Some foods are more controversial than others from a sustainability point of view. Sadly for those of us with a sweet tooth, chocolate is among the most problematic.
Awareness of the carbon footprint of our food has grown enormously in recent years. That doesn’t just mean the “food miles” involved in growing food in one country and transporting it to another. It also means the deforestation to clear land for growing crops and grazing animals, the emissions produced by livestock, from growing animal feed, food processing, packaging and so on.
The carbon footprint chart below shows how chocolate stacks up when compared to other food stuffs. It’s not good news. Chocolate is vying with red meat in terms of greenhouse gas (GHG) emissions per kilo.
The problem with chocolate is that it contains many delicious but environmentally damaging ingredients, such as dairy, cocoa, sugar, palm oil, etc. And the land use impact of growing cocoa is the single biggest contributor to chocolate’s sticky footprint.
To be fair, the comparison with red meat is a bit harsh: an average chocolate bar weighs less than 50 grams whereas a steak is likely to weigh upwards of 200 grams - though some of the giant eggs on the shelves are probably not far off.
But from a sustainable investment point of view, greenhouse gas emissions are by no means the only issue.
One of the main concerns for us is the treatment of workers in the supply chain. Most of the best-known chocolate brands are owned by big companies based in Switzerland or the US. This is an awfully long way from the people actually growing cocoa in Ghana or Ivory Coast for their suppliers.
There is a huge question mark over the treatment of these farmers and labourers in cocoa plantations. The big corporations all have comprehensive policies on labour standards at their suppliers, but are these really effective, or enforced?
In particular, there is a long-running concern about high levels of child labour within the cocoa industry with as many as two million children thought to be working on their family farms. As well as missing out on schooling, children working on plantations are often carrying out dangerous tasks such as using machetes or spraying pesticides.
Chocolate companies have been promising to eliminate child labour in their supply chains since 2001, but missed deadlines in 2005, 2008 and 2010 – by some estimates the number has actually gone up. Given that record, it’s unsurprising that even this year’s less ambitious target of a 70% reduction looks like a stretch.
Complex supply chains are the crux of the problem here, especially as 90% of the world’s cocoa is grown by small farmers – around six million of them. The big chocolate companies are unable to trace which farmers produce their cocoa, let alone determine whether child labour was involved in producing it. Mars can only trace a quarter of its cocoa back to the grower; Nestle and Hershey about half.
More intensive efforts are needed to trace cocoa back to its source, and to audit the conditions at plantation level – though this is far easier said than done and is not a solution in and of itself.
Ultimately, the only sustainable solution is to tackle the poverty that is the root cause of child labour. This can be done by paying a premium to farmers, supporting farmer cooperatives, and helping farmers to diversify away from chocolate to supplement their incomes.
Companies are starting to move in this direction but most are only in the early stages of discussions. The industry is worth $100 billion a year in sales, but this is at risk of reputational damage and competition from more responsible and nimble new entrants if it does not up its game. Furthermore, impoverished farmers pose a risk to the sustainability of supply. This is an unpalatable prospect for investors.
What about “Fair Trade” schemes – aren’t these supposed to address the problem? Unfortunately, the reality is not so simple. Rising consumer demand for ethical products has resulted in a proliferation of different schemes with different standards, encouraging “fair washing”. This makes it hard for customers to have much confidence in the labels, especially given high-profile instances where fair trade farms have had their certification revoked after unplanned audits.
Many leading food producers and retailers have so little faith in the established schemes that they have pulled out and set up their own ethical labours, further complicating the landscape for consumers.
And while fair trade schemes help to address the social ills of the chocolate industry, they do nothing about the environmental concerns. As well as the impact of cocoa farming, other issues include the traceability and environmental impact of ingredients such as palm oil or hazelnuts. Palm oil’s role in deforestation is a particularly controversial topic.
And then there’s packaging. Chocolate’s status as a gift or luxury item means it tends to be over-packaged. Consider an Easter egg in foil, inside a plastic mould, inside a cardboard box. And it may well include individually-wrapped chocolates too.
Has all this killed your chocolate craving yet? The fact is that many of us (me included) do love chocolate and are reluctant to give it up.
Low dairy options could be part of the solution. Carbon-conscious consumers could switch from white or milk chocolate to dark. Every little helps, as they say – and no trouble for me as I prefer dark anyway!
Here in the UK, the popularity of “Veganuary” - turning vegan for January - resulted in companies producing a wide range of plant-based, meat substitute foods. Partly as a result, come February many people decided to permanently change their diets, not just for animal welfare but also because of wider sustainability concerns.
Many manufacturers have responded by developing vegan chocolate, which does lessen the carbon footprint, but making chocolate without cocoa is not a conceivable option. Even if it were possible to produce a synthetic substitute as with “fake meat”, this would put reduce the price of cocoa and deprive those six million farmers of an income rather than freeing them from bondage.
From an investment point of view, we’re looking for companies that can produce sustainable growth and returns over the long term. The example of chocolate shows how risks around sustainability can often be hidden. This highlights the importance of thorough research to understand not just a company’s own operations, but those of stakeholders in the supply chain.
The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.