Risky business: Uptake and implementation of sustainability standards and certification schemes in the Indonesian palm oil sector

Evolving international sustainability norms demand greater environmental and social responsibility from business across global commodity chains - from countries of origin to countries of consumption. Conventional commandand-control regulation has had limited success in addressing negative environmental and social impacts. As a result, advocacy groups and NGOs have championed a diversity of market-based and multi-stakeholder governance approaches aimed at shifting the private sector towards delivering more sustainable business models.

Multiple non-state, market-driven social and environmental standards have emerged for palm oil. Through interviews with growers and key stakeholders in the Indonesian palm oil industry this occasional paper explores the motivations driving the uptake of sustainability standards, as well as the factors supporting and preventing implementation of sustainability standards, and asks, what model of “sustainable” oil palm agriculture is ultimately being built?

Five key themes emerged:

• Business risk drives change, whether associated with access to market, operational risks associated with local communities or lack of clarity related to government regulations.
• Shareholder self-interest is the key to commitments and determines the priority that sustainability gets within the firm.
• Interactions between motivations, as well as between motivations and context-dependent variables, are complex, but understanding these interactions can help develop meaningful incentives and disincentives for growers to adopt sustainability standards.
• The diversity of the producer supply base in Indonesia presents a challenge for private and public standards as producers respond differently to incentives and disincentives.
• Government will need to play a role in facilitating uptake of sustainability standards and engage in multistakeholder sustainability processes. Currently capacity, and in some cases willingness, to move toward evolving norms of sustainable agriculture is limited among government ministries.

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