Malaysia’s palm oil giant Sime Darby mulling ESG bond, local investors ready, says sustainability chief

KUALA LUMPUR - Malaysia’s biggest plantation company Sime Darby is exploring an ESG (environmental, social, and governance) bond issuance tied to the United Nations’ Sustainable Development Goals (SDGs), chief sustainability officer Dr. Simon Lord told Salaam Gateway on Wednesday.

Sime Darby Plantation is a Shariah-compliant security listed on Bursa Malaysia and the largest division of the Sime Darby Group.

Lord did not reveal a timeline for the bond issuance but said it has been discussed at the board level and it could be “nearer than you think.”

“We have gone through all of the SDGs and I have mapped them against everything we do. Were we to go for a bond, I would be steering away from a green bond because I think people are skeptical of palm oil companies,” said Lord.

Proceeds from green bonds must go to investments in projects that have environmental benefits while ESG bonds raise financing for the issuer whose operations must meet environmental, social and corporate governance criteria.

Palm oil is the world’s most widely used edible oil and is an ingredient in many food and non-foods including ice-cream, chocolate, soaps and cosmetics. Its cultivation has come under intense scrutiny in recent years not just from activists but also from investors who question the industry’s practices that have been blamed for deforestation and exploitation of workers.

“Over the last five years, I’ve seen increasing scrutiny in investor questions. There is a change in investor attitudes, asking us really searching questions and wanting to get behind our value-based intermediations,” said Lord, who moved from New Britain Palm Oil Limited to Sime Darby in April, 2015.

Sime Darby Plantation is the only remaining oil palm planter the Norwegian Government Pension Fund invests in. The 8.47 trillion krone ($1.04 billion) fund has divested from 58 companies -- of which 28 were oil palm players -- globally over environmental concerns, Lord said.

These divestments have hit 28 players across the palm oil supply chain including Sime Darby Plantation’s Malaysian public-listed peers Kuala Lumpur Kepong, Genting Plantations, and IJM Corp.

As at end-2017, the Norwegian fund had invested 166.75 million krone ($20.39 million) for a 0.2 percent stake in Sime Darby Plantation, according to figures on the fund’s website.

Sime Darby is one of the founding members of industry watchdog the Roundtable on Sustainable Palm Oil (RSPO) that consists of stakeholders from the seven sectors of the palm industry, including producers, consumer goods manufacturers, investors, and environmental and social non-governmental organisations (NGOs). RSPO provides sustainability certificates for the industry.

MARKET READY

Lord believes Malaysian investors are ready for an ESG bond, having seen increased acceptance over the years in long-term sustainable financing.

There has not been a reported issuance of an ESG bond in Malaysia but the sukuk market has been lively on the responsible finance front. On Wednesday Islamic bank HSBC Amanah raised 500 million ringgit ($120.63 million) worth of sukuk linked to the U.N. SDGs. Last year, the first green sukuk was issued in the country and this year in August the first ESG sukuk fund was launched. In 2015 sovereign wealth fund Khazanah issued the world’s first ringgit-denominated SRI sukuk.

“Four years ago, KWAP (Retirement Fund Inc) asked me to talk to them about sustainability. Today, they are asking me to account for interventions made to save lives, mitigating emissions on existing land, human rights and how we empower people throughout the value chain. That’s how fast it has moved, and it’s the same thing with (Malaysian institutional funds) PNB and EPF as well,” said Lord.

“These are the same questions the Norwegians were asking, but they were a little bit earlier. When my team engages with ethical investors and banking houses, we talk a lot about the environment but now it’s gone beyond that. Domestic investors are now asking questions on our community impacts and the social aspect of the SDGs,” he added.

The banks are also getting on board.

“Over the last two years, I’ve met representatives from just about every single bank in Malaysia, talking about sustainability. The talks have always gone the same way: ‘Can we have an informal chat about sustainability? Then, can we meet about risk mitigation? Now, can we talk about specific aspects?’”

He said Sime Darby Plantation has stopped talking about tactical sustainability and acting on strategic sustainability instead.

“When we talk about climate change, we get down to the nitty-gritty. What are the effects on the biological crop and the infrastructure? What would we do to mitigate those?” Lord said.

Early this year, Sime Darby Plantation and several other planters in the palm oil supply chain announced a collaboration with global sustainability non-profit Forum for the Future on the Decent Rural Living Initiative, to improve human rights of workers and their communities in Indonesian plantations.

The company has more than 630,000 hectares of planted areas in Malaysia, Indonesia, Liberia, Papua New Guinea and the Solomon Islands. 

“We term these ‘pre-competitive collaborations’, in which we turn aside the fact that we might be competitors for the same volume of palm oil and recognise that some of these issues are too big for one company to solve,” said Lord.

“Part of strategic sustainability is the broadening of engagement and the willingness to stand in the same room as many of the campaigning non-government organisations (NGOs) to share mutual respect and listen. I believe Sime Darby Plantation has led in this regard.”

(Reporting by Stephanie Augustin; Editing by Emmy Abdul Alim emmy.alim@refinitiv.com)

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