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Kao becomes latest partner in $120m alternative palm oil project

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Global commodity and chemicals producer Kao Corporation (TYO:4452) has joined Unilever (NYSE:UL) and biotechnology firm Genomatica (Geno) in their efforts to commercialise a responsible palm oil alternative. 

  • The $120 million venture will use Geno’s biotechnology platform to produce sustainable palm oil alternatives that could reduce the carbon footprint of palm ingredients by up to 50%. 
  • Palm oil is widely associated with severe environmental impacts including deforestation, carbon emissions and biodiversity loss, but it is also a major source of income for producing countries. 
  • An alternative to palm oil would not only transform the footprint of the $625 billion home care market but play a fundamental part in helping halt deforestation.

The three partners aim to provide responsibly sourced palm oil alternatives to the $625 billion home and personal care market, thereby improving its supply chain’s resilience while meeting the growing consumer demand for more sustainable products. 

The project will use Geno’s patented biotechnology to ferment sugar into a fatty alcohol that is almost identical to the substance typically derived from palm kernal oil. The resulting ingredient that can be used in cleaning and personal care products, giving them the ability to lather and remove dirt  – properties that are usually enabled by palm oil or fossil fuels.

Although palm oil will continue to be one of Unilever’s most important feedstocks, the company has said that alternatives will play a key role in diversifying its supply chain to drive sustainability, cost efficiencies and transparency. 

Jonathan Hague, Unilever’s head of clean future, science and technology, said: “As we continue to grow our business, it is not viable to be solely dependent on a small number of feedstocks, so we are looking to diversify and find suitable alternatives. This alternative ingredient will be used in addition to the sustainably sourced NDPE palm kernel oil that Unilever currently purchases, so it will not impact our current palm oil strategy. We remain committed to driving a sustainable palm industry that is both positive for people and nature.”

According to Kao’s senior executive officer of chemicals Masahiro Katayose, “To drive sustainable development and contribute toward the building of a resource-circulating society, Kao will continue to undertake responsible, sustainable palm oil procurement. In this regard, Geno’s biotechnology has a vital role to play in the diversification of sustainable raw material procurement.” 

Geno CEO Christophe Schilling said, “Together, we will increase the supply chain resiliency our planet and people need today and for the future. Kao’s deep expertise in the home and personal care markets enables us to support other manufacturers in meeting their sustainability commitments and supplying the rising consumer demand for sustainable products.” 

The problem with palm oil 

Palm oil is widely associated with a range of environmental and social concerns, with land-use change in producer countries linked to increases in deforestation, biodiversity loss, forest fires, air pollution, CO2 emissions, water abstraction and land conflicts.  

In Indonesia, the world’s largest producer of palm oil, plantation areas had doubled from 2001 to cover 16.24 million hectares by 2019. This growth resulted in the loss of almost a third of the country’s ancient forests. 

Such deforestation is not only a major source of carbon emissions and biodiversity loss, it also comes with significant economic risk.  Indeed, the World Economic Forum has previously estimated that more than 50% of global GDP – around $44 trillion – is moderately or highly dependent on nature, while the paper, cattle and timber industries are reportedly facing up to $80 billion in supply chain risk due to changes in forest-related ecosystems. 

As critical areas from which various goods and raw materials are sourced continue to be destroyed, global financial systems could be destabilised while simultaneously reducing forest carbon sequestration capacity and accelerating the cascading risks of climate change

Is it all bad? 

Despite the clear issues associated with palm oil, it has become a prevalent ingredient in foods, cosmetic products, cleaning solutions and a range of other everyday items due It can also be used to produce biofuels, leading its proponents to champion its role in climate change mitigation. 

Unilever’s Jonathan Hague explains why palm oil has become so prevalent: “Palm oil is the most land efficient vegetable oil, with oil palms providing 39% of the global production of vegetable oil, whilst only occupying 7% of agricultural land for oil seeds. It is also the source of livelihoods for millions of farmers and communities across Indonesia and Malaysia, where more than 80% of global production originates.”

Indeed, the palm oil industry widely acknowledged as being beneficial to rural economies in producer countries as it improves local wages, infrastructure and access to education and healthcare. Palm oil cultivation provides higher returns, in terms of land and labour requirements, than conventional crops such as rubber or rice. 

“Palm oil also has versatile functional properties; it is neutral in taste and provides a smooth and creamy texture that is suitable for manufacturing a wide range of food products. Palm kernel oil, which is extracted from the palm seed rather than the palm fruit, and its derivatives serve as primary natural surfactants, e.g., fatty alcohol and other functions. As such, palm oil is also used in thousands of non-food consumer products, such as soaps and shampoos”, Hague concludes.

A look at supply and demand 

It could be argued that many of the palm oil industry’s problems stem from the demand-side. Much of the palm oil produced is exported worldwide, with Indonesia exporting more than 85% of its supply.

The country’s environment and forestry minister Siti Nurbaya has previously said that, although targets are in place to reduce deforestation, stopping it altogether would “unfairly” impact Indonesia’s economic opportunities. 

A 2022 report by the Council of Palm Oil Producing Countries further highlights this issue, as it encourages its included nations to increase palm oil production in response to projected growth in global demand for vegetable oils and fats.  

Despite the widespread concerns around palm oil’s sustainability, the report notes that low supplies of rapeseed and soy oil, ongoing economic recovery from the COVID-19 pandemic and an increase in the US’s support of biofuels will drive a continuous increase in global palm oil demand. 

Multinational businesses are further contributing to the problem, with an investigative report by the Rainforest Action Network finding that 10 leading brands had continued buying illegal palm oil from deforested areas despite the fact that they were all members of the Consumer Goods Forum (CFG) – a corporate collective that had committed to phasing deforestation out of their supply chains by 2020. 

Will there ever be a sustainable solution? 

As concerns around the sustainability of palm oil have become more evident, a diverse range of proposed solutions has emerged. These have included international campaigns by the likes of Greenpeace and the WWF, certification schemes such as the Roundtable on Sustainable Soil and corporate initiatives such as UK supermarket chain Iceland’s ban on the use of palm oil in its own brand products. 

The CGF has stepped up its efforts to improve transparency within supply chains, while COP26 saw 28 countries collaborating to launch the Forest, Agriculture and Commodity Trade (FACT) Roadmap to deliver sustainable trade and reduce pressure on forests

Several governments have also advanced their legislation around sustainable palm oil supplies, with the UK having held a consultation on mandatory due diligence requirements while the US Forest Act of 2021 has already banned the trade of palm oil ingredients produced through illegal deforestation. The EU, which imported 8 million metric tons of palm oil and related products in 2021, is also developing legislation that covers both legal and illegal deforestation. 

The key question is whether sustainable alternatives to palm oil can reach commercial scale. The first phase of Unilever, Kao and Geno’s collaboration will serve as a pilot demonstration of the technology, via a large suite of patents for products in the home care and beauty industries. If this is successful, a second stage of the project will invest in the construction of a commercial production facility.

“Geno has a demonstrable track record in commercialising biotechnology for large scale commodity intermediates, and the technology for this venture has already demonstrated highly efficient conversions,” Hague said.

“While we can’t speculate on the cost of this ingredient, we have done extensive modelling and we are confident ingredients produced through Geno’s process are cost competitive. Cost is not the only concern this venture is meant to address though, and, if successful, the initiative will help unlock additional volumes of ingredients to sustain our growth”, he continued.

Ultimately, the success of any solution – including the development of palm oil alternatives – will rely on the engagement of stakeholders throughout the supply chain. Although governments can implement national policies, international standards must be developed with consideration of both the global markets and the producer countries that depend on it.

Palm oil is unlikely to be phased out of use in the near future. As such, it is crucial that whichever ingredient is used is produced and consumed in a sustainable way, without shifting sustainability issues onto other commodities

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