Greenwashing in the Malaysian palm oil industry: A conceptual analysis of sustainability reporting and financial implications

Abstract

This theoretical paper discusses the concept of greenwashing in the palm oil sector of Malaysia with specific reference to sustainability reporting and its financial implications. With the growing importance of environmental, social, and governance (ESG) reporting in the formation of corporate legitimacy and investment decision-making, there has been a growing focus on the degree to which sustainability reporting captures substantive environmental performance, as opposed to symbolic compliance. The rising instances of greenwashing are threatening to erode stakeholder confidence, to distort competition in the market, and to hide material environmental impacts, particularly in environmentally sensitive industries such as palm oil. Grounded in legitimacy theory, this paper develops a conceptual framework that explains the drivers and the processes that lead to greenwashing in corporate sustainability reporting and how the practices mediate the relationship between sustainability disclosure and firm-level performance. This study further introduces third-party verification as a moderating mechanism that shapes the credibility of sustainability disclosures and their financial consequences. The Malaysian environment, defined by compulsory Malaysian Sustainable Palm Oil (MSPO) certification, increased international scrutiny, and growing ESG regulatory demands, offers a severe environment in which sustainability claims and its financial consequences can be evaluated. The paper also explains on the possible implications of the greenwashing on reputational risk, capital access, cost of finance and long-term financial sustainability. The research has conceptual value in that it has made conceptual development in proposing theories and offering policy implications to the regulators, investors, and corporate decision-makers to enhance the credibility of sustainability reporting in the environmentally sensitive industries.