Planters cut emissions and water use, but governance still lags

New Straits Times

24-06-2025

KUALA LUMPUR: Most plantation companies have continued to improve their environmental commitments, particularly in reducing greenhouse gas (GHG) and water intensities, according to a recent review of the sector's ESG developments by Hong Leong Investment Bank Bhd (HLIB).
In a note, HLIB said the oil palm plantation sector has long been associated with deforestation, GHG emissions, labour exploitation, and land rights violations.
It added that these persistent issues have triggered tighter regulations from key markets such as the European Union and the United States, increased demand for sustainably produced palm oil, and growing emphasis on ESG factors in funding and investment decisions.
In response, HLIB said plantation companies have ramped up efforts to adopt and embed ESG principles throughout their operations.
"Beyond rising ESG adoption, the level of ESG disclosure among planters has improved over time, spurred by both mandatory and market driven requirements.
"Notable examples include the EU deforestation regulation, which requires enhanced traceability and data systems, task force on climate-related financial disclosures reporting, and sustainability disclosures mandated by Bursa Malaysia," it said.
According to HLIB, key elements within the environmental pillar, particularly GHG emissions, and water management are critical in in assessing how planters interact with and impact the natural environment.
"The firm noted that four out of seven planters recorded lower GHG intensity, namely Hap Seng Plantations Holdings Bhd, Johor Plantations Group Bhd, Kuala Lumpur Kepong Bhd, and Sime Darby Plantation Bhd.
"These improvements stemmed from various reduction initiatives, such as the installation of biogas plants and filter belt press, the purchase of green energy, and the use of by-products like palm kernel shell.
"In terms of water intensity, seven out of eight planters achieved lower water intensity in financial year 2024 (FY24), signalling more efficient water usage and improved water management practices across operations," it said.
Meanwhile, HLIB said while progress under the social pillar is more difficult to quantify due to its qualitative nature, many planters have shown clear commitment to addressing key social concerns.
It said this is reflected in initiatives such as improved labour practices, enhanced workers' welfare, community engagement programmes, and efforts to uphold human rights across their operations and supply chains.
In terms of governance practices among planters, HLIB said progress in FY24 was uneven, particularly in areas such as board independence and gender diversity.
On board independence, it said all planters met the minimum requirement under the Malaysian Code on Corporate Governance, which mandates at least 50 per cent independent board representation.
Overall, HLIB has maintained a "neutral" rating on the plantation sector, given the absence of clear demand catalyst.
The firm has also maintained its 2025-2026 crude palm oil price projections of RM4,000 per tonne and RM3,800 per tonne for now.