Washington, D.C. Companies in the palm oil supply chain that have committed to sustainable production have experienced stronger equity returns versus its industry counterparts, according to a new report from Climate Advisers, a consultancy specializing in climate and financial risk in the land sector.
Climate Advisers’ analysis, which simulates equity performance back to late 2012, shows that in the period from December 2012 to April 2019, the equity returns of globally-traded companies that were members of the Roundtable on Sustainable Palm Oil (RSPO) – which requires compliance with standards for sustainable palm oil production – exceeded a composite performance simulation of palm oil companies by 4.6 percentage points, while outperforming the companies that were not RSPO members by 24.7 percentage points.
The report is the first of its kind for the sector and illustrates how the integration of sustainable practices in palm oil supply chains supports stronger returns for investors.
“Companies and their investors no longer need to make a choice between generating a stronger investment return and protecting their brand. Companies that have taken sustainability risks seriously are outperforming their peers. Simply put, environmental stewardship improves the bottom line. Investors should take note or risk leaving money on the table,” said Nigel Purvis, CEO of Climate Advisers.
To conduct this analysis, Climate Advisers worked with S-Network Global Indexes to conduct an equity back test for globally traded stocks that are engaged in the production of palm oil; the performance of companies that are members of the RSPO and those that are not was tracked against the composite performance simulation.
“Palm oil has been and will remain a volatile sector. For investors to reduce risk, they should be aware of externalities associated with deforestation and other sustainability challenges. It’s clear that when companies take measures to increase transparency and reduce exposure to deforestation-linked supply, they see stronger returns,” said Matt Piotrowski, a senior analyst with Climate Advisers.
“While the RSPO has received some criticism for not adopting stringent enough sustainability guidelines in certain areas, there has been substantive progress in the right direction, with many members adopting No Deforestation, No Peat, No Exploitation (NDPE) policies in order to align with the RSPO’s guidelines,” Piotrowski added.
As a result, Climate Advisers and S-Network have created a palm oil equity index for investors that contains the stocks of 18 publicly traded companies that are members of the RSPO, have a market capitalization of at least $25 million and have a float percentage of at least 10 percent.
“Following our simulation, which demonstrated a significant performance premium, we believed that a new equity index would be a valuable asset for investors seeking to strengthen returns in the palm oil sector,” Piotrowski said.
About the Climate Advisers Better Palm Oil Index
The Climate Advisers Better Palm Oil Index (Ticker: CABPLM) is an equity index designed to serve as an equity benchmark for globally traded stocks of companies that are members of the RSPO.
The index will help investors effectively track the performance of companies that are factoring sustainability objectives into their operations, helping them manage risks and take advantage of opportunities in the palm oil sector.
CABPLM contains 18 stocks selected from a universe of equity securities traded on recognized stock exchanges across the globe.
The selection criteria include requirements that companies must be principally engaged in “primary” agriculture operations, must have stock traded on a recognized stock exchange, and must derive more than 20 per cent of its revenues from activities directly related to palm oil. The companies must also be members of the RSPO and meet certain investability criteria, which include having a minimum float percentage of 10 percent and a minimum market capitalization of $25 million.
The index is rebalanced quarterly; it is available for licensing through S-Network.
Contact: Ben Simonds, Director of Communications, Climate Advisers