1 Risk That Investors in Palm Oil Companies Should Pay Attention to Now

There are a number of companies in the stock markets of Singapore and Malaysia that are heavily exposed to the palm oil industry.

In Singapore, some examples, among others, are Wilmar International Limited (SGX: F34), Golden Agri-Resources Ltd (SGX: E5H), and First Resources Ltd (SGX: EB5). In Malaysia, there are Sime Darby Berhad (KLSE: 4197.KL) and IOI Corporation Bhd (KLSE: 1961.KL), just to name a few.

Now, there’s something that investors in companies with big exposure to the palm oil industry may want to pay attention to – the risk of a palm oil company not meeting the requirements to gain a Roundtable on Sustainable Palm Oil (RSPO) certification.

The low down on the RSPO

The RSPO is an organisation – made up of plantations, non-governmental organisations, and consumers – that sets a global standard for sustainable palm oil. Its purpose is to ensure that all RSPO-certified members produce and handle palm oil in a sustainable manner.

The risk for palm oil companies

Many large multinational corporations (MNCs) such as Unilever and Procter & Gamble, just to name a few, purchase palm oil products as raw materials from palm oil companies. But, the MNCs have a strict policy on sustainability and will only buy raw materials that meet their sustainability requirements.

Late last month, Unilever announced that it had cancelled a few agreements with IOI as a result of the latter having its RSPO certification suspended. Unilever is one of the world’s largest buyers of palm oil and its related products.

Meanwhile, IOI is also at risk of losing other customers – the Straits Times reported last week that “United States food giants Mars and Kellogg’s have also announced that they are in the process of removing IOI as a supplier.”

IOI’s experience is an example of the potential negative effects that can come with a palm oil producer losing its RSPO certification.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.