The company said it is taking the product out of 130 food lines, which will reduce demand by more than 500 tons per year, with palm oil already replaced with alternatives such as sunflower oil and butter in half of them.
Growing demand for palm oil for use in food, toiletries and biofuel has helped fuel widespread deforestation in south-east Asia, prompting industry efforts to promote “sustainable” palm oil which is not environmentally damaging.
But Iceland managing director Richard Walker said the company did not believe there was verifiably sustainable palm oil on the mass market and so was removing it all together.
Iceland pointed to studies which showed palm oil and wood pulp plantations were the biggest driver of deforestation in Indonesia and Malaysia, pushing many species towards extinction.
One study published in the journal Current Biology earlier this year found that half of Bornean orang-utans were affected by logging, deforestation, or industrialised plantations, with 100,000 lost between 1999 and 2015.
While palm oil is found in more than half of all supermarket products from biscuits and breakfast cereals to soap, 35 per cent of consumers are unaware of what it is, a survey of 5,000 people commissioned by Iceland found.
But once informed about palm oil, 85 per cent say that they do not believe it should be used in food products.
Mr Walker said: “We don’t believe there is such a thing as verifiably ‘sustainable’ palm oil available in the mass market, so we are giving consumers a choice for the first time.”