Suppliers in a range of industries have found themselves recently under pressure from their customers to become more sustainable – few more than the palm oil sector.
The commodity is one of the world’s most useful substances, present in almost half of the packaged products you can buy in your supermarket, from pizza, doughnuts and chocolate to deodorants, shampoo, toothpaste and lipstick, as well as being used in animal feed, a cooking oil and as a biofuel in many markets.
The ubiquity of the substance is a result of its versatility – it is semi-solid at room temperature, so it helps to keep spreads spreadable and because it is resistant to oxidation, it can extend shelf life. Its stability at high temperatures means it helps make fried products crispy and crunchy, and it does all these things without altering the look or smell of products because it is odourless and colourless.
It is also a very efficient crop compared to other vegetable oils, making it attractive to growers because it can provide a steady income.
However, its versatility and popularity brings problems. It is a major driver of deforestation in some of the world’s most sensitive and biodiverse forests, particularly in Southeast Asia but also in Africa and Latin America. There are also issues around the exploitation of migrant workers, child labour and sexual harassment, says Arnaud Bonisoli, associate for Action for Sustainable Derivatives (ASD), an industry-led collaboration that aims to encourage responsible production and sourcing of palm oil derivatives.
Most palm oil (about 90%) comes from the fruit, with the remaining tenth coming from the kernel. While food companies directly source oil from refineries, cosmetics and healthcare companies use derivatives – chemically transformed palm oil. This adds more steps to the supply chain, increasing its complexity and fragmentation.
While there are a number of initiatives focused on making the palm oil sector more sustainable, such as the Roundtable on Sustainable Palm Oil (RSPO), users of palm oil and palm kernel oil derivatives struggle to have the same influence with suppliers as food brands. In part, this is because – although they comprise 70% of the palm derivatives market – they buy a very small proportion of total palm oil volumes, giving individual buyers very little leverage over suppliers. Another factor is that buyers of derivatives are very distant from producers because the oil has gone through multiple processing steps by the time it reaches the end customers.
ASD, founded in 2019, is an attempt to tackle that – its 23 members today represent around 1m tonnes of palm derivatives demand with more in the process of signing up to the initiative, and they include leading brands such as Chanel, L’Oréal, Estee Lauder and Natura. Last year, the initiative achieved transparency on 825,000 tons of palm-based materials, almost double the volume covered in its first year of operation, and it intends to double again the volume covered by 2023.
Although this represents only around 1% of total global palm production, it adds up to 10-20% of the PKO-based oleochemicals market. The group has transparency on 90% of supplies in refineries and crushing facilities, 86% transparency in mills (up from 81% last year) and 36% transparency in plantations, compared to a sector average of between 1% and 25%.
“About 80% of the supply chain is common to every derivatives supplier,” Bonisoli points out. “Every new member that joins ASD has the same actors involved in the supply chain, so that creates more leverage for ASD.”
Some ASD members submitted a resolution to the RSPO, calling for its mass balance system – which allows the tracking of sustainable sources of palm oil and PKO – to be made more robust. While many palm oil buyers want certified supplies to be segregated, this is difficult to do for derivatives because of the high level of processing involved, so the mass balance approach is crucial to identifying and tracing sustainable sources of derivatives.
Perhaps counter-intuitively, switching to other sources of derivatives that provide an alternative to palm , such as coconut and soy, is not ideal because they are much less productive. “The idea “is to prevent uncontrolled substitution to other sources of derivatives, which provide an alternative to palm but are much less productive, and could lead to a transfer or an increase of environmental and deforestation risks in other landscapes,” Bonisoli said.
“We’re working on transparency, engaging with suppliers, and spreading best practice and improve knowledge. It’s a difficult supply chain, with really expensive products, modified many times. That makes it very difficult to get movement on these issues, but we’re working to change that.”
By Mike Scott