Palm Oil Dashboard

Introducing Kao’s activities for sustainable palm oil procurement

Palm Oil, a Valuable Natural Resource

Kao recognizes that its business is dependent on natural capital and strives to procure natural resources sustainably. In particular, Kao positions palm oil and palm kernel oil, which are the main raw materials for surfactants widely used in Kao’s main products such as detergents and shampoos, as its most important natural resources.
Palm oil and palm kernel oil are widely used as raw materials for food, biodiesel fuel, detergents, cosmetics, etc., and are the world’s most produced oils from oil palms. More than 80% of palm oil and palm kernel oil are produced in Indonesia and Malaysia, in the tropical region between 20 degrees south latitude and 17 degrees north latitude across the equator. The volume of palm oil produced continues to increase yearly due to the world’s increasing demand for oils and fat, and the area of farms continues to expand.
The oil palm fruit (FFB/Fresh Fruit Bunch), which is the raw material for palm oil, can be harvested throughout the year, and the yield per unit area (oil amount) is large. Due to its high production efficiency, it has higher price advantage compared to other oilseed crops. In addition, the millions of oil palm smallholders in Indonesia and Malaysia make a living by selling oil palm fruits, making it an important local industry. However, in palm oil production areas, illegal deforestation and the development of carbon dioxide-rich peatlands for the development of new farms have an impact on biodiversity and an increase in carbon dioxide emissions. There are issues such as disputes over land ownership registration between farm development companies and indigenous peoples, and human rights issues for workers working on farms. In addition, independent smallholders lack the skills to improve productivity, and the limited knowledge and means of acquiring palm oil certification is a major issue.
In order to solve these palm oil issues, plantation companies and oil suppliers involved in the palm oil industry, companies using palm oil around the world, and NGOs are promoting activities to solve these issues and Kao is also promoting sustainable palm oil procurement initiatives.

Harvesting Fresh Fruit Bunch (FFB)

Sorting fresh fruit bunches (FFB)

Policies for Sustainable Palm Oil Procurement

Kao supports zero deforestation at source for sustainable procurement, and requires all of its third-party suppliers, their corporate groups defined by Accountability Framework Initiative (AFI), and their investee companies including joint ventures to adopt the No Deforestation, No Peat, No Exploitation (NDPE) policies, to prohibit conversion and degradation of natural ecosystems, to preserve biodiversity, High Conservation Value Forests (HCVF) defined by HCV Network, High Carbon Stock Forests (HCSF) defined by HCSA (High Carbon Stock Approach) and peatlands, to prohibit use of fire for development, and to respect the human rights of all people involved in the supply chain and the rights of workers, indigenous people, and local communities, regarding all their forest-risk commodities’ supply chains, including palm oil. Kao is proceeding to seek and confirm strict compliance with Free Prior Informed Consent (FPIC) of the communities. Kao has a zero-tolerance policy in place for its supply chains regarding violence, criminalization or intimidation of Human Rights Defenders (HRDs).
Kao ensures suppliers and Kao’s entire supply chain through its suppliers to comply with the above policies thoroughly, prioritizes purchasing from those suppliers who implements them and conducts due diligence. When finding non-compliant suppliers, Kao requests them to make improvements, confirm improvement status, and retain the option to terminate its business contracts with them in accordance with its corporate protocols.
To begin with its dialogues with local oil palm smallholders, cooperating with oil suppliers by means of traceability information and satellite monitoring, Kao is strengthening its activities in these areas to address key challenges in improving sustainability. Kao will also update external stakeholders such as NGOs, and further encourage improvements through dialogues with them.

Mid- to Long-Term Plan to Address Challenges in Sustainable Palm Oil Procurement Supply Chains

To address challenges in sustainable palm oil procurement supply chains, Kao is promoting the following activities.

  1. Achieve traceability down to the oil palm plantation level
    Achieve 100% traceability down to the oil palm plantation level by 2025.
  2. Utilize a third-party certification system (transition to RSPO-certified palm oil)
    Aim to procure 100% RSPO-certified palm oil used by the Kao Group by 2025.
  3. Provide direct on-site assistance activities (training programs for Independent oil palm smallholders)
    Provide assistance for independent oil palm smallholders (approximately 5,000 smallholders / 18,000 hectares) in Indonesia from 2020 to 2030 (SMILE Program).
  4. Establish a direct channel to local sites (grievance mechanism)
    Introduce a grievance mechanism for independent oil palm smallholders in Indonesia in 2022. Complaints and inquiries from smallholders are received and processed through the grievance mechanism, from their investigation to addressing and resolving them as well as follow-up and reporting.
  5. Implement deforestation monitoring (Forest Footprint)
    Introduce Forest Footprint disclosures for our palm oil supply chains (target year: 2023).

Traceability

To promote supply chain transparency, Kao regularly obtains latest traceability data from suppliers and discloses the list of mills on Kao’s supply chain. Kao identifies the location of mills on mill map and monitors and verifies the risk of illegal deforestation and the development of carbon dioxide-rich peatlands by means of the satellite monitoring data from GLOBAL FOREST WATCH and EARTH DATA NASA and information of peatland from PROTECTED PLANET within a range of 50 km from a palm oil mill, NDPE survey to suppliers and information from NGOs. When finding risks, Kao requests suppliers to confirm situations, make improvements and confirm improvement status.

Traceability down to the oil palm mill level (TTM)

100%

As of December 31, 2022

Mill Maps

Independent Oil Palm Smallholders Assistance (SMILE Program)

The SMILE Program is a collaborative effort between Kao, Apical Group, a leading vegetable oil processor, and Asian Agri, a plantation and palm oil company, to establish a sustainable palm oil supply chain. Over the 11 years from 2020 to 2030, the program aims to support approximately 5,000 Independent oil palm smallholders in Indonesia to improve productivity and secure sustainable palm oil certification (RSPO).

Number of supported smallholders (total number)

2,316smallholders

As of December 31, 2022

Number of certified smallholders (total number)

390smallholders

As of December 31, 2022

Volume of Independent smallholder credits purchased from SMILE Program (total number)

3,070tons

As of December 31, 2022

Grievance Mechanism

The Kao Grievance Mechanism (KGM), managed in collaboration with Caux Round Table Japan (CRT Japan), an NPO that forms a network of business leaders to promote sustainable and socially responsible business, is a grievance mechanism that targets independent oil palm smallholders in Indonesia who link Kao’s supply chain. The Kao Grievance Mechanism (KGM) aligns with UN Guiding Principles’ effectiveness criteria for grievance mechanism, prioritizing independent oil palm smallholders’ (farmers’) accessibility and continuous consultation for user-centric design and performance improvement.
Under the Kao Grievance Mechanism (KGM), Kao, which uses palm oil, and the CRT Japan, together with oil suppliers and plantation companies, receive complaints from independent oil palm smallholders (farmers) in the local language (Indonesian) via a smartphone system (Suara Petani (Farmer’s voice)) jointly developed by the two companies about matters such as human rights violations and land disputes, and inquiries about matters closely related to plantation operations (obtaining RSPO certification, labor safety during plantation work, the timing of replacing oil palms, how to purchase fertilizer, etc.). The grievance mechanism is used to process the received complaints and inquiries directly, from their investigation to addressing and resolving them as well as follow-up and reporting with regular disclosure of the grievance list. These voices collected from local sites are used to monitor the risk of human rights and environmental issues. When finding non-compliance on Kao’s supply chain, Kao requests suppliers to make improvements, confirms improvement status, and retains the option to terminate its business contracts with them in accordance with its corporate protocols. Furthermore, in regards to society and the environment, Kao is stepping up its efforts to solve fundamental issues concerning human rights, prevent issues from arising, and to improve the productivity of oil palm smallholders, which will lead to improvement in the living environment. Kao also aims to expand the grievance mechanism’s target farms and areas.

Number of smallholders covered by the Kao Grievance Mechanism

51smallholders

As of December 31, 2022

Combined number of grievance cases

100cases

From September 2022 to March 2023

Procurement of RSPO-Certified Products

Roundtable on Sustainable Palm Oil (RSPO) is a non-profit organization established in 2004 for the purpose of sustainable palm oil production and use. Kao is a member of the RSPO since 2007 and has been procuring certified oil. In addition, Kao has been a member of the Japan Sustainable Palm Oil Network (JaSPON), a non-profit organization that promotes the procurement and consumption of sustainable palm oil in Japan, since its establishment in 2019.

Procurement volume of certified oil and certified raw materials (including Book & Claim)

156,367tons

FY2022 ended December 31

Certification ratio

34%

FY2022 ended December 31

Procurement volume of Independent smallholder credits

3,798tons

FY2022 ended December 31

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