We use cookies to collect information about how you use wiltshirepensionfund.org.uk. We use this information to make the website work as well as possible and improve our services.
As part of our work to understand our exposure to biodiversity risk, we are focussing on the key drivers of biodiversity loss, as defined by IPBES (the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services).
One of these areas is land and sea use change, and a key factor here is deforestation. We are also looking at high-impact sectors in terms of our holdings, one of which is food & drink.
To help us understand our exposure to deforestation, we explored the fantastic data set provided by Forest IQ. This data set investigates >2,000 major companies to see which commodities they are reliant on, their links to deforestation, and how well the companies are addressing this issue.
With such a large data set, we needed to focus, so we began by investigating our exposure to something appetising that we can all relate to - chocolate!
Chocolate and ESG - what is important?
When looking at companies which manufacture or distribute chocolate-related products, a huge range of ESG risks and issues emerge.
Examples of issues to consider are as follows:
Carbon emissions, water useage and pollution, deforestation, sustainable farming practices
Fair labour practices and living wages (including child labour), community impact, supply chain transparency
Ethical sourcing and supplier relationships, reporting and accountability
WPF exposure
We examined the Forest IQ data to identify the companies which we are invested in where the highest risks lie. We found that we have exposure to 9 companies, including household names such as Lindt and Hershey. Of these 9 companies, 2 are held in our active portfolios (i.e. portfolios which don't simply track a benchmark index, but contain companies that have been actively selected by the investment managers).
These companies are Nestlé (£10m) and Unilever (£2.5m), both of which own a huge number of household name brands. Forest IQ data indicates that both these companies have a high exposure to deforestation risk from cocoa, but that they are managing this moderately well.
This contrasts with the other 7 companies (combined value of £4.1m), which range from high to critical exposure, of which all but one is deemed to have weak risk management in this area. Therefore, we can take some reassurance that the companies that have been actively selected for our portfolios are dealing with deforestation risk better than their peers.
We were interested to note that Unilever is held in our sustainable equities portfolio, managed by Brunel. On their website, Unilever make a clear link between deforestation and sustainable business practices, and have set a goal to have a completely deforestation-free supply chain by the end of 2023. At the time of writing, information on whether this goal had been met was not available.
Unilever state:
We are working to end deforestation within our supply chain as this is one of the biggest contributions Unilever can make to create a more sustainable world and maintain consumers' trust in our products
This goal will be met by focusing on three pillars: transparency and traceability, focused sourcing, and working with farmers and smallholders. Unilever's impact on the cocoa industry is huge - they note that they buy around 1.5% of the global production of cocoa, mainly sourced from Cote d-Ivoire and Ghana.
One line of work in this area is helping farmers to diversify their crops, as this provides them with better financial security and therefore reduces the risk of them needing to resort to illegally deforesting land to support their families. Unilever have set a target for this work to reach 6,000 farmers by 2025, providing income diversification programmes. This work will also focus on empowering women. Unilever also take action by stating that they will suspend suppliers who are found to be linked to deforestation, until they have met the company's requirements.
Nestlé make a strong link between deforestation and net zero on their website:
The planet needs thriving forest landscapes. Working toward deforestation-free supply chains is a key component of our net-zero commitment.
Nestlé state that they are aiming for deforestation-free supply chains by 2025, and currently report that they achieved 93.4% in 2023 across their primary supply chains. Taking a deeper look, cocoa is still the most challenging supply chain. Nestlé assess the deforestation status of key ingredients as traceable back to regions classified as low risk of deforestation, assessed on the ground, and assessed from the sky (by satellite monitoring). For cocoa, currently 0.0% can be traced back to low-risk regions, and 57.7% is classified as "unknown". Therefore, although we are pleased to see that ambitious targets have been set, more progress needs to be made.
Broader sustainability issues
As mentioned above, chocolate production touches on more ESG issues than just deforestation. In order to see how the sustainability of Nestlé and Unilever stack up against their peers, we looked at the most relevant benchmarks published by the World Benchmarking Alliance, which assess how companies are performing on nature-related and human rights criteria, and compared to other companies in the food & agriculture sector.
Company
Nature benchmark 2023 ranking/243*
Human Rights benchmark 2022 ranking/127*
Food & Agriculture benchmark 2023 ranking/350*
Nestlé
1
16
2
Unilever
2
1
1
This information provides reassurance that the two largest holdings in our portfolio which are exposed to deforestation risk from their chocolate production are showing strong sustainability credentials and are working to manage the risks and impacts of deforestation.
Conclusion
In conclusion, our investigation into the chocolate industry's impact on biodiversity, particularly through deforestation, has revealed both challenges and leaders in the journey towards sustainability. The examination of Forest IQ data and case studies of Nestlé and Unilever showcases the complex web of ESG issues that chocolate production entails. While there are significant hurdles, such as achieving deforestation-free supply chains and ensuring ethical labour practices, our focus on companies like Nestlé and Unilever, which demonstrate a commitment to tackling these challenges head-on, offers a hopeful perspective.
*The World Benchmarking Alliance publishes several different benchmarks, which rank companies against various criteria, as follows:
· The Nature benchmark assesses progress towards a nature-positive future, by measuring how companies are reducing their impact and even regenerating ecosystems.
· The Human Rights benchmark assesses the policies, processes and practices companies have in place to systematise their human rights approach.
· The Food and Agriculture benchmark assess the sustainable business practices of the most influential food and agriculture companies.
