StratESGy Unplugged

How Barry Callebaut embedded sustainability in the core of its business strategy
StratESGy Unplugged
Publ. date 17 Jun 2019
Analysts are better able to assess fundamental risk and reflect it in stock prices when corporate disclosures are specific and avoid vague, abstract language. However, according to SASB’s State of Disclosure Report, companies used vague and non-specific language more than 50% of the time across ESG topics. Sustainability leaders such as DSM, Unilever and Barry Callebaut demonstrate that a focused materiality approach that is strongly allied to the company’s Enterprise Risk Management and aligned with its business strategy leads to better results, both for society and for shareholders. With only an approximated 30% of companies actually combining their materiality assessment with their Enterprise Risk Mapping, “StratESGy”, i.e. the alignment of business strategy with ESG factors, is still in its infancy.

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An inspiring example from the chocolate sector: Barry Callebaut

About ten years ago, NGO-turned-chocolate-producer Tony’s Chocolonely set out on a journey to disrupt the chocolate industry with its purpose of making chocolate 100% free of child labor and slavery. And with success: today, several big players in the cocoa value chain have followed suit with Barry Callebaut, the world's leading supplier of chocolate and cocoa products, taking a trailblazer position.

"Sustainable investing is about materiality. A company that spends vast sums of money trying to address every conceivable environmental, social, and governance (ESG) issue will likely see its financial performance suffer; however, companies that focus on material issues for their own industry tend to outperform those that don’t.” 

- Harvard Business Review

Since Barry Callebaut is 100% dependent on cocoa, sustainability is fundamental to the company’s license to operate. From the belief that sustainable chocolate should be the norm, the Swiss company has made its top 4 material topics an integral part of its strategy to secure their future business.

Turning ESG factors and strategic planning into reality

As a result, in 2016, the company launched its “Forever Chocolate” program containing four ambitious 2025 targets:

  • We will eradicate child labor from our supply chain
  • We will lift more than 500,000 cocoa farmers out of poverty
  • We will become carbon and forest positive
  • We will have 100% sustainable ingredients in all of our products

These four ambitious goals represent the biggest sustainability challenges in the chocolate industry including low productivity on cocoa farms due to poor agricultural practices, and high poverty levels among farmers, leading to low investment in the farms and a reliance on child labor.

In a supply chain as complex, dispersed and global as cocoa, no transformational change will happen without making it a top priority. Barry Callebaut’s specialized sustainability team of over 50 people worldwide including ecologists, agronomists, geographers, trainers, controllers and auditors is turning the commitment at corporate level into reality on the ground. For example, the company has committed to sustainably sourced palm oil and zero deforestation in its supply chain, two increasingly important material topics in the sector.

Furthermore, to improve the traceability of cocoa products, Barry Callebaut has started to implement a cloud-based data management system which allows the company to be in contact with farmers in near real-time. Partnering is an important factor and Barry Callebaut has become active in many partnerships such as the World Cocoa Foundation, the International Cocoa Initiative and CocoaAction, the World Cocoa Foundation’s voluntary strategy to align the initiatives of global cocoa and chocolate producers to improve the livelihood of cocoa farmers.

As a result of these focused efforts, Barry Callebaut’s ESG performance leaped from 67/100 to 72/100 in the Sustainalytics ratings, making it one of the best ESG performers in its industry. As reported before, the company was able to extend its revolving credit facility from €600 million to €750 million to reinforce the groups’ liquidity profile (see associated article below). The Forever Chocolate program was a key catalyst for obtaining that new credit facility as a syndicate of 13 banks that provided it agreed to couple the interest rate on the facility with the company’s ESG performance, as rated by Sustainalytics.  

"Barry Callebaut is clearly a frontrunner on ESG matters and is leading the sustainability transition of its industry. We are proud to implement the first sustainable improvement loan based on Sustainalytics rating with a leader in the cocoa sector. At ING, we are convinced that sustainable finance will be a new standard to our industry and will continue to find innovative ways to support and stimulate our clients on their sustainability journey." 

- Léon Wijnands, Global Head of Sustainability, ING

Need help on your StratESGy?

Follow Barry Callebaut's approach by completing a materiality assessment that is designed to integrate relevant material topics boldly into your business strategy. Whether it is for a Re-Fresh or full swing materiality matrix, please contact Josée van der Hoek, Director, at josee@finchandbeak.com or +31 6 28 02 18 80 to accelerate your company’s Strategy.

Note: The case study of Barry Callebaut is an abridged version from Winning Sustainability Strategies (Palgrave 2019, Leleux and Van der Kaaij). In the book you will find numerous award-winning cases from IMD Business school and examples from companies such as Unilever, Torres, Patagonia, Tumi, DSM and Umicore, alongside original ideas based upon more than 20 years of consulting experience with materiality assessments and sustainability strategy.

Recommended reading: ESG Disclosure Handbook, WBCSD, April 2019

About Jan van der Kaaij

Sustainability expert in strategy development, DJSI and sustainable innovation, with a hands-on approach and always committed to go for the max. | jan@finchandbeak.com 

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