Financial Perspective on Sustainability: Palm oil company in Indonesia

• Main Author: Sitinjak, Ade
• Format: Others
• Language: English
• Published: Uppsala universitet, Institutionen för geovetenskaper 2020
• Subjects: Business Model; Deforestation; Lending; State-Owned Bank; Sustainable Development; Earth and Related Environmental Sciences; Geovetenskap och miljövetenskap
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-424969

This research is conducted to identify the integration of sustainability principles into the business model of Indonesia’s banks’ lending to the palm oil sector and the implementation by the banks’ employees to support the Indonesian government to achieve the sustainability of its palm oil sector. Three of Indonesia’s state-owned banks which are among the world’s largest creditors to the palm oil sector were evaluated using documentary research and semi-structured interviews. Firstly, these banks’ annual reports and sustainability reports from 2017 were evaluated using the business model canvas concept to identify their lending business model to the palm oil sector. Afterward, the sustainability level of each bank’s lending business model to the palm oil sector was assessed using the 4P (Principles, People, Planet, and Profit) framework of corporate sustainability. Moreover, fourteen employees of the banks’ lending department were interviewed to reveal the implementation of the sustainability principles that are integrated into each bank’s lending business model to the palm oil sector at the branch office level. The stakeholder groups that are involved in the banks’ lending to the palm oil sector were also identified using the stakeholder theory perspective on a business model in value creation for sustainability. From this research, it’s revealed that even though the palm oil sector has a significant contribution to these banks’ revenue, none of them has a designated business model in lending to the palm oil sector. These three banks’ lending business models only cover general lending and are not designated only to one particular sector. Nonetheless, these banks have been integrating sustainability principles into their lending regulations to the palm oil sector. However, these sustainability principles are only integrated into the banks’ lending regulations to palm oil companies who apply for specific loan nominals. In contrast, no sustainability principle has been integrated into the banks’ lending regulations to individual palm oil businesses. Furthermore, it’s revealed that the banks’ employees don’t strictly implement the sustainability principles that are integrated into the banks’ lending regulations to the palm oil companies because they prioritize their lending target achievement. The reason is that lending target achievement is one of the important factors for each bank’s head office to decide the annual financial bonus and career development of its employees. Moreover, these banks’ employees also argued that the Environmental Impact Assessment (EIA) documents are not reliable to represent the sustainability of the debtors’ palm oil businesses because the banks can order their partner-independent consultants to issue the EIA result according to the banks’requests.