A conversation with Stina Nilsson, the Director Stewardship Services at Sustainalytics. She has ESG and supply chain expertise and shares how she engages with companies on behalf of investor clients. We focus on one example in particular during this episode - child labor in cocoa.
A conversation with Stina Nilsson, the Director Stewardship Services at Sustainalytics. She has ESG and supply chain expertise and shares how she engages with companies on behalf of investor clients. We focus on one example in particular during this episode - child labor in cocoa.
Linda Rogers: [00:00:00] My name is Linda Rogers and this is Investing Forward.
Linda Rogers: [00:00:26] This episode I'm chatting with Stina Nilsson from Sustainalytics. Sustainalytics is a Morningstar company that rates the sustainability of listed companies based on their environmental, social, and corporate governance performance. I came across Stina's work when I was researching child labor in supply chains. She researches, writes, and presents on the topic of living income or living wages and actively engages with companies on behalf of investor clients. This episode we will focus on child labor in the production of cocoa. Most of the chocolate we eat comes from cocoa beans harvested in Cote d'Ivoire and Ghana. In those two regions combined the 2018/2019 data shows that 1.56 million children were engaged in child labor in cocoa production. This is from a report published by the US Department of Labor in 2020. The work that these children are doing can include clearing the land with chainsaws, spraying pesticides, carrying heavy loads which can permanently injure their spine, using sharp tools such as machetes, which has led to injuries, and working long hours. While many of the children are working on family farms that can't afford an adult worker, others are trafficked in from other African countries. Those children are forced into labor, don't attend school, and aren't allowed to see their families.
Linda Rogers: [00:01:49] Now, this has been a well-known and documented problem for decades. Unfortunately, chocolate companies have been unable to eradicate child labor from their supply chains. There continues to be pressure from investors, consumers, and human rights groups to fix the problem. Besides being a basic human rights violation, eliminating child labor can strengthen a company's supply chain by making it more stable and more resilient. It could also improve investor confidence when there's less of a concern of reputational risk. For example, just last summer, six African men sued Nestlé and Cargill, saying that they were former child laborers in the cocoa fields. They were trafficked out of Mali, forced to work long hours on cocoa farms in Cote d'Ivoire, and slept in locked shacks so they couldn't escape. The Supreme Court said US chocolate companies can't be sued for child slavery that occurs on African farms, but stories like this will continue to shine a spotlight of unwanted attention on the chocolate companies. Stina is going to tell us more about this issue and why it has been so difficult to address. She will also share how she collaborates with partners and those trying to drive change and how she keeps companies accountable.
Linda Rogers: [00:03:05] Thank you for joining us. Please introduce yourself.
Stina Nilsson: [00:03:08] Thank you so much, Linda. Thank you for having me. So I'm Stina Nilsson. I'm a Director at Sustainalytics Stewardship Department, a suite based in Stockholm. And professionally, I work in, you can say in the intersection between companies and investors. So I work engaging companies on various ESG topics on behalf of our investor clients. So yeah, that has spanned, I mean, various different sectors and topics and so on. And, I think I've always been sort of drawn to sectors where there are a lot of challenges, but then also, I mean, lots of positive change that is possible to happen so that drive and will also in sectors to do better is something that I'm always looking for in my job.
Linda Rogers: [00:04:09] Thank you. Okay. Can you tell us a little bit more about Sustainalytics?
Stina Nilsson: [00:04:13] Yeah. So we're a sustainable finance company and I work at Sustainalytics where we serve investors. So we provide our investor clients with rating services, with research services. And, obviously, I mean in my work more with engagement or stewardship services and of course within various environmental, social and governance topics. So yeah, very exciting times also for this field for sure. We're growing and I mean, the broader ESG field is of course as well. So the moment we've been I mean, really looking forward to see and now it's here and I think we need to now cultivate it really well.
Linda Rogers: [00:05:03] Good. And how did you end up working at Sustainalytics?
Stina Nilsson: [00:05:07] So I came through an acquisition, so I used to work for a company that was quite specialized on engagement and stewardship called GES, a Sweden-based company that was acquired then by Sustainalytics three years ago, now a little bit more, and we then became sort of the stewardship branch within Sustainalytics after the acquisition.
Linda Rogers: [00:05:35] Great. Okay, well I asked you here because you have a deep knowledge of ESG and supply chain issues. Something you've written about is the importance of ensuring that companies are paying a living income throughout their entire supply chain. Why is that something that investors should be concerned about?
Stina Nilsson: [00:05:53] Yeah, no, I think it's I mean, it's a great question and a topic close to my heart as well. So I think I mean, for investors. So there are several reasons. I mean, for obvious reasons, I think, you know, we all want to do well. And when we see issues and things, you know, not really being decent, as is the issue here, we want to simply, be a part of the change to make it better. I think that's quite human. But apart from that, I mean, I think also not the least in the pandemic, we've seen that it's so important to look at our supply chains and really look at them being resilient. So I'm not just talking here about in a climate risks or logistics and things like that, but really also, of course, of all the people that are in supply chains, hard-working men and women that are in there and many of them actually don't earn a living wage or receive a living income for their produce. So that's I mean, that's really problematic. And it's important really to think of I mean, what is, you know, what is a resilient supply chain. And, of course, you know, you need to look at the people in the supply chain then as well. So really a question of do we think that supply chains are better off and more resilient if they are built on people that actually can support themselves and their families have afford, you know, being able to afford education and health care and so on, or do we rely on simply on cheap labor that probably would go somewhere else if they have the chance and they will and are. So, I think there is also that besides the obvious, I mean human more like value-based and ethical proposal here. I think there is also a pure financial proposal actually.
Linda Rogers: [00:08:05] Yes. And while the concept of a living wage is relevant for all companies, one industry that has had its challenges is the cocoa industry. For listeners that are not aware, can you talk more about the problem of child labor in cocoa?
Stina Nilsson: [00:08:20] Yeah, absolutely. So it's a sector that I've been interacting with a lot. And there have been reports of child labor for many, many years now. So and we're talking about reports of something around 1.5 to 2 million children working in cocoa and cocoa supply chains. So it's maybe worth for background, I mean first, to note that the main cocoa-producing countries in the world are Cote d'Ivoire and Ghana. So lots of cocoa is produced in West Africa. And also produced by small-scale farmers. So we're talking about millions of farmers and typically family farms. And this is also where widespread and systemic child labor has been found and is very well documented as well. So that's yeah, that's mainly what it looks like in the cocoa sector. And also widely recognized that poverty is really a main root cause behind the child labor. So simply I mean you know not having other resource but to I mean to also have your children involved in farming.
Linda Rogers: [00:09:45] What are some reasons why it's been so hard to eliminate child labor in the cocoa fields?
Stina Nilsson: [00:09:51] Yeah. No, it's yeah, I think, I mean it's quite frustrating to see and obviously, I mean, you can imagine for people, I mean, for the farmers and the children being in it and living it every day. So, I mean, this is it's largely, I would say, because it's the scale of the issue and also that it is systemic. And what I pointed to that it's I mean, one of the main root causes being poverty. So we're talking about here, I mean, about millions of farmers that simply can't make their farming productive and profitable enough. And then, of course, I mean, that has to do with what are the market prices for cocoa and how is it cultivated? And also how much investment or not can you, as a farmer, put into your farm to make sure that you have the level of productivity that you actually need to make a profitable farm? And then it's, of course, also a matter of access to land. So we're talking about quite small farms here of I mean, many times less than two hectares. And then of course, it's also I mean, to get to afford enough laborers. Cocoa, I mean, in the high seasons are really labor intense as well. So really I mean, there it comes with a lot of costs and investments to make it profitable. And then of course, you need to be paid for that as well.
Linda Rogers: [00:11:31] Well, you and your team engage with companies on behalf of investors on topics such as this. Can you share what that engagement looks like with the chocolate companies?
Stina Nilsson: [00:11:42] Yeah. No, absolutely. So this is yeah, this is obviously what we do. Right. So I mean, yeah, besides cocoa, my colleagues are also engaging companies on, on living income and living wages in the garment sector, in the ICT sector, in the construction sector as well. But as you say, I've been mostly focused in at least in recent years on cocoa. So what we do I mean, we've so cocoa is quite a concentrated industry, so we're engaging with quite a few companies. We're still sort of in a sense reaching, you know, the broader cocoa market actually. So what we do mostly is our bilateral dialogues with the companies and then together with our investor clients. So it's I mean, those are dialogues where we try to, of course, first, I mean, really understand where the company is coming from, understand what they're doing. So in this case, obviously, to address the issue of child labor and enable small-scale cocoa farmers to earn a living income. And I mean, the cocoa and chocolate companies have many activities, actions, initiatives in place already on this. So it's also very much of, you know, having these continuous dialogues to also hold them accountable for what did they promise last time? What do they have in their policies? What are the next steps going forward? But then, of course, I mean, you know, if I do my work well, I can also come with suggestions.
Stina Nilsson: [00:13:25] I can perhaps also connect companies to new initiatives to other sectors, bringing good examples and so on. So where I spend quite a lot of time as well is also to basically keep a live network with experts type of organizations, with NGOs, with research institutions. So really looking at where are the most knowledgeable people in the area that I'm engaging on? And where is the agenda heading and who's leading that drive to push the needle forward, so to speak? So that's also sort of the space where, you know, where we try to be visible as well and make the case for why do investors care about this topic? And in a sense, then sort of lend our leverage to pushing whatever ESG agenda it is at hand forward. So that's what I'm trying to do also in living income and living wages and child labor.
Linda Rogers: [00:14:34] What are some companies that have made commitments to paying a living wage throughout their supply chain?
Stina Nilsson: [00:14:40] Yeah. So I mean, we've seen so I think an early mover in, in cocoa was the Dutch company Tony's Chocolonely. And they are also, I mean, a very value-based company in a sense that they started with the quest to actually show that you can make cocoa without resorting to child labor. So they have such a commitment on living income as well. And we've seen, I mean, more of the sort of more mainstream, larger players also making commitments. So Olam, for example, the cocoa trading companies or agriculture or trading companies has such a commitment as well on cocoa specifically. And then we have other companies that have followed. So I know Unilever quite recently made such a commitment as well. And I think more interestingly in a sense, because this requires collaboration to, you know, to get to the systemic level. So it's you know, it's not enough for one company to drive this alone, of course. And we've seen also quite a number of initiatives in cocoa in various different jurisdictions, so in several European countries where there are these cocoa initiatives. So there is Beyond Chocolate, for example, where several players have come together. So this is everything from cocoa traders to the chocolate brand companies to food retailers as well that have come together. And one of their commitments is to enable a living income for small-scale cocoa farmers. But further on into the future, because this is not I mean, also something that you solve from one day to another. So they have a 2030 commitment, for example, and there are other such similar examples as well.
Linda Rogers: [00:16:50] Great. Well, do you have any other resources for investors that are interested in learning more about this topic?
Stina Nilsson: [00:16:58] Yeah. So so there are I mean, there yeah, there is quite a lot of research done on this topic. So but I would point to a multi-stakeholder network called the Living Income Community of Practice. So, yeah, as I was saying, it's a multi-stakeholder network with standard setting certification type of organizations, also lots of companies, civil society organizations and so on. And they have an excellent website with lots of resources. So everything from living income benchmarks to sort of how do you go about actually working with living income if your company and your new to the topic, how do you go about doing it? So lots of great reports there. And there is a similar site on living wage. So the Global Living Wage Coalition, I would point out there are others but this is also really good I think and they have done lots of different benchmarks in different geographies that I think are really helpful if you're again the company and you're new to it, and also as an investor if you want to get started and really understand what is this all about and also see the actually the discrepancy between living benchmark studies that have been done and what are the minimum wages set in countries.
Stina Nilsson: [00:18:30] So that's quite interesting how well, I mean, it's quite unfortunate to be honest. That's probably a better word. How much of a difference there is, how much more it actually requires to have a living wage or a living income compared to the minimum wage set by I mean legally set in countries. And maybe I'll just mention one more thing I mean if you sort of want to zoom out a little bit, say, like, what does this look like on a global level and how actually how big the problem actually is. I would definitely point to ILO reports. There is just lots of statistics on what does the overall labor market look like in terms of wages, but also other conditions and labor market flows and so on. So very informative.
Linda Rogers: [00:19:31] Wonderful. What is your favorite impact investing resource? It can be a podcast, book, blog, anything.
Stina Nilsson: [00:19:39] Yeah. So I mean, I must say, if, you know, to sort of like keep an ear on the ground, I think what I mostly turn to is, is my LinkedIn feed, to be honest, because that's I mean, that's really where I can see some snapshots and I can you know, I can tune in, of course, if I see something really interesting. So in terms of responsible investments, I think I mean, obviously, there are good other papers as well that I think I mean, your audience will know of already. But that's normally actually what I turn to but in my job and also, you know, trying to stay attuned by more like the topical issues as such and having the time actually to deep dive a little bit more into them. I try also to look quite a lot beyond responsible investment or sustainable finance, specific papers or materials and, rather, I mean, go look then what I mean what they have at the living income community or practice or I recently started to look at a podcast by a Cambridge scholar called Wayne Visser. So he has a podcast called Thriving, which is quite interesting because what I mean, what he I think his message there is to say that while we're talking about sustainability and that's good, but that's in a sense, just so to speak, to maintain what we have, in a sense.
Stina Nilsson: [00:21:31] But he has this concept of thriving instead, which is really to look at a more ambitious agenda and look at what would make us thrive as humans and our planet, of course, as well. So I think that's also quite, you know, quite a refreshing angle, I think. And something that I mean, in a sense, I also hear in looking at the living income and living wage space, again, people are more and more saying like, well, I mean, reaching a living income or a living wage is that's just a start. I mean, that's the hygiene level in a sense. But what does it actually take if we wanted to make people really prosperous and thriving? So I think that's yeah. In terms of sort of visioning for the future. I think this is really inspiring.
Linda Rogers: [00:22:33] I love that. Thank you. Is there anything else that you want to share?
Stina Nilsson: [00:22:37] I think going back maybe to what I said on the ILO sources and bringing this to scale a little bit. So, I mean, obviously, in cocoa in itself, we're talking about millions of people. So it's you know, if we can drive change here, it can really be quite impactful. But, you know, tuning out and zooming out a little bit further, I mean, actually, what we're talking about. So there is I mean, again, pointing to an ILO report and this is even before the pandemic, they stated that 300 sorry, 630 million workers worldwide actually didn't earn enough to support themselves and their families. And since then, we know that I mean, they're something around 75, 95 million people in addition that are now living beyond below the poverty line. So living in extreme poverty after the pandemic. So I mean, obviously, just to point out that the quest is huge here. The challenge is huge. But that's I mean, again, you know, that's really I mean, I think what should be driving us here, there is so much opportunities to do better and actually make a real change.
Linda Rogers: [00:24:10] Wonderful. Thank you for chatting with me.
Stina Nilsson: [00:24:13] Thank you so much.
Linda Rogers: [00:24:15] Stina mentioned that chocolate companies have initiatives in place, and I just wanted to share an example of one. Nestlé is trying to scale a program where they pay cash incentives via mobile transfer to farmers that meet certain criteria. The program recognizes that poverty is a driving force in child labor and is trying to remedy that by increasing the income for the farmers. Nestlé is paying a base level of income to farmers that register with the program. Farmers are then paid additional for each of the following items: enrolling all children in the household ages 6 to 16 in school, implementing good agricultural practices such as pruning which can increase productivity, performing agroforestry -activities to increase climate resilience such as planting shade trees, and generating additional sources of income, such as growing other crops, keeping bees or raising livestock. I have links to this initiative as well as other sites mentioned during the episode on InvestingForwardPodcast.com. Thank you for joining me.
Linda Rogers: [00:25:18] My name is Linda Rogers. You were listening to Investing Forward. If you liked what you heard, leave us a rating. Subscribe and stay tuned for next time.
Linda Rogers: [00:26:41] Linda Rogers is the owner of Planning Within Reach, a registered investment adviser. Planning Within Reach produces the podcast and makes it available on its website and through other distribution channels. Linda Rogers and any guest on the podcast are providing their own views and opinions and are not necessarily the views and opinions of planning within reach. Nothing on the podcast should be construed as a solicitation or offer or recommendation to buy or sell any security. Investment advisory services are only provided to investors who become planning within REACH clients pursuant to a written investment management agreement. Clients of planning within reach may hold positions in securities discussed in this podcast. Past performance is no guarantee of future results. All investments involve risk and may lose money. The Investing Forward podcast is for informational purposes only and should not be relied on for any investment decisions. Consult with a financial advisor, accountant, attorney, or conduct your own due diligence.