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Jurnal Ekonomi Malaysia

52 (2) 2018 55 – 67

The Effect of Sustainability Certification for Export on Operational Profitability of Malaysian Palm Oil Companies
Kesan Pensijilan Lestari untuk Eksport ke atas Keberuntungan Operasi Syarikat Sawit Malaysia

Islamic Economics Cluster (EKONIS)
and
Center for Inclusive and Sustainable Development
Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 Bangi, Selangor
MALAYSIA

shahida@ukm.edu.my

Risk Management, Insurance and Takaful (RMIT)-UKM
and
Center of Governance Resilence and Accountability (GRACE)
Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 Bangi, Selangor
MALAYSIA

m_hafiz@ukm.edu.my

Graduate School of Business
UKM-Graduate School of Business
Universiti Kebangsaan Malaysia
43600 Bangi, Selangor
MALAYSIA

shanisahf@gmail.com

Abstract

Malaysia is the world’s second largest palm oil producer with 17.4 million tonnes palm oil produced in 2016. The production is for both domestic and export which contribute towards country’s income and economic growth. Despite the significant contribution to the economy, being one of the plantation sectors, Malaysian palm oil has been criticized by the western communities for causing environmental problems such as deforestation and open burning. Hence, it is important for the palm oil companies to ensure sustainable operation and production. The introduction of certified sustainable palm oil (CSPO) or sustainability certification, for instance, Roundtable on Sustainable Palm Oil (RSPO) and Malaysian Sustainable Palm Oil (MSPO), encourages the sustainable practices by the industry players. Recently, the government had announced the mandatory MSPO-certification in Malaysia by end of 2019. At present, there are only 43.6% Malaysian palm oil companies with at least one certification. The mandatory certification had raised concern among companies on additional costs of adoption which eventually will affect profitability. Moreover, sustainability certifications will only benefit the exporting companies for international market penetration. The question is how important does this certification to the exporting companies as compared to others? This study will analyse the effect of sustainability certification on operational profitability of Malaysian palm oil exporting companies. This study employs
generalised least square (GLS) estimation on 17 listed palm oil companies in Bursa Malaysia from 2009 to 2015. The result shows that there is no significant difference in operating profitability due to sustainability certification between the palm oil exporting than the non-exporting companies. The findings indicate that sustainablity practice through RSPO or/and MSPO motivates Malaysian palm oil companies to produce certified palm oil for international and domestic markets, which in line with sustainable development goal (SDG) no. 12 (Ensure Sustainable Consumption and Production Patterns) by the United Nations (UN).

Keywords

CSPO; MSPO; performance; RSPO; SDGs

Author’s Acknowledgement

This research was funded by the MPOB-UKM Endowment Chair Research Grant (EP-2016-012: Financial Sustainability of Palm Oil Companies with regard to
Environmental Certification). 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 of 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.

http://dx.doi.org/10.17576/JEM-2018-5202-5
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Shahimi, , Hafizuddin-Syah, , & Fuad, (2018). The Effect of Sustainability Certification for Export on Operational Profitability of Malaysian Palm Oil Companies. Jurnal Ekonomi Malaysia, 52(2), 55–67. http://dx.doi.org/10.17576/JEM-2018-5202-5

@article{shahida2018effect,
  title={The Effect of Sustainability Certification for Export on Operational Profitability of Malaysian Palm Oil Companies},
  author={Shahimi, Shahida and Hafizuddin-Syah, B.A.M and Fuad, Siti Hanisah},
  journal={Jurnal Ekonomi Malaysia},
  volume={52},
  number={2},
  pages={55—67},
 

year={2018},
}

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