PALMOILMAGAZINE, JAKARTA — Few commodities in Indonesia are as paradoxical as palm oil. On one hand, it underpins the national economy and provides livelihoods for millions of families. On the other, it is frequently portrayed as a symbol of environmental destruction and agrarian conflict. Unsurprisingly, public debate around palm oil often swings between two extremes: unconditional defense or outright rejection.
From the perspective of Environmental, Social, and Governance (ESG) advocacy, the core problem is not the crop itself, but how it is understood and managed. Palm oil is too often reduced to a purely environmental issue, when in reality it represents a complex system of economics, social structures, and governance.
That complexity is now entering a new phase. ESG is no longer a sustainability buzzword—it has become the global language that determines whether an industry is considered credible, investable, and acceptable in international markets. In this context, Indonesian palm oil is facing a decisive moment.
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Claims that palm oil is a major driver of deforestation are not entirely unfounded, but they are incomplete. Biologically, oil palm is the most efficient oil-producing crop in the world. Its productivity can be eight to ten times higher than soybean or sunflower. Replacing palm oil with other vegetable oils would, paradoxically, risk expanding global land use even further.
The real issue lies not in the plant, but in landscape governance. From an environmental standpoint, Indonesia’s palm oil sector continues to grapple with unresolved land legality, weak protection of high conservation value areas, inconsistent peatland management, and recurring forest and land fires. Without strong governance, what should be palm oil’s greatest advantage—its efficiency—turns into an ecological liability.
This is where ESG offers a paradigm shift. Environmental responsibility is no longer framed as a burden or a reputational threat, but as a long-term strategic investment. Controlling deforestation, strengthening data-based mapping, and accelerating smallholder replanting programs are not merely moral obligations—they are foundations for the future resilience of the industry.
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Equally important, the social dimension of palm oil is often sidelined in global debates. Yet an estimated 20 million Indonesians depend on this sector, from smallholders and plantation workers to factory employees and rural entrepreneurs. Palm oil has built a vast and deeply rooted social ecosystem.
Seen through an ESG lens, palm oil is one of Indonesia’s most powerful tools for economic inclusion. But its social impact is not automatically sustainable. Smallholders continue to face structural challenges: low productivity, limited access to finance, unresolved land status, and weak bargaining power within supply chains.
ESG demands that social contributions move beyond rhetoric and be translated into measurable policies and practices. Empowering smallholders, expanding access to replanting programs, upgrading human capital, protecting workers’ rights, and building fair partnerships are no longer optional—they are prerequisites. Without them, palm oil will continue to generate inequality instead of prosperity.
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Governance is the most critical—and the most fragile—pillar. Many palm oil conflicts stem from weak governance: overlapping permits, opaque supply chains, inconsistent law enforcement, and low compliance with environmental and social regulations.
These weaknesses are also reflected in public policy discipline, from forest and peatland protection to domestic cooking oil obligations and recognition of Indigenous rights. When regulations exist but are enforced inconsistently, both public trust and global market confidence inevitably erode.
Internationally, governance has become the key determinant of market access. Regulations such as the European Union Deforestation Regulation (EUDR) now require full traceability from plantation to final product. While some industry players see this as a barrier, from an ESG standpoint it represents a strategic opening.
If Indonesia can build a transparent, digitally based, and credibly audited governance system, national palm oil will not merely survive—it could emerge as the global gold standard for vegetable oils. But this opportunity will only materialize if governance is treated as a foundation, not an administrative burden.
ESG is not an empty slogan. It is reshaping how companies operate, how investors allocate capital, and how regulators design policy. Within discussions at the Indonesian ESG Association, it has become clear that sustainability data now carries weight equal to financial reports.
For the palm oil industry, ESG opens a pathway toward data-driven productivity, land conflict prevention through official mapping, deforestation reduction via early warning systems, improved smallholder welfare, and access to green financing and premium markets. More than that, it gives Indonesia a chance to lead the global sustainability agenda—not merely respond to external pressure.
Ultimately, the nation faces a strategic choice: allow palm oil to remain positioned as a cheap commodity vulnerable to constant attack, or transform it into a modern industry that is clean, fair, and transparent.
From an ESG standpoint, the second path is the only rational option. Palm oil is already inseparable from Indonesia’s economy. The task now is to ensure it also becomes part of the world’s sustainability solution.
Managed correctly, palm oil can be more than profitable. It can become a benchmark for how major commodities are governed responsibly in the ESG era—judged not by their controversies, but by the seriousness with which their industries are reformed. (*)
Author: Yuli Swasono, S.H., M.H., CLA. — Advocate, Curator & Administrator, Capital Market Legal Consultant / Secretary of the Indonesian ESG Association
Disclaimer: This article reflects the personal views of the author and is solely their responsibility.
