RESEARCH ARTICLE Sustainability stewardship: Does roundtable on sustainable palm oil certification create shareholder value? Yeong Sheng Tey 1 | Mark Brindal 2 1 Laboratory of Agricultural and Food Policy Studies, Institute of Tropical Agriculture and Food Security, Universiti Putra Malaysia, Selangor, Malaysia 2 School of Agriculture, Food and Wine, Faculty of Sciences, University of Adelaide, Adelaide, South Australia, Australia Correspondence Yeong Sheng Tey, Laboratory of Agricultural and Food Policy Studies, Institute of Tropical Agriculture and Food Security, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia. Email: tyeong.sheng@gmail.com Funding information Universiti Putra Malaysia, Grant/Award Number: 9555800 Abstract The adoption of sustainability standards is often viewed as a profitability conundrum by palm oil firms and their shareholders. This study examines whether, considering the inherent risk, the Roundtable on Sustainable Palm Oil (RSPO) sustainability initia- tive creates shareholder value. Based on the panel information of plantation firms listed on the Indonesia and Kuala Lumpur Stock Exchanges, RSPO-certified firms earned mixed risk-adjusted performance results relative to non-RSPO and total palm oil portfolios. They also demonstrated a limited probability for upside growth. Additionally, it is possible that institutionalized sustainability standards do not address all the environmental, social and governance pillars that should constitute sustainable investing. Consequently, business operators and investors seeking improved performance should focus on the fundamentals whilst incorporating sus- tainability standards. KEYWORDS palm oil, return, shareholder value, standard certification, sustainability 1 | INTRODUCTION As the strength of the palm oil industry has begun to wane, its posi- tion as a key growth driver for emerging economies must be viewed with serious concern. Indonesia and Malaysia, which in aggregate account for more than 70% of both the world's palm oil planted areas and production, lead that experience. The average return on invested capital of Malaysian palm oil firms oscillated between 5% and 8% when crude palm oil (CPO) prices traded below the US$1500/ton mark prior to 2008. This average return began to slide and then bot- tomed at 1% despite the rise of the CPO prices beyond the US $2000/ton level since 2009 (Tey, Brindal, Darham, Djama, & Sidique, 2019). Indonesian palm oil firms have fared worse. Financial risks – arising from environmental activism (conserving the environ- ment and high conservation values) (Pye, 2009), social pressure (com- plying with human rights, social standards and heightened user expectation) (Ivancic & Koh, 2016), nontariff trade barriers (permitting only certified sustainable outputs) (Hapsari, 2011), sustain- able financing (Pramudya, Hospes, & Termeer, 2017), responsible sourcing (Coombs, 2014), and green consumerism (Lim, Biswas, & Samyudia, 2015) – exacerbated low profitability. Implemented in 2007, the Roundtable on Sustainable Palm Oil (RSPO) standard is widely advocated as providing an opportunity for the more sustainable development of the global palm oil industry (Furumo & Aide, 2017). Due to the inherent need for economies of scale, RSPO certification is deemed most suitable to large farm opera- tions (Visser, Magureanu, & Yadav, 2015). Preference for certified sus- tainable palm oil (CSPO) may lead firms to improve their management (Pye, 2019). Firms adopting the RSPO standard also possessed an early mover advantage in growing CSPO markets (Tey, Brindal, Darham, Djama, & Sidique, 2020a). Guided by a sustainability frame- work for operational decisions, firms certified under the RSPO stan- dard generally attained higher returns on invested capital (Tey et al., 2019). Their certification presents an explicit environmental dis- closure, which is a critical means for stakeholder engagement (Othman & Ameer, 2010). For example, as a nucleus, the sustainability initiative can lead more plasma smallholders to embrace certification (Tey, Brindal, Darham, Djama, & Sidique, 2020b). Received: 13 August 2020 Revised: 25 October 2020 Accepted: 10 November 2020 DOI: 10.1002/csr.2088 Corp Soc Responsib Environ Manag. 2020;1–10. wileyonlinelibrary.com/journal/csr © 2020 ERP Environment and John Wiley & Sons Ltd 1