Little is known about how standards and certification enhance the profitability of adopters. This study is intended to explore the financial performance of Malaysian palm oil companies with respect to their Roundtable on Sustainable Palm Oil (RSPO) certification, as the Malaysian Sustainable Palm Oil (MSPO) standard is relatively new. Based on 2000-2016 panel data, the return on invested capital (ROIC) metric was employed to compare the profitability of RSPO-certified and non-certified palm oil companies listed in the Kuala Lumpur Stock Exchange. We found that RSPO-certified companies consistently outperform a conventional sample. This superiority was consistent even in the face of garadual decline in the mean. Reasons for the superior performance may include improved operating and capital efficiency associated with the various advantageous effects of the certification on productivity, operation, management, and business turnover. Our findings are a critical adjunct towards improving the advocacy of sustainability standards. The findings will be pivotal as a strategy to generate wider acceptance among plantation companies (nucleus), which are the window to prevalent adoption among smallholders (plasma). A better understanding of enhanced financial performance and its longevity (if any) is necessary for agribusinesses to succeed with agricultural transformation.
Keywords: Standard certification, financial performance, return on invested capital, Roundtable on Sustainable Palm Oil.