Sage Journals: Discover world-class research

Abstract

Sustainability certifications have been introduced for the palm oil industry to ensure its sustainable operation and the production of highly demanded palm oil. At present, there are several sustainability certifications in the market, namely the Roundtable on Sustainable Palm Oil (RSPO), the Malaysian Sustainable Palm Oil (MSPO), and the Indonesian Sustainable Palm Oil (ISPO) certifications. As the crude palm oil (CPO) becomes the largest product been produced and exported in the palm oil industry, it is assumed that the major CPO producers would adhere to the call for sustainability practices by producing certified palm oil. However, the additional cost of acquiring sustainability certification might hinder them from doing so. Besides, it is unclear on the effect of these certifications on firm profitability since there are very few studies have provided quantitative evidence empirical research focuses specifically on the sustainability certification in palm oil industry context. Thus, this intends to fill this gap by examining the effect of local, that is, MSPO or ISPO and international, that is, RSPO certifications on the financial profitability of the world’s top 20 CPO producers which comprises of the leading global palm oil companies based in Malaysia and Indonesia for the period of 2013 to 2018. General Least Regression is employed due to the problems of non-normality of data, heteroscedasticity, and autocorrelation. The main variable under investigation in this study is RSPO, MSPO, and ISPO, proxied by dummy variable. The results showed no significant difference in profitability of locally certified and non-certified CPO producers. Meanwhile, CPO producers with international certification, that is, RSPO recorded reduced profitability of 5% compared to locally certified producers. Hence, the adverse effect of sustainability certifications calls for intervention from both Malaysian and Indonesian governments as well as palm oil authorities in the respective countries, for example, introduction of tax incentives and/or subsidies to compensate for the reduced profitability and the cost of certification.

Keywords

firm performance palm oil certification sustainability management Indonesia Malaysia

Introduction

The palm oil global market is forecasted to exceed 85 million metric tons by 2024. The surge of demand for palm oil is driven by the increasing consumption for foodstuff and biodiesel production (Mutombo, 2018). In 2018, palm oil dominated global vegetable oil consumption at 40.7%, outranking soybean, sunflower, rapeseed, and other vegetable oils (Malaysian Palm Oil Board, MPOB, 2020a). Oil palm grows best in stable-warm areas with sufficient soil moisture all year round. The optimal temperatures for the cultivation of oil palm are 30 to 32°C for 80 days minimum. The ideal combination of soil, temperature, and rainfall frequency like in Indonesia and Malaysia make them the best place to grow the crop (Nambiappan et al., 2018). Palm oil is processed from fresh fruit bunch which turned into CPO, palm kernel oil, and palm crude kernel oil. CPO becomes the largest product been produced and exported in palm oil industry. Thus, CPO significantly contributes toward economic growth of producers’ countries. For instance, palm oil industry becomes the third largest contributor for Malaysian economy worth USD15.47 billion in 2019 (MPOB, 2020b).

The world’s largest palm oil producing countries are Indonesia (57%), Malaysia (27.7%), Africa (3.7%), and Thailand (3.2%) (Ganling, 2019). Meanwhile, in 2019, the top-three palm oil consuming countries are Indonesia, India, and the European Union (EU), making up approximately 19, 13, and 11%, of the world’s oil consumption, respectively (MPOB, 2020c). The aggressively increasing demand for palm oil has led to the massive development of palm oil producing countries which generated extensive positive social and economic benefits (Acosta & Curt, 2019). At present, there is an increasing demand for certified (sustainable) palm oil (CSPO) specifically from the EU (Chin, 2014; Lim, 2014; Noor et al., 2017; Teo, 2019). CSPO refers to palm oil that is operated and produced sustainably from the cultivation process up to the end products and certified by sustainability certification, for example, RSPO. For instance, CPET (2017) reported that in 2015, UK purchase of palm oil supported by RSPO certification have tripled since 2009—a rise of nearly 302,294 metric tons. Thus, this trend provides great advantages for certified palm oil producing countries like Indonesia and Malaysia exporting to the EU.

It is imperative for palm oil producers to fulfill the demand for certified palm oil to sustain their business as well keeping up with global sustainable development agenda, that is, Sustainable Development Goals (SDG). This is because sustainability certification emerges new governance model planning to promote sustainable in social, environment, and economic aspects. It helps to ensure the protection and conservation of wildlife as well as flora and fauna. The certification ensures palm oil industry use the sources efficiently; value added in labor benefits; reduce risk and strong corporate reputation. The need for sustainable palm oil is high since it can fulfill the increasing global food demand and poverty alleviation as well as safeguard the social interest and protect the environment and wildlife. As a result, not-for-profit organizations (NGOs), for example, RSPO and government agencies in Indonesia and Malaysia have taken actions by developing standards for the palm oil industry that address the legal, economic, ecological, and social requirements to produce certified palm oil, known as sustainability certifications (Brandi et al., 2013; Glasbergen, 2011). If properly applied, these certifications can help to minimize the negative impact of palm oil cultivation on the environment and communities in palm oil-producing regions.

There are several sustainability certifications in the palm oil industry. RSPO (2007) was the world’s first certification established as an actor to arrange and improve the condition of production in November 2007. RSPO supervises its members to comply with eight (8) principles and fulfill the criteria of certification. The potential benefits from RSPO include increasing the profits of its members, as certified palm oil will be sold at a higher price and thus enhance productions and sales (Preusser, 2015). Meanwhile, as the largest global palm oil producers, Indonesia and Malaysia have developed the ISPO and MSPO certifications correspondingly to signify good sustainable practices in their palm oil industries in line with the global standard of RSPO. The ISPO and MSPO certifications were introduced in 2011 and 2013 by the governments of Indonesia and Malaysia consecutively.

Based on the above discussion, it is assumed that the major CPO producers would adhere to the call to implement sustainability practices by producing certified palm oil. However, this condition puts pressure on CPO producers. Despite the high demand for certified palm oil from Western countries, there are additional costs that the CPO producers must account for to comply with sustainability certification. For example, the cost to obtain RSPO certification for plantation areas ranges from USD720 to USD900 per hectare (Ganeshwaran, 2017; RSPO, 2015). Altogether, the cost to maintain this certification is equal to USD204 million (Yusof & Yew, 2016). In the context of Malaysian sustainable certification, the range of total cost to obtain MSPO is from USD5,330 to USD278,591 (Ganeshwaran, 2017). The detail costs of MSPO are illustrated in Table 1 below:

Table 1.

The Costs of MSPO.

Items	Cost range (USD)
MSPO certification and audit fee	1,400–35,000
Training program for MSPO awareness	615–61,000
Store upgrade (fertilizer and weedicide	250–80,000
Personal protective equipment (PPE)	500–38,000
Signboard	250–24,000
Waste disposal fee	250–12,000
Medical surveillance	1,500–21,000
Chemical expose monitoring	500–7,000

Source. Ganeshwaran (2017).

Note. The current exchange based on 11 March 2022 from MYR to USD.

Besides, certifying the palm oil produced is only a means to circumvent the pressure from the EU. Moreover, The Star (2019) reported that only half of the 13.6 million metric tons of certified palm oil was sold in April 2019. Concern among CPO producers arises because it is unclear whether these certifications will result in increased or decreased firm profitability. Therefore, this study aims to examine the effect of local (MSPO/ISPO) and international (RSPO) sustainability certifications on the profitability of the world’s top 20 CPO producing companies. This study will provide evidence on the adoption of local and international sustainable certifications in the palm oil industry. The study frames its analysis on the world’s top 20 CPO producing companies in 2018 which were the leading global palm oil manufacturers and exporters.

Even though there are a lot of studies on firm profitability and sustainable practices (Chen et al., 2016; Hafizuddin-Syah et al., 2018; Jafari et al., 2017; Lee et al., 2017; Tang et al., 2016), however there are only a few studies on profitability and sustainable practices in the context of sustainability certifications for the palm oil industry. In addition, the existing studies applied qualitative approach. Hence, this study fills the gap by empirically examining the effect of palm oil sustainability certification on the profitability of the world’s top 20 CPO producers.

This paper is organized as follows: Section 2 presents a review of relevant literature regarding the differences between ISPO and MSPO, the effects of sustainability certification on firm profitability, and the attributes of profitability. Section 3 discusses the methodology of this study including research design, empirical methods, sample size, and source of data. Section 4 discusses the empirical findings and, finally, Section 5 concludes this study.

Literature Review

MSPO and ISPO

There are five (5) themes for sustainable practices in agriculture industry namely, land management, waste management, advance technology, economic empowerment, and social inclusion (Abas et al., 2021). The study found that sustainability certification and its underlying principles is one of the methods to achieve all five themes of sustainability practices. As the largest global palm oil producers, Indonesia and Malaysia have developed the ISPO and MSPO certifications correspondingly to signify good sustainable practices in their palm oil industries in line with the global standard of RSPO. The sustainable certifications demonstrate the countries commitment toward safeguarding and enhancing the reputation of the palm oil industry by establishing national standards (Wijaya & Glasbergen, 2016).

The ISPO certification was first launched in March 2011 by the government of Indonesia (Staff, 2019) and Malaysia follow suit with the introduction of MSPO certification in November 2013. Both certifications are standards and legal frameworks developed by the government and are exclusive of any profit-earned purposes. ISPO is governed by the Ministry of Agriculture, the State Ministry for the Environment, the Ministry of Forestry, and the National Land Agency of Indonesia. Meanwhile, the Ministry of Primary Industries Malaysia is responsible for regulating matters regarding MSPO. ISPO is mandatory for all producer companies and smallholders in Indonesia (Indonesia Palm Oil Platform [InPoP], 2015) although requirements for each vary. Large producers were required to comply with the standard by 2014, or face penalty and risk losing their license to operate. Meanwhile, MSPO is also mandatory for the entire palm oil supply chain such as oil palm groups and stakeholders including small, medium, and large growers in Malaysia (Hemananthani, 2017).

Both certifications include seven (7) general principles with specific criteria and indicators that are used as a determinant of the compliance of its members. Any members that are unable to meet the requirements of the ISPO and MSPO through these principles will have their certifications suspended. The MSPO principles underline economically viable, socially acceptable, and environmentally sound practices. MSPO emphasizes more on sustainability through palm oil supply chains which are from the smallholders up to palm oil-based product producers (Kamaruddin, 2020; Mclnnes, 2017). For instance, MSPO adopts good agricultural practices (GAP) as a realistic approach in achieving environment sustainability. The palm oil players especially the smallholders will be exposed on how to use suitable fertilizers, proper harvesting technique, managing cost of production as well as track records (Senawi et al., 2019). This certificate will protect the oil palm cultivation and processing and help small Malaysian farmers to operate sustainably. Therefore, the establishment of MSPO is subjected to counter the negative perceptions from EU country on this traded commodity (Balu et al., 2018; Kushairi et al., 2018).

Meanwhile, the principles of ISPO appear to provide the least stringent overall protection for biodiversity (Hidayat et al., 2018). Owing to the newness of the ISPO and MSPO certificates in the market, some critics have been leveled at them. When looking from a transparency aspect, MSPO presents a low level of transparency; it hides the online complaints and the status updates of cases affecting the public (Benjamin, 2018). Besides that, the credibility of ISPO has been questioned since the government is perceived as having vested interests in the palm oil industry. Ivancic and Koh (2016) therefore suggested ISPO appoint a third party to prevent and conflict of interest.

The Relevance of Sustainability Certification to Firm Profitability

Garriga and Mele (2004) suggested that Stakeholders theory is a relevant theory for over decades to explain firm’s profitability and environment sustainability. This theory also becomes one of the most widely used theory to theoretically address the relationship between firm’s profits and its corporate social responsibility (Horisch et al., 2014; Mutti et al., 2012; Pfajfar et al., 2022). The theory suggests firms should taking into consideration the social issues in maximizing their profits (Freeman, 1984). This theory states that firm does not only focus on the shareholder’s wealth but also considers the “stakeholders” (Freeman, 1984). Freeman (1984) defines stakeholders as shareholders, employees, managers, society, customers, suppliers, media, and government. In short, firm should earn profits without ignores the value, quality, satisfaction, ethical, and moral actions demanded by the stakeholders (Florea & Florea, 2013). For instance, the shareholders desire to maximize their profits. The society need clean environment for their health and good life. The customers demand for certified sustainably products, while employees claim for high self-reward and benefits. Firms and stakeholder have interest affect each other. Business operations affect interests of multiple parties having stake in a business. Therefore, firms should not ignore the stakeholders’ expectation from their planning and policies (Murray & Vogel, 1997). Hence firms should maximize the profits in and improve their sustainability practices to achieve sustainability in a long-run motivation.

As there are numerous sustainability certifications in the market, a firm should choose the best scheme that would provide a return in investment and retain profitability (Benjamin, 2018), as profitability is a crucial point that shareholders and managers use to evaluate companies. Dangelico and Pontrandolfo (2015) asserted that firms that implemented environmental actions significantly improved their image and performance. For example, Palmer and Truong (2017) found that firms leveraging on green technology new product introduction (NPI) not only minimized environmental impact but also increased profitability. Chen et al. (2016), Hafizuddin-Syah et al. (2018), Lee et al. (2017), Saswattecha et al. (2017), Tang et al. (2016), and Tey et al. (2019) also support this finding. Meanwhile, a study by Tey et al. (2020) find interesting result where the timing of adopting a sustainable certification has a significant in affecting the palm oil companies’ performance in Malaysia. Palm oil companies that adopted RSPO certification at the beginning of its introduction obtained more financial advantage. This is because CPO’s premium price and its demand is higher during the early-stage introduction of RSPO. However, late adopter companies seem faced lower premium price of CPO and higher implementation costs.

Besides, firms with sustainability certification could enjoy many benefits. Based on a study by Gijs et al. (2015), firms with a Forest Stewardship Council certification received significant benefits such as tax incentives, research grants, and support from the government to directly increase their profits. A recent study by Preusser (2015) found a positive correlation between CSPO-certified plantation area and CPO price. Specifically, firms with at least 40% of plantation areas certified by RSPO had higher CPO prices compared to firms with 20% or less certified areas. This premium price helped offset the incurred costs of the certification (Rival et al., 2016). Moreover, the companies with sustainability certification signal that they are investing on sustainability certification for their sustainable practices. Ahmad et al. (2019) found that environmental disclosure that provide credible information to the investors tend to boost firm profitability. However, Pichler (2013) found that RSPO certification benefited only for export-oriented palm oil companies rather than plantation worker and smallholders.

In contrast, Noorhayati et al. (2016) discovered that compliance with palm oil sustainability certifications negatively affected a firm’s profitability, especially among exporter companies. The study found that certified palm oil was sold at the same price of non-certified palm oil. Thus, there was no extra profit to cover the additional costs of complying with sustainability certification. The adoption of environmentally sustainable supply chain management (SSCM) was found to not necessarily improve cost performance. Esfahbodi et al. (2016) found that SSCM positively increased environmental performance but not cost performance. Moreover, Yusof and Yew (2016) revealed that the subscription to RSPO certification adversely affected the economy due to the high cost incurred, lukewarm demand, and low sales from customers. Besides, a study by Asche et al. (2015) disclosed that consumers had a low interest to pay for certified food; they even questioned the credibility of the Marine Stewardship Council (MSC). Jafari et al. (2017) opined that there would be only small impacts on the major environment-economic variables in Indonesia under a scenario of moderate reduction in EU import demand, for example, due to sustainability concerns. It can, therefore, be concluded that, although ISPO has initiated a process of change, it has not yet developed its full potential. The main reason is that ISPO has a rather loose problem definition, a weak enforcement authority, and a reliability that is too low to convince (parts) of the global market (Hidayat et al., 2018).

Meanwhile, a study by Segarra-Oña et al. (2012) found that the economic performance of rural hotels in Spain was not impacted at all by the hotel sustainability certification, namely ISO 14001. This is because their environmental awareness was already at a high level compared to urban and beach hotels. Hotels in natural surroundings are essentially forced to respect the environment as part of their core concept. This study is supported by Vogelpohl (2021), Shahida et al. (2018), Nor et al. (2016), Morley, 2015, and Rahman et al. (2009). The studies emphasized that the government endorsed environment sustainability certification to meet domestic regulatory requirement that emphasizing sustainability in environment and social. Sarumpaet (2005) also found that the financial performance of Indonesian companies with excellent sustainability ratings was not significantly associated with their environmental performance. Green products or services are usually more expensive and are not favored by Indonesian consumers and this could affect a company’s financial performance since there are no incentives provided by the government. Besides, Fisher et al. (2017) opined that sustainability certification was not enough to serve as a ticket to tap the EU market. Sustainability certification was not developed for economic reasons but simply out of concern for the environment (Van Kooten et al., 2005). Nor et al. (2016), Rahman et al. (2009), and Shahida et al. (2018) discovered the same results.

Other Factors Affecting Firm Profitability

According to Adams and Buckle (2003), financial leverage indicates the ability of firms to manage their economic exposure to unexpected losses. A study on the impact of capital structure on the performance of firms by Ogebe et al. (2013) found that leverage had a negative and statistically significant relationship with firm performance. The study suggested that firms should use more equity than debt to finance business activities, also supported by Bayyurt and Orhunbilge (2007) and Chen et al. (2008). However, Ramasamy et al. (2005) found that leverage had a positive relationship with the financial performance of Malaysian palm oil companies because the firms expected to earn more than the cost of debt capital. A study by Ding and Sha (2011) and Zhang (2010) found that leverage could bring tax-sheltered benefit that would improve firm governance and firm performance.

Jose et al. (2010) used current ratio to analyze the efficiency of Chinese ports and found that a high current ratio indicated the good condition of the firm, as it shows that the firm could meet its liquid liabilities. Adlina (2015) explored the determinants of profitability of Malaysian public listed companies during financial crises and found similar results, that is, liquidity positively affected the profitability of companies during financial crisis. However, Wei (2012) found that liquidity had no effect on the financial performance of listed agricultural companies in China because agricultural firms were not as effective at paying back short-term debt compared to long-term debt.

According to Salim and Yadav (2012), larger companies have more extensive abilities and enjoy economies of scale that are good for their profitability. Meanwhile, smaller companies have limited sources of financing and prefer internal financing over external debts due to its higher associated cost and risk (Abor & Biekpe, 2009). This result is supported by the trade-off theory that suggests that larger firms tend to borrow more due to their ability to diversify risk. Muritala (2012), Wang (2013), and Rahim (2013) also obtained the same result, finding that firm size had a positive relationship with firm profitability. However, Ramasamy et al. (2005) found that firm size was less significant and had a negative correlation with profitability because larger firms are generally more difficult to manage and have decreased organizational effectiveness.

Companies with a high growth rate could also be in high debt (Tian, 2007), so banks would be willing to lend money to companies with a good growth rate (Rahim, 2013). Large firms with a low growth rate have better opportunities to borrow long-term debt because they are deemed to be a less risky option (Barclay & Smith, 1995). Ramasamy et al. (2005) revealed that growth rate had a positive correlation with the profitability of palm oil companies because a growth rate will increase the good impression toward the firm, a result that is also supported by Yolanda and Soekarno (2012).

The annual average CPO price has a positive relationship with profitability since it is externally determined by the world market and would, therefore, affect the performance of the firms, where the higher the price, the higher the profits (Ramasamy et al., 2005). Meanwhile, fluctuations in price will improve business risk and reduce tax charges (Deng & Luo, 2009). Some studies have applied the consumer price index (CPI) to measure inflation. Booth et al. (2001) showed that a high inflation rate (high CPI) caused the firm performance to, increase because of the low debt level of the firm.

Based on the above discussion, it is apparent that most of past studies centered on the effect of sustainability certifications of other than palm oil industry (Esfahbodi et al., 2016; Ferron, 2012; Gijs et al., 2015; Segarra-Ona et al., 2012; Yusof & Yew, 2016). There is no empirical evidence on the effect of palm oil sustainability certification on firm profitability which the present study expect to fill in the research gap.

Methodology

Data Analysis Method

This study aims to examine the effect of local and international palm oil sustainability certifications on the profitability of the world’s top 20 CPO producing companies. According to Gogtay et al. (2017), to evaluate relationship between dependent an independent variable, a regression analysis is the best statistical tool. Since the study has more than one independent variables, a multiple regression analysis is conducted in this research to analyze the effect of local and international sustainable certification on the financial profitability of the world’s top 20 CPO producers. A panel data model was employed as the Ordinary Least Squares (OLS) might be irrelevant for panel data analysis due to the problem of non-normally distributed data, heteroscedasticity, and autocorrelation (Gujarati, 2003). Therefore, the White test and the Wooldridge test were conducted to detect the problems of heteroscedasticity and autocorrelation subsequently. Accordingly, the study used a quantitative approach and adopted the base regression model by Noorzaleha (2011) and Ramasamy et al. (2005), which also studied the profitability of palm oil companies. These previous studies appointed return on assets (ROA) as a proxy for financial profitability that also served as the dependent variable of each model. ROA has been widely used as a variable to measure profitability (Azhagaiah & Deepa, 2012; Bayyurt & Orhunbilge, 2007; Wei, 2012). ROA is measured by dividing earnings before interest (EBIT) with total assets. EBIT is more relevant as a nominator since the sample size consists of foreign shareholders (Myšková & Hájek, 2017; Strouhal et al., 2018). This ratio allows firms to measure operating efficiency in earning profit from their assets. This is because the nominator of EBIT ignores tax burden and interest expenses. This ratio also represents a pure measure of true ROA (Damadaran, 2001). Therefore, the firms will be able to determine whether they are using the assets effectively as compared to before.

Specifically, the study develops a regression model to identify the effect of local and international sustainable certifications on the profitability of the world’s top 20 CPO producing companies obtained from Palm Oil Analytics (2018). Palm Oil Analytics is an independent publisher of palm and lauric oil price, news, data, and analytics covering major origin and destination markets. Based on model by Ramasamy et al. (2005) and Noorzaleha (2011), this study introduces new variables, that is, LCERT and ICERT. LCERT variable represents local sustainability certification which is MSPO or ISPO. Meanwhile, the variable of ICERT refers to international sustainability certifications which is ISPO. The local and international sustainability certifications are represented by a dummy variable, which takes the value of 1 if the world’s top 20 CPO producers companies adopted MSPO, ISPO, and RSPO, otherwise 0.

The other independent variables are leverage (LEV), liquidity (LIQ), firm size (SIZE), sales growth (GRO), and CPO price (P). These variables serve as control variables, as the study aims to control the exogenous and endogenous influences of the variables that have an impact on firm profitability (Atinc et al., 2012; Carlson & Wu, 2012; Spector & Brannick, 2011). The regression model of the study is outlined in the following paragraphs.

\begin{matrix} RO A_{it} = & β_{0} + β_{1} LCERT i_{it} + β_{2} ICER T_{it} + β_{3} LEVit \\ + β_{4} LI Q_{it} + β_{5} SIZ E_{it} + β_{6} GR O_{it} + β_{7} P_{t} + ε_{it} \end{matrix}

(1)

where,

ROA	=	Return on assets, calculated as EBIT/total assets
LCERT	=	Companies with ISPO or/and MSPO
ICERT	=	Companies with RSPO
LEV	=	measures leverage, calculated as total liabilities/total equity
LIQ	=	measures liquidity, calculated as current assets/current liabilities
SIZE	=	measures size of firms, calculated as logarithms of total assets
GRO	=	measures sales growth of firm, calculated as (Sale₁-Sale₀)/Sale₀
P	=	measures the log average of CPO’s price yearly
ε	=	error term

Data Collection Method

The sample consist of the world’s top 20 CPO producing companies in 2018, which comprises of the leading global palm oil manufacturers and exporters. Most of the companies are based in Indonesia and Malaysia. Indonesia remains to be the world’s largest producer and consumer of palm oil in which, central to Indonesian economy. Meanwhile, as the world’s second-largest producer and exporter of the palm oil and palm oil products, Malaysia plays a vital role in achieving the rising global need for oils and fats (Council of Palm Oil Producing Countries [CPOPC], 2022). The study only focused on the top 20 companies due to availability of data (refer Table 2). Besides, CPO is the largest product been produced and exported in palm oil industry as compared to palm kernel oil, processed palm oil, and crude palm kernel oil. The period of study is from 2013 to 2018 (6 years), as ISPO and MSPO was introduced in Indonesian and Malaysian palm oil industry in 2011 and 2013 respectively. The secondary financial data of ROA, leverage, liquidity, firm’s size, and sale’s growth were obtained from (then) Thompson Reuters Datastream database. Currently the database is known as Refinitiv Datastream™. Meanwhile, the list of the world’s top 20 CPO producers was obtained from Palm Oil Analytics. Table 2 shows the list of world’s top 20 CPO companies. The membership of MSPO and RSPO were obtained from the respective websites while the ISPO membership was retrieved from the annual report and sustainability report of the companies.

Table 2.

The World’s Top 20 CPO Producers Used in Sample.

No.	CPO producers companies	Country of origin
1.	FGV Holding Bhd	Malaysia
2.	Sime Darby Plantation	Malaysia
3.	Golden Agri Resources	Indonesia
4.	PT Astra Agro Lestari	Indonesia
5.	Wilmar Group	Indonesia
6.	Kuala Lumpur Kepong	Malaysia
7.	Indofood Agri Resources	Indonesia
8.	IOI Group	Malaysia
9.	First Resources	Singapore
10.	London Sumatra	Indonesia
11.	Genting Plantation	Malaysia
12.	Eagle High Plantation	Indonesia
13.	Anglo Eastern Plantation	Indonesia
14.	PT Bakrie Group	Indonesia
15.	Ta Ann Holdings	Malaysia
16.	Hap Seng Plantation	Malaysia
17.	Jaya Tiasa	Malaysia
18.	IJM Plantation	Malaysia
19.	United Plantation Bhd	Malaysia
20.	Boustead Plantation Bhd	Malaysia

Source. Palm Oil Analytics (2018).

Empirical Findings

Descriptive Statistics

The White-test and the Wooldridge test were conducted to detect heteroscedasticity and autocorrelation problems. The results of the White test in Table 3 (χ²: 62.81; p-value: 0.0013) showed that the χ² was significant at 5% significance level. Therefore, this study rejected the null hypothesis that indicates a heteroscedasticity problem. In other words, the data in this study has an autocorrelation problem. Based on Table 4, the results of the Wooldridge test (F-stat: 43.93, p-value: 0.0000) were significant at the 1% level, demonstrating the presence of autocorrelation. Therefore, this study employed the Generalised Least Square (GLS) estimation as remedy for the problems, as suggested by Atanlogun et al. (2014) and Wooldridge (2002).

Table 3.

White-Test.

Variable	Result
χ²	62.81
Probability	0.0013
Accept/reject H0 (null)	Reject

Table 4.

Wooldridge-Test.

Variable	Result
F-stat	43.93
Probability	0.0000
Accept/reject H0 (null)	Reject

Next, Table 5 presents the mean, standard deviation, skewness, and kurtosis of the study. Data is considered as normally distributed if the skewness is close to 0, and the kurtosis value is close to 3 as suggested by Park (2015). Results in Table 5 shows that only variables of LCERT, ICERT, SIZE, and P were normally distributed, as their skewness and kurtosis values were close to 0 and 3, respectively. It is important to have normality data distribution as it allows for reliable explanation and inference (Razali & Wah, 2011), otherwise, serious bias and less meaningful findings will result (Van et al., 2012). Since the assumption of normality data distribution in this study was violated, the OLS estimation method will not be able to produce reliable results. Therefore, the GLS method was found more appropriate for application in this study (Gujarati, 2003; Hsiao, 2007; Wooldridge, 2002). Hence, this study used the GLS estimation to cater to the non-normality of data.

Table 5.

Descriptive Statistics.

Variables	Mean	SD	Skewness	Kurtosis	N
ROA	0.0593	0.1405	−0.6942	29.5040	118
LCERT	0.6695	0.4724	−0.7206	1.5193	118
ICERT	0.6695	0.4724	−0.7206	1.5193	118
LEV	38.7111	75.0562	−2.2724	12.8337	118
LIQ	2.1433	1.8725	2.2739	27.9166	118
SIZE	18.1211	4.5620	0.9396	3.4079	118
GRO	0.1567	5.4268	1.9983	20.0889	118
P	7.7590	.1411	−.5825	2.3297	118

Pearson Correlation Matrix

As the study has many independent variables, that is, SUSC, SUSC2, LEV, LIQ, SIZE, GRO, and P, a multicollinearity problem may exist. The problem of multicollinearity presents when the independent variables are severely related to each other. The presence of multicollinearity violates the assumptions of OLS and will lead to a coefficient estimation bias. The estimation for the standard error of the regression coefficient could be increased and the sign of the relationship for the variables might be incorrect and underestimated (Yoo et al., 2014). The Pearson’s correlation result is shown in Table 6 below. The correlation coefficient of each variable was well below 0.8, indicating the absence of a severe multicollinearity problem. Thus, all the independent variables in this study were included in the regression, that is, no variables were omitted.

Table 6.

Pearson’s Correlation.

	ROA	LEV	LIQ	SIZE	GRO	P
ROA	1.0000
LEV	.3540	1.0000
LIQ	.1566	−.1014	1.0000
SIZE	.1121	−.1538	−.2555	1.0000
GRO	.0897	.0072	−.2357	.1100	1.0000
P	−0.0394	.0137	.0366	.0003	.0142	1.0000

Regression Results

This study investigated the effect of local and international palm oil sustainability certification on the profitability of the world’s top 20 CPO producers. A regression model was developed to meet the objectives of the study. The model was regressed using GLS estimations due to the problems of non-normality of data, heteroscedasticity, and autocorrelation inherent in this study. Table 7 below reports the GLS estimation result that examined the effect of local (ISPO or/and MSPO) and international (RSPO) sustainability certifications.

Table 7.

The GLS Estimation Result.

Variables	Expected sign	β coefficients
C	Positively significant	.3204 (.6103)
LCERT	Positively significant	−.0207 (.0246)
ICERT	Negatively significant	−.0489** (.0251)
LEV	Positively significant	.0008*** (.0002)
LIQ	Positively significant	.0233*** (.0064)
SIZE	Positively significant	.0090** (.0027)
GROWTH	Positively significant	.0029 (.0021)
P	Positively significant	−.0593 (.0785)

Note. Value in the parentheses is the standard errors (SE).

***

Significant level at 1%, ** at 5%, and * at 10% respectively.

In GLS estimation, the goodness of fit was measured by employing the Wald test (Magee, 1990). In Table 7, the results of the Wald test shows that χ² was significant at the 1% level (χ² = 43.63, p-value = 0.0000), demonstrating that all the variables should be included in the model. The regression result showed that there was no significant difference in the profitability between locally certified and non-certified producers after controlling LEV, LIQ, SIZE, GRO, and P. Surprisingly, ICERT was negatively correlated to ROA at 5% significance level, after controlling LEV, LIQ, SIZE, GROWTH, and P. This result indicates that the world’s top 20 CPO producers that are certified with RSPO bear 5% losses compared to non-certified producers. Meanwhile, although LEV is highly significant, its effect on ROA was rather minimal, only 0.08%. LIQ was positively significant, indicating that if the producers increased their liquidity ratio by 1%, their profit would increase by 2.3%. The variable of SIZE showed a positive relationship with the profitability of the world’s top 20 CPO producers, signifying that a 1% increase in size will increase ROA by around 0.9%.

The result above reveals that the local sustainability certifications of MSPO and ISPO had no significant effect on the profitability of the world’s top 20 CPO producers. In this regard, the finding is consistent with that of Nor et al. (2016), Rahman et al. (2009), and Shahida et al. (2018), which revealed that sustainability certification did not significantly affect firm profitability. This is because MSPO and ISPO are developed to meet domestic regulatory requirement that emphasizing sustainability in environment, social, and legal perspectives (Morley, 2015; Vogelpohl, 2021). In this case, the world’s top 20 CPO producers become socially and environmentally responsible by adopting ISPO or/and MSPO due to the legal pressure exerted by the government (Daddi et al., 2011; Hinkes, 2020; Sarkar, 2008). Moreover, both certifications, that is, ISPO and MSPO are mandatory for palm oil players that operate only in Indonesia and Malaysia. The reason for this action is to guarantee that palm oil and its related products are sustainably produced. The certification also acts as a tool for countering the negative perception toward the palm oil industry (Palmer & Truong, 2017; Preusser, 2015) especially among European market (Aziz et al., 2021; Kushairi et al., 2018). The non-adoption of these certifications will incur penalties and will subsequently affect the firm’s reputation. Thus, it is crucial for the world’s top 20 CPO producers to adopt ISPO and/or MSPO for the sake of preserving their good image and reputation (Naidu & Moorthy, 2021).

Meanwhile, international sustainability certification, that is, RSPO is significantly reduces the profitability of the world’s top 20 CPO producers. It was found that these producers had to bear 5% losses when they complied with the RSPO principles. This finding is consistent with that of Noorhayati et al. (2016), who also discovered that the certification of palm oil had a negative effect on the profitability of exporter companies. The world’s top 20 CPO producers were unable to make profits due to the high costs of complying with RSPO and the lukewarm sales from consumers (Asche et al., 2015; Yusof & Yew, 2016), owing to the premium price of certified palm oil, higher than that of non-certified palm oil. The high price is not favored by consumers especially Indonesians, so the CPO producers’ financial profitability is greatly affected (Sarumpaet, 2005; Yusof & Yew, 2016). Moreover, RSPO only helps improve environmental performance but not cost performance (Esfahbodi et al., 2016). Only the EU requires certified palm oil and no other countries (Jafari et al., 2017). Thus, the world’s top 20 producers can seek out other alternatives to sustain their profits. For instance, they could channel their palm oil supply to other importer countries that do not demand certified palm oil. In fact, sustainability certification was developed to respond to the pressure of environmental concerns and not for economic reasons (Van Kooten et al., 2005). Thus, complying with RSPO principles only serves to encourage CPO producers to take environmentally sustainable actions.

Leverage showed a significant and positive relationship with firm profitability. A high leverage ratio correlated to the ability of a firm to manage its economic exposure to unexpected losses. This study is consistent with that of Ding and Sha (2011) and Zhang (2010), who also found that leverage could bring tax-sheltered benefit, which, in turn, improved firm governance and firm performance, that is, when the firm expects to earn more than the cost of debt capital, the firm’s venture into borrowing capital will increase. Based on the trade-off theory, high leverage could drive the firms to bankruptcy, overruling the tax benefit gained from debts. Thus, managers are advised to balance the source of capital from equity and debt. Meanwhile, the Pecking theory by Myers (1977) suggests utilizing internal financing more than external financing due to the high cost of issuing higher external financing.

As liquidity has a positive relationship with profitability, it is important for the world’s top 20 CPO producers to have more cash to increase financial performance. A shortage of cash could result in the companies’ inability to pay for their obligations such as debt and operational costs (Velnampy, 2005). Thus, the more cash held by companies, the better their ability to meet their liabilities (Ablanedo-Rosas et al., 2010). Liquidity is also an important indicator of a firm’s cash flow. A low liquidity ratio signals financial distress and bankruptcy risk (Shafaai & Masih, 2013).

The control variable of SIZE, which represents the firm size, was significant and positively related to the profitability of the world’s top 20 CPO producers. Salim and Yadav (2012), Muritala (2012), Rahim (2013) and Wang (2013) reported consistent findings to that of this study. A large firm is assumed to have more resources (Capon et al., 1990). Larger firms are also able to provide superior technology and enlist the help of the best professionals and experts (Mule et al., 2015). Larger firms gain easier access to acquiring funds from debt (Sahudin et al., 2011). These companies are therefore recommended to invest more in tangible assets such as land and equipment due to the lesser cost of funding these assets compared to intangible assets (Sahudin et al., 2011). Hence, the world’s top 20 CPO producers should increase their assets to enjoy the benefits of credibility, making it easier for them to obtain more capital.

Conclusion

This study examined the effect of local (ISPO and/or MSPO) and international (RSPO) sustainability certification on the profitability of the world’s top 20 CPO producers. This study obtained yearly data from 2013 to 2018 and employed a GLS regression due to non-normally distributed data, heteroscedasticity, and autocorrelation problems. This study provides current knowledge related to profitability and sustainability certifications in the palm oil industry with a focus on the RSPO, ISPO, and MSPO certifications. This study addressed the lack of empirical studies related to these certifications and contributes additional knowledge to the field. In conclusion, ISPO and MSPO local certifications had no significant effect on the profitability of the world’s top 20 CPO producers. On the other hand, the study found that the world’s top 20 CPO producers with RSPO bore 5% losses compared to non-certified producers. The high costs in complying with RSPO and the lukewarm sales from the consumers were among the factors that caused these producers to not make higher profits. Sustainability certifications tend to play a more supportive role, namely in mitigating pressure from anti-palm oil lobbyists and in safeguarding the reputation of the industry.

This study highlights the need for the government to play a more effective role by endorsing RSPO and MSPO/ISPO to all palm oil industry players. This is because the certification plays an important role in protecting nature and environment; value added to the social living and improved corporate reputation. Therefore, tax incentives and subsidies should be introduced by government for the CPO producers to cover the cost of certifications. These incentives have the potential to reduce the burden in complying with sustainability certification, especially RSPO. This is because CPO producers are in a dilemma whether they should adopt the certification since it will increase their operational cost. Hence, by introducing relevant tax benefits and financial incentives, the firms would more likely comply with the RSPO, ISPO, and MSPO standards. Besides, the implementation of RSPO, ISPO, and MSPO from time to time will provide competitive advantages and promote certified palm oil products worldwide. The authorities should ensure a transparent implementation mechanism to generate consumer trust. The government should also promote more sustainability certifications through awareness campaigns to the community, so they are able to gain more information about the benefits of these practices and will be more willing to buy green products. The campaign can be done through seminars, mass media, and publications. Due to the limited data on available CPO producers, this study could not measure the effect of CSPO on all palm oil producers. Further study could be conducted to test the effect of sustainability certification on all the CPO producers in the world. Besides, future work could extend this study by continuing the period of study from the year 2018 as a replacement for the earlier period because the price data of palm oil is not static. Future studies could also contribute to increasing the number of empirical studies on sustainability issues.

Footnotes

Acknowledgements

We thank our colleagues from UKM and MPOB whom provided insights and expertise that greatly assisted the research, although they may not agree with all the interpretations/conclusions of this paper. We are also immensely grateful to the reviewers for their comments on an earlier version of the manuscript, although any errors are our own and should not tarnish the reputations of these esteemed persons.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This research was funded by the MPOB-UKM Endowment Chair Research Grant (EP-2017-062).

Ethics Statement

This article does not contain any studies involving human participants performed by any of the authors.

Consent

This empirical study only involved secondary data of companies retrieved from online open sources.

ORCID iDs

Shahida Shahimi

Hafizuddin-Syah B.A.M.

References

Abas

A. C.

Tambi

Yusoff

N. H.

(2021). A systematic review on sustainable agricultural practices among oil palm farmers. Outlook on Agriculture, 5, 00307270211021875.

Ablanedo-Rosas

J. H

Gao

Zheng

Alidaee

Wang

(2010). A study of the relative efficiency of Chinese Ports: A financial ratio-based data envelopment analysis approach. Expert Systems, 27(5), 349–362. https://doi.org/10.1111/j.1468-0394.2010.00552.x

Abor

Biekpe

(2009). How do we explain the capital structure of SME in Sub-Saharan Africa? Evidence from Ghana. Journal of Economic Studies, 36(1), 83–97.

Acosta

Curt

M. D.

(2019). Understanding the expansion of oil palm cultivation: A case-study in Papua. Journal of Cleaner Production, 219, 199–216.

Adams

Buckle

(2003). The determinants of corporate financial performance in the Bermuda insurance market: Applied Financial Economics, 13(2), 133–143. https://doi.org/10.1080/09603100210105030

Adlina

U. N.

(2015). The determinants of the profitability of Malaysian public listed companies [Ph.D Thesis]. Universiti Utara Malaysia.

Ahmad

H. Z.

Tian

X. L.

(2019). Increased firm profitability under a nationwide environmental information disclosure program? Evidence from China. Journal of Cleaner Production, 230, 1176–1187.

Asche

Larsen

T.A.

Smith

M. D.

Sogn-Grundvåg

Young

J. A.

(2015). Pricing of eco-labels with retailer heterogeneity. Food Policy, 53, 82–93. https://doi.org/10.1016/j.foodpol.2015.04.004

Atanlogun

S. K.

Edwin

O. A.

Afolabi

Y. O.

(2014). On comparative modeling of GLS and OLS estimating techniques. International Journal of Scientific & Technology Research, 3(1), 125–128.

10.

Atinc

Simmering

M. J.

Kroll

M. J.

(2012). Control variable use and reporting in macro and micromanagement research. Organization Research Methods, 15, 57–74. https://doi.org/10.1177/1094428110397773

11.

Azhagaiah

Deepa

(2012). Determinants of profitability of food industry in India: A size-wise analysis. Management, 7(2), 111–128.

12.

Aziz

N. F.

Chamhuri

Batt

P. J.

(2021). Barriers and benefits arising from the adoption of sustainable certification for smallholder oil palm producers in Malaysia: A systematic review of literature. Sustainability, 13(18), 10009. https://doi.org/10.3390/su131810009

13.

Balu

Ismail

Hashim

Ismail

Shahari

D. N.

Idris

N. A. N.

Omar

Salleh

K. M.

Hassan

N. A. M.

Kushairi

(2018). Malaysia: 100 years of resilient palm oil economic performance. Journal of Oil Palm Research, 30(1), 13–25.

14.

Barclay

M. J.

Smith

C. W.

(1995). The maturity structure of corporate debt. Journal of Finance, 50(2), 609–632. https://doi.org/10.1111/j.1540-6261.1995.tb04797.x

15.

Bayyurt

Orhunbilge

(2007). Measuring business performance in the context of the Turkish manufacturing industry. Sosyal Bilimler Dergisi, 17, 138–148.

16.

Benjamin

(2018). Roundtable on sustainable palm (RSPO0 vs Malaysian sustainable palm oil. A comparison based on WWF’s certification assessment tool (CAT). Report for WWF Malaysia, pp. 1–24. Retrieved February 9, 2019, from http://d1kjvfsq8j7onh.cloudfront.net/downloads//rspo_vs_mspo_report_2018.pdf

17.

Brandi

Abani

Hosang

Schirmbeck

Westermann

Wiese

(2013). Sustainability certification in the indonesian palm oil sector (German Development Institute Working Paper. ISBN 978-3-88985-581-7). German Development Institute.

18.

Booth

L.V.

Aivazian

Demirguc Maksimovic

(2001). Capital structure in developing countries. Journal of Finance, 56(1), 87–130.

19.

Capon

Farley

J. U

Hoeing

(1990). Determinants of financial performance: A meta-analysis. Management Science, 36(10), 114–119.

20.

Carlson

K. D.

(2012). The illusion of statistical control: Control variable practice in management research. Organizational Research Methods, 15, 413–435. https://doi.org/10.1177/1094428111428817

21.

Chen

P. H.

Ong

C. F.

Hsu

S. C.

(2016). Understanding the relationships between environmental management practices and financial performances of multinational construction firms. Journal of Cleaner Production, 139, 750–760. https://doi.org/10.1016/j.jclepro.2016.08.109

22.

Chin

(2014). Changing perception about palm oil. The Star Online. Retrieved March 3, 2019, from https://www.thestar.com.my/lifestyle/features/2014/09/11/changing-perceptions-about-palm-oil/

23.

CPET. (2017). UK consumption of sustainable palm oil. Department for Environment Food & Rural Affairs. Retrieved December 27, 2018, from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/590474/cpet-annual-review-palm-oil-consumption.pdf

24.

Council of Palm Oil Producing Countries (CPOPC). (2022). Database country Malaysia. https://database.cpopc.org/country/detail/2/malaysia

25.

Daddi

Frey

Iraldo

Nabil

(2011). The implementation of an environmental management system in a North-African local public administration: The case of the City Council of Marrakech (Morocco). Journal of Environmental Planning and Management, 54(6), 813–832. https://doi.org/10.1080/09640568.2010.537543

26.

Damadaran

(2001). Corporate finance-theory and practice. John Wiley.

27.

Dangelico

R. M.

Pontrandolfo

(2015). Being ‘green and competitive’: The impact of environmental actions and collaborations on firm performance. Business Strategy and the Environment, 24(6), 413–430. https://doi.org/10.1002/bse.1828

28.

Deng

Luo

(2009). An empirical study of the macroeconomic factors that affect capital structure of agricultural listed companies. Journal of Market Modernization, 11(14), 28–29.

29.

Ding

Sha

(2011). Emperical analysis of the impact of capital structure on performance in Jilin Forest Industry Co. Ltd. Issues of Foresty Economics, 31(2), 141–144.

30.

Esfahbodi

Zhang

Watson

(2016). Sustainable supply chain management in emerging economies: Trade-offs between environmental and cost performance. International Journal of Production Economics, 181, 350–366. https://doi.org/10.1016/j.ijpe.2016.02.013

31.

Ferron

R. T.

Funchal

Nossa

Teixeira

A. J.

(2012). Is ISO 14001 certification effective? An experimental analysis of firm profitability. BAR-Brazilian Administration Review, 9, 78–94.

32.

Florea

(2013). Stakeholders interests analyse and harmonization-starting point of strategic approach. Economy Transdisciplinarity Cognition, 16(1), 130.

33.

Fisher

Maryudi

Sahide

M. A. K.

(2017). Forest and society: Initiating a Southeast Asia journal for theoretical, empirical, and regional scholarship. Jurnal Administrasi dan Kebijakan Kesehatan Indonesia, 1(1), 1–7. https://doi.org/10.24259/fs.v1i1.1369

34.

Freeman

(1984). Strategic management: A stakeholder’s approach. Pitman.

35.

Ganeshwaran

(2017). Ensuring sustainable palm industry. Retrieved October 6, 2018. https://www.thestar.com.my/business/businessnews/2017/12/11/ensuriNng-sustainable-palm-industry/

36.

Ganling. (2019). Which are the main producing countries and regions? Retrieved May 3, 2019, from http://www.mpob.gov.my/images/stories/pdf/2019/2019_1Palm%20Oil%20Global%20Trade.pdf

37.

Garriga

Mele

(2004). Corporate social responsibility theories: Mapping the territory. Journal of Business Ethics, 53(1–2), 51–71.

38.

Gijs

Joshua

Karen

(2015). Profitability and sustainability in responsible forestry (Technical Report for WWF Switzerland). WWF.

39.

Glasbergen

(2011). Mechanisms of private meta-governance: An analysis of global private governance for sustainable development. International Journal of Strategic Business Alliances, 2(3), 189–206. https://doi.org/10.1504/IJSBA.2011.040886

40.

Gogtay

N. J.

Deshpande

Thatte

U. M.

(2017). Principles of correlation analysis. Journal Association Physiscian of India, 65, 78–81.

41.

Gujarati

D. N.

(2003). Basic econometrics (4th ed.). Tata McGraw-Hill Education.

42.

Hafizuddin-Syah

B. A. M.

Shahida

Fuad

S. H.

(2018). Sustainable certifications and financial profitability: An analysis on palm oil companies in Malaysia. Journal Pengurusan, 54(2018), 1–20.

43.

Hemananthani

(2017). MSPO certification mandatory by 2019. Retrieved December 16, 2018, from http://www.thestar.com.my/news/nation/mspo-certificationmandatory-2019-aims-for-sustainable-oil-palm-industry/

44.

Hidayat

N. K.

Offermans

Glasbergen

(2018). Sustainable palm oil as a public responsibility? On the governance capacity of Indonesian standard for sustainable palm oil (ISPO). Agriculture and Human Values, 35(1), 223–242. https://doi.org/10.1007/s10460-017-9816-6

45.

Hinkes

(2020). Adding (bio) fuel to the fire: Discourses on palm oil sustainability in the context of European policy development. Environment, Development and Sustainability, 22(8), 7661–7682.

46.

Hsiao

(2007). Panel data analysis - Advantages and challenges. Test, 16(1), 1–22. https://c402277.ssl.cf1.rackcdn.com/publications/810/files/original/FINAL_Profitability_and_Sustainability_in_Responsible_Forestry_main_report.pdf?1438780746 https://www.forestpeoples.org/sites/default/files/documents/Palm%20Oil%20Certification%20Standards_lowres_spreads.pdf

47.

Horisch

Freeman

R. E.

Schaltegger

(2014). Applying stakeholder theory in sustainability management: Links, similarities, dissimilarities, and a conceptual framework. Organization & Environment, 27(4), 328–346.

48.

Indonesia Palm Oil Platform. (2015). ISPO certification and market access. Retrieved January 17, 2020, from https://www.undp.org/sites/g/files/zskgke326/files/publications/UNDP%20NewsLetter%20Final%20Final.pdf

49.

Ivancic

Koh

L. P.

(2016). Evolution of sustainable palm oil policy in Southeast Asia. Cogent Environmental Science, 2, 1–10.

50.

Jafari

Othman

Witzke

Jusoh

(2017). Risks and opportunities from key importers pushing for sustainability: The case of Indonesian palm oil. Agricultural and Food Economics, 5(1), 1–16. https://doi.org/10.1186/s40100-017-0083-z

51.

Jose

H. A.

Hongman

Xiaochuan

Bahram

Haibo

(2010). A study of the relative efficiency of Chinese Ports: A financial ratio-based data envelopment analysis approach. Expert Systems, 27(5), 349–362. http://doi:10.1111/j.1468-0394.2010.00552.x

52.

Kamaruddin

(2020). Voluntary partnership in palm oil trade: A sustainable approach for Malaysia. International Journal of Innovation, Creativity and Change, 12(12), 1044–1056.

53.

Kushairi

Loh

S. K.

Azman

Hishamuddin

Ong-Abdullah

Izuddin

Z. B. M. N.

Parveez

G. K. A.

(2018). Oil palm economic performance in Malaysia and R&D progress in 2017. Journal of Oil Palm Research, 30(2), 163–195.

54.

Lee

S. M.

Noh

Choi

Rha

J. S.

(2017). Environmental policy performances for sustainable development: From the perspective of ISO 14001 certification. Corporate Social Responsibility and Environmental Management, 4(2), 108–120.https://doi.org/10.1002/csr.1395

55.

Lim

C. Y.

(2014). Addressing palm oil concerns. The Star Online. Retrieved February 2, 2019, from https://www.thestar.com.my/news/environment/2014/09/08/addressing-palm-oil-concerns

56.

Magee

(1990). R 2 Measures based on wald and likelihood ratio joint significance tests. The American Statistician, 44(3), 250–253.

57.

Mclnnes

(2017, November 22). A comparison of leading palm oil certification standards (Report of Forest People Programme). Forest People Programme.

58.

Morley

(2015). RSPO, the global standard for sustainable palm oil. Agro Food Industry Hi-Tech, 26(6), 29–30.

59.

MPOB. (2020a). Overview of the Malaysian oil palm industry 2020. Retrieved December 21, 2021, from https://bepi.mpob.gov.my/images/overview/Overview_of_Industry_2020.pdf

60.

MPOB. (2020b). Malaysian oil palm statistics 2019 (39th ed.). Bangi. 289.

61.

MPOB. (2020c). Export of palm oil by destination: 2020 (tonnes). Retrieved December 21, 2021, https://bepi.mpob.gov.my/index.php/en/export/export-2020/export-of-palm-oil-to-major-destinations-2020

62.

Mule

R. K.

Mukras

M. S.

Nzioka

O. M.

(2015). Corporate size, profitability and market value: An econometric panel analysis of listed firms in Kenya. European Scientific Journal, 11(13), 1857–7881.

63.

Murray

K. B.

Vogel

C. M.

(1997). Using a hierarchy-of effects approach to gauge the effectiveness of corporate social responsibility to generate goodwill toward the firm: Financial versus non-financial impacts. Journal of Business Research, 38, 141–159.

64.

Muritala

T. A.

(2012). An empirical analysis of capital structure on firms’ performance in Nigeria. International Journal of Advances in Management and Economics, 1(5), 116–124. https://doi.org/10.5171/2015.675930

65.

Mutti

Yakovleva

Vazquez-Brust

Di Marco

M. H.

(2012). Corporate social responsibility in the mining industry: Perspectives from stakeholder groups in Argentina. Resources Policy, 37(2), 212–222.

66.

Mutombo

F. M.

(2018). Palm oil prices skyrocket in DRC, as demand outpaces production. Global Press Journal. Retrieved January 30, 2022, from https://globalpressjournal.com/africa/democratic-republic-of-congo/drc-palm-oil-prices-skyrocket-demand-outpaces-production/

67.

Myers

S. C.

(1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147–175.

68.

Myšková

Hájek

(2017). Comprehensive assessment of firm financial performance using financial ratios and linguistic analysis of annual reports. Journal of International Studies, 10(4), 96–108. https://doi:10.14254/2071-8330.2017/10-4/7

69.

Naidu

Moorthy

(2021). A review of key sustainability issues in Malaysian palm oil industry. Sustainability, 13(19), 10839.

70.

Nambiappan

Ismail

Hashim

Ismail

Nazrima

Idris

N. A. N.

Omar

Salleh

K. M.

Hassan

N. A.

Kushairi

(2018). Malaysia: 100 years of resilient palm oil economic performance. Journal of Oil Palm Research, 30(1), 13–25.

71.

Noor

F. M. M.

Gassner

Terheggen

Dobie

(2017). Beyond sustainability criteria and principles in palm oil production: Addressing consumer concerns through insetting. Ecology and Society, 22(2), 5. https://doi.org/10.5751/ES-09172-220205

72.

Noorhayati

Wan

A. W. A.

Asniati

Alif

F. H. S.

(2016, July 7–10). Palm oil sustainability certification and firm performance: Is there a conflict between RSPO and MSPO? [Conference session]. Proceedings of the European Business & Management Conference 2016, the International Academic Forum.

73.

Noorzaleha

A. T.

(2011). Factors affecting the financial performance in Malaysian palm oil industry [Thesis degree]. University Malaysia of Sarawak.

74.

Nor

N. M.

Bahari

N. A. S.

Adnan

N. A.

Kamal

S. M. Q. A. S.

Ali

I. M.

(2016). The effects of environmental disclosure on financial performance in Malaysia. Procedia Economics and Finance, 35, 117–126. https://doi.org/10.1016/S2212-5671(16)00016-2

75.

Ogebe

Alewi

(2013). The impact of capital structure on firms’ performance in Nigeria. Paper Munich Personal RePEc Archive (MPRA). Annual Review of Financial Economics, 3, 1–24. http://doi:10.2139/ssrn.2232445

76.

Palm Oil Analytics. (2018). Major CPO producers and planter acreage. Retrieved December 29, from, http://www.palmoilanalytics.com/files/epos-final-59.pdf

77.

Palmer

Truong

(2017). The impact of technological green new product introductions on firm profitability. Ecological Economics, 136, 86–93.

78.

Park

H. M.

(2015). Univariate analysis and normality test using SAS, Stata, and SPSS (Working Paper). The University Information Technology Services (UITS) Center for Statistical and Mathematical Computing, Indiana University.

79.

Pichler

(2013). People, planet & profit: Consumer-oriented hegemony and power relations in palm oil and agrofuel certification. The Journal of Environment & Development, 22(4), 370–390.

80.

Pfajfar

Shoham

Małecka

Zalaznik

(2022). Value of corporate social responsibility for multiple stakeholders and social impact–Relationship marketing perspective. Journal of Business Research, 143, 46–61.

81.

Preusser

(2015). Correlating economic and financial viability with sustainability for palm oil plantations. Research Paper for RSPO. 1-52. https://www.rspo.org/news-and-events/announcements/the-correlation-between-economic-and-financial-viability-with-sustainability-for-palm-oil-plantations-study

82.

Rahim

N. A.

(2013). Theoretical investigation on determinant of government linked company’s capital structure. Journal of Accounting, Finance and Economics, 3(2), 72–85.

83.

Rahman

S. A.

Yusoff

R. B.

Mohamed

W. N.

(2009). Environmental disclosure and financial performance: An empirical study of Malaysia, Thailand and Singapore. Social and Environmental Accountability Journal, 29(2), 46–58. https://doi.org/10.1080/0969160X.2009.9651811

84.

Ramasamy

Darryl

Maththew . (2005). Firm size, ownership and performance in the Malaysia palm oil industry. Asian Academy of Management Journal of Accounting and Finance, 1, 81–101.

85.

Razali

N. M.

Wah

Y. B.

(2011). Power comparisons of Shapiro-wilk, Kolmogorov-Smirnov, Lilliefors and Anderson-darling tests. Journal of Statistical Modeling and Analytics, 2(1), 21–33.

86.

Rival

Montet

Pioch

(2016). Certification, labelling and traceability of palm oil: Can we build confidence from trustworthy standards? Oilseeds and Fats, Crops and Lipids, 23(6), 1–11. https://doi.org/10.1051/ocl/2016042

87.

Roundtable on Sustainable Palm Oil. (2007). RSPO rt15 ends with a focus on ensuring standard are attainable by all. Retrieved September 17, 2018, from http://www.rspo.org/news-and-events/news/rspo-rt15-ends-with-a-focus-one-ensuring-standards-are-attainable-by-all

88.

Roundtable on Sustainable Palm Oil. (2015). The statutes of the roundtable on sustainable palm oil. Report of RSPO statutes 2015. Retrieved October 6, 2018. https://rspo.org/publications/download/b21516d7ea9996d

89.

Sahudin

Wan Mahmood

W. M.

Ismail

Pardi

Aziz

Sahudin

M. A.

(2011). Debt structure for Malaysian construction companies: Evidence from panel data analysis. International Journal of Economics and Management Science, 1(3), 1–7.

90.

Salim

Yadav

(2012). Capital structure and firm performance: Evidence from Malaysian listed companies. Procedia-Social and Behavioral Sciences, 65, 156–166. https://doi.org/10.1016/j.sbspro.2012.11.105

91.

Sarkar

(2008). Public policy and corporate environmental behaviour: A broader view. Corporate Social Responsibility and Environmental Management, 15(5), 281–297. http://dx.doi.org/10.1002/csr.167

92.

Sarumpaet

(2005). The relationship between environmental performance and financial performance of Indonesian companies. Journal Akuntasi & Keuangan, 7(2), 89–98.

93.

Saswattecha

Kroeze

Jawjit

Hein

(2017). Improving environmental sustainability of Thai palm oil production in 2050. Journal of Cleaner Production, 147, 572–588.

94.

Segarra-Oña

M. D. V.

Peiró-Signes

Á.

Verma

Miret-Pastor

(2012). Does environmental certification help the economic performance of hotels? Evidence from the Spanish hotel industry. Cornell Hospitality Quarterly, 53(3), 242–256.

95.

Senawi

Rahman

N. K.

Mansor

Kuntom

(2019). Transformation of oil palm independent smallholders through Malaysian sustainable palm oil. Journal of Oil Palm Research, 31(3), 496–507.

96.

Shafaai

Masih

(2013). Determinants of cost of equity: The case of Shariah-compliant Malaysian firms (MPRA Paper 62364). University Library of Munich, pp. 1–56.

97.

Shahida

Hafizuddin-Syah

B. A. M.

Fuad

S. H.

(2018). The effect of sustainability certification for export on operational profitability of Malaysian palm oil companies. Journal Ekonomi Malaysi, 5(2), 55–67. https://doi.org/10.17576/JEM-2018-5002-5

98.

Spector

P. E.

Brannick

M. T.

(2011). Methodological urban legends: The misuse of statistical control variables. Organizational Research Methods, 14, 287–305. https://doi.org/10.1177/1094428110369842

99.

Staff

(2019). Indonesia certifies a record amount of palm plantations as sustainable. Retrieved March 13, 2022, from https://www.reuters.com/article/us-indonesia-ispo-idUKKCN1R80GJ

100.

Strouhal

Štamfestová

Ključnikov

Vincúrová

(2018). Different approaches to the EBIT construction and their impact on corporate financial performance based on the return on assets: Some evidence from Czech top100 companies. Journal of Competitiveness, 10(1),144–154.

101.

Tang

A. K.

Lai

K. H.

Cheng

T. C. E.

(2016). A multi-research-method approach to studying environmental sustainability in retail operations. International Journal of Production Economics, 171, 394–404. https://doi.org/10.1016/j.ijpe.2015.09.042

102.

Teo

(2019). Move to mitigate EU palm oil ban. The Star Online. Retrieved February 23, 2019, from https://www.thestar.com.my/opinion/letters/2019/01/31/move-to-mitigate-eu-palm-oil-ban/

103.

Tey

Y. S.

Brindal

Darham

Sidique

S. F. A.

Djama

(2019). Financial performance of certified palm oil companies in Malaysia. Oil Palm Industry Economic Journal, 19(2), 57–66.

104.

Tey

Y. S.

Brindal

Darham

Sidique

S. F. A.

Djama

(2020). Early mover advantage in roundtable on sustainable palm oil certification: A panel evidence of plantation companies. Journal of Cleaner Production, 252, 119775. https://doi.org/10.1016/lowj.jclepro.2019.119775

105.

The Star. (2019). World has loads of sustainable palm oil but not many takers. Retrieved May 5, 2019. https://www.thestar.com.my/business/business-news/2019/01/14/world-has-loads-of-sustainable-palm-oil-but-not-many-takers/#UtGT0o4xwGlImlET.99

106.

Tian

R. Z.

(2007). Capital structure and corporate performance: evidence from Jordan. The Australian Accounting Business & Finance Journal, 1(4), 40.

107.

Van Kooten

G. C.

Nelson

H. W.

Vertinsky

(2005). Certification of sustainable forest management practices: A global perspective on why countries certify. Forest Policy and Economics, 7(6), 857–867. https://doi.org/10.1016/j.forpol.2004.04.003

108.

Van

H. M. L.

Smith

Fagan

A. A.

Jaki

Feaster

D. J.

Masyn

Howe

(2012). Not quite normal: Consequences of violating the assumption of normality in regression mixture models. Structural equation modeling. A Multidisciplinary Journal, 19(2), 227–249. https://doi.org/10.1080/10705511.2012.659622

109.

Velnampy

(2005). A study on investment appraisal and profitability. Journal of Business Studies, 2(1), 23–35.

110.

Vogelpohl

(2021). Transnational sustainability certification for the bioeconomy? Patterns and discourse coalitions of resistance and alternatives in biomass exporting regions. Energy, Sustainability and Society, 11(1), 1–13.

111.

Wang

N. A.

(2013). The impact of capital structure on performance. International Journal of Commerce and Management, 23(4), 354–368.

112.

Wei

(2012). Factors affecting financial performance of agricultural firms listed on Shanghai Stock Exchange [Doctoral dissertation]. University of the Thai Chamber of Commerce.

113.

Wijaya

Glasbergen

(2016). Toward a new scenario in agricultural sustainability certification? The response of the Indonesian national government to private certification. The Journal of Environment and Development, 25(2), 219–246.

114.

Wooldridge

(2002). Econometric analysis of cross-section and panel data. MIT Press.

115.

Yolanda

Soekarno

(2012, September 28–29). Capital structure determinant of Indonesian plantation firm: Empirical study on Indonesian stock exchange [Conference session]. 2nd International Conference on Business, Economics, Management and Behavioral Sciences, Bali, Indonesia (pp. 61–65).

116.

Yoo

Mayberry

Bae

Singh

Q. P

Lillard

J. W.

Jr. (2014). A study of effects of multicollinearity in the multivariable analysis. International Journal of Applied Science and Technology, 4(5), 9–19.

117.

Yusof

Yew

(2016). The burden of RSPO certification costs on Malaysian palm oil industry and national economy. Journal of Oil Palm, Environment & Health, 7(12), 19–27.

118.

Zhang

(2010). Based on factor analyzing: performance evaluation of listed companies in SME Board and its factors analysis. Journal of Liuzhou Teachers College, 2010(3), 74–78.

Sustainability Practices and Financial Profitability: The Case of the World’s Top 20 Crude Palm Oil Producers

Abstract

Keywords

Introduction

Literature Review

MSPO and ISPO

The Relevance of Sustainability Certification to Firm Profitability

Other Factors Affecting Firm Profitability

Methodology

Data Analysis Method

Data Collection Method

Empirical Findings

Descriptive Statistics

Pearson Correlation Matrix

Regression Results

Conclusion

Footnotes

Acknowledgements

Declaration of Conflicting Interests

Funding

Ethics Statement

Consent

ORCID iDs

References