Value at Risk for the Palm oil sector in Indonesia

The deforestation value at risk (DVaR) model for palm oil is a tool to identify and then quantify the biophysical, stranded asset, social, health, legal, commercial, and market risks related to deforestation associated with investments in the production of palm oil in Indonesia. The model captures the financial value a company (and its investors) at risk faces by ongoing engagement in deforestation. The model enables companies and investors to identify and quantify the material economic and financial risks that are resulting from unsustainable land use, ranging from the biophysical risks at the level of the plantation, up to reputational and commercial risks further on in the value chain. The development and application of tools such as the DVaR framework highlight the necessity of collecting more evidence on the business implication of deforestation to convince financial institutions of the importance of deforestation-free supply chains and mobilize them towards that goal. By feeding the model with real-world data, the analysis quantifies the exposure to deforestation risks and assesses the resulting financial implication not only for the commodity companies exposed but also for their investors, shareholders, and financial partners.

By |2021-08-09T12:58:27+00:00August 9th, 2021|