In a report released on April 7 2016, Morgan Stanley recommended that Golden Agri-Resources (GAR) shares are a good buy due to its substantial improvement in sustainability performance. In its report: “ASEAN Agricultural Products & Commodity Traders, Asia Insight: Our Sustainability Assessment Highlights Significant Improvement for GAGR and WLIL” Morgan Stanley recommends that investors have a look at what GAR has done on the sustainability front and see how far it has improved in the last few years. The Morgan Stanley report also follows a recent Sustainable Palm Oil Transparency Toolkit (SPOTT) assessment that listed GAR as the top-ranked Indonesian palm oil producers on sustainability.
Morgan Stanley used three criteria to assess GAR: Transparency, Traceability and Technology. The overall scores had GAR leading the pack ahead of Sime Darby and Wilmar. Amongst our strengths were transparency on sustainability commitments as well as achieving nearly 60 percent RSPO certification and using technology to improve our yields as well as working to boost smallholder yields in our supply chain. It also rated us top compared to other companies in completing the mapping of our supply chain to the mill pointing out that this is important to consumers who want to be reassured that palm oil is coming from sources which are free of known links to deforestation.
Exhibit 17: GAGR and WLIL Join SIME and KLKK at the Top of Our Sustainability Assessment Scoring
Exhibit 18: GAGR and WLIL are the Most Improved in our Sustainability Assessment
Does sustainability really matter to investors?
Morgan Stanley points out that in recent years large institutional investors such as the Norges Bank Investment Management (NBIM) have divested shares in 23 of the world’s largest palm oil companies because they were concerned that the long-term business model of these companies were unsustainable due to links to tropical deforestation. And according to Morgan Stanley the perception that Asian investors don’t care about sustainability is outdated. They also react to negative sustainability news even though this is not fully captured by current reviews of Sustainable and Responsible Investing (SRI). This can be seen for example in the recent stock market reaction to the news that a major Malaysian palm oil producer had been suspended by the RSPO.
Morgan Stanley believes consumers in Asia are also following global trends and points out that they are now more likely to boycott products produced by companies deemed to be in violation of deforestation policies something which was evident in Singapore during the 2015 haze season.
All this indicates that SRI will continue to grow in importance globally.
For GAR embracing sustainability as a crucial part of our business model allows us to become aware of and better manage risks in our operations and supply chain. These risks if not properly managed can rapidly translate into a clear negative impact not only on the environment but also in the stock market and in investors’ decisions. And conversely, as Morgan Stanley points out, our sustainability achievements merit a reward in terms of a higher valuation.