keperluan negara-negara pengimport minyak sawit. Walau bagaimanapun, bilangan syarikat yang melanggan pensijilan kelestarian ini agak rendah kerana timbul kebimbangan terhadap potensi kos tambahan, yang kemudiannya boleh menjejaskan keuntungan syarikat. Oleh itu, kajian ini bertujuan untuk mengkaji kesan pensijilan kelestarian terhadap keberuntungan dalam kalangan 39 syarikat minyak sawit di Bursa Malaysia, dari tahun 2009 hingga 2016. Berdasarkan model penggangaran GLS, penemuan kajian ini menunjukkan bahawa syarikat sawit dengan pensijilan kelestarian mempunyai keuntungan hampir 2 peratus lebih tinggi daripada syarikat tanpa pensijilan. Dapatan daripada kajian ini memberikan input berguna kepada industri dan boleh menggalakkan syarikat minyak sawit melanggan dan memiliki persijilan kelestarian untuk meningkatkan amalan kemampanan dan tadbir urus yang baik serta meningkatkan keuntungan. Kata kunci: Malaysia; MSPO; RSPO; keuntungan; SDGs; kelapa sawit