Summary
The EC’s much heralded human rights and environmental due diligence regulation looks set to be limited to establishing a common minimum standard, which businesses will be required to adhere to, with an enabling environment being created aimed at incentivising companies to address the negative impacts of their activities. In the face of corporate lobbying Tony’s Chocolonely has broken ranks demanding the EC establish an ambitious minimum standard. This would appear essential, given current corporate efforts to side-step the overall cocoa procurement cost implications of the Living Income Differential initiative, by reducing other components of cocoa bean payments made in Ghana and Cote d’Ivoire. A clear Organisation of African, Caribbean and Pacific (OACP) States and African Union position in support of an ambitious and rigorously enforced corporate minimum standard for living wage, human rights and environmental protection commitments would appear to be required.
The EC’s Acting Director-General of the Directorate-General for Justice and Consumers (DG JUST), Salla Saastamoinen, has sought to explain the purpose of the EU’s human rights and environmental due diligence regulation. She argued ‘voluntary international due diligence frameworks have failed to mainstream good behaviour’, while current regulations have ‘failed to eliminate environmental and human rights violations along supply chains.’ Underlying this is seen as being a market failure, which see’s companies ‘focusing on maximising short-term financial value, to the detriment of long-term performance, sustainability, and resilience’ (1).
While come European companies were seen as promoting a ‘high level of responsibility’, others are seen as paying little attention to situations within their supply chains ‘where they cause negative human rights impacts and negative environmental impacts’ (1).
It is argued EU member states national laws and corporate accountability framework are fragmented, without an EU wide minimum standard being applied. Some member states have adopted targeted initiatives such as the Dutch Child Labour Due Diligence Law, while other member states such as France have opted for a cross sector approach though its ‘law on the duty of vigilance’ (3). It is against the background of these diverse EU member states approaches and the failure of voluntary codes of conduct to achieve widely supported objectives that the EC is drawing up its due diligence regulations.
Currently the EC appears to be focussed on ‘harmonising the currently fragmented national laws, enabling a level playing field to operators across the block, providing legal certainty’, and promoting a framework for the ‘better mitigation of risks and impacts.’ The aim appears to be to set out ‘what businesses need to abide by’ and creating an ‘enabling environment incentivising companies to address their negative impacts properly.’ Most immediately, the EC is looking to conduct an assessment to determine the ‘most effective preferred package’ of measures to incentivise good corporate behaviour (1).
However, it is being claimed EC efforts to establish rigorous due diligence regulations are being subject to intense corporate lobbying to minimise regulatory requirements. This has led the leading Dutch ethical chocolate manufacturer Tony’s Chocolonely to sponsor and deliver a petition to the EU Justice Commissioner Didier Reynders, calling for an ambitious minimum standard under new EU human rights and environmental due diligence regulations (2).
Addressing Justice Commissioner Reynders, it was argued ‘voluntary programmes and sustainability initiatives are simply not enough’, with ‘too many empty promises’ being made. What is now needed, it is argued is ‘concrete laws to protect human rights.’. The company is concerned EU initiatives in this area are ‘at risk of being delayed and watered down because of lobbying efforts from lagging companies.’ Representatives of Tony’s Chocolonely argued that in order to bring about change in a ‘high-risk sector such as the chocolate industry, the new legislation needs to close any loopholes and follow the UN Guiding Principles and OECD’s Due Diligence Guidelines for multinational enterprises’ (2).
The petition submitted by the company called on EU governments to ‘hold companies across all sectors accountable by law for human right violations in their supply chains’. It was suggested the 5 Sourcing Principles for fairer cocoa used by Tony’s Chocolonely could offer a ‘rights-based roadmap’ for the whole sector (2).
In called on four elements to be included in any EU due diligence regulation, namely:
‘1. Big or small, all companies must be bound by the new law, and apply due diligence in their entire value chain. Especially in high-risk sectors such as cocoa.
‘2. An adequate standard of living is a human right, and companies’ purchasing practices should enable producers to earn a living income.
‘3. Companies must use a clear, understandable, and publicly accessible reporting framework that includes mandatory checks on key human rights and environmental issues.
‘4. EU member states must take legal action when companies do not fulfil their due diligence obligations, and victims of human rights violations must be guaranteed easy access to justice and remedies in EU courts.’ (2).
The Dutch Parliamentary supporter of the initiative taken by Tony’s Chocolonely, Lara Wolters (MEP), called for ‘an ambitious due diligence legislation with a broad scope’, including not only the major international players but also small and medium sized companies. It was held ‘all companies, must ensure that their entire supply chain is slave free and does not contribute to environmental degradation’ (2).
Turning to the chocolate and cocoa supply chain industry at large, representatives of Tony’s Chocolonely called on all companies in the sector to ‘take 100% responsibility for their supply chains and stop hiding human rights and environmental abuses behind excuses’ (2)
The extent to which an all-encompassing industry wide approach is required, is illustrated by the recent decision of the Governments of Ghana and Cote d’Ivoire to consider naming and shaming ‘chocolate brands trying to avoid paying the LID’ (Living Income Differential) by making deductions in other areas of their calculations of cocoa payments (3).
Joseph Boahen Aidoo, Chief Executive of Ghana’s cocoa regulator COCOBOD, argued that some companies ‘while they are paying (the LID) on the right hand, they are taking the money from the left hand by not paying the country premium.’ The LID of $400 per tonnes was introduced for the 2020-2021 season in an effort to ensure cocoa farmers received a ‘decent income’. However, some cocoa buying companies then began to demand discounts in other areas of payments to balance the new LID payment. According to Aidoo, ‘once the country differential is discounted by between £100 and £250 pounds ($348.25), it means essentially the LID has been eroded’. He highlighted how consumers were being encouraged to pay a premium for branded chocolates, which nominally guarantee a living income to farmers, while the company’s supplying cocoa beans were seeking ways of avoiding increasing their overall cocoa bean procurement expenditures, by securing reductions in other components of the price offered for Ghanaian and Ivorian cocoa beans. This it was argued served to undermine the higher price for cocoa beans which the living income premium was intended to generate.
While Reuters cited Ivorian officials from the Conseil Cafe Cacao (CCC), in naming Mondelēz International as one of the companies ‘circumventing payment of the LID by offering a negative country differential’, in a media statement ‘Mondelēz has denied the allegation insisting it was paying the LID in full’, maintaining it ‘does not offer or have any influence over negative country differentials.’ (3).
This is not the first time the Government of Ghana and Cote d’Ivoire have denounced efforts to circumvent the LID, having previously ‘accused chocolate companies of not honouring the agreement and threatened to cancel sustainability programmes in retaliation’ (3).
| Comments and Analysis Serious questions arise as to whether setting out ‘what businesses need to abide by’ and creating an ‘enabling environment’ for good corporate behaviour will be enough to change pricing arrangements in ways which guarantee cocoa farmers a sustainable living income, while at the same time ensuring environmental protection and climate mitigation objectives are also being met. As the example of the recent Ghanaian and Ivorian experience of corporate efforts to circumvent the cocoa bean procurement cost implications of the LID illustrates, in anything but the most favourable economic conditions the short-term imperative for profit maximisation will give rise to corporate behaviour designed to garner the kudos of surface level social and environmental responsibility while side stepping the financial consequences for their bottom line, which a sustainable commitment to social and environmental responsibility would give rise to. Any EU due diligence regulations in support of a living wage for farmers in environmentally critical supply chains such as cocoa, palm oil and sugar, would appear to need to get to grips with this issue of corporate circumvention of nominally supported socially responsible initiatives. It was this issue which representatives of Tony’s Chocolonely sought to put before Commissioner Reynders. Claims by Mondelez International in response to Reuters reports of their circumvention of the payment of the LID, appear as ‘non-denial, denials’, by claiming they have no influence over negative country differentials. This highlights the importance of the point made by Tony’s Chocolonely, that companies need to be held legally responsible for what happen throughout their supply chains. Against the background of these discussions within the EU on the pending due diligence regulation, the question arises: what is the position of the Organisation of African, Caribbean and Pacific (OACP) States and the African Union on such human rights and environmental protection due diligence regulations? To date these international bodies have been surprisingly quiet on a policy issue which is of critical importance not only to leading West African members but a host of other countries exporting crops where due diligence considerations are increasingly coming to the fore These EU regulatory initiatives will have profound implications, for production processes, trade and even investment flows, depending on whether they support African efforts to ensure sustainable livelihoods or silently condone the circumvention of such efforts. |
Sources
(1) foodnavigator.com, ‘What is the EU Due Diligence state of play? DG JUST talks holding business accountable’, 23 April 2021
https://www.foodnavigator.com/Article/2021/04/23/What-is-the-EU-Due-Diligence-state-of-play-DG-JUST-talks-holding-business-accountable
(2) confectionerynews.com, ‘Tony’s Chocolonely ramps up pressure on EU with petition to clean up cocoa supply chains’, 23 June 2021
https://www.confectionerynews.com/Article/2021/06/23/Tony-s-Chocolonely-ramps-up-pressure-on-EU-with-petition-to-clean-up-cocoa-supply-chains
(3) confectionerynews.com, ‘Ghana and Cote d Ivoire launch new threats to cocoa companies over LID payments’, 24 June 2021
https://www.confectionerynews.com/Article/2021/06/24/Ghana-and-Cote-d-Ivoire-launch-new-threats-to-cocoa-companies-over-LID-payments