April 11, 2024

Child labor in Lindt & Sprüngli's cocoa supply chain: Journalists' collective uncovers the truth

In January 2024, a report by SRF Rundschau uncovered cases of child labor on various cocoa plantations in Ghana. The images show children of school and pre-school age carrying heavy harvest baskets or working with machetes, despite the fact that child labor is prohibited in Ghana. As the research shows, the Swiss chocolate producer Lindt & Sprüngli also sources some of its cocoa from the plantations portrayed, sometimes via the intermediary Ecom.

Child labor is a systemic problem that has many causes and usually occurs in connection with poverty.

No single company can be held responsible for this. Nevertheless, the article raised some questions, especially as Lindt & Sprünglis' in-house monitoring found just 87 cases of child labor out of a total of 8491 inspections in its 2021 sustainability report. These figures stand in stark contrast to the seemingly omnipresent presence of the problem. In addition, the Rundschau article suggests that the Lindt & Sprüngli Farming Programme, which aims to raise awareness of the issue of child labor among farming families and villages in production areas, is hardly known to the people concerned. For these reasons, we decided to start a company dialog with Lindt & Sprüngli in order to obtain more detailed information on a number of questions.

Company dialog part 1

Following an internal consultation, we contacted Lindt & Sprüngli by email in January and asked for a statement and explanations regarding the allegations in the Rundschau report. Among other things, we wanted to know why the company had underestimated the extent of child labor on its plantations to such an extent despite its own controls and why, according to Rundschau, the farming program is hardly known to the local population. We also initiated a discussion about the cocoa prices paid to farming families in the industry, which we consider to be too low and which is one of the main reasons why children are used as harvest workers. Particularly in view of Lindt & Sprüngli's record-high profits in 2023, we expressed our incomprehension at the fact that the company barely addresses the issue of paying higher premiums to producers. We also pointed out that Western companies in the Global South have great potential but also a moral obligation to improve people's livelihoods and should fulfill this responsibility.

Unfortunately, the response disappointed us. Without specifically addressing our individual points, the company stated in an email that it was seeking discussions with importers, reaffirmed the effectiveness of the Farming Program and also referred to parts of last year's Sustainability Report, which is dedicated to the topic. The price issue was not addressed and responsibility was partly shifted to importers.

The escalation stages of a corporate dialog: collaborative approaches

Ideally, corporate dialogues in the context of sustainable investing are multi-stage processes and include so-called escalation stages or escalation strategies. These are primarily used when responses from companies are unsatisfactory or fail to materialize.

Escalation strategies serve the purpose of gradually exerting more pressure on a company to adapt its business practices, provide information or take other measures to ensure that sustainability promises are put into practice.

This is also intended to prevent corporate dialogs from degenerating into an alibi exercise. As part of such an escalation strategy, for example, other stakeholders such as civil society groups or investors with similar views can be included in order to give the corporate dialog more scope and weight. In addition, voting recommendations at general meetings or exclusion from the investment universe can be used as a further level of escalation. In our case, we opted for a collaborative approach with members of Shareholders for Change, an association of institutional investors that promotes sustainable corporate practices and conducts collaborative corporate dialogs , who are also invested in Lindt & Sprüngli.

At the same time, a Shareholder for Change member put us in touch with an expert from the German NGO Südwind, who specializes in working conditions and child labour in the cocoa supply chain in Ghana and Côte d'Ivoire. In an in-depth interview, we were able to deepen our knowledge of the issue and, building on this, wrote a further letter to Lindt & Sprüngli in which we set out specific expectations and pointed demands on behalf of the Shareholder for Change members. The continued dialog was intended to signal to the company that the controversy continues to occupy a broad front of investors. The main argument of the letter again concerned the issue of prices and contracts: based on the information provided by the supply chain expert, we referred to the proven positive effects of premiums that are independent of market prices, long-term supply contracts and pre-financing measures to secure the livelihoods of producers even in times of crisis (crop failures, price collapses).

Conclusion or exclusion?

One of the most drastic means of an escalation strategy in corporate dialog is the withdrawal of capital, i.e. divestment. If a dialog does not lead to any significant results or if doubts about the credibility of sustainability promises increase, shareholdings can be sold and the company concerned can be informed of the reasons for the exclusion. However, we at Forma Futura rarely resort to this method. In principle, we see corporate dialog as an effective means of exerting pressure on companies in a constructive manner and, ideally, initiating change. With a so-called divestment, we get rid of this possibility.

In the case of Lindt & Sprüngli, the discussion is continuing for the time being. The second response to our letter was again unsatisfactory and evasive. Although the company provided a little more detail on the planned certification of cocoa butter and cocoa and announced the introduction of a "Living Income" pilot program from 2025-2027, we found that Lindt & Sprüngli avoided a concrete discussion of the issues raised. In particular, we were irritated by the company's evasive attitude to a question about the European Union's upcoming supply chain law (Corporate Social Due Diligence Directive) and the consequences for Lindt & Sprüngli. This recently passed law makes it possible for companies that are based in the EU or generate a certain turnover to be taken to court for human rights violations such as child labor. As Lindt & Sprüngli operates a production site in Aachen, the company would therefore be affected.

The dialog with companies is therefore not yet complete and will probably keep us busy for a while yet. It is important to us that company dialogs are not conducted pro forma, which unfortunately happens all too often. Escalation strategies help to keep an issue topical over a longer period of time and to deepen the dialog with companies. The extent to which this can address child labor and sustainable procurement practices remains to be seen.