Palm oil firms with high ESG transparency are less valued than less compliant peers: NUS study

ESG premium is not prevalent in the industry.

Palm oil companies that are more transparent in their ESG reporting appeared to be less valued by investors, according to a study by the Centre for Governance and Sustainability (CGS) at the National University of Singapore (NUS) Business School. 

The study found that the more palm oil companies are in ESG reporting, the less their companies are valued compared to their less compliant peers. Firms with high ESG transparency were seen to have lower price-to-earnings (P/E) ratios but could also offer investors a higher return for their price relative to earnings.

The findings, however, signal that ESG premium is not prevalent in the industry and that investors hold a divestment-led investment strategy in a higher regard than ESG integration among palm oil companies. 

“Investors need to be mindful of the impact of ESG responsibility not only on corporate financial performance and value, but also on non-financial performance. The ultimate goal of ESG responsibilities is to incorporate socially acceptable norms into business activities to achieve sustainable goals for the greater societal good,” said Lawrence Loh, a professor and director of the centre for governance and sustainability at NUS Business School.

“We must do more to show that sustainability and profitability are not mutually exclusive,” Loh added.

Loh also called on the governments to step up in encouraging palm oil companies to improve their transparency in ESG reporting.

The study analysed 36 publicly listed palm oil companies including those based in Indonesia, Malaysia, Japan, and the United Kingdom.

Following the same trend, a separate study by  AXA Investment Managers showed ESG investing in Singapore is declining.