Cocoa Industry Resilience Amid Climate and Labor Challenges

This technical report examines the vulnerabilities faced by the chocolate industry due to climate shocks, labor challenges, and price volatility affecting cocoa supply chains. It outlines the financial risks posed by climate change, including reduced yields and increased price fluctuations that exacerbate farmer poverty and child labor issues. The report highlights the ethical and material risks for investors, emphasizing the need for climate resilience and human rights due diligence among major chocolate producers. It details the impact of rising cocoa prices, driven by climate-related supply constraints, on profit margins and operational risks for manufacturers. The report also discusses the increasing regulatory pressures from the European Union regarding supply chain due diligence, which require companies to mitigate human rights and environmental risks. Furthermore, it presents insights from Sustainalytics’ ESG Risk Ratings on how cocoa companies manage physical climate risks, advocating for integrated risk management strategies to address these interconnected challenges effectively.