The Importance of Green Financing to Support Palm Oil Circular Economy Initiatives

Abstract

The global shift toward sustainability and decarbonization has intensified the demand for circular economy (CE) models, especially in environmentally sensitive industries such as palm oil. Despite its economic relevance, the palm oil sector continues to face persistent challenges, including deforestation, waste generation, and inequality in access to sustainability finance. This study aims to examine how green financing mechanisms contribute to the development and implementation of circular economy initiatives in the palm oil industry. Employing a qualitative Systematic Literature Review (SLR) method, this research analyzes 34 peer-reviewed journal articles published between 2021 and 2025, systematically selected through the ScienceDirect database using the PRISMA protocol. Data collection was conducted through a multi-stage literature screening process based on predefined inclusion and exclusion criteria, including publication year, research type, and open-access availability. Thematic content analysis was used to synthesize findings from selected studies, focusing on financial instruments, technological applications, institutional frameworks, and inclusivity aspects. The results show that green financing, particularly through green bonds, blended finance, and sustainability-linked credit, has enabled the adoption of CE practices such as biomass valorization, renewable energy integration, and digital traceability systems. However, access to such financing remains limited among smallholders due to structural and policy constraints. This study concludes that green finance serves as a catalyst for circular transformation but requires better institutional alignment and inclusive financial innovation. Future research should explore performance-based financing models and localized strategies to strengthen smallholder participation in the green economy.