Pension funds urge chocolate industry to end child labour

The use of child labour in companies’ operations and supply chains is of increasing concern to investors. By preventing children from getting an education, child labour holds back sustainable development and threatens investments in many parts of the world. We at Norges Bank Investment Management (NBIM) and APG Asset Management have identified child labour as a risk to our long-term investments. We initiated talks in 2008 with some of the world’s largest cocoa suppliers and chocolate producers to find out how they monitor the risk of child labour in West Africa, source of about 70 percent of the world’s cocoa.

We asked the companies to develop and disclose action plans to monitor and combat child labour in their operations and supply chains. The response so far has been varied. Some companies have increased their efforts, but more needs to be done as the overall risk of child labour in cocoa production remains high. A 2002 survey, supervised by the International Labour Office and the International Programme on the Elimination of Child Labour, found that 284,000 children worked in hazardous, unprotected and sometimes unfree conditions on cocoa farms in West Africa. A recent report by BBC Panorama and a campaign by Oxfam suggest child slave labour continues to exist in the region’s cocoa production.

It is critical that the cocoa industry begins to show real progress in combating the worst forms of child labour. While industry leaders repeated their commitment to sustainable cocoa production at the 17th World Cocoa Foundation Partnership Meeting in Utrecht, the Netherlands, on May 19 and 20, few proposed concrete measures to prevent child labour in the cocoa supply chain.

Earlier efforts to eliminate child labour in the cocoa industry had limited success. In the Cocoa Protocol of 2001, the industry committed to developing and implementing certification standards for cocoa produced without the worst forms of child labour by July 2005. Due to limited progress, this deadline was extended to certify only half of cocoa farms “child-labour free” by July 2008. In a statement in 2008, leading cocoa producers and suppliers expressed concern over the lack of progress.

Two years later, some progress has been made. There has been a notable shift in what companies focus on in discussions with investors. At the start of our dialogue, companies focused on the difficulty of tracing the origins of cocoa within the industry’s complicated supply chain of numerous middlemen, traders and commodity exchanges. This made direct child labour monitoring more or less impossible. Now companies focus on ensuring a stable future supply of good quality cocoa and sustainable production.

Companies also show more willingness to take direct responsibility for solving the problem of child labour, in part by buying more cocoa directly from farmers, working to improve social conditions and taking more measures to monitor risk. Corporate transparency is also slowly improving. At the same time, a growing number of consumers are concerned with the quality and origins of chocolate. This is increasing demand for chocolate that’s produced and sold through fair-trade agreements, particularly in Europe. Demand in the UK alone increased about 15 percent in 2009. 

Although it seems unlikely that stronger regulation on banning products made with child labour will materialise in the near future, companies are under increasing pressure from regulatory bodies. Governments, too, face demands to introduce regulation on labour conditions and transparency on the origin of products. The European Commission is preparing policy options on how products made by children could be banned from the European market. The governments of Ghana and Cote d’Ivoire have assessed the scope of child labour and initiated measures to combat illegal trafficking of minors forced to work in the agricultural sector.

From an investor perspective these developments are positive and should help combat child labour. But companies are not there yet. The recent business gathering in Utrecht failed to meet our expectations that companies should agree on a common systematic action plan with clear targets for eliminating child labour in the cocoa supply chain. It has been nearly ten years since the industry vowed to eliminate child labour. It needs to make good on that promise.

The writers:
Magdalena Kettis, Head of Social and Environmental Issues for Ownership Strategies at NBIM, and Anna Pot, Senior Sustainability Specialist at APG Asset Management, wrote this piece. NBIM manages the Norwegian Government Pension Fund Global, worth more than 2,700 billion kroner (347 billion euros) as of May 13. APG manages pension assets worth about 240 billion euros at the end of 2009 and administrates more than 30 percent of all collective pension schemes in the Netherlands.