Market-based governance for sustainability in value chains: conditions for successful standard setting in the palm oil sector

Current production and consumption patterns remain unsustainable: Global economic growth reaches planetary boundaries and puts increasing pressure on the world's natural resources. Whereas most economic actors just react to environmental pressures, proactive market actors and other non-governmental organisations, e.g. greentec firms or fair trade organisations, turn them into market opportunities or even create standards or certification schemes as promising problem-solving market instruments in global value chains. However, how legitimate are standards and certification schemes developed by collaborating non-state actors for sustainability in global value chains? What are conditions for the success of those market-based governance mechanisms? This paper discusses the legitimacy and effectiveness of standard setting in the case of palm oil and focuses on the Roundtable of Sustainable Palm Oil (RSPO) as the first global standard setting initiative in this respect. Conditions for the success of sustainability standard setting in global value chains are identified based on the concept of non-state market-driven (NSMD) governance, based on literature review and expert interviews on standard setting. Results from the case study on RSPO highlight strengths and weaknesses of its standard setting process in the light of increasing market demand for palm oil. (C) 2012 Elsevier Ltd. All rights reserved.