Developing Environmental, Social and Governance Index for Palm Oil Industry Value Chain

Abstract

The common world effort to achieve United Nations 2030 Agenda on Sustainable Development has expedited the Environmental, Social and Governance reporting, both in the academic, financial, and business arenas. The composition and elements within ESG and its benefits have remained vague across a wide range of industries. Even though general guidelines and handbooks on ESG reporting have been introduced by respective securities markets, non-governmental organisations such as General Reporting Initiatives and World Business Council for Sustainable Development, a gap is observed in the ESG reporting for the entire value chain activities, particularly for the palm oil industry. In this work, Analytic Network Process is proposed to evaluate the priority weights of ESG indicators across the palm oil value chain to understand the importance of ESG reporting in improving the sustainability performance of the industry. The palm oil value chain is divided into three parts, which are downstream activities, main operations, and upstream activities. The result can serve as a reference for the policymakers in introducing the appropriate supports and measures to spur and monitor the sustainable development of the industry. It can also serve as a guideline to enhance credit and investment decisions for financial institutions and investors. The priority weighs on the importance of ESG indicators can also help industry players to improve the resource allocation strategy as well as supplier and distribution selection.