Tag Archives: creating shared value

Corporate Social Responsibility Within the Chocolate Industry: Analyzing Nestlé

In an era where small batch chocolate producers have already taken effective steps in creating a more sustainable and equitable chocolate supply chain, larger corporations have also begun to take up the mantle and move in a positive direction. The large players in the chocolate market are perhaps the most crucial to making significant improvements to the system of the cacao production. Companies like Nestle have started focusing on sustainability, beginning to finally look at some of the core issues behind cacao sourcing. In analyzing the sustainability section in Nestlé’s annual report, I aim to evaluate their success in becoming a solution to the problems of the cacao-chocolate supply chain.

Creating Shared Value

Corporate Social Responsibility is a form of self-regulating business model that aims to create positive social and environmental impacts through managing shared risks and creating shared opportunities. It goes beyond just compliance and corporate philanthropy. Nestle seems to have a solid conceptual understanding of effective corporate social responsibility, stating a clear goal of ‘creating shared value’. While they still have a lot more room to make actual improvements in their supply chain and production, Nestlé still stands as a good example to begin leading other companies in the right direction.

The most salient and material risks I see for Nestle as a business are nutrition, rural development, human rights, and climate change. Several of these issues are ethical issues we’ve talked about in class and all of them have been touched on in their sustainability report. The fact that Nestlé recognizes such issues is a strong success in itself, but Nestle could be more effective in taking action on their goals.

Nutrition

Nutrition is a salient goal for Nestle because of the increases in obesity and other health problems among adults. In sweetness and power, Mintz argues that the desirability of sugar confronts the costs it poses to health and world systems. Sugar consumption has increased by 50% since the 1970s, and is a cause of increasing dietary problems. A large majority of Nestle products are high in sugar, making this one of the issues that core to their business and therefore most important to address in an actionable way. There is also a material opportunity for Nestle in this issue; There is a growing consumer base looking for healthier foods. Nestle acknowledges this in their own report, referencing a value add for investors of selling healthier options. The legitimacy of addressing this problem is validated by its inclusion into their strategic initiatives, but Nestlé could perhaps make it more core to their business strategy.

They mention multiple examples of new healthy offerings, but could use more work in increasing the healthiness of existing products. Most Nestle products still contain very high amounts of sugar and they only give anecdotal evidence of examples of sugar reduction. For example, on their website under the “Our Impact” tab, they discuss having already decreased the sugar content of the KitKat and plans to reduce the sugar content of it even further. To truly create value for a consumer base that is eating too much sugar, making more major changes to existing products is necessary in addition to just taking advantage of the material opportunity of providing new healthy options. Yet these small steps are important in leading large corporations towards making real changes to our system of sugar consumption. It proves that companies can still be economically successful even as they take steps to create a more sustainable relationship with their customers.

Social Inequality

Rural development and poverty reduction is another issue at the core of ethical considerations within the chocolate supply chain. Rural farmers receive only a fraction of the profits from chocolate production. They are in fact “the most poorly compensated for their efforts,” especially in relation to the amount of effort contributed (Leissle 129). The largest share of profits is 44.2% which goes to retailers, while only 6.6% goes to the farmers themselves (Leissle 129).

This issue of rural development and poverty reduction is touched on by Nestlé but perhaps more superficially than is necessary to affect the entire system of chocolate production. As one of the top three chocolate producers in the world, they have the ability to affect approximately 10% of chocolate sourcing (Statista 2016). As one of these top companies, taking charge to reduce inequity would force the hand of other chocolate companies to do the same. Instead, Nestlé emphasizes inconsequential initiatives like using cage free eggs and broadly touch on “responsible sourcing” in the major summary areas on “adding value to communities”. This in in lieu of talking about the fact that cacao farmers receive less than 10% of the profits from production. Nestle responds only to the material as opposed to salient points of the issue by creating training for farmers in order to achieve more effective cacao growth. Nestle could do a lot more to achieve higher percentages of responsibly sourced cacao and other raw materials.

Outside of their annual report, sustainability report, and information on the impact tab of their website, Nestlé has a separate website explaining their cacao plan. This plan explains the future goals Nestlé has for continuing to combat the inherent inequality in the supply chain. It points to solid initiatives of funding a co-op system that offers a higher premium for cacao to the farmers. This is an effective program but they could learn from small, mission focused chocolate companies to make such a system cover 100% of the cacao they source (as opposed to the portion it covers currently).

There are other problems within the supply chain as well. Human rights is an extremely important issue within Nestlé’s supply chain. Specifically, there is a salient issue of child labor within cacao supply chains. Carol Off references child slavery in the chocolate supply chain by explaining that “boys, some as young as nine, were working on farms where they had no relatives… [and] they weren’t being paid” (Off 121). There has been some success in combatting some of the more obvious forms of child labor, but without being paid enough for their beans, children often join in helping their families out of obligation and necessity. Again, Nestlé does a good job realizing the issue and drawing attention to it, recognizing that this salient risk is becoming more material to them as information becomes more readily globalized to their consumers. Despite this, their proposed plan addressing child labor is not comprehensive and the flier focusing on reducing child labor is highly focused on numbers of children, not percentages, which is very worrying. Nestlé is taking the right steps but similar to the community equity problems, they need to focus on higher percentages of responsibly sourced cacao.

Slide From Nestlé’s Tackling Child Labor Report

In general, Nestlé is very effective at realizing its most salient issues and creating ambitious and actionable goals to alleviate them by finding material opportunities. While their reporting is specific enough to lead to effective goals, Nestlé could increase its legitimacy by taking more immediate action towards those long term goals. They show strides in year over year growth but lack a comprehensive year over year plan. Nestle provides concrete improvements in the CSR space that can be compared to other companies within the food/beverage sphere, but even at the top of their class they ignore major issues by glossing over them with broad language and abstract intermediate goals.

Despite the need for continued improvement in sustainability strategy, I still feel that Corporate Social Responsibility has the opportunity to transform the cacao industry into a more positive space for all stakeholders involved. Small bean-to-bar chocolate companies are great examples of how companies can achieve a double bottom line of economic and social success, but they cannot change the system alone. Large corporations must begin to carry some of the burden through the process of creating shared value, a framework laid out by the UN Sustainable Development Goals and the UN Guiding Principles on Business and Human rights. These frameworks lie outside of direct legislation but instead allow large companies to take some of the burden in fixing the critical problems within the cacao supply chain.

Work Cited

Leissle, Kristy. Cocoa. Polity Press, 2018. 

Off, Carol. Bitter Chocolate: The Dark Side of The World’s Most Seductive Sweet. The New Press, 2006.

 “How Sugar Consumption Is Changing America [INFOGRAPHIC].” Avail Clinical Research, 28 July 2014, www.availclinical.com/news/sugar-rush-how-sugar-consumption-is-changing-america-infographic/.

“U.S. Adult Consumption of Added Sugars Increased by More than 30% over Three Decades.” ScienceDaily, ScienceDaily, 4 Nov. 2014, www.sciencedaily.com/releases/2014/11/141104141731.htm.

 “Chocolate Companies: Market Share Worldwide 2016.” Statista, 2016, http://www.statista.com/statistics/629534/market-share-leading-chocolate-companies-worldwide/.

Links

“Home.” Nestle Cocoa, http://www.nestlecocoaplan.com/.

Nestle.com, www.nestle.com/csv.

Annual Review 2018. 2018, http://www.nestle.com/asset-library/documents/library/documents/annual_reports/2018-annual-review-en.pdf.