Under sweet pressure
Chocolate comes under a long-term polycrisis
I really like chocolate. I usually have a little piece after lunch and another after dinner. If I had to pick my favorite, it would be a toss-up between a Take5 or a Whatchamacallit, although I’ve been known to go for the variety that Hammond’s offers, especially the Midnight Snack. When I travel to Redmond, I try to track down the incredible Peanut Butter Pretzel from the Seattle Chocolate Company.
With Halloween this month, I am more than ready to reclaim our handout inventory for my own, and reclaim a bit of an ESG narrative. As it turns out, I can’t think about chocolate this time of year (and on Valentine’s Day and Easter) without considering ESG.
Chocolate prices are going up again. In fact, I found a draft where I tried to write about this last year (at Sunny Fleming's suggestion) but instead wrote about the crushing reality of ESG data, a topic I just wrote about again last week! No more. It’s time to face the intersection of chocolate and ESG head-on.
Why? Next year will mark the tenth anniversary of the Scientific American article on The Race to Save Chocolate. More realistically, I am sick of reading repeated articles about this.
The interconnected nature of issues around chocolate
Over the past three years, there have been articles about the rise in chocolate prices around every major holiday. This year and this Halloween are different for two reasons, however. The articles about high chocolate prices have been consistent month after month throughout 2024, regardless of the holidays, and inflation in the US is coming down. Still, the price of chocolate is rising for, you guessed it, ESG reasons.
According to the US Bureau of Labor Statistics, as cited by the Federal Reserve of St. Louis, chocolate prices began to rise significantly in the summer of 2021.
The reasons for the increase are very often cited as throwaway lines in news articles with even less information than this short, bulleted list. The commonly cited issues are:
A virus affecting cocoa trees is spreading in Ghana and threatens West Africa, where 50% of the world’s cocoa is grown.
Dry weather and high temperatures due to an El Niño weather pattern have occurred over multiple years. A 2007 IPCC report predicted this, specifically for Africa (page 19 here).
Increasing poverty in the communities where cocoa is harvested, including forced and child labor.
And, of course, each year and every holiday brings increasing demand.
Despite a nebulous nod to ‘climate change’ in most articles, cocoa is at the center of a polycrisis, where multiple crises join to create a more significant challenge.
An article in CGIAR published by the International Water Management Institute (IWMI) points to these interconnected challenges and the decline in production over the past 30 years.
The decline, however, is not something that happened overnight but is the result of long-term factors whose effects are only now reaching crisis levels. Shifts in land use dynamics as cocoa competes with urbanization and expanding agricultural frontiers, crop disease in the form of swollen stem, and galamsey, the widespread practice of illegal gold mining which leaves land contaminated by heavy metals and illegal logging, have all contributed to the dwindling production.
The interconnected nature of the long-term issues outlined in the paragraph is a rare glimpse into the complexities facing chocolate.
Still, I’m assuming most consumers would not likely be able to find this information readily. When you’re at the store and see the high prices for chocolate (or anything), are you thinking about how interconnected ESG issues impact the product? Lately, you might be thinking more about greedflation over anything else, which has different complexity and connected issues.
Is the media sugarcoating climate change and complex issues?
There can be no doubt that chocolate is facing a polycrisis of ESG issues, similar to what I wrote about Commercial Real Estate here and in ESG Mindset. Still, it is hard to figure this out if you are downstream in the value chain as a consumer unless you go beyond media narratives into other non-traditional media outlets, like CGIAR.
For example, if you are a consumer, you will find articles like this from ABC News and Good Morning America, leading with headline news that Halloween candy prices are scary high. Here's where to find deals. Extreme weather is mentioned as a root cause but is such a throwaway line that no one would care. This also makes the issue seem transient instead of a long-term systemic shift.
People are ready for the truth, so must we sugarcoat everything? Living in a rural area, I can attest that people are experiencing new weather patterns that haven’t occurred in decades, and they recognize it. They might not understand the specific complexities involved or care about the IRA and BIL but nudging them on the reality might help change behaviors.
Admittedly, ABC News and Good Morning America are more ‘pop culture news,’ focused on a specific consumer target. This article from USA Today around Easter 2024 is a little more thoughtful. It discusses the challenges and what companies are doing to address the issue, like lowering the amount of chocolate in products.
Reuters published a report showing that US candy companies favor gummies and licorice over pricey Halloween chocolates, which shows how companies are handling the rise in cocoa prices without ever explaining why they are high in the first place. Unfortunately, without stating the cause in the narrative, people will fill in the gaps, and it likely won’t be the massive amount of complexity that companies are dealing with.
Most articles are like this, even in non-consumer-facing outlets like RetailWire, which proclaims that Halloween Candy Will Be Less Chocolate, More Gummies This Year.
If you give me a licorice for Halloween, we will have words.
I had to go to websites like CGIAR, the UN Trade & Development website, and Nature to find any actual, consequential information.
The company position
Consumers are one stakeholder group, and attention to this issue may shift consumer sentiment towards climate. For companies, on the other hand, these are serious issues that threaten their future.
I looked at Nestlé’s annual and sustainability reports, including a targeted effort to preserve forests around cocoa harvesting. Nestlé has a great graphic around their TCFD disclosures that shows the impact of climate change on various commodities through 2040 with a 2 to 3°C increase by 2100 (on page 11 here), including a write-up on resilient coffee.
As a side note, I often write about the low value of disclosures, but TCFD is one that I think gets ESG right, so I’m unsurprised to see it referenced here with a long-term view.
In its latest annual report, Hershey’s also recognizes the risk.
Climate change poses a significant and increasing risk to global food production systems and to the safety and resilience of the communities where we live, work and source our ingredients. The GHG impacts of land-use change are most pronounced in our cocoa supply chain, where we have already been working for several years to prevent deforestation and build climate resilience.
Hershey’s also discusses in its ESG report how it is diversifying cocoa supply chains and working on human rights, including a specific section on child labor.
Mars, a privately held company, discusses similar themes in its ESG report, including deforestation, a responsible supply chain, mapping cocoa land use, and even opportunities for women.
As one might expect, the larger companies are considering several of these issues at a high level regarding their products.
For the smaller companies I mentioned above, the focus was mixed. I couldn’t find anything ESG or sustainability-related on Hammond’s website. In its impact report, Seattle Chocolate writes about mostly decarbonization but doesn’t address the chocolate polycrisis. Unfortunately, these issues are no less of a risk for small companies. Consortiums like this one between the EU and chocolate-producing countries might be worth investigating to lend some scale.
Do we understand what’s coming?
Writing about ESG and how companies should approach their most material topics presents one challenge. Eventually, climate change will affect every company and every person, making its impact a material issue for all in a range of ways.
This is dynamic materiality, where issues become material over time. Today, larger confectionary companies and governments recognize the materiality of the ESG issues in the cocoa supply chain, but I’m not sure many others do.
These realities of climate change in the media still feel like foreign issues handled elsewhere. As issues like these progress beyond chocolate into fruits and vegetables, consumers are unlikely to be prepared for the shock that a confluence of these issues will create around a single commodity, let alone a group.
Unless you are an investor or an interested stakeholder, you are likely overlooking these critical issues. In other words, as many activists will already know, we are already on the path to creating problems in food security without productively opening up that narrative. Now that every issue has become polarized, especially in the US, I’m not sure how we can have this conversation anymore.
Oof - what a dire note to end on for such a pleasant treat!
So, let me leave you with a different thought. I was thinking about how to face the realities of climate change to facilitate a meaningful discussion with company leaders outside the sustainability office. Someone mentioned, “We don’t want to scare people into taking action,” but I’m not sure the message is about fear anymore.
The scary thing is that climate change and these surrounding issues are about facing reality. These are things happening today, not in some potential future. Companies are under immense pressure to help solve these problems or face an even more uncertain future.
In other words, how long can a chocolate company change its product, lower overall product volumes, or even innovate around new chocolate research before this becomes too big of a problem?
Along with this thinking, transitional innovation is underway. Companies like ChoViva are using science to find new alternatives to supplement demand for chocolate. This innovation is undoubtedly needed, but we can’t lose sight of the regions where chocolate is grown. Otherwise, we’ve solved part of an ESG issue while missing out on meaningful impact elsewhere.
Besides Halloween, is there another reason this is on my mind? Well, we’re in a global election cycle where 70 countries around the world will be voting. Do people really understand how these global issues will have local consequences and the role that public-private partnerships can play?
I suppose we will find out shortly.