IFC’s appraisal considered the environmental and social management planning process and documentation for the Project and gaps, if any, between these and IFC’s requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable period of time, are summarized in the paragraphs that follow and (if applicable) in an agreed Environmental and Social Action Plan (ESAP). Through implementation of these measures, the Project is expected to be designed and operated in accordance with Performance Standards objectives.
Environmental and Social Policy. Nestle establishes commercial contracts with its coffee suppliers to ensure supplies which are compliant with the “Nestlé Responsible Sourcing Core Requirements”, ("Requirements”). The Nestle requirements align with PS2 and PS6 supply chain related requirements. Specifically, for PS2 risks, there are specific provisions for clear employment terms, prohibition of harmful child labor and forced labor, recruitment, anti-discrimination, working hours, occupational health and safety, payment of minimum wage and overtime compensation, freedom of association, and grievance mechanisms. For PS6 risks, there are specific provisions that raw material and ingredients supplied to Nestle comply with deforestation and conversion-free (DCF) requirements. Nestle considers a material deforestation-free where there is no expansion or production on areas converted from natural forests and other natural ecosystems after coffee sustainable production standard’s cut-off dates where they exist (e.g. Rainforest Alliance, 2015), but in no case later than 31 December 2020. Nestle aims to source 100% DCF coffee from primary supply chains by 2025 and is on target to achieve 95% at the end of 2024. Regarding transparency and disclosure to external stakeholders, Nestlé has publicly committed to independent verification and/or certification of its coffee sustainability sourcing practices.
These sourcing requirements complement other Nestlé sustainability commitments, strategies and frameworks, such as the Human Rights Framework and Roadmap and associated salient issue action plans, Net Zero Roadmap, Agriculture Framework, and Forest Positive Strategy.
The requirements apply to Nestle’s direct suppliers and origins, as differentiated by Nestle, as follows:
- Direct supplier(s) are entities or individuals having a direct business relationship with Nestlé (e.g. through a contract or because they invoice Nestlé). Co-manufacturers are considered direct suppliers.
- Origins are entities or individuals responsible for the harvest or primary production of the materials and ingredients they source for the manufacturing of products (e.g. farms), including packaging materials.
- Where direct suppliers are also entities or individuals in origins, the requirements for origins apply.
- Where direct suppliers are not entities or individuals in origins, it is the responsibility of direct suppliers to cascade down the requirements to the next tiers of the supply chain, all the way to the origin(s).
The requirements applicable to origins take account of the farm context, such as its size (e.g. hectares and number of workers) and its structure (i.e., formal or informal). The scope of the requirements for both direct suppliers and origins covers topics related to: (i) human rights and environmental due diligence (HREDD) management system requirements, (ii) business ethics, compliance, and transparency; (iii) human rights (which largely aligns with PS2 requirements); (iv) Environment, among others. Based on the review of documentation, Nestlé has represented a mature supply chain management system for its coffee sourcing operations during this appraisal.
E&S Risk Assessment. Nestlé verifies alignment to and compliance with its sourcing requirements using different methods at different tiers of the supply chain. These include self-declaration, desk-based assessments and second or third-party site audit or verification. The tools used to assess compliance depend, at Nestlé’s discretion, on the supply chain tier and the level of risk. Risk is assessed taking into consideration different criteria, such as the country(ies) of operation and of origin (for materials and ingredients), the level of spending, and the type of goods or service supplied to Nestlé. For coffee, most of the regions are considered high risk, including for deforestation and natural habitat conversion therefore triggering the highest level of scrutiny of Nestle’s risk assessment.
For labor risks, such as CL/FL/OHS risks, Nestle screened its direct suppliers using tools, such as Human Rights and Environmental Due Diligence (HREDD) assessments to site audits carried out by independent auditing firms using SMETA audits, Responsible Business Alliance (RBA) audits, among others. For origins, the tools used are credible certification schemes (like 4C or Rainforest Alliance) or validated coffee sustainable production verification schemes or programs, such as Nespresso AAA Sustainable Quality or Ofi AtSource Verified. Thus, all coffee tagged as responsibly sourced, has been validated as in compliance with Nestlé sourcing requirements which are aligned with the objectives of PS2 supply chain requirements. Additionally, Nestlé set up a Child Labor Monitoring and Remediation System (CLMRS) in the cocoa and coffee sectors in Côte d’Ivoire and starting in Uganda. This system identifies at-risk children within cocoa and coffee farming communities, provides remediation and monitors their situation to avoid them becoming involved in child labor.
Nestle screens risk to deforestation of its coffee suppliers using platforms, such as Verisk Maplecroft, and collaboration with partners including Earthworm Foundation and Proforest. Raw materials are confirmed as deforestation-free when they can be traced to low-risk origins or have been assessed as deforestation-free either from satellite monitoring and/or ground truthing. DCF is verified on the ground using HCS and HCV by partners and/or through certification, such as 4C and Rainforest Alliance.
Non-compliances identified through the certification and/or verification mechanisms outlined above, or in any other manner, are addressed by the relevant entity through a time-bound corrective action plan (CAP) agreed with Nestlé or with the certification body. Nestlé may decide to suspend the relationship with the direct supplier or require suspension of the direct supplier’s non-compliant site(s), sub-contractor(s) or sub-tier supplier(s) until a CAP is agreed, or during the execution of the CAP, should the timelines or actions be delayed or not executed as agreed. In case of suspension, the direct supplier, site(s), subcontractor(s) or sub-tier supplier(s) may be allowed to re-enter Nestlé’s supply chain if there is clear evidence, as required by Nestlé, that production practices have improved to the required level. Nestlé reserves the right to terminate the commercial relationship with the direct supplier in accordance with the purchasing contract, or to exercise any other remedy as set out in the relevant contract or under the applicable law in case client performance is not adequate. Direct suppliers must notify Nestlé of any actual or potential severe adverse impact on human rights or the environment, keeping Nestlé informed of the progress of any investigation and shall, if requested, consult Nestlé regarding all material steps in the process until remediation.
Supply Chain Management System and Program. For coffee, Nestlé developed the Nescafé Plan 2030 to drive regenerative agriculture, reduce greenhouse gas emissions (GHG) and improve farmers' livelihoods. The plan is part of the Group's commitment to accelerate the transition to a regenerative food system and ambition to achieve zero net GHGs, increase farmers' income and create better social conditions. The Plan goals for 2025 are: 100% responsibly sourced coffee, source 20% of their coffee through regenerative agricultural methods; and for 2030: source 50% of their coffee through regenerative agricultural methods, and 50% GHGs reduction. By 2024, about 95% of Nescafe coffee was Responsibly Sourced as part of the Nescafe Plan 2030. Nestlé developed the Nespresso AAA Sustainable Quality program, which is built on three pillars of impact: i) quality, by helping farmers produce higher quality coffees which benefit from increased revenues and access to new and differentiated markets; ii) productivity, by enabling productivity improvements and assist in farm economic management, providing greater income stability to farmers; and iii) sustainability, by improving the E&S sustainability of farming practices to increase the wellbeing and financial security of farmers, and protect natural capital. Some of the program outcomes include: 95.6% of Nespresso coffee was sourced through the AAA Program by 2023, 56.3% of Nespresso volume sourced from certified farms (Rainforest Alliance, 4C, FLO, FTUSA), among others. DCF risks are assessed on the ground either through voluntary coffee certification schemes or based on HCS or HCV approaches. Nestle’s primary supply chains for coffee are expected to be 100% DCF by 2025. Traceability and compliance for Nescafe Plan suppliers is verified by third party certification. For Nespresso AAA origins, third parties, such as Enveritas, are responsible for monitoring and evaluating farms towards effective implementation of the AAA program. Farmers can opt to certify coffee production farm performance via third party certifications.
Supply Chain Organizational Structure and Competency. Nestlé 2030 sustainability strategy is developed and delivered by their Executive Board and is approved and regularly reviewed by the Board of Directors and its Sustainability Committee. Executive Board remuneration is linked to the achievement of ESG indicators. The ESG & Sustainability Council provides strategic leadership and drives the implementation of Nestlé’s ESG & Sustainability Strategy. The Council addresses the following topics: 2050 net zero, Sustainable Packaging, Water, Responsible Sourcing, Upstream Human Rights, Communications, Advocacy, and Systems and Reporting. Nestle monitors their ESG & Sustainability Strategy performance KPIs using an internal dashboard, available on line[1]. Forced labor and responsible recruitment are governed through the Human Resources Leadership Team and the ESG and Sustainability Council. The company also supports different tools and programs that assess and address forced labor risks in the supply chain where special risks are identified. Additionally, Nestlé has a team of 800 agronomists/field staff on the Nescafé programs, in 16 origin countries with Nescafé farmer field programs training more than 140,000 farmers per year. On the Nespresso AAA program, Nestlé has 650 agronomists, field staff, project and support staff, reaching 150,000 farmers in 18 countries.
Supply Chain Training. Nestle has a dedicated website for suppliers where they inform suppliers about its sourcing requirements and supportive documentation needed for approving their eligibility. The website also has information about their supplier online portal, where Nestle interacts virtually with suppliers and manage documentation needed for approval as a supplier in compliance with the requirements. Nestlé works with suppliers to support farmers themselves, who have the knowledge and responsibility for the environments in which they work. The company has developed training programs and materials for the ingredients they source, including coffee. Through the Nescafé 2030 program, Nestlé provides farmers with training, technical assistance, and high-yielding coffee plantlets to help them transition to regenerative coffee farming practices, training more than 140,000 farmers in 16 origins per year. The Agricultural Services team helps with farmer capacity building and the training process. To help spread knowledge efficiently and facilitate monitoring, Nestle’s agronomists work with a group of selected producers known as Lead Farmers. Lead Farmers serve as peer-guides, coaching and sharing knowledge with other coffee farmers in their communities.
Supply Chain Monitoring and Reporting. In origins considered of high risk through high-level screening, Nestlé manages DCF risks on the ground either through voluntary coffee certification schemes or based on HCS or HCV approaches. Traceability and compliance for Nescafe Plan suppliers is verified by third parties. Effectiveness of the Nespresso AAA program in farms is also monitored and evaluated by third parties such as Enveritas and farms can opt to certify performance via third-party certifications. To monitor labor risks, Nestlé has a KPI for its Tier 1 suppliers to measure the maturity of their HREDD Processes and Systems. This KPI is designed to deliver full compliance with HREDD requirements and to ensure that suppliers are cascading HREDD requirements throughout their supply chain. This KPI is not currently disclosed in reports and will be reported against from 2025 onwards. Ingredients are assessed as responsibly sourced when they have been either mapped to sub-national production origins in a low-risk country for human rights and environmental risks or have been assessed as compliant with the responsible sourcing core requirements at origin level. Nestle reports annually on progress towards its corporate goal of achieving 100% deforestation and conversion-free coffee sourcing, as part of its on-going public reporting of these commitments and validated by third-party audits. EY is engaged by Nestle to provide independent assurance of a selection of KPIs for annual reporting which includes the percentage of primary supply chains, including coffee, that are assessed to be DCF.
