(Businesshala)  In Oslo, where the world’s largest sovereign wealth fund decides how to allocate $1.4 trillion, there’s a huge contradiction.

The fund is trying to reconcile a sustainable-investment mantra with the billions of companies that source cocoa from regions where children choose the beans that feed the world’s craving for chocolate. So far, it has chosen to engage rather than sell so that it can push for positive change. Its latest filing shows that the investor chose to stay involved rather than sell so that it could push for a positive turnaround.

“We expect companies to act against child labor, but at the same time we recognize that there are complex underlying causes of child labor in the supply chain and in agriculture,” said fund spokeswoman Laine Altvat.

In a global financial world increasingly obsessed with ethical matters, the world’s biggest investors – from BlackRock Inc. to Fidelity Investments – are navigating gray areas and trying to figure out the best way to engage. While the Norwegian fund’s actions are primarily financial, as was the case last year when it sold $6 billion worth of companies focused on oil exploration and production, ethical considerations increasingly play a role.

The stakes are not insignificant for Norway’s wealth fund, which according to its most recent filing owns more than $16 billion worth of shares in some of the world’s largest chocolate makers and confectioners, including Nestlé SA, Hershey Co. and Barry Callebaut AG. All companies that acknowledge that child labor is present in their supply chain have clear policies that forbid practices and programs to reduce the problem.

It is the International Year for the Elimination of Child Labour, and the United Nations held a World Day Against Child Labor a week ago. Nevertheless, the practice is hard to eradicate in cocoa farming regions of the world. Just ask Nufo.

He was rescued in early May as part of a police operation to crack down on child labor in Soubrey, the center of the Ivory Coast cocoa belt. Nofo said that when he was 13, his father brought him to the country from neighboring Burkina Faso. He was left to work in his uncle’s plantation, where he was found splitting loose cocoa pods with a knife.

“It’s been two Ramadans since I came here,” said Nufo in his limited French. That now makes her 15.

Nofo, who spoke while being held at a center in Saubre, said he worked seven days a week dividing open cocoa pods collected by adult workers, drying them and then transporting them by motorcycle to procurement centers. School was out of the question.

His uncle was among 24 people arrested as part of a two-day police raid in partnership with the National Committee to Oversee Action to Combat Child Trafficking, Exploitation and Labor, led by First Lady Dominic Ouattara. Still working.

Police commissioner in charge of the raid, Luke Zaka, said five of those arrested were sentenced to 20 years in prison for child trafficking, including Naufo’s uncle. Seventeen others were handed five years behind bars and two were released.

Because it is difficult to track supply chains in the cocoa market, it cannot be established whether any of the world’s major chocolate producers were supplied by the farms that Nufo operates on.

call for action

Last year, the Norwegian fund held nearly 3,000 meetings with portfolio companies to discuss how ESG targets were being met. The theme of 17 such meetings was the rights of the children. In 2019, it began talks with nine companies in the cocoa business on the subject.

“Typically, chocolate producers are in the fund, while cocoa producers are private farms in West Africa,” said Eli-Ann Lund, a spokesperson for the Ethics Council, which makes recommendations to guide the fund.

The debate generally revolves around how patient investors should be with transition assets — those that have self-improvement plans — and when it comes time to punish companies through exclusions. When it comes to child labour, mostly in the cocoa business, but also in the coffee, tea, cotton, seed and palm oil business, Norwegian funds have often chosen to remain involved.

Take Swiss chocolate maker Barry Callebaut, which says it will probably continue to introduce child labor into its supply chain until 2025. It counted Norway’s wealth fund among its largest shareholders, which holds a 1.4% stake, the latest filing shows.

The fund, which also meets with NGOs as part of its environmental, social and governance investment strategy, is pressing firms such as Barry Callebaut to reform, said Karine, the chief corporate governance officer of the Oslo-based fund. Smith Ihenacho said. in an interview.

In another example, Norges Bank’s executive board in 2018 asked the fund to address the risk of child labor at UPL Ltd., an Indian agro-chemical manufacturer, and its Advanta Seeds unit.

“In our conversations with the company, we have addressed, among other things, the need to prevent child labor in the supply chain and the company’s approach to monitoring the supply chain,” said Altvat, a spokeswoman for the fund.

This has led Advanta to recently update its agreements with farmers and develop further procedures to monitor the supply chain to uncover potential child labor. It also has information activities aimed at farmers, suppliers and local authorities to prevent child labor.

“Child labor ethics in the production of hybrid cotton seed and other seed varieties was one of the first issues to be considered by the Council, and it was an issue on which the Council worked for many years,” said Eli-Ann Lund. , said a spokesman for the council.

The ethics panel, an independent body, has made three recommendations for the observation or exclusion of companies based on child labor: Monsanto Company in 2006, Zuari Agro Chemicals Ltd in 2013 and UPL in 2018. Of the three, only the gambler was Agro Chemicals. Really excluded.

global footprint

With so much money to invest, Norges Bank Investment Management’s footprint spans the globe, and it owns about 1.5% of all listed companies in the world.

Other companies exposed to child labor include Nestle, Hershey’s, Mondelez International Inc., Procter & Gamble Company, Starbucks Corp. and Lindt & Spruengly AG. The fund’s investments in those companies, including Barry Callebaut, exceeded $16 billion.

While some progress is being made, the work remains monumental.

Barry Callebaut says poverty is the root of the problem, and it works to reduce it, provide access to education, and raise awareness. It has a code of conduct with respect to human rights, forced labor and child labor which all employees are bound to follow.

Working with the International Cocoa Initiative in 2019/20, the company monitored and took remedial action covering 113 farmer groups, including 39,909 farmers in Ivory Coast and Ghana. It revealed 22,965 cases of child labour.

“ESG has moved from a peripheral investment norm to a central one,” the company said in an emailed statement. “Barry Callebaut welcomes conversations with his shareholders on ESG topics.”

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Cocoa-producing countries in West Africa are under increasing pressure to clean up the industry, with a US government-sponsored report last year showing that despite chocolate companies promising to cut child labor, the problem was actually 10 years earlier. was worse than that. Publication of report.

Backward ESG Standard

While the EU prepares to introduce tougher legislation later this year, Europe remains the leading destination for Ivorian beans, which account for 67% of its cocoa exports. As fund managers wait for global ESG standards, they have created their own methodology to fill the perceived gap.

Norges Bank Investment Management says ESG-compliant disinvestment is set to increase as it screens for wrongdoers.

According to Ihenacho, the fund has set seven criteria for sustainable investment. For the S in the ESG, it looks at how well companies protect children’s rights and human rights, whether they are transparent taxpayers, and whether they avoid corruption.

Over the past two decades, the Ethics Council has progressively introduced socially responsible guidelines for fund managers to follow, ranging from selling stakes in fossil-fuel companies to blacklisting firms that are migrants. abuse workers or indulge in corrupt practices.

The fund sold out in 2005 after Walmart Inc. was criticized for human rights violations, including the risk of child labor. The retail giant cleaned up its act and, more than a decade later, was removed from the fund’s exclusion list in 2019. Norway now owns a stake in Walmart for about $2.1 billion.

In a more recent example, the fund has voted for two years in favor of a proposal at Facebook Inc. “to assess the risk of potential exploitation of children on the company’s platforms,” ​​Altvat said.

measure misconduct

The fund says it is harder to catch companies guilty of social misconduct than it is to identify climate sinners.

“It is quite clear that S is in many ways harder to measure and measure than E in ESG,” Ihenacho said.

Amnesty International in Norway, which closely follows the funding, says screening could be tightened.

“It would have been better if the fund had avoided investing in a company where there is a high risk of violating the ethics council framework,” said political adviser Hann Sophie Lindahl…

Adapted from its original source