Deforestation allegations prompt request for independent probe into Kao supply chain

Activist investor Oasis Management has requested that Kao Corporation appoint independent investigators to examine the company’s supply chain risk management and internal controls. The request, an Extraordinary General Meeting (EGM), follows allegations that the company sources palm oil and paper pulp from suppliers linked to deforestation and human rights issues. 

In 2022, Kao adopted a No Deforestation, No Peat, No Exploitation (NDPE) policy for palm oil and pulp sourcing. The policy aims to ensure its supply chain does not contribute to deforestation, peatland development, or human rights abuses. 

Oasis commissioned third-party environmental experts to assess the whistleblower allegations. Though the experts are not disclosed, a summary of their report claims that Kao is directly or indirectly sourcing from suppliers publicly linked to deforestation, land disputes, and human rights issues — including forced labor, child labor, and sexual violence.

The findings also allege that Kao has a limited grievance mechanism that covers only a small share of its supply chain, fails to disclose its pulp and paper suppliers sufficiently, and maintains relationships with suppliers that some industry peers reportedly dropped.

However, Kao previously set a goal to confirm the full origin of its paper and pulp by 2020, and confirmed achievement by the due year. The company also has a grievance mechanism that allows stakeholders, including oil palm smallholders, to report human rights and land dispute concerns. It handled 271 reports as of 2024.

Palm oil and paper products are critical raw materials in Kao’s portfolio. According to the company’s 2024 CDP Corporate Questionnaire, 100% of its revenue depends on palm oil supply, and between 71% and 80% depends on paper and pulp inputs.

Palm oil is essential in the personal care industry due to its versatility as a surfactant, emulsifier, and emolient in soaps, shampoos, and a broad range of cosmetics and their ingredients.

According to Oasis, the third-party experts’ findings could pose regulatory, reputational, and supply chain risks for the Japanese consumer goods company. Japan’s Companies Act requires an EGM to be held within 8 weeks of the request.

Personal Care Insights reached out to Kao regarding the allegations, but did not receive a response by the time of publication.

Supplier profiles

Oasis’ assessment of the allegations regarding Kao’s supply chain reportedly found that the chemicals company maintains a joint venture in Indonesia with Apical, a subsidiary of Royal Golden Eagle (RGE). NGOs previously linked companies in the RGE group to large-scale deforestation.

For example, a 2023 investigation cited in the report found that 37,000 hectares of tropical forest were cleared between 2016–2022, linked to wood sourcing networks. Last September, media reports described a clash between workers at an RGE-related pulp facility and an indigenous community, which injured 33 villagers, including women and a child.Kao says it supports oil palm smallholders and works to improve plantation working conditions. 

“Customs data analysis for Indonesian exports between January 2024 and August 2025 found that Apical shipped close to 65,000 tons of palm oil-based products valued at approximately

US$110 million to Kao from Indonesia,” the report reads.

Moreover, the report cites FGV Holdings as a major palm oil supplier to Kao. The company was subject to a US Customs and Border Protection Withhold Release Order from 2020 to January 2026 due to alleged indicators of forced labor. According to the report, Kao continued sourcing palm oil from FGV during that period, while companies such as Unilever added it to their “no-buy” list in 2018. 

It also states that Kao has sourced palm oil from Astra Agro Lestar. NGOs and independent human rights experts with the UN previously publicly accused FGV of land disputes and environmental harm.

Kao, however, says it has established a supplier monitoring system that includes human rights risk surveys, third-party audits, and grievance mechanisms. The company states that, in 2024, supplier due diligence assessments covered roughly 90% of its direct material transactions.

“Kao promotes traceability and responsible sourcing of palm oil to ensure that raw materials are procured in a sustainable manner,” the company says.

Moreover, Kao conducts risk surveys using the Sedex platform to identify and assess human rights risks in its value chain, and works toward their prevention and mitigation. 

Its 2025 Sustainability report reads: “The survey results did not identify any risks leading to serious human rights violations, such as forced labor or child labor, across any of the assessed targets. Therefore, in the Kao Group, there are no cases of sites making improvements or conducting remediation procedures.”

The company further says it will continue working to prevent and mitigate adverse human rights impacts across its entire value chain.

Monitoring systems

The report also alleges that Kao’s certification practices rely heavily on “Book & Claim” certification, which is the lowest-integrity category in the Roundtable on Sustainable Palm Oil (RSPO) system. The RSPO is a global partnership established in 2004. It sets strict environmental and social standards for palm oil sourcing.

The report states that, as of 2024, less than 40% of Kao’s palm oil supply was RSPO-certified. Palm oil is a key raw material in Kao’s product portfolio, used in surfactants and other ingredients for soaps, shampoos, and cosmetics. 

“To enhance the sustainability of [palm oil] plantation operations, we purchase all certification credits from these plantations after they obtain certification. As of 2024, we have supported a total of 3,489 plantations in Sumatra, with 1,496 of them achieving RSPO certification,” Kao’s 2025 Sustainability report reads.

Meanwhile, the summary report of allegations further claims that Kao does not publicly disclose its full list of pulp and paper suppliers.

According to Kao’s own reporting, it says, “in 2014, Kao set a goal of confirming 100% of the origin of its paper and pulp by 2020, and has been conducting activities every year.”

“Through these activities, Kao was able to confirm 100% origin as of 2020,” it states.

Call for review

Oasis has raised concerns that an internal review of Kao’s supply chain may not be sufficiently independent. According to the investor, some company executives responsible for Environmental, Social, and Governance (ESG) oversight also have compensation tied to ESG performance metrics.

Due to this structure, Oasis says an external investigation is necessary to ensure neutrality.

However, Kao says it has an ESG External Advisory Board comprised of outside experts. According to the company, this board “provides reports and recommendations in response to the consultations of the ESG Managing Committee, and reflects the third-party perspectives of outside directors and experts in management.”

Still, Oasis requests that, at the EGM, shareholders vote to appoint independent investigators to examine Kao’s business conditions. The investigation would assess supply chain risk management, internal controls, and board oversight regarding palm and pulp sourcing.

According to Oasis, the investigation could either confirm that Kao’s systems are effective or identify weaknesses that can be addressed through recommended reforms.