Abstract

The sustainability issues resulting from Malaysian palm oil production have garnered much interest in the palm oil industry. Consequently, Malaysian palm oil industry is indirectly exposed to sustainability risks, including boycott and reputational and regulatory risks. Hence, the industry encounters intense pressure from numerous stakeholders to address sustainability issues. Prior studies propounded that sustainability risk management (SRM) could minimise the adverse impact of sustainability risks by addressing sustainability issues. Nevertheless, the implementation of sustainability risk management in Malaysia remains low as numerous companies are not ready for it. Drawing on contingency theory, the objective of this study is to investigate the influence of contextual factors that can influence companies’ readiness in implementing sustainability risk management. Data was collected through the distribution of questionnaires between July and December 2020. A total of 407 questionnaires were distributed, with a response rate of 29 %. Resultantly, sustainability strategy, business size, top management support, and regulatory pressure positively and significantly influenced sustainability risk management implementation. The findings also expanded the current theoretical knowledge with valuable insights for policymakers regarding the factors influencing to companies’ readiness in implementing SRM.

Introduction

The extensive usage of palm oil in food-based products for cooking as well as non-food products such as biofuel production, oleochemicals, and cosmetics [1,2] led to an increase in the global production of vegetable oil. On a global scale, vegetable oil production exceeded 200 million metric tonnes in the 2020/2021 crop year, with production of palm oil accounting for 36 % of total production or 74.45 million metric tonnes. Today, more than 150 nations currently import and consume palm oil, which is the largest oil traded globally [3]. As top two producer and exporter of palm oil worldwide, Malaysia accounted for 25.8 % of world palm oil production and 34.3 % of world palm oil exports [4]. Locally, the palm oil industry is the major contributor to the agriculture sector at 37.7 %, which is also the third-leading contributor to Malaysian gross domestic product (GDP). Additionally, this industry contributed RM72.3 billion in total export revenue, which increased by 8.4 % in 2020 compared to RM67.55 billion in 2019 [5]. The palm oil industry is also vital to improving the national socioeconomic condition by creating employment opportunities for individuals in rural areas [6]. Thus, the sustainability of the Malaysian palm oil industry is also crucial to Malaysian economic growth and fulfilling global oil and fat demand.

The sustainability issues arising from palm oil production, such as soil property changes, water and air pollution, greenhouse gas emissions, waste, and social conflict have caused much concern among industry stakeholders [7,8]. These issues adversely affect social, environmental, and ecosystem sustainability. Essentially, companies that do not proactively mitigate sustainability issues may be exposed to high sustainability risks, which hampers organisational viability and survivability [9,10]. Giannakis and Papadopoulos [11] explained that sustainability risks negatively affect organisational survivability without disrupting business operations. The European Union (EU) proposed two resolutions to ban palm oil usage in biofuel programmes and alternative sustainability regulations that must be complied with by exporting countries before entering the EU market [12]. Likewise, the United States prohibited the import of palm oil and its associated products from Malaysia following labour issues [13]. The pressure and demand for sustainable palm production are also intensified by various stakeholders towards addressing sustainability issues, causing it challenging for the palm oil industry to retain a competitive edge without disregarding sustainability considerations.

Conclusion

The current study examined the contextual factors influencing companies’ readiness to implement SRM through the contingency theory, namely sustainability strategy, business size, top management support, perceived environmental uncertainty, and regulatory pressure. Resultantly, sustainability strategy, business size, top management support, and regulatory pressure positively and significantly influenced SRM implementation. Meanwhile, perceived environmental uncertainty did not significantly influence SRM implementation. The findings supported the existing argument, in which the contextual factors of a company would influence organisational readiness to implement SRM in managing sustainability issues. Specifically, the readiness of Malaysian palm oil mills in implementing SRM is influenced by sustainability strategy, business size, top management support, perceived environmental uncertainty, and regulatory pressure.

Several theoretical and practical implications were yielded from the study outcomes, which provided alternative evidence of the relationships between contextual factors and SRM implementation and enriched the contingency theory. Based on the study outcomes, contextual factors play a vital role in determining when a specific MCS is appropriate for organisations in a specific situation. These results expanded the current body of knowledge on sustainability, risk management, and management accounting based on the contingency theory. Such operationalisation could provide a sound understanding of the significant impacts of internal and external contextual factors on SRM implementation, with different types of contextual factors yielding varied responses. Theoretically, this study provided sufficient empirical evidence to delineate the notable influence of a company’s internal and external contextual factors on the organisational readiness to incorporate SRM. Particularly, top management support was the major internal factor, while regulatory pressure was the driving external factor based on the effect size, which generated additional insight into the existing literature that internal factors (top management support) and external factors (regulatory pressure) were significant in implementing MCSs. Other internal and external factors, namely sustainability strategy, business size, and perceived environmental uncertainty, produced a lower influence or an insignificant impact on SRM implementation. Nevertheless, the findings demonstrated that internal and external factors of an organisation could elucidate the rationales for employing different systems to suit different organisational requirements, as postulated by contingency theory.