As discussed, the HPIs are at the highest aggregation level of performance measures and, hence, should reflect fundamental principles of sustainability. The HPIs are chosen from classic definitions of sustainability and scholarly research on environment, social and economic sustainability.
KPIs are identified from commonly accepted pointers that refer to each HPI. They are nominated after filtering through sustainability reports and literature published by policy makers and researchers. PMs are then selected to address each KPI in the context of palm oil production, referring to palm oil sustainability standards, literature, government authorities’ requirements, national statistics, and industrial practices.
There are other means of gathering suitable indicators for sustainability assessment, e.g., a participatory approach that involves substantial participation of stakeholders [
46], a valid scientific approach [
47], integration in the political process [
48], and by interviewing experts [
49]. As the main purpose in this paper is to test the feasibility of the sustainability assessment framework, the process of selecting indicators is deliberately simplified through literature review for demonstration purposes.
2.4.1. HPI, KPI and PM for Environmental Sustainability Objectives
According to Brundtland’s Report [
8], human intervention in the natural system during the course of development must be at a minimum level, not endangering the natural system that supports life on earth. Ekins [
50] defines environmental sustainability as “the maintenance of important environmental functions, and hence the maintenance of the capacity of the capital stock to provide those functions”. In both definitions, “1. Natural capital conservation” has been seen as an ultimate indicator in determining environmental sustainability. This is also in agreement with the European Commission’s basis [
51] of their environmental policies and laws,
i.e., preservation of natural capital. WWF for Nature, IUCN and UNEP’s definition in building strategy of sustainable living, that is to live within the carrying capacity of the supporting ecosystem [
52], also presents natural capital as the key important indicator and takes on a “throughput” based approach rather than a “utility” based approach [
53]. The former takes into account the bio-physical limit for any development activity while the latter considers the choice of available alternative sources, either fossil or renewable sources, to maintain economic growth.
The natural capital can be categorized into four main aspects [
8,
50,
52,
54,
55]:
Elements, i.e., climate, quality of air, water that contribute to the ecosystem’s overall integrity and functions of ecosystem services.
Biodiversity, conservation of all species of plants, animals and other organisms.
Renewable resources, e.g., soil, forest, cultivated land and fish stocks that replenish at natural rate.
Non-renewable resources e.g., fossil fuel and minerals that deplete over time.
Following these four aspects of natural capital, KPIs for environmental sustainability have thus been developed, including “1.1 Climate change”, “1.2 Air, water and soil quality”, “1.3 Waste generation”, “1.4 Biodiversity” and “1.5 Resources consumption”.
Table 1 shows the performance measures (PMs) for each of these KPIs related to palm oil production.
Table 1.
HPI, KPI and PM for environmental sustainability objectives.
Table 1.
HPI, KPI and PM for environmental sustainability objectives.
Sustainability Objective: Environment |
---|
Headline Performance Indicator 1: Natural Capital Conservation |
---|
Key Performance Indicator | Performance Measures | Ranking Value |
---|
1.1 | Climate Change | 1.1.1 | GHG Emission | 1 | > 1 tCO2eq/tonne CPO |
2 | > 0.8 tCO2eq/tonne CPO |
3 | 0.5–0.8 tCO2eq/tonne CPO |
4 | < 0.50 tCO2eq/tonne CPO |
5 | < 0.15 tCO2eq/tonne CPO |
1.2 | Air, Water and Soil Quality | 1.2.1 | NOx emission intensity from palm oil mill | 1 | >400 mg/m3 emission (continuous) |
2 | >350 mg/m3 emission (continuous) |
3 | <350 mg/m3 emission (continuous) |
4 | <200 mg/m3 emission (continuous) |
5 | <100 mg/m3 emission (continuous) |
1.2.2 | Biological Oxygen Demand of water discharged from POME pond | 1 | >150 mg/L (3 days, 30 degC) |
2 | >100 mg/L (3 days, 30 degC) |
3 | <100 mg/L (3 days, 30 degC) |
4 | <50 mg/L (3 days, 30 degC) |
5 | <25 mg/L (3 days, 30 degC) |
1.2.3 | Soil Nitrate Level measured through nitrogen in waterway | 1 | Total nitrogen >300 mg/L |
2 | Total nitrogen >200 mg/L |
3 | Total nitrogen <200 mg/L |
4 | Total nitrogen <100 mg/L |
5 | Total nitrogen <50 mg/L |
1.3 | Waste Generation | 1.3.2 | % biomass recovery/ recycling | 1 | <25% recovery |
2 | >25% recovery |
3 | >50% recovery |
4 | >75% recovery |
5 | 100% recovery |
1.4 | Biodiversity | 1.4.1 | Plantation Practice | 1 | Replacement of forest |
2 | Total/large area replanting |
3 | Increase heterogeneity through patch planting |
4 | Increase connectivity through successive strips/ connectivity |
5 | Reduce severity of disturbance through variable rotation |
1.4.2 | Land Use | 1 | Planted on Peat Land/HCVF |
2 | Planted on secondary forest/replaced other crops |
3 | Replanting on agricultural land |
4 | Replanting with Best Management Practice |
5 | Replanting with agricultural intensification |
1.5 | Resources Consumption | 1.5.1 | Fresh water consumption intensity—Water Footprint | 1 | > 85 m3/GJ |
2 | >75 m3/GJ |
3 | 62 m3/GJ |
4 | <62 m3/GJ |
5 | <50 m3/GJ |
1.5.2 | Fossil fuel consumption intensity (Output/Input energy ratio) | 1 | <7 |
2 | <9 |
3 | 9 |
4 | >10 |
5 | >12 |
“1.1 Climate change” has been chosen as one of the KPIs because it could threaten ecosystem functions by causing changes in rainfall distribution, extreme weather, drought, floods, soil–water balance, new pests and diseases [
56]. Most importantly, this is one of the key environmental criterion for exporting palm oil to European and North American countries [
57,
58]. The PM “1.1.1 Greenhouse Gases (GHG) emissions” predominantly resulting from agriculture and fossil fuel combustion could intensify the natural greenhouse effect and cause temperature rise [
59]. The palm oil production involves large scale agricultural activities and milling processes that emit GHGs from fossil fuel combustion, open burning for land clearing [
60], decomposition of agricultural waste (
i.e., CH
4 emissions) [
61,
62] and inorganic nitrogen fertilizers’ application (
i.e., N
2O emissions) [
62] that result in the increase of GHG emissions.
“1.2 Air, water and soil quality” together forms a KPI as they are required to achieve a healthy ecosystem. Among the three performance measures which were used in WHO Air Quality Guidelines [
63], including airborne particulate matter, Sulfur Dioxide (SO
x) emission intensity and Nitrogen Dioxide (NO
x) emission intensity, “1.2.1 NO
x emission intensity” has been selected as a performance measure as these are pre-dominant air pollutants emitted from palm oil mills’ boilers and forest/peatland/ plantation burning for land clearing.
An uncontrolled discharge of Palm Oil Mill Effluent (POME) to the waterway has been gradually increasing the water pollution in Malaysia over the last four decades. The Malaysian Environmental Quality Regulations have since outlined nine indicators and set standards for POME discharge [
64]. These indicators are Bio-chemical Oxygen Demand (BOD), Chemical Oxygen Demand (COD), Total Solid (TS), Suspended Solid, Oil and Grease, Ammoniacal Nitrogen, Total Nitrogen, pH and Temperature. Among all, “1.2.2 BOD of water discharged from POME pond” has been selected as the performance measure for water quality control in this framework due to its common application and robustness in measuring pollution caused by both organic and inorganic matter [
65].
Maintaining organic content and nutrients in soil and controlling soil erosion could assist in maintaining the fertility of agricultural land. Soil quality can be measured in terms of biological, chemical and physical performance [
66]. PMs that can be selected for biological attributes are soil respiration and earthworm activity. Physical characteristics of soil quality are measured using soil infiltration, soil bulk density and aggregate stability while soil nitrate level, pH and salt concentration are measured for determining the chemical characteristics of soil [
67]. “1.2.3 Soil Nitrate Level” that results from the overuse of N- fertilizer in palm oil plantations to sustain commercial operations has thus been selected as the key PM for soil quality.
In the case of the palm oil production process, a large volume of solid, chemical and biological wastes is generated [
68]. Solid waste generation and management are important PMs of environmental control to satisfy both domestic and international standards [
59,
69]. The biomass solid waste that was generated throughout the milling process is the main concern in the palm oil industry. Whilst palm oil mills apply 3Rs strategies, including reuse, recycle and regeneration for converting these solid waste to resources, there is still a significant amount of this waste that remains unutilized increasing the landfill area. Hence, “1.3.1 Biomass recovery rate” has been considered as one of the key PMs in this study. Chemical wastes which are emitted to the air and water are measured indirectly through air and water quality indicators.
“1.4 Biodiversity” which means the richness of variety of species interacting with each other to establish a stable food chain and to maintain ecological balance [
70] is important natural capital for future generations [
8]. The PM that is commonly used by biologists for biodiversity is the number of endangered species/number of known species ratio in palm oil plantations and production areas [
71]. However, the difficulty associated with data collection for this PM would make it challenging for the palm oil industry to conduct sustainability assessments [
72,
73]. Hence, “1.4.1 Plantation practice”, and “1.4.2 Land-use for plantation”, which have direct impact on biodiversity and are easily measured, have been selected as PMs. Land-use pattern (e.g., replantation, farmland replacement), high conservation value (HCV), forest replacement, and plantation on peat land will have different levels of impact on biodiversity [
69,
74]. Plantation practices that minimise disturbance to existing landscape and create a stable microclimate have also been proven to have different impacts on biodiversity [
75].
The other KPI that measures the conservation of natural capital is “1.5 Resources consumption”. Renewable resources should be consumed at a rate that the nature could cope with, and if there is sufficient effort in harnessing them. Non-renewable resources are limited and irreversible and, hence, their consumption should be minimised in order to ensure that the resources do not run out before substitutes are available [
8,
52]. Two major resources,
i.e., “1.5.1 Fresh water consumption in terms of water footprint” and “1.5.2 Fossil fuel consumption (Output/Input Energy Ratio)”, have been chosen as the PMs for this KPI.
2.4.2. HPI, KPI and PM for Economic Sustainability Objectives
The economic pillar of sustainability is often perceived as monetary income and profit. This perception is narrowly focused. A sustainable economic activity has to remain profitable for a long period of time, in order to be able to “stay in business” [
76] and maintain social equity. Whilst monetary value is not the only economic pillar of sustainability, it is something that a business needs to maintain a healthy balance sheet and has the ability to withstand any financial shock to sustain its operation. This is commonly measured as “business continuity and resiliency” in economic studies [
77,
78].
Besides sustaining the business, economic sustainability has greater depth in its meaning which is to increase productivity potential to “meet human needs” and to “ensure equitable opportunities”. The Brundland’s report says that sustainable development requires a change in the content of growth rather than growth itself [
8]. Economic growth shall also bring upon positive changes to the society in meeting its essential needs, and empower the community with an ability to change their lives.
“2. Business continuity and resiliency” and “3. Sharing of economic power” are thus chosen as two HPIs to be achieved under this sustainability objective.
The HPI entitled “2. business continuity and resiliency” is directly related to the KPI “2.1 Production efficiency”. Increasing productivity not only has financial benefits, it also conserves the natural resources for the present and future generations. In the case of crude palm oil production, the PMs during the plantation (or on-farm) and milling stages would be the “2.1.1 Plantation Yield” i.e., Fresh Fruit Bunches (FFB) harvested per hectare, and “2.1.2 Mill production efficiency”, i.e., the amount of crude palm oil produced per tonne of FFB, respectively.
The second KPI, “2.2 Business Continuity”, is the “capability of the organization to continue delivery of products or services at acceptable predefined levels following a disruptive incident” [
77]. It reflects how consistently the crude palm oil production is profitable. Sustainable Growth Rate (SGR) presents how the economic growth can be maintained without increasing its financial leverage [
79]. In the case of the palm oil industry, an attainable growth rate would mean that a plantation could remain profitable and ensure security of supply, without increasing its debts, even under circumstances where the crude palm oil price plunges. The deviation of actual growth rate from SGR reflects the financial viability of a business. Therefore, “2.2.1 Actual Growth Rate” measuring against SGR has been chosen as a PM over profit margin.
One of the objectives of sustainable development is to enhance intra-generational equity by reducing the gap between rich and poor [
8]. The HPI “3. Sharing of economic power” will be measured by the KPI “3.1 Relative poverty”, which is measured at 50% of the national median income [
80]. Relative poverty would be a more useful KPI than the absolute poverty level (a fix income value is set as the poverty line) to capture the distribution of wealth [
81]. This is because the relative poverty line that is set at RM2292.50 (half of the average income per person per month in Malaysia for the year of 2014) (1 USD = RM3, 2014) reflects the imbalance in wealth distribution. About 46.6% of the wealth is shared by the top 20%, 36.9% is shared by the middle 40%, while only 16.5% is shared by the bottom 40% in Malaysia in 2014 [
82]. In the case of the absolute poverty line (RM860 per month in 2014), only less than 1% of Malaysians live under the poverty line. This does not represent a detailed breakdown of wealth distribution or wider social inequality. In case of palm oil production, the PM is “3.1.1 Average annual income per workers”, and it is measured against the national median income that determines the relative poverty level.
The HPI, KPI and PM for the economic sustainability objectives are as presented in
Table 2.
Table 2.
HPI, KPI and PM for economic sustainability objectives.
Table 2.
HPI, KPI and PM for economic sustainability objectives.
Sustainability Objective: Economy |
---|
Headline Performance Indicator 2: Business Continuity and Resiliency |
---|
Key Performance Indicator | Performance Measures | Ranking Value |
---|
2.1 | Production efficiency | 2.1.1 | Plantation yield | 1 | <16 tonne per ha |
2 | < 17 tonne per ha per year |
3 | 19 tonne per ha per year |
4 | >19 tonne per ha per year |
5 | >20 tonne per ha per year |
2.1.2 | Mill production efficiency | 1 | <0.20 tonne CPO per tonne FFB |
2 | <0.21tonne CPO per tonne FFB |
3 | 0.21 tonne CPO per tonne FFB |
4 | >0.21 tonne CPO per tonne FFB |
5 | >0.22 tonne CPO per tonne FFB |
2.2 | Business continuity | 2.2.1 | Actual Growth Rate | 1 | >15% deviation from Sustainable Growth Rate |
2 | 15% deviation from Sustainable Growth Rate |
3 | 10% deviation from Sustainable Growth Rate |
4 | 5% deviation from Sustainable Growth Rate |
5 | 0% deviation from Sustainable Growth Rate |
Headline Performance Indicator 3: Sharing of Economic Power |
Key Performance Indicator | Performance Measures | Ranking Value |
3.1 | Relative Poverty | 3.1.1 | Average annual income per worker | 1 | <25% of national median income |
2 | <50% of national median income |
3 | ≥50% of national median income |
4 | >75% of national median income |
5 | ≥100% of national median income |
2.4.3. HPI, KPI and PM for Social Sustainability Objectives
The aim of sustainable development is to meet the basic needs of life of current and future generations [
8]. In order for this to happen, seven critical basic needs, including jobs, food, healthcare, water, sanitation and shelter, are to be fulfilled. A livelihood should be created to empower households in the local community that could be affected by palm oil plantation. “4. Social Wellbeing” has thus been selected as one of the HPIs that will be achieved under the social sustainability objective. This HPI has “4.1 Meeting essential human needs” as one of its KPIs, which have five PMs including “4.1.1 Employment opportunity for the local”, “4.1.2 Workers' accessibility to water supply”, “4.1.3 Workers' accessibility to healthcare”, “4.1.4 Provision of sanitation facilities to workers”, and “4.1.5 Provision of housing facilities to workers” (
Table 3).
Table 3.
HPI, KPI and PM for social sustainability objectives.
Table 3.
HPI, KPI and PM for social sustainability objectives.
Sustainability Objective: Social |
---|
Headline Performance Indicator 4: Social Wellbeing |
---|
Key Performance Indicator | Performance Measures | Ranking Value |
---|
4.1 | Meeting Essential Human Needs | 4.1.1 | Employment opportunity for the local | 1 | <25% local employment |
2 | ≥25% local employment |
3 | >50% local employment |
4 | >75% local employment |
5 | 100% local employment |
4.1.2 | Workers’ accessibility to water supply | 1 | <25% accessible to portable water |
2 | >25% accessible to portable water |
3 | >50% accessible to portable water |
4 | >75% accessible to portable water |
5 | 100% accessible to portable water |
4.1.3 | Workers’ accessibility to healthcare | 1 | <25% accessible to healthcare facilities |
2 | >25% accessible to healthcare facilities |
3 | >50% accessible to healthcare facilities |
4 | >75% accessible to healthcare facilities |
5 | 100% accessible to healthcare facilities |
4.1.4 | Provision of sanitation facilities to workers | 1 | <25% accessible to sanitation facilities |
2 | >25% accessible to sanitation facilities |
3 | >50% accessible to sanitation facilities |
4 | >75% accessible to sanitation facilities |
5 | 100% accessible to sanitation facilities |
4.1.5 | Provision of housing facilities to workers | 1 | <25% provision to housing facilities |
2 | >25% provision to housing facilities |
3 | >50% provision to housing facilities |
4 | >75% provision to housing facilities |
5 | 100% provision to housing facilities |
Headline Performance Indicator 5: Social Equality |
Key Performance Indicator | Performance Measures | Ranking Value |
5.1 | Equal opportunity to the poor | 5.1.1 | Smallholders’ equity | 1 | <25% of CPO sourced from smallholders |
2 | >25% of CPO sourced from smallholders |
3 | >50% of CPO sourced from smallholders |
4 | >75% of CPO sourced from smallholders |
5 | 100% of CPO sourced from smallholders |
5.2 | Local community empowerment and engagement | 5.2.1 | Access to information and knowledge | 1 | No information available |
2 | Information available but local community are not informed |
3 | Local community informed prior to the plantation and mill development |
4 | Local community informed periodically on the plantation and mill development |
5 | Local community are timely updated |
5.2.2 | Community involvement in decision making | 1 | No involvement at all |
2 | Indirect communication channels are available |
3 | Local community could provide feedback to plantation owner/mill management through establish channel |
4 | Local community has representation in plantation/mill HSE Committee |
5 | Consensus from local community is mandatory for any decision that impact them |
5.2.3 | Level of community acceptance to plantation and mill activities | 1 | <25% agreement from community |
2 | <50% agreement from community |
3 | >50% agreement from community |
4 | >75% agreement from community |
5 | 100% agreement from community |
In addition to “Social Wellbeing”, “Social Equality” is another intra-generational equity aspect for providing equal distribution of opportunity and wealth, where no specific group is marginalised [
8]. Communities that could potentially be affected by palm oil plantation include employees, small-landholders and even the neighbouring communities, as they have various perspectives, consumption patterns and lifestyles and interests [
3]. Social equality would vary and depend on how much the local community is empowered through a number of ways, such as consultation, engagement and employment creation.
“5. Social Equality” has thus been considered as the second HPI and one of the KPIs is “5.1 Equal opportunity to the poor”. It measures how much the economic benefits of palm oil industries are shared by the local small farmers contributing to this industry. The price of crude palm oil (CPO) has been considered fixed by the market, hence the PM refers to “5.1.1 Smallholders' equity”, i.e., the percentage of CPO sourced from small farmers compared to large plantations.
Beyond “equal opportunity”, “5.2 Local community empowerment and engagement” is another KPI that needs to be considered. An empowered community has the attributes of confidence, inclusiveness, organisational ability, cooperation and ability to influence [
83]. A community gains confidence through education, training and practice. A community would also be more co-operative if its voices are heard and disseminated via organised channels. The industry–community relations would be strengthened if the community could be involved in collective decision making in matters that affect them. The PMs that indicate the level of local community empowerment and engagement are identified as “5.2.1 Access to information and knowledge”, “5.2.2 Community involvement in decision making”, and “5.2.3 Level of community acceptance to plantation and mill activities”.