Social and Environmental Management Program. B.C. conducts its business in compliance with applicable local legal and regulatory requirements, and in an ethical and socially responsible manner. It is committed to ensuring that its sourcing of non-cocoa agricultural raw materials in its products are sustainably produced in origins. Specifically, B.C. requires that its third-party suppliers (and sub-suppliers, if applicable) comply with the Principles and Criteria (P&Cs) of applicable industry commodity standards (e.g. for sugar, Bonsucro).

In November 2016, B.C. launched their Forever Chocolate strategy committing to four targets that they plan to achieve by 2025: i) we will eradicate child labor from our supply chain; ii) we will lift more than 500,000 cocoa farmers out of poverty; iii) we will be carbon and forest positive; iv) we will have 100% sustainable ingredients in all of our products. B.C. publishes each year a report on the progress it makes towards the four targets it has defined. The company realizes that they cannot reach these targets by themselves. That is why they started a movement that also includes governments, NGOs, consumers and customers. The different actors play different roles: governments create and enable the policy environment and enforce legislation, NGOs create awareness and consumers make sustainable choices, as well as an industry commitment and investment. In the latest Forever Chocolate progress report (2018/19), B.C. reports sourcing 54% (2017/18: 44 %) of non-cocoa agricultural raw materials sustainably. This includes the use of sustainability verification or certification schemes for the respective ingredients. The reported percentages are being audited by PwC.

In 2018, B.C. has developed a Supplier Code to explicitly outline the company’s sourcing provisions in the areas of business integrity, labor, health and safety, environmental management, Greenhouse Gas (GHG) emissions, no deforestation and loss of biodiversity, and respect for the rights of Indigenous Peoples and local populations. This Supplier Code applies to all third-party Suppliers (pre-financed and not) and their employees and sub-contractors providing products, materials, expertise and related services to any entity of the B.C. Group. It sets out the essential minimum requirements expected from each Supplier and is linked to the Suppliers’ obligations under applicable laws and contractual arrangements. In addition, B.C. has developed Sustainable Sourcing Policies which provide detailed provisions which are specific for commodities sourcing other than cocoa (i.e. soy, dairy and sugar), that the Suppliers also need to comply with. These provisions are directly linked to the 4th target of the Forever Chocolate strategy: 100% sustainable ingredients in all of its products.

All third-party Suppliers are expected to comply with all requirements defined in the Supplier Code (by 2025). To achieve such compliance, they have to develop an Integrated EHS/HR Management System consisting of policies; roles and responsibilities; procedures; communicating policies and procedures on these topics to employees and relevant third parties; sufficient training to its employees and subcontractors; monitoring of compliance to the policies and procedures; implementation of corrective actions; and provide reports on its progress on these topics to B.C.

To support further improvement in the E&S performance of third-party suppliers in the non-cocoa raw materials supply chain, B.C.’s Sustainability Managers and partners provide training for farmers on good agricultural and harvest practices to improve yields and livelihoods. B.C. requires its Suppliers (and their own suppliers, when applicable), to adopt international best E&S practices that meet industry standards, such as Bonsucro for sugar (with the option of adding the Bonsucro smallholder standard), and Roundtable for Responsible Soy (RTRS) or Proterra for soy. Implementing accepted industry standards and compliance is required for all B.C. Suppliers of non-cocoa agricultural raw materials, is an integral requirement for meeting the 2025 target of 100% sustainably sourced ingredients as outlined in the specific commodity Sustainable Sourcing Policies. Through cooperation with partners, B.C. implements awareness raising, and training programs designed to build the technical capacities of farmers, enhance their agronomic practices and general business and farm management skills. For example, B.C. is leading an initiative with Coca Cola in Mexico to address three key issues in the Mexican sugarcane sector: i) responsible recruitment; ii) farmer resilience and mechanization; and iii) water stewardship. The responsible recruitment work focusses on developing and implementing a process for the protection of core International Labor Organization (ILO) conventions, health and safety procedures for cane cutters, and various other processes to ensure responsible management of cane cutters. The training was due to start in March 2020 but has been delayed due to the COVID-19 crisis.

Of the commodity specific approaches covered by this GTSF, the most advanced industry standard is Bonsucro certification for sugar Suppliers in Brazil (6 out 7 certified and one in process) followed by Mexico (2 of 14 certified and 5 in process of completing the gap assessment). In fiscal year 2018/19, B.C. received the Bonsucro Chain of Custody certification ensuring that they are diligently applying the Bonsucro sustainability standards for sugar cane and sugar products in its supply chain. All Brazilian soy Suppliers are Proterra certified (i.e. a non-Genetically Modified Organism (GMO) standard).

In 2018, BC introduced the VisionDairy sustainability programme that is currently based on self-assessments to be completed by the dairy Suppliers. It was developed by B.C., Ferrero, and the consultancy FAI Farmer and is fully aligned and used to benchmark other accepted standards and certification schemes (e.g. Dairy Farmers of Canada, Dairy Australia, Origin Green and Unilever’s Sustainable Agricultural Code (SAC 2017)). The VisionDairy Charter consists of 15 principles for sustainability in dairy farming, setting out B.C.’s ambitions for its dairy supply base. It covers cow welfare, farm practices (including the Ethical Trading Initiative Base Code on labor) and Environmental Stewardship (including GHG emissions and biodiversity). B.C. is in process of introducing VisionDairy to Latin America. A certification process will be implemented as a next step to assess the performance of the dairy Suppliers independently. The verification process B.C. will apply is Unilever SAC 2017. In January 2020, an updated scheme rules were published for Unilever SAC 2017 requiring certification rather than verified self-assessment. In addition to VisionDairy, the B.C. dairy Suppliers are expected to source feed (soy and palm kernels) from respectively Proterra and RSPO certified suppliers. It is a B.C. requirement that its raw material Suppliers have to meet the latest version of the commodity sustainability standard within the transition period provided by the standard’s organization (for example, Bonsucro will be issuing its version 6.0 in December 2020, including a transition period).

Identification of Risks and Impacts. E&S risks and impacts associated with the non-cocoa raw material sourcing are judged by B.C. as significant, based on a country-level risk assessment using the US Bureau of International Labor Affairs (ILAB) public list of goods produced by child/forced labor, Maplecroft risk rating for child/forced labor and deforestation and the World Resources Institute (WRI) Global Forest Watch, High Carbon Stock approach for deforestation. As indicated above, the GTSF program is focusing on sourcing from existing processing facilities and procurement from existing (smallholder) farmers.

Organizational Capacity and Competency. The introduction and agreement with the Supplier Code and underlying commodity specific Sustainable Sourcing Policies by B.C.’s Suppliers is the responsibility of the Buyers and Sustainability Managers in the three regions where B.C. operates (Asian Pacific, Americas and EMEA). The Sustainability Managers report to the Director Global Ingredients, Sustainability and Carbon/Forest Programs. The team also includes a Sustainability Expert Forest and Carbon and a Sustainable Nuts Manager. The Director reports to the Chief Innovation & Sustainability, who is also a member of the Executive Committee. The Sustainability Managers visit Suppliers to verify compliance with the Supplier Code and Sourcing Policies and provide support in the development of policies and procedures to comply with the relevant commodity certification.

Monitoring and Review. By the end of 2020, all B.C. third-party Suppliers need to complete, through the Supplier Ethical Data Exchange (SEDEX) platform, the SEDEX Self-Assessment Questionnaire (SAQ) and the SEDEX Members Ethical Trade Audit (SMETA). The audit framework seeks to demonstrates compliance with local law and international standards (i.e. core ILO Labor Conventions and ISO 9001, 14001, 45001). The scope of issues reviewed is consistent with the requirements of PS2 related to working conditions (including child and forced labor) and occupational health and safety and touches upon environmental issues considered under PS3 related to energy and water usage. Completing the audit is an utmost requirement to be qualified as a Supplier to B.C.. Non-compliances identified are agreed to be resolved within a reasonable timeframe by the Supplier as per a SMETA Corrective Action Report Plan (CARP). Not timely meeting the CARP could lead to B.C. buying less volume and ultimately cancellation of the contract. Effectiveness of corrective actions will be verified by a 3rd party audit, requested by B.C., depending on the severity.

Information on B.C. sustainability performance in the effective implementation of its Supplier Code, including Supplier reporting, records of CAP implementation and certification audits, is kept in a Supplier Relationship Management (SRM) system. To date, B.C. has not defined internal audit Key Performance Indicators (KPIs) to rate the overall sustainability performance of its suppliers other than checking status the SMETA audits and certification for sugar and soy based on gap assessments and certification audit reports. Verification of compliance with the Supplier Code by the Sustainability Managers is not yet done in a structural way to allow this to be included in the overall rating of Suppliers. Building on the findings and data, under the Forever Chocolate strategy, related to traceability, adoption of sustainable farming practices, certifications against Industry Standards, and the SMETA audit process, B.C. will develop a Supplier sustainability matrix entailing an E&S scoring methodology, including KPIs to assess the level of E&S practices and performance at the Supplier level (See ESAP #1). The pricing offered to Suppliers will depend on their E&S score as determined by the Supplier sustainability matrix to be developed. This is expected to provide a financial incentive for Suppliers (and supply chain, if applicable) to adopt and enhance its sustainability practices. Furthermore, independent certification should be introduced for the dairy Suppliers. The outcome should be included in the Supplier sustainability matrix.

IFC has reviewed B.C.’s sustainability approach and the scope of issues addressed under the company’s Supplier Code and associated commodity specific Sustainable Sourcing Policies, which were found to be largely aligned with IFC’s Performance Standards (PS), in particular PS2 (Labor and Working Conditions) through the SMETA protocol. In addition, significant efforts to address environmental aspects of farmers aligned with PS3 (Resource Efficiency and Pollution Prevention) and PS6 (Biodiversity Conservation and Sustainable Natural Resource Management) are described later in this document.

B.C. expects its third-party Suppliers to comply with all applicable labor laws and regulations in origins where they conduct business and to adhere to international labor standards as defined by the ILO core conventions and the UN Guiding Principles on Business and Human Rights. These provisions are included into B.C.’ Supplier Code. This relates to child labor; forced labor, slave labor, and human trafficking; working hours and wages; compensation; non-discrimination; harassment and health and safety workplace conditions. This set of provisions is considered aligned with the PS2 objectives.

IFC’s risk screening on the supply chain using ILAB suggests the presence of child and/or forced labor in the following country-commodity combinations: child labor & forced labor in Brazil (sugarcane and cattle) and child labor in Colombia, Mexico and Guatemala and Thailand (sugarcane). B.C. strictly prohibits child labor and Suppliers are required to adhere to the minimum employment legal age limit defined by national law or regulation and comply with relevant ILO standards. Suppliers are prohibited from permitting children to perform work that exposes them to undue physical risks that can cause physical, mental or emotional harm or improperly interfere with their schooling (except in the context of apprenticeships for minors as legally allowed). Furthermore, the company is focused on ensuring that its agricultural supply chain does not contain forced labor practices. At the Supplier level, SMETA audits provide third-party verification on the absence of child or forced labor. In addition, Suppliers must recognize workers’ right to form of join trade unions, provide wages that support the purchase of basic necessities for an individual or family; and ensure that working hours are in line with legal mandates. Suppliers should communicate this code to their own Suppliers and, where reasonably practicable, extend the principles of this Ethical Code through their supply chain.

Occupational Health and Safety (OHS). The Suppliers should provide employees with a safe and healthy workplace in compliance with all applicable laws and regulations, which are captured in the SMETA P&Cs. Adequate steps are to be taken to prevent accidents and injury to health in the course of work, by minimizing the causes of hazards inherent in the work environment. Employees are protected from exposure to hazardous materials and provided personal protective equipment to workers where required free of charge. All facilities provided for use by employees, including dormitories, are clean and safe. In addition, the Supplier should provide employees with access to potable water and clean sanitation facilities. The Supplier also ensures emergency preparedness, including adequate provision, signage and communication of emergency exits and procedures. B.C. expects its Suppliers to regularly provide OHS training to employees and contractors, and to ensure they are adequately protected through provision of Personal Protective Equipment (PPE).

Grievance Mechanism. B.C. expects their Suppliers to provide employees with a communication channel that allows them to anonymously report concerns such as a suggestion box or anonymous phone line. The Supplier should also have a procedure in place that ensures appropriate handling of grievances by workers and contractors, and that they are protected from retaliation. The SMETA protocol includes an assessment whether a grievance mechanism is in place for workers, communities, and suppliers or a published, anonymous and/or open channel for reporting grievances.

Gender. As part of its approach to responsible sourcing, B.C. recognizes the role women play on farms and is committed to empowering women across its supply chain. As part of gender parity in the cocoa supply chain, BC has initiated several projects: i) community water projects (relevance to women); ii) business skills training for women; iii) women agroforestry training. Completing the IFC’s Contextual Gender and GBV risk tool resulted in a substantial risk for agribusiness in Mexico and Indonesia, and a medium risk in Brazil, Colombia, Guatemala, Philippines and Thailand. Currently, gender is addressed as part of the nodiscrimination ILO convention paragraph, but B.C. is looking for relevant partners to include women programs for the non-cocoa ingredients. IFC’s Gender Specialist will be providing support on how to include a gender-based approach (including gender-based violence) in the Mexican sugarcane sector project mentioned above.

Resource Efficiency and GHG Emissions. B.C. expects its Suppliers to actively manage its emissions, especially with regards to greenhouse gases. This includes strategies and management plans to measure and reduce the suppliers’ emissions. The Supplier should be publicly reporting on its GHG emissions, including emissions of upstream activities, in line with the GHG Protocol Corporate Accounting and Reporting Standard and its emissions of other hazardous substances. Suppliers should set targets and strategies to reduce its overall climate impact. In order to do so, the Supplier is encouraged to engage in science-based target setting. Ideally, the Supplier is able to report the emissions intensity by product. B.C. expects agricultural Suppliers to continuously improve their water use efficiency and conservation through adoption of Good Agricultural Practices, and where applicable, to develop water management plans and investment in technologies to support responsible water use. This is specifically applicable to sugar, Bonsucro requires the development of a water management plan.

Pollution Prevention. B.C. is committed to combating the environmental impacts and effects of climate change across its operations by expecting Suppliers to minimize its negative impacts on the environment, particularly on climate and biodiversity and implements measures to protect soil and water bodies and using natural resources sustainably. As part of the Supplier Code, B.C. expects its Suppliers to conduct their business in a manner that is compatible with the environment and in accordance with applicable law. This includes taking steps to minimize solid waste by reducing, reusing, and recycling materials; encouraging conservation of resources and energy; providing training and education for its employees; and supporting efforts to establish and implement policies that also protect the environment.

Environmental Stewardship. B.C. prohibits the use of chemical products listed in Annex III of the Rotterdam Convention and substances banned under the Stockholm Convention on Persistent Organic Pollutants. Furthermore, the company expects its Suppliers to use all chemical products (for crop protection and nutrient support) in accordance with applicable laws and regulations and the guidance of product manufacturers, and to minimize the potential harmful impacts on water quality and air quality. Through the certification processes as well as through direct engagement by B.C. and partners farmers are trained on sustainable agriculture standards including application of integrated pest management principles (including how to use pesticides properly) as well as fertilizers.

Comparison of the PS3 requirements with the industry standard P&Cs for sugar (Bonsucro), soy (Proterra) and dairy (Unilever SAC) using ITC/Sustainable Map, showed that they are largely aligned.

Deforestation and loss of biodiversity. B.C.s Supplier Code requires Suppliers to ensures that its operations do not directly contribute to deforestation and/or loss of biodiversity. To achieve such commitment, the Supplier must conduct due diligence on commodities associated with deforestation in its supply chain. Prior to establishing new operations or expanding existing ones, in addition to obtaining all legal concessions, the Supplier must conduct due diligence which combines biodiversity, carbon conservation, and social considerations. Lastly, the Supplier must publicly commit to deforestation-free operations for its operations and in its supply chains, having systems in place to monitor compliance and progress of its supply chain with regards to this commitment and takes immediate actions in case of breaches.

Based on the risk and impact identification using the Maplecroft risk rating, WRI Global Forest Watch and High Carbon Stock approach for deforestation, B.C. creates a heat map at the country/regional level to provide an overview of risk areas where the sourcing of agricultural raw materials can trigger a high risk of deforestation. In 2018, B.C. worked with the Austrian consultancy denkstatt to calculate the Environmental Footprint of chocolate, using synergies to complement the Product Carbon Footprint calculation with a Corporate Carbon Footprint for reporting. B.C. is now considering developing these footprint calculations for the different commodities or even at the Supplier level to understand the risks and impacts of deforestation. Based on this understanding, B.C. works with their Suppliers to establish traceability for the commodities sourced. For those volumes where traceability has already been established or provenance has been ensured through third parties, i.e. certification, B.C. will not source ingredients from High Conservation Value (HCV) areas, High Carbon Stock (HCS) (level 1 and 2), or any land identified by relevant stakeholders as important for conservation, nor from land defined as National Park, state or local reserve, or protected status, by national or sub-national governments. Furthermore, B.C. is also engaged in several multi-stakeholder initiatives, such as the Palm Oil Innovation Group (POIG) and the Cerrado Manifesto to drive sustainable practices in areas at risk of deforestation for soy production. For certification under the Proterra standard, areas of native vegetation and other high conservation value areas cannot have been cleared or converted into agricultural areas, or used for industrial or other commercial purposes, after 2004, in particular the following: a) Primary Forests (for instance, rainforests); b) Riparian Vegetation; c) Wetlands; d) Swamps; e) Floodplains; f ) Steep slopes; g) Other high conservation value areas as defined by the High Conservation Value Areas Network. This is a Core Indicator that must be complied with at certification. To be ProTerra certified, organizations have to comply with Core Indicators to 100% and with all the indicators to 80%.

The currently used certifications to reach 100% sustainable sourcing of non-cacoa raw materials in 2025, are for sugar (Bonsucro) and soy (Proterra and/or RTRS). These industry standards largely align with the PS6 requirements for completing E&S impact assessments (ESIAs), protection and conservation of biodiversity (latest cut-of date of 2009), management of ecosystem services and sustainable management of living natural resources. The latter is fulfilled by both standards as they are both independently certified. For VisionDairy, the dairy sustainability program, further improvements are needed to align with PS6 requirements (See ESAP item#2). Given that B.C. will use Unilever SAC 2017 for certification using the P&Cs of this standard in updating VisionDairy will assist in filling the gaps.

Kevin Ogorzalek

Manager, Sustainability Sourcing - Americas

Barry Callebaut

kevin_ogorzalek@barry-callebaut.com