In focus

Palm oil: how bad is it really?

Elly Irving

Elly Irving

Head of Engagement

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Katherine Davidson

Katherine Davidson

Portfolio Manager, Global & International Equities

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Palm oil has a major PR problem – it’s associated with images of lush rainforest consumed by blazes and cute orangutans made homeless by logging. When Iceland (the UK supermarket chain, not the country) announced its intention to remove palm oil from all private label lines by the end of 2018, it saw a big (albeit short-lived) uptick in brand perception and purchase consideration1. Should more companies, and consumers, be following their example and boycotting palm oil? We examine the two sides of the argument.

The case against:

Palm oil drives more deforestation than nearly every other soft commodity, so why do supply chain practices continue to lag those of cocoa, coffee, barley and tobacco?

It is well documented that palm oil is a key driver of deforestation, and this forest loss – coupled with conversion of carbon-rich peat soils – is contributing to climate change. A recent study from the World Resources Institute suggests that emissions from global deforestation are greater than the emissions produced by the EU2. Not only does the land cleared for palm oil plantations release greenhouse gases, it also increases flooding risk, contributes to soil erosion and destroys biodiversity. The land used to grow palm – mostly tropical rainforest – is exceptionally biodiverse: Indonesia accounts for only 1.3% of the world’s land area but 17% of all bird species and 12% of mammals3.

Is palm oil really necessary?

While it’s hard to argue against its versatility, how important are the unique characteristics of palm oil? Reducing trans-fats is a positive justification for use in food products, but palm oil is also a key ingredient in household and personal products where there‘s no nutritional argument to be made.

Unilever, the largest private buyer of palm oil, generates 60.3% of its revenues4 from these product categories. Palm oil is used in household and beauty products for its aesthetic properties: for example, to give laundry liquids and shampoos a pearly appearance. But does this justify slash and burn practices that emit the same quantity of greenhouse gases as the whole annual emissions of Indonesia – the fourth most populous country on the planet5?

Not only is some palm oil use unnecessary, rising consumer demand for green and environmentally friendly products may force companies to reduce or remove it from their products. A recent study by The NYU Centre for Sustainable Business found that products deemed ‘sustainable’ accounted for just 17% of the industry sales, yet were driving as much as 50% of sales growth6.

In the laundry segment, companies have responded to consumer demand for less plastic packaging by developing more concentrated products; similar product innovation could mean that even if palm oil isn’t phased out completely, the volumes used – and hence the environmental impact – could be reduced.

There‘s no viable alternative, until there is….

The large consumer goods companies are often slow to adapt to emerging trends until it’s almost too late. Salt levels couldn’t be reduced until public health bodies and consumer behaviour forced them to re-think. The same is true of sugar, with sugar taxes a catalyst for overnight innovation and reformulation. Dairy-free products, plant-based proteins and reducing the use of preservatives are further examples of reacting rather than anticipating change.

What if consumer preferences around palm oil change as rapidly as they did for sugar-free or vegan products? Low research & development (R&D) levels have hampered the consumer sector in the past and small challenger brands have taken market share, as seen with craft beer and high protein ice-creams. Our proprietary research tool, SustainEx, shows that the food producers and household & personal care industries spend on average only 1.1%-1.6% of sales on R&D. This compares to more innovative consumer industries like media at 3.7%, leisure goods at 6.5% and retailers at 8.4%7. Smaller challenger brands are already offering palm-oil free products e.g. Meridian peanut butter and Neal’s Yard skincare.


Read the full report

1 Based on data from YouGov Brand Index
2 WRI,
3 EC
4 Unilever 2018 Annual Report and Accounts
5 Palm Oil Scorecard, WWF
6 Sustainable Beauty, HSBC, February 2020
7 SustainEx, Schroders, Datastream


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