Commodity trader Olam has said that new European Union legislation aimed at preventing the import of commodities linked to deforestation and human rights abuses might force it to stop using some of its cocoa suppliers.
Olam and other global companies with operations that include countries where environmental and human rights abuses are widespread, face increased pressure from consumers and lawmakers to source their products ethically.
The European Commission, the EU's executive, is expected to propose due diligence legislation later this year that will compel companies to address human rights and environmental risks in their international supply chains.
Gerard Manley, chief executive of Olam's cocoa business, said Olam fully supports the pending EU legislation.
It might, however, force it to cut ties with some suppliers in its indirect supply chain, which consists of unaffiliated exporters, traders and farmers in cocoa-growing countries, such as Ivory Coast.
"We have a supplier code. People will have to acknowledge they are following national and international rules. There will be verification as well. Those (that don't comply) will not be able to supply to us," he said.
If the EU laws are adopted, companies such as Olam might have to comply as early as 2024.
Olam sources about a third of its cocoa via an indirect supply chain and two thirds via a direct chain that enables the company to track its suppliers' environmental and human rights practices.
The company released a report on Wednesday showing that, as of 2019/20, it was monitoring 100% of its direct supply chain for deforestation. In addition, just over half the direct chain was being monitored for child labour.
Companies such as Olam have for years relied on certification schemes audited by third parties like Fairtrade to clean up their supply chains, but these have had limited success on the ground.
Legislation aimed at preventing ethics abuses is pending, but it has to be carefully calibrated, according to industry experts, policymakers and civil society representatives, who say the laws must not lead companies to cut ties with impoverished nations that rely on commodity exports.
Top global cocoa producer Ivory Coast, for example, relies on Europe as a customer. It exports 67% of its cocoa to Europe and its cocoa sector represents 25% of the economy, employing about one million small farmers.
Its government has called for increased support from the EU and other donors to help implement the proposed legislation, including a request for more than 2 billion euros ($2.39 billion) to fight deforestation.