Hershey recently released its environmental, social, and corporate governance data (ESG) report for 2021, which outlines the company’s goals and progress in each of its ESG focus areas: Cocoa, responsible sourcing and human rights, environment, human resources, youth, and community.
Hershey’s uses the report to promote their marketing concept of “Shared Goodness”, which they say is an integrated sustainability approach employed to fulfil their promise of providing more moments of goodness to consumers all around the world.
A clear objective of these annual events, therefore, seems to be to persuade, not inform. So, cue the obligatory pictures of happy people and colourful charts showing how the company has improved the lives of those in their supply chain.
I wondered who the intended audience is for these ESG reports. The general public will be blissfully unaware, unlike chocolate companies like Barry Callebaut, who need to present a wholesome face to their business buyers, Hershey’s is largely a direct-to-consumer business. The most likely targets are investors who need the related assurance of low ESG-associated risks.
I did a quick scan of investment websites to find which financial sites reported the story, and it was widely covered, with even large companies like MorningStar doing little to no interpretation of the results, settling for repeating the words from the press release. It is often difficult to make year-on-year comparisons of results as the descriptions or metrics used vary.
I suspect the reports are designed this way – transparency is not a key objective. There are exceptions, such as some of Olam’s reporting, which employs consistent metrics.
In fairness to Hershey’s, 2021 is a year when the business transitioned from a Sustainability report, as they had been until 2020, to an ESG approach that will align them more to regulatory reporting requirements.
The Governance element of Environmental, Social & Governance (ESG) is often the most difficult to achieve, as it impacts the core of a business, operating and reporting lines and even culture. In the press release, the key takeaways all related to this move from Sustainability to ESG:
ESG is becoming integrated into the fabric of our company with engagement and ownership from our board of directors to the operational business owners.
So I searched the report for the word ‘Governance’ and got 11 results.
Finding the section on Governance, it was a pleasant surprise to see that some important key changes had been implemented. For example, the Enterprise Risk Management (ERM) system now includes ESG metrics. In 2021 the company Governance guidelines were updated to clarify the Boards oversight over all ESG matters. They don’t appear exciting, but these are important steps. If you care to read them, it’s contained in their 2022 proxy document. I’ll save you the trouble. The bullets are:
- Reviewing the Company’s performance, strategies and major decisions;
- Overseeing the Company’s compliance with legal and regulatory requirements and the integrity of its financial statements;
- Overseeing the Company’s policies and practices for identifying, managing and mitigating key enterprise risks;
- Overseeing ESG matters, including the Company’s ESG strategies, policies, progress, risks and opportunities;
- Overseeing management, including reviewing the CEO’s performance and succession planning for key management roles; and
- Overseeing executive and director compensation and our compensation programs and policies.
This strategy is manifested via Hershey’s Cocoa For Good programme, which aims to address fundamental social and environmental issues in Cocoa communities while also promoting long-term sustainability.
We’ve strengthened our efforts within Cocoa communities, our top priority across ESG. Our pledge to invest half a billion dollars in these communities by 2030 is translating to meaningful results on the ground, helping to keep children in school, helping to diversify and increase incomes, giving farmers the support to build thriving businesses and protecting the forests around Cocoa farms.
Michele Buck, Chairman, President and CEO, The Hershey Company.
Defining the key priorities will put context into Hershey’s specific Cocoa sourcing initiatives:
Hershey’s Verification Program
To reach the claim of 100% independently verified Cocoa, Hershey collaborates with third-party certifiers such as the Rainforest Alliance and Fair Trade USA, as well as independently verified programs through their suppliers. The use of 3rd party certification schemes is a polarising subject, with some, like us at Bartalks, unconvinced by the inherent conflict of interest in the business model and the acceptable practice of mass balancing.
100% Sourcing Visibility in Côte d’Ivoire and Ghana by 2025
By 2025, the company hopes to achieve 100% sourcing visibility in Côte d’Ivoire and Ghana by requiring suppliers to polygon map all farmers producing Hershey’s Cocoa volume in these countries to improve traceability and monitor deforestation, as well as being covered by Child Labour Monitoring and Remediation Systems (CLMRS) to prevent, monitor, and remediate child labour.
Hershey had achieved 68% sourcing visibility of their Cocoa volume originating from Côte d’Ivoire and Ghana as of December 2021. While the core of the company’s operations remains in Côte d’Ivoire and Ghana, Hershey continued implementing Cocoa For Good in Brazil, Cameroon, Ecuador, Indonesia, Mexico, and Nigeria, resulting in a 24% increase in the number of farmers participating in Cocoa For Good worldwide.
Brief Comparison to 2020 Sustainability Report
Hershey’s goal by 2020 was to achieve 100% of priority ingredients and materials to be responsibly and sustainably sourced (by volume)3 by 2025, is currently 78% on track in the 2021 ESG report.
We wanted to understand what was meant by ‘priority’ ingredients and whether that was a changeable list, making progress reporting difficult. Indeed, there is a process to assess what is on the list, but there is a rationale to it as well. Cocoa, the report informs, remains the primary ‘Priority ingredient’.
In 2022, we will refresh our priority ingredients risk assessment to account for 1) changes in our supply chain, including the acquisitions of Lily’s, Dot’s and Pretzels; 2) developments in our human rights and environmental strategies, such as the intersection with nature and water; and 3) changes in sustainability risks.
Hershey’s 2020 goals involved 100% of Cocoa farmers in Côte d’Ivoire and Ghana supplying Hershey to be covered by Child Labour Monitoring and Remediation Systems (CLMRS) and 100% of Cocoa farms in Côte d’Ivoire and Ghana supplying Hershey to be mapped to prevent deforestation, used to be two separate goals. In the 2021 ESG report, they are now sub-categories under one main goal, namely the sourcing visibility of Hershey’s Cocoa volume in Côte d’Ivoire and Ghana.
Moreover, the 2020 report revealed that the 50% progress of polygon mapping of farm plots is now at 46% in the 2021 report. This perceived setback is in fact, good news, as the required standard set by the World Cocoa Foundation was strengthened. Now, all farm plots belonging to a farmer must be polygon mapped, versus before, where only one plot of land had to be mapped.
The 2020 goal of directly sourcing 100% of the Cocoa purchased from Côte d’Ivoire and Ghana from known farmer groups and farmers, to be achieved by 2025, remains to be seen in the 2021 ESG report.
Preventing and Eliminating Child Labour
On this sensitive subject, Hershey says they engage in proactive, supplier-led measures that include monitoring farms to ensure that no child labour is taking place and tools and oversight are provided to help resolve any instances of child labour.
Hershey adopts the International Labour Organization (ILO) definition:
Child labour is work that is mentally, physically, socially or morally dangerous and harmful to children and/or interferes with their schooling. Not all work performed by children, such as helping their parents around the home and assisting in a family business, is classified as child labour. Such activities are sometimes referred to as “light work.
ILO Definition of Child Labour
Hershey’s CLMRS found no evidence of forced child labour in Hershey’s Côte d’Ivoire and Ghana programs as of 2021. Almost 2,000 children have graduated from the CLMRS or have been remediated. However, Hershey’s goal for CLMRS to cover 100% of farmers producing Cocoa in Côte d’Ivoire and Ghana is only 62% on track in the 2021 ESG report and 58% in the 2020 sustainability report.
Therefore, it’s too early for Hershey to conclude that there was no evidence of child labour in the households covered by CLMRS. These figures may also change by the target year 2025, as CLMRS is run with the help of supply chain partners and community-based groups, which will lead to some volatility.
In October 2021, Hershey inked a five-year deal to implement the Child Learning and Education Facility (CLEF) with the Jacobs Foundation, the Government of Côte d’Ivoire Ministry of Education and Literacy, and 14 other chocolate producers and Cocoa suppliers. This new public-private partnership will help five million children in elementary schools improve their core literacy and numeracy skills. It also includes an investment in 2,500 classrooms.
Hershey also provided ViVi, a vitamin-fortified, peanut-based, ready-to-use therapeutic meal that meets 30% of a child’s daily nutritional needs, to 45,000 children in Côte d’Ivoire and Ghana on a daily basis.
Other initiatives include delivering quality education interventions at elementary schools for 12,627 children, distributing 1,883 school kits, obtaining 1,466 birth certificates so that children can attend school, and renovating 25 classrooms.
One of the underlying causes of child labour is unregistered children. Without a birth certificate, a child cannot attend school after a certain age. It’s great to see Hershey recognise and address the root cause of the problem.
Helping the Cocoa-growing Community
The goal of Cocoa For Good is to help the Cocoa producers involved in Hershey’s supply chain get out of poverty. Hershey extended their assistance to 102 farmer groups in 2021, reaching over 94,300 farmers across seven origins through their suppliers.
The goal is admirable, but we are collectively failing to raise the living standards within the industry. It’s not just the responsibility of the big Chocolate companies, but one of my least favourite labels in ESG reporting is ‘reached’. It is a vacuous word with no identifiable meaning that I’m aware of.
Hershey’s continues to say that farmers are compensated more for their crops, and they have access to higher-yielding Cocoa varieties. They are taught how to prune shade and Cocoa trees properly, as well as fertilization, irrigation, and weed and disease management.
Farmer group members now have easier access to finance and loans, allowing them to expand their operations. More than 31,000 farm development proposals were supported in 2021.
Hershey also assisted Cocoa farmers in finding new sources of income to help diversify their options. More than 2,600 residents of the community were trained in alternative income-generating activities such as making soap and processing of cassava.
The company continued their Kakum Agroforestry Landscape Program partnership in Ghana, which covers an area equivalent to 20 times the size of Manhattan and includes the Kakum National Park, an intact tropical rainforest covering 145 square miles (375 square kilometres) that is home to antelopes, elephants, monkeys and a number of other endangered wildlife species. This partnership promotes and supports community-led landscape management, spreads climate-smart, Cocoa-growing practices and provides training for extra Income-generating activities.
Our ESG priorities, while ambitious, are achievable, and we remain focused on the important work of embedding these priorities within our short and long-term business strategies. I have great confidence in our ability to create positive change for our business, our communities and our world, and I look forward to another year of progress, evolution and making a difference for our many stakeholders and partners.
Michele Buck, Chairman, President and CEO, The Hershey Company.
Hershey has developed a comprehensive corporate governance mechanism, which is overseen by its Board of Directors, to take the ESG agenda forward across the company. Hershey’s management structure was changed in 2021 to integrate better, manage, and optimize ESG as a core aspect of business operations.
An ESG Advisory Committee of executive team members and senior management was also formed to debate prospective investments, disclosures, and policy changes, as well as analyze the company’s ESG strategic direction.
