Not too long ago, I wrote about how financial services firm Morgan Stanley had signalled to investors that GAR shares deserved higher valuation based on our progress and performance in sustainability matters.
Morgan Stanley has now released another report entitled “ASEAN Plantation & Commodity Traders: Sustainable & Responsible”. This focuses more broadly on Environmental, Social and Corporate Governance or ESG factors. And as with our sustainability assessment, Morgan Stanley points out that GAR has one of the greatest valuation opportunities amongst ASEAN plantation companies based on ESG factors.
Morgan Stanley has used a new Corporate Governance framework combined with the recent Sustainability Assessment mentioned above to assess leading ASEAN plantation companies. The report looks at disclosure of remuneration and incentives; board independence; and succession planning, areas which are considered most critical to protection of shareholders’ interests. Morgan Stanley concluded that GAR had above-average ESG composite scores which merited a higher valuation and represented a good opportunity for investors.
While GAR ranked in-line with its peers on Corporate Governance, two areas where GAR outperforms its industry peers are in Supply Chain Management and Technology and R&D. Included as positive indicators under Supply Chain Management practices are RSPO certification progress; supply chain mapping (traceability) to the mills and targets for mapping to the plantation as well as our commitment to the High Carbon Stock (HCS) Approach.
In December 2015, we reached a significant milestone when we completed mapping our supply chain to the mill level. As a next step we are now working with the mills that supply our eight downstream locations in Indonesia on mapping their supply chain back to the plantations. We aim to finish this for GAR-owned mills by end of 2017 and third party mills by end of 2020. This allows us to give better information to our customers about the source of our palm oil but also crucially brings us closer to our suppliers and lets us help them address any issues they have in adopting more responsible social and environmental practices.
At the same time we continue to progress on our commitment to forest conservation using the High Carbon Stock (HCS) Approach. We first rolled this out in PT Kartika Prima Cipta in West Kalimantan and are now starting to implement it in our other concessions.
A core principle of our sustainability policy is the use of technology and R&D to improve yields. At SMART Research Institute, 80 researchers work on improving productivity and other aspects of seeds including better resistance to disease. Boosting yield per hectare means more income per hectare. It also means that less land needs to be opened for cultivation and this helps to potentially maintain forested areas.
Morgan Stanley points out that our sustainability efforts should reduce business risk over time and give investors more confidence in our business model. This proves that sustainability is no longer something extra that a company should do to burnish its reputation – in fact, it has become recognised as an essential part of business strategy and risk management.