Advancing palm oil sustainability to address the climate crisis: Leveraging theory of change and system dynamics model at the jurisdictional level

Abstract

Global green deals, such as the European Union Deforestation Regulation (EUDR), aim to enhance the environmental governance of key commodities, including palm oil, cocoa, timber, and soy, by requiring them to be deforestation-free, legally sourced, and traceable. EUDR poses both challenges and opportunities for producing countries. This study explores how Indonesia's palm oil sector can align with EUDR-defined sustainability standards through inclusive and systemic approaches. We employed a participatory Theory of Change involving key stakeholders across the palm oil value chain, supported by systems dynamic modeling to simulate trade-offs and identify strategic pathways toward sustainability. The approach revealed inevitable trade-offs between economic, ecological, and social dimensions. Practical solutions are available to support EUDR compliance by reducing deforestation and illegal activity while sustaining the palm oil economy. These include production intensification, certification, carbon credit, payment for environmental services, and ecological fiscal transfers from the central government. These strategies have been collaboratively developed and endorsed by both the government and stakeholders. Indonesia's experience demonstrates that participatory, system-based methods can facilitate alignment with global sustainability regulations while addressing local priorities. The lessons and approaches apply to other environmentally sensitive commodities and geographies that aim to meet global environmental and social standards.