Certification by the Roundtable on Sustainable Palm Oil was found to increase a palm oil company’s profitability, according to a study commissioned by the RSPO.
The findings are a boost for the RSPO, which has continuously grappled with industry claims that its certification schemes burden oil palm growers while providing few tangible benefits.
Jan Willem van Gelder, director of the consultancy Profundo, was positive about the findings, saying they show that sustainability has an impact on profitability.
More evidence is emerging to suggest that for palm oil companies, becoming more sustainable pays off.
“Correlating Economic and Financial Viability with Sustainability for Palm Oil Plantations,” a paper by Dr Steffen Preusser, studied 34 palm oil companies with varying percentages of plantations certified by the Roundtable on Sustainable Palm Oil, the world’s largest association for ethical production of the commodity. Studying data from 2014, the paper found that companies with over 40% of their growing areas certified by the RSPO were able to sell their crude palm oil at an average price of 2,468 Malaysian ringgit ($609) per metric ton. This was significantly higher compared to companies with 20% or less of their growing area certified: the average price of crude palm oil for these companies was only 2,310 ringgit ($570) per metric ton.
Aside from increasing the value of its products, certification may also increase a palm oil company’s profitability by improving its operational indicators. According to a 2012 report by the World Wildlife Fund, embarking on RSPO certification helps improve profitability by requiring companies to upgrade their “operations, documentation systems, labor relations, and other internal factors.” This new study corroborates these results, finding that companies with a larger proportion of RSPO-certified growing areas experienced higher yields and oil extraction rates.
These findings provide a significant indicator that for palm oil companies, greater certification is correlated with higher profits. This is a boost for the RSPO, which has continuously grappled with industry claims that its certification schemes burden oil palm growers while providing few tangible benefits.
The study, which was commissioned by the RSPO, joins a small but growing body of evidence that points toward a link between sustainability and profitability in the palm oil industry. In their June 2015 paper, “Conserving Tropical Biodiversity via Market Forces and Spatial Targeting,” a team of researchers led by Ian Bateman of the University of East Anglia studied the potential for palm oil companies to profit from conserving part of their concession areas, by charging a price premium for their certified sustainable products. The paper found that for a concession area of 32,000 hectares, companies could set aside up to 16,000 hectares of land for conservation, yet still enjoy increased profits as compared to not conserving any land at all.
In an interview with Mongabay, Preusser highlighted the important role that consumers play in driving demand for sustainable palm oil. “In the study, companies that are RSPO members, but that had not certified any plantations, did not enjoy higher prices,” he said. “This is despite the fact that their operational data was definitely better than that of non-members.”
“Ultimately, buyers want to see the certificates before they are willing to pay a price premium.”
Speaking to Mongabay, Jan Willem van Gelder, director of the economic research consultancy Profundo, was positive about the findings. “Linking sustainability to profitability is an important issue, and this paper shows that sustainability does have an impact,” he said.
Van Gelder stressed that the most significant benefits of certification may extend beyond the paper’s scope. “At the moment, the greatest risk to unsustainable palm oil companies is being dropped by suppliers who have adopted ‘No Peat, No Deforestation, No Exploitation’ commitments. Certification limits these risks,” he said.
“Companies unfamiliar with industry best practices can also learn how to apply them from others who are already certified.”