Palm Oil: Mitigating Material Financial Risks via Sustainability

Abstract

Palm oil is an inexpensive and highly versatile oil found in half of all consumer goods on the shelves today in Western grocery stores. Due to its high yields and many uses, palm oil is the most actively traded oil crop in the world. Palm oil has been identified as a driver of both tropical deforestation and climate change. Material financial risks often accompany the environmental impacts and human rights abuses associated with palm oil expansion. This chapter starts with palm oil uses, cultivation, and refining and then moves on to case studies highlighting topical risk management themes, discussed in readily understood, non-financial terms. Specifically, the discussion explores both direct operational risks and indirect business, credit, reputation, liquidity, strategic, market, and regulatory/legal risks caused by deforestation in palm oil supply chains. Risks are described through recent case studies with commentary. The chapter concludes by summarizing some of these themes and their implications.