While ESG is basically a mechanism to evaluate investment risk, various interest groups have weaponized the term to promote their specific agendas. Now nearly every policy proposal, regardless of validity, is dismissed without considering the long term implications of ignoring these recommendations. As such, the vast majority of ESG oriented shareholder resolutions proposed at most of the large and mid-sized corporate 2023 Annual General Meetings (AGM) were voted down by investors.
A notable exception was our shareholder resolution submitted to the 2023 AGM of Mondelez International, the multinational confectionery company and owner of brands like Oreo, Chips Ahoy!, and Cadbury’s. Partnering with Tulipshare, Proxy Impact and other interested organizations, we requested that the Mondelez board of directors adopt targets and publicly report quantitative metrics to help assess whether the company is on course to eradicate child labor in all forms from their cocoa supply chain.
Our proposal received sufficient shareholder support at Mondelez’s 2023 AGM in May to enlist cooperation from the company’s board of directors according to guidelines for board engagement from proxy advisory services company Glass Lewis.
While Mondelez claims to be on track to eliminate child labor from their supply chains by 2025, their current reporting metrics do not adequately demonstrate the effectiveness of their approach. Mondelez has spent $1 billion creating the “Cocoa Life” program designed to address child labor in their supply chains. Despite this significant expenditure, Mondelez notes they can only account for 74% of the enrolled farms. Mondelez does not source all of its cocoa from their own Cocoa Life farms, so even if the company reaches 100% Cocoa Life farm coverage by 2025, this does not guarantee that all of its cocoa will be child labor free.
Our unique approach to this issue emphasized the significant negative financial, legal and reputational consequences to Mondelez of not eliminating child labor from their supply chains by 2025. This includes the U.S. Department of Labor’s recent announcement that it is now targeting not just the factories and suppliers that employ children, but also the larger companies that have child labor in their supply chains. Also at risk is the Mondelez entire European market share because the EU is planning to ban any product that cannot verify that their supply chains are forced labor free.
Combining these risks with the serious moral issues of child labor (including forced labor), we created a higher value for investors to approve our proposal. We effectively made the case that corporate managements should not focus merely on their short-term balance sheets. Instead they have a fiduciary responsibility to their shareholders to evaluate the long-term risks of their business strategies. The validation of our unique approach to this issue is a significant victory and provides a path for the future success of other ESG oriented shareholder resolutions.