Business Handbook on Due Diligence in the Cocoa Sector

OECD due diligence

Abstract

This chapter introduces the OECD’s due diligence framework and how companies can understand their responsibility vis-a-vis an adverse impact and what this implies in terms of company action.

What is due diligence?

The OECD has developed a risk-management framework for companies to identify, prevent, mitigate and account for how they address actual and potential adverse impacts, including on human rights, associated with their operations, supply chains and business relationships.

The framework, which is further elaborated in the OECD Due Diligence Guidance includes six measures of corporate due diligence to meet responsible business conduct (RBC) commitments:

1. To embed RBC into the company’s policies and management systems

2. To identify actual or potential adverse impacts on RBC issues

3. Ceasing, preventing or mitigating RBC issues

4. Tracking implementation and results

5. Communicating how impacts are addressed

6. To enable remediation when appropriate

Due diligence should be sensitive to the needs of the most vulnerable groups and communities, including women.1 In Côte d’Ivoire and Ghana, for example, studies suggest child labour is lower in communities where adult education levels, particularly women’s, are higher (ICI, 2019[22]).

The OECD-FAO Guidance which should be used in conjunction with the OECD Due Diligence Guidance and this Handbook, includes detailed recommendations on how companies and investors operating in the agricultural sector can use due diligence to prevent and address social, environmental and governance risks and harms relevant to agricultural supply chains including child labour and forced labour.

Figure 4. OECD due diligence framework and supporting measures

Source: OECD (2018[3]), OECD Due Diligence Guidance for Responsible Business Conduct, http://mneguidelines.oecd.org/OECD-Due-Diligence-Guidance-for-Responsible-Business-Conduct.pdf

Box 2. What is meant by “Adverse Impacts” and “Risk”?

The OECD Guidelines for MNEs acknowledge that business can make many positive contributions to economies and local communities. However, they also recognise that business activities may result in adverse impacts related to corporate governance, workers, human rights, the environment, bribery, and consumers. In the context of cocoa, adverse impacts may relate to child labour, forced labour and human trafficking, deforestation concerns, challenges related to poverty and decent wages, benefits and working conditions in cocoa processing or transportation.

Whereas many companies may understand “risk” primarily as risks to the enterprise – financial risk, market risk, operational risk, reputational risk, etc. the OECD recommendations on responsible business conduct, rather refer to the likelihood of adverse impacts on people, the environment and society that enterprises may cause, contribute to, or to which they are directly linked to. In other words, it is an outward-facing approach to risk.

Source: OECD (2018[3]), OECD Due Diligence Guidance for Responsible Business Conduct, http://mneguidelines.oecd.org/OECD-Due-Diligence-Guidance-for-Responsible-Business-Conduct.pdf

Understanding the responsibility of an enterprise with regards to adverse impacts

An enterprise can either cause adverse impacts, contribute to them, or be directly linked to them through its business relationships. Depending on the enterprise’s involvement with the adverse impacts, actions to address them may vary, from ceasing the actions which are causing or contributing to the impact or using leverage to mitigate or to influence the entity causing or contributing to the adverse impact (see Figure 5).

Understanding the enterprise’s relationship to adverse impacts such as child labour and forced labour is key to designing and implementing its response to them. Companies are encouraged to supplement their knowledge on the relationship to an adverse impact by referring to the OECD Due Diligence Guidance for further detail on what is meant by cause, contribute to and directly linked to adverse impacts.

Figure 5. Addressing potential and actual adverse impacts

Source: OECD (2018[3]), OECD Due Diligence Guidance for Responsible Business Conduct, http://mneguidelines.oecd.org/OECD-Due-Diligence-Guidance-for-Responsible-Business-Conduct.pdf

Table 1 provides examples to illustrate what this relationship to the harm can mean for companies operating in the cocoa sector in relation to child labour and forced labour issues.

Table 1. Examples to help define company relationship with child labour and forced labour impacts

Business is…	Examples in the cocoa sector
Causing (or would cause) an adverse impact if the enterprise’s activities on their own are sufficient to result in the adverse impact.	A business is directly employing children below the minimum working age specified in national legislation (or the ILO Convention No. 138), or is using any individual under the age of 18 to undertake hazardous activities (e.g. land clearing, exposure to hazardous agro-chemicals, sharp tools, carrying heavy loads etc.).
Contributing to (or would contribute to) an impact if its activities, in combination with the activities of other entities cause the impact, or if the activities of the enterprise cause, facilitate or incentivise another entity to cause an adverse impact. Contribution must be substantial, meaning that it does not include minor or trivial contributions.	A cocoa trader is a long-term, primary buyer of cocoa from a co‑operative known to rely heavily on the use of child labour. If the trader continues buying cocoa from the co‑operative over time without any attempts to use its leverage to prevent or mitigate the child labour, it may be considered to be contributing to child labour.
Being directly linked to (or would be directly linked to) an adverse impact through the “linkage” between the adverse impact and the enterprise’s products, services or operations through another entity (i.e. business relationship).	A pension group invests in a fund that in turn invests in a co‑operative where child labour has been found. The pension fund is directly linked to adverse human rights impacts. A cocoa trader buys from a smallholder farm that withholds the wages of their workers during the harvest period. As a result, workers are unable to leave their employment. A chocolate confectionary business buys from a co‑operative where child labour has been found.

Source: OECD/FAO (2016[2]), OECD-FAO Guidance for Responsible Agricultural Supply Chains, https://doi.org/10.1787/9789264251052-en; ILO/IOE (2015[5]), How to do business with respect for children’s right to be free from child labour: ILO-IOE child labour guidance tool for business, https://www.ilo.org/ipec/Informationresources/WCMS_IPEC_PUB_27555/lang-en/index.htm

Note

← 1.  For further information on gender responsive due diligence, visit https://www.genderduediligence.org/