AS the Environmental, Social, and Governance (ESG) theme takes centre stage globally, the Malaysian palm oil sector has not only been at the forefront of addressing issues related to deforestation and human rights.
Efforts put in by the industry players have also given them a positive impact in terms of reported profits as palm product buyers recognised and rewarded industry players with a firm commitment in terms of their buying power.
With record-high crude palm oil prices last year, Malaysia accounted for almost a third of crude palm oil (CPO) produced globally with total palm oil export proceeds jumping to almost RM138 bil.
The Malaysian palm oil industry has made enormous strides to rope in 96% of the nation’s smallholder farmers which make up around 40% of palm oil cultivation in Malaysia, all Malaysian Sustainable Palm Oil (MSPO)-certified.
The MSPO is a nationally mandated sustainability standard enforceable by law – the first of its kind in the world. The certification has played an important role in supporting the due diligence and risk mitigation processes of operators and traders across the Malaysian palm oil industry’s supply chain.
While the Roundtable on Sustainable Palm Oil (RSPO) has the same aims as the MSPO in terms of sustainability – it is also seeking to attract more smallholders – the MSPO is much cheaper for local smallholders to participate compared with the RSPO which is largely aimed at larger corporates with deep pockets.
Sustainability efforts will be rewarding
The MSPO works more closely with state governments to resolve land issues, particularly in relation to smallholders to improve the MSPO traceability system for the whole supply chain.
The Malaysian Palm Oil Board (MPOB) recently announced that nearly 500,000 smallholders in the country are expected to be connected to a platform that will trace transactions, helping them to comply with the criteria and traceability requirements for sustainability certification.
The traceability platform is for a data collection system that records and tracks transaction details of palm oil products and is also in preparation for compliance with European Union (EU) legislation.
This will be rewarding for all stakeholders, not least because our palm oil industry will be part of a supply chain that is clearly in compliance with international norms. Having said that, ESG practices also need to be adhered to as this will enable traceability of sustainable practices which in turn will lead to the demand for palm products.
The Western world demands palm products to be produced sustainably. As it is, palm oil is much more efficient in terms of production as it uses up to 10 times less land per tonne of oil produced than other major vegetable oils such as rapeseed or sunflower.
Palm oil production also uses less fertiliser and pesticides than alternative oils and it can be harvested all year round.
Huge economic impact
Other than obtaining MSPO and RSPO certifications, there are many other ESG-related initiatives that a palm oil producer can undertake to enhance the sustainability of the business operations.
This includes the target to achieve net zero emission as soon as practicable, re-forestation efforts, planting of more trees, establishing the level of scope 3 emission, having better and improved labour rights/working conditions, diversity and inclusivity policy that embraces race, culture, religion, gender and education background.
It’s a given fact that palm oil and its produce have an impact on our daily lives as 60% of composite products in an average supermarket contain palm oil (eg margarine, shampoo, detergents, biscuits, cooking oil, chocolates, etc).
Growing oil palms and harvesting their fruits provides a major source of income for 500,000 smallholder who depend solely on palm oil for their livelihoods. As oil palms can be harvested all year round, their cultivation provides families with a steady source of income.
For Malaysian smallholders, palm oil cultivation is also crucial in the battle against poverty while playing a vital role in the improvement of socio-economic conditions in rural areas.
At national level, the government collects substantial revenue in the form of taxes and this includes excise duty and levies from planters. Based on the forecast in Budget 2024, the government’s revenue from the two taxes alone is expected to hit RM1.64 bil this year and RM1.8 bil next year.
Additionally, the government also collects substantial income tax proceeds from planters, both from major corporations and smallholders.
Hence, having sustainable palm oil business operations that meet the global RSPO standards is crucial to the nation’s economy and the livelihood of those involved directly or indirectly in the global palm oil supply chain.
While Malaysian palm oil sustainability efforts have borne fruit for those in the industry, there is still much more than the industry can do in its efforts to be truly green vegetable oil. – Dec 15, 2023
Datametrics Research and Information Sdn Bhd (DARE) is a Malaysian-based think tank-cum-policy institute committed to performing research and advocacy for key sectors that are critical to the Malaysian economy.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.