SUSTAINABILITY IN FOCUS
Engaging for Biodiversity: Cocoa and Cobalt
Our new topical engagement themes focus on addressing several environmental and social issues associated with the extraction and processing of cobalt and cocoa. Child labour, health and safety issues, deforestation and other adverse environmental impacts represent material risks for companies.
During 2020, the J. Safra Sarasin Active Ownership team launched two new topical engagement themes: cobalt and cocoa. These complement our other existing collaborative and direct company engagement activities, which are related to climate and biodiversity issues, and in-line with pledges we have made as a firm.
Over the next three years, the new engagement themes will serve to address a number of environmental and social issues associated with the extraction and processing of cobalt and cocoa. These range from child labour to health and safety issues, as well as deforestation and environmental degradation.
The loss of forest in the Ivory Coast from 1990 to 2015
Source: e360.yale.edu, 21.02.2019
Key issues addressed with companies in the cocoa value chain
- Poverty and living conditions
- Child labour in cocoa
- Deforestation and loss of biodiversity
- Lack of access to finance and inadequate infrastructure
- Soil erosion and ultimately further deforestation for new plantations. When the soil erodes, the land becomes less fertile for cocoa and yields decrease.
As cocoa tends to be grown in forest areas, its production is often associated with deforestation and forest degradation. It has been estimated that cocoa production accounts for one percent of total forest loss around the world over the last few decades. With respect to global land-use, this is relatively small compared to other crops, but in the main cocoa-producing countries, cocoa has been a significant driver of forest loss. The biggest impact has been in Côte d’Ivoire and Ghana, where cocoa production is estimated to have been responsible for about one quarter of historical deforestation in Cote d’Ivoire and nearly 15 per cent in the high-forest zone of Ghana. It has also resulted in deforestation elsewhere, including Cameroon, Indonesia and Peru. The loss of forests is of particular concern because of their importance for the climate, both at the local and global level. At the local level, forest loss is associated with increased temperatures and reduced rainfall, while globally, it is a major contributor to greenhouse gas emissions. While cocoa production is a factor driving climate change, the reverse is also true, as climate change results in changes in arable land that is suitable for cocoa cultivation.
Key issues addressed with companies in the cobalt value chain
- The environmental impact related to the life-cycle of the product from refineries, battery plants, consumers goods manufacturers, electronic recycling facilities and waste dumps
- Health and safety of the workforce affected during extraction
- Land degradation, water pollution, contaminated crops and a loss of soil fertility
As with any chemical, the risks depend on the amount and duration of exposure. Cobalt is a metal that occurs naturally in rocks, water, plants, and animals, and is less toxic than many other metals . Crucially, being a key raw material in batteries, it plays an important role in the world’s transition to a greener future. Without careful management, the sourcing of cobalt and other raw materials required for batteries could impose significant social and environmental costs. The question for regulators, manufacturers and raw material producers is how to best manage the exponential growth in raw materials required, while meeting environmental objectives and avoiding harm for vulnerable communities. If batteries are to help rather than hinder global sustainable development, the entire value chain needs to be addressed. Achieving that will depend on international coordination and close cooperation between public and private sector organizations.
Approaching companies with the aim to lower their risk profile
Prior to our engagement activities, ESG research is conducted by the Active Ownership (AO) team. Companies are assigned risk profiles based on their exposure to specific and material ESG issues. The AO team identifies key business drivers related to ESG issues together with the investment organisation. We also set engagement objectives, as agreed with companies, in order to create value for them. Finally, we also participate in several collaborative engagements related to biodiversity, its methodology, and tools development, in order to better understand implications for our analysis and investments.