Key takeaways
Cocoa production has grown by more than 50% since 2000, driven by rising demand in the food and beverage industries. A wide range of consumer products are made from cocoa and its derivatives, including processed foods, beverages, pharmaceuticals and cosmetics.
Around two-thirds of all cocoa is produced in Côte d’Ivoire and Ghana, in West Africa, where cocoa has historically been a large driver of deforestation. Despite industry-led attempts to mitigate risks by improving transparency and accountability, some cocoa is still linked to deforestation in protected forest areas, most notably in these two countries.
Millions of cocoa farmers operate roughly 6 million cocoa farms around the world. The majority are smallholders who depend on cocoa production as their main source of income. Low average yields of cocoa produced in these regions, the resulting low incomes of cocoa farmers, and weak governance exacerbate poverty and a variety of environmental and social issues.
In response to increasing media coverage and advocacy efforts, many companies have set public deadlines to eradicate child labor from cocoa supply chains. However, implementation of these commitments continues to lag behind, exposing companies to additional reputation risk.
Climate change is expected to threaten the future viability of current cocoa-growing areas, exposing cocoa supply chains to substantial physical climate risk.
Investors should address business risks in the cocoa supply chain through: directly engaging with their portfolio companies and their suppliers, supporting relevant policies, and joining multi-stakeholder collaborations. Effective implementation of corporate sustainability policies requires portfolio companies to promote commodity traceability and demonstrate a clear approach to supplier engagement, verify compliance with these policies throughout their supplier chain, and disclose progress on implementation.