Transnational business governance within the palm oil industry: The case of ISPO and RSPO


There is an increasing importance of transnational business governance which can be seen from the adoption of it as a novel mode of regulation to promote sustainable development and as a study subject of scholarly research. Transnational business governance–for instance, certification schemes, fair-trade labels or accounting and transparency standards–requires business regulation derivating from a variety of institutions including private sectors, NGOs, and multistakeholder institutions (Eberlein et al, 2014). This phenomenon is also taking place within the palm oil industry in Indonesia. RSPO (Roundtable on Sustainable Palm Oil) as the industry initiative in the form of certification schemes has become more widespread and important in shaping the palm oil industry globally, while ISPO (Indonesian Sustainable Palm Oil) as the public initiative in Indonesia emerges later affecting the palm oil value chain from upstream to downstream both in the local and international market.

There are various ways in which non-state actors and institutions engage and react to one another, or to the state-based regimes. ISPO serves as a guideline of sustainable production from the state and plays a role in determining the price of the FFB (Fresh Fruit Bunches) nationally. Institutions that are ISPO certified are able to charge the highest price in the price ceiling given by the state, which is IDR 200 higher per kilogram. However, only 16 smallholder groups with 390,854.18 ha (6.56% of the total smallholder oil palm plantation areas) had received ISPO certificates in 2019.

In my presentation, I will discuss more about the interaction between ISPO and RSPO, as well as the role of these certifications in affecting different actors in the palm oil industry, particularly the smallholders, plantation companies, and palm oil mill factories. Furthermore, I will explain the tendency of private plantation companies in complying with ISPO and/or RSPO certification including the motivation and hardships in attaining the certification. The discussion will be based on the interview that I have conducted with Golden-Agri Resources and Sinarmas, the Directorate General of Foreign Trade in Indonesia, a smallholder, and the agronomy team of the Plantase Indah, Inc.

Josephine Rakun Lunardi

Research Fellow and Codirector in Value Chain Analysis Research Team