Barry Callebaut : Forever Chocolate Progress Report

Letter to Shareholders Overview Business Highlights Sustainability Our People Financial Reports Governance

Forever Chocolate

Scaling and partnering for change

Introduction

This year marks the 25-year anniversary of Barry Callebaut. From its beginning, Barry Callebaut has been dedicated to sustainability, which constitutes one of our four strategic pillars. In 2016 we launched Forever Chocolate, our bold plan to make sustainable chocolate the norm by 2025. Since we started our journey, we have been driven to make sustainable chocolate the norm, even though we were clear that we did not have all the answers to achieve our goals.

It is a road which we are still travelling on. However, as we look back over the past five years we see there has been a progressive scaling up in our activities and continued partnering with societal and industry stakeholders to create tangible impact on the ground.

Forever Chocolate is our plan to have more than 500,000 cocoa farmers in our supply chain lifted out of poverty, to eradicate child labor from our supply chain, to become carbon and forest positive and to have 100% sustainable ingredients in all of our products. Every year, we report on the progress of these time bound, measurable targets, which are verified by a third-party auditor.

Scaling progression towards achieving our commitments

The persistence of COVID-19 in 2020/21 continued to disrupt the livelihoods of many people across the globe, including cocoa growing communities. Our sustainability efforts rely heavily on Barry Callebaut's people on the ground, and despite decreased physical access to farmers and their families, we were able to execute innovative projects and support cocoa farming communities. This is testament to our resilience and commitment to implement and scale Forever Chocolate.

As we review our Forever Chocolate progress in 2020/21 we have continued to refine our data collection on the farmers we source from and we have teamed up with experts such as Embode, a social protection and human rights consultancy that works extensively with NGOs and intergovernmental organizations, to implement our new approach to tackling child labor. We have continued to put digital innovations in place, increasing our polygon mapping and monitoring of deforestation using the

High Carbon Stock (HCS) approach. One of our greatest

achievements this year has been a reduction of our Land Use Change (LUC), meaning the carbon emissions resulting from the transformation of forest land to agricultural land, by over -10.0%. Achieving this outstanding feat underlines our commitment to establishing traceability in our supply chain.We have also created industry firsts in the way we measure and quantify carbon emission in dairy production.

Our vision extends beyond the borders of our own company. Ultimately, we want to see a cocoa industry that is thriving and sustainable, where farmers prosper, communities are empowered, and the environment is protected. As the experiences of the past two decades show, topical, project-based, interventions and efforts cannot scale up impact without the solid foundation of effective structural reform that tackles the root causes of farmer poverty, child labor and deforestation. We have been vocal about our view that a fully sustainable cocoa sector cannot be done by one actor alone. This can only be achieved through a broad-based movement and by partnering for change with all players in the cocoa sector - NGOs, industry and governments and other stakeholders.

Public intervention is required in order to drive structural change beyond our direct supply chain. Government action at origin is essential to address the issue of traceability, rural infrastructure development and proper enforcement of national legislation. It should be coupled with regulatory intervention in cocoa consuming regions as well as cross- industry cooperation to drive demand for sustainably sourced cocoa. In the past year we were actively engaged with trade associations and multi-stakeholder platforms to further the movement for a sustainable cocoa supply chain.

Supporting farmers to become sustainable and prospering entrepreneurs

Cocoa farming is labor intensive and in many cocoa growing regions, mechanization is non-existent. In order to lift more than 500,000 cocoa farmers out of poverty in our supply chain, it is critical to have an in-depth understanding of the conditions, challenges and potential of the farms and farmers we are working with. By continuing to gather farmer data, we are capturing a more detailed picture of farmer profiles and gaining a better understanding of farmer needs. Our unique and extensive farm mapping database

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was expanded to cover 234,997 farmers with full data in 2020/21. This means we have mapped the geographical location and the size of 394,305 active cocoa farms, covering 66% of our direct supply chain in 2020/21. This database is a critical source of information for our Farm Services Business which offers Farm Business Plans (FBPs), individualized support and coaching as well as technical advice, that takes the specific landscape of a specific farm into consideration. This tailored approach is unique and is only made possible by over 1,000 dedicated people we have working on the ground in cocoa producing countries. In 2020/21 the number of farmers who received FBPs is 92,508 (+125%). A total of 125,593 cocoa farmers in Côte d'Ivoire, Ghana, Cameroon, Brazil, Ecuador and Indonesia received farm services support this fiscal year.

We know that farm-specific support is more effective than a one-size-fits-all approach. That is why, in fiscal year 2016/17 we kicked off pilot projects in key cocoa-growing countries to further our understanding of country-specific sustainable cocoa farming models. In this fiscal year, Wageningen University in the Netherlands, the world's leading agricultural university, completed its evaluation of our pilot projects in Côte d'Ivoire, Ghana, Cameroon, Brazil and Indonesia. At farm level, the pilot activities encompassed interventions to increase cocoa productivity as well as crop and income diversification. The evaluation showed that our ongoing learnings from the pilots enabled rapid establishment of our Farm Services Business, and that some services, such as individualized coaching, play a vital role in the integration and efficient use of farm package inputs. In addition, the findings revealed that a lack of access to adequate financial resources was a barrier to the adoption of recommended farm packages. Using these learnings, we have refined our approach for supporting farmers in professionalizing their cocoa farms. It is clear that the implementation and impact of our Farm Services offerings could be further enhanced by sector wide collaboration and coordination by local authorities.

This includes, at the international level, the creation of mainstream banking opportunities for farmers, and, at the producing level, the development of an integrated agricultural policy that addresses national production targets and encourages the production of other essential agricultural goods that would support income diversification and drive alternative livelihoods for farmers.

Building a comprehensive approach to fight child labor Among the most prevalent types of child labor, occurring primarily on family farms, is that of children working at too young an age or working in hazardous conditions. There are still an estimated 1.56 million children in Côte d'Ivoire and Ghana involved in child labor for cocoa cultivation1. The challenges facing children in cocoa-growingcommunities are linked to structural issues, such as poverty, social exclusion, lack of access to healthcare and drinking water.

In 2020, our partnership with Embode, led to the

finalization of our new approach to tackling child labor, which sets clear internal milestones between 2020 and 2025 to guide planning, implementation, and stakeholder engagement. In addition, we also continued to implement and scale-up monitoring and remediation systems based on industry practice as developed by the International Cocoa Initiative (ICI).

Mitigating climate change and ending deforestation In total, since the commencement of Forever Chocolate in 2016, we have reduced our carbon intensity per tonne of product by more than -17%. Identifying and measuring deforestation and carbon emissions associated with Land Use Change (LUC), at a large scale and in sufficient detail, is notoriously difficult. This challenge becomes even more difficult when third-party suppliers which have complex supply chains enter the picture. However, in 2020/21 we produced exciting results from two projects which we have been working on for a number of years. Teaming up with EcoVision Lab, part of the Swiss Federal Institute of Technology in Zurich(ETH) Switzerland, led to the development of a publicly available, industry-first, indicative High Carbon Stock (HCS) map that identifies forests with high conservation value and areas where deforestation would cause the highest carbon emissions. In addition, in collaboration with the Gold Standard Foundationand Agolin, this year we developed a new methodology to quantify and certify carbon insetting for dairy within our chocolate supply chain. Dairy products are a key ingredient in many of our chocolate products and it is also one of the major contributors to our corporate greenhouse gas (GHG) emissions footprint.

Biodiversity is an important element for evaluating our progress on becoming forest positive. Our commitment to biodiversity is focused on both on-farm and off-farm activities, including soil regeneration and the creation of carbon sinks and agroforestry. Restoration of degraded

1 NORC Report (2020), Assessing Progress in Reducing Child Labor in Cocoa Production in Cocoa Growing Areas of Côte d'Ivoire and Ghana. Chicago: University of Chicago.

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forests and ecosystem corridors between farms aims to bring back the ecosphere of a forest, such as water and soil quality and native plant species. In May 2021, we commenced the re-planting of 300 hectares of degraded forest in Côte d'Ivoire. Through this activity, we are also creating employment opportunities for local communities. We intend to scale this activity and focus on the restoration of classified forests and other areas to ensure sustainability and the achievement of our Forever Chocolate commitments. We are also actively engaging in action-oriented business coalitions, such as the World Business Council for Sustainable Development (WBCSD) and One Planet Business for Biodiversity (OP2B), joining forces with other ambitious industry players to drive systemic change and restore natural biodiversity within value chains, aiming to accelerate the transition to successful sustainable business models.

Supporting customers with sustainable chocolate and ingredients

At Barry Callebaut, we are the key partner for our customers for strategic support and for turning sustainability commitments into reality. Switching from conventional raw materials to sustainably sourced raw materials enables brands to differentiate their product, meet the demands of consumers and increase their value and reputation. We work with, and implement, various sustainable cocoa programs to improve cocoa farmer livelihoods and farming practices. Among them is Cocoa Horizons, our preferred vehicle to drive impact and deliver on our Forever Chocolate ambition. In 2020/21, we have seen significant growth in Cocoa Horizons premiums, driven by strong demand from customers seeking a program that provides an answer to different requirements. Subsequently, the premiums from the purchase of HORIZONS cocoa products generated over CHF 28.4 million in funds, an increase of +60% compared to prior year. In 2020/21, we extended our Cocoa Horizons program by offering customers an exclusive program that includes an additional payment to cocoa farmers on top of Cocoa Horizons premiums.

In 2020 we continued to further build market demand for sustainably sourced cocoa. In the preceding year, our global Gourmet brands had led the charge by transitioning to 100% sustainably sourced cocoa or ingredients. This year our brands continued to spearhead sustainable chocolate innovation. Almost two years after the development

of WholeFruitchocolate, a chocolate containing only ingredients from the cacaofruit, in June 2021, Cacao Barry unleashed WholeFruit Evocao™, the first signature expression of WholeFruit chocolate. WholeFruit Evocao™ was also the first global chocolate to qualify for the

Upcycled Certifiedmark, developed by the Upcycled Food Association to help consumers identify products that prevent food waste.

Partnering for Change

A fully sustainable cocoa sector can only be achieved through the engagement and effort of all players to support the development of an enabling environment, a cause to which Barry Callebaut is fully committed. In December 2019, Barry Callebaut partnered with other companies and NGOs to call on the European Union to introduce legislation setting a due diligence obligation on all companies that place cocoa or cocoa products on the EU market. Barry Callebaut has been actively participating in the CocoaTalks, an EU-led Multi Stakeholder Dialogue on Sustainable Cocoa. Since its launch in autumn 2020, it aims to deliver concrete recommendations to advance sustainability across the cocoa supply chain through collective action and partnerships. In May 2021, Barry Callebaut together with other food sector companies called for an EU-wide legal framework to halt and reverse EU-driven global deforestation, outlining that the framework has to be ambitious in its efforts to increase global value chain accountability and transparency for at-risk commodities, such as cocoa. In July 2019, Côte d'Ivoire and Ghana announced the implementation of a living income differential (LID). The LID was applied to all sales contracts for shipments starting season 2020/21 by the two countries, irrespective of market levels. Barry Callebaut supports the implementation of the LID, which enables the Ivorian and Ghanaian governments to support a minimum cocoa price to their cocoa farmers.

We recognize that the farms we source from are not operating in isolation. They are connected to communities, located near protected forest areas and are part of regional landscapes. We believe that for the cocoa and chocolate sector to be deforestation free, conserve forests and support farmers to grow more on less land, there is an urgent need for transformational change across industry, government and society. As part of our 2025 commitment to become forest positive, in 2019/20 we publicly disclosed our direct cocoa suppliers in Côte d'Ivoire, Ghana and Cameroon. This mapis regularly updated. In addition, this year we finalized a procedure for selected indirect suppliers to undertake traceability activities, such as farmer mapping and census information. Subsequently, we are now piloting this procedure with a selection of indirect suppliers in Côte d'Ivoire.

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Despite the positive results achieved so far by the cocoa industry through voluntary actions and projects related to improving the traceability and transparency of their supply chain, we recognize that there are limitations to the impact and scale of these efforts. To further scale impact, cocoa producing countries should mandate end-to-end traceability systems that track cocoa from the farm. In addition, a cocoa farmer registry needs to be established as a matter of urgency. Furthermore, a review of current land tenure policies should be undertaken to ensure better supply management and compliance with national forest

and agricultural policies, and encourage sustainable environmental practices in cocoa farming.

It is clear that a sustainable cocoa sector requires coordinated actions with all key actors along the cocoa value chain. We believe that consuming and producing countries, industry, NGOs, farmer organizations, manufacturers and retailers - should all have clearly identified roles and accountability so that they can contribute to the implementation of a concrete and time-bound action plan, supplemented by international development aid, technical and financial assistance.

Our commitment to reporting on Environmental, Social and Governance (ESG) risks

Our values represent a mindset and way of doing business that is committed to generating sustainable earnings over time and creating long-term value for all stakeholders.

We are dedicated to running all our operations with transparency and integrity, which includes reporting on our Environmental, Social and Governance (ESG)management and risks. We always seek to understand issues of concern and respond accordingly, and we do not shy away from reporting on the challenges in our supply chain in order to make sustainable chocolate the norm by 2025. This year we hosted our first dedicated ESG Investor Roadshow and Governance Roadshow to present and discuss ESG topics with interested investors.

Regular dialogue with our stakeholders is critical to identify the key ESG issues our business faces and refine our approach for resolving these issues. This is why we conduct every three years a materiality assessmentwith stakeholders such as customers, farmer cooperatives, investors, media, governments, industry associations, multi- stakeholder initiatives, NGO's and our employees. Our latest materiality assessment was published in April, 2021.

External Recognition of our Progress and Impact The recognition received by Forever Chocolate this year, is further testimony to our, and our partners', ongoing commitment to create impact on the ground and lead change. For the third consecutive year, Sustainalytics has recognized Barry Callebaut as an industry leader in the management of the ESG risks in our supply chain. Our position in the top three once again confirms that we are consistently leading not only in the chocolate and cocoa sector, but also in comparison to our peers in the broader food industry.

In addition, CDP, an independent organization assesses the carbon reduction plans of over 9,500 companies every year, awarded Barry Callebaut, for the third year running, an A- (Leadership level) for our carbon reduction efforts.

We were additionally awarded Leadership level as a Supplier Engagement Leader for our work on scope three emissions, which are emissions that extend beyond our direct supply chain.

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Prospering Farmers

Lifting cocoa farmers out of poverty

Our goal

By 2025, more than 500,000 cocoa farmers in our supply chain will have been lifted out of poverty.

Our approach

Almost two-thirds of global cocoa is produced in

Côte d'Ivoire and Ghana. In Côte d'Ivoire, 70% to 85% of cocoa farmers' income is dependent on cocoa1 and in Ghana, cocoa is estimated to account for about two thirds of cocoa farmers' revenue2. Low productivity on cocoa farms as a result of poor agricultural practices, nutrient-depleted soils and aging cocoa trees keeps cocoa farmers and their families in a cycle of poverty. In addition, cocoa farmers are confronted with an underdeveloped rural infrastructure that limits their access to universal basic services, such as access to water, sanitation facilities, road infrastructure and transport network, medical services and school education.

For cocoa-producing countries, further support should be given to rural infrastructure development, land registration and farmer database systems, which would allow for a more tailored approach to interventions on farmer professionalization and the promotion of additional income-generating activities. At industry level, we believe that implementation of projects to increase farm productivity through farmer training, better access to agricultural inputs, improved planting materials and credit for investment, should be continued in order to support farmer professionalization.

For cocoa-importing countries and regions, such as the EU, there are several complementary actions that are needed to support a sector-wide change: Due diligence and deforestation legislation, which would tackle unsustainable practices and help cocoa farmers achieve a living income, needs to be coupled with partnership cooperation with origin countries, in order to be fully effective. This cooperation should also incorporate funding mechanisms and technical expertise to support the development and implementation of a comprehensive agricultural reform.

As we progress towards our 2025 target of lifting more than 500,000 farmers in our supply chain out of poverty, our focus is to continue supporting farmers by modernizing

agriculture and cultivation methods, increasing yields, diversifying income and professionalizing farming.

Our individualized Farm Business Plans (FBPs) constitute a 10-year-model of the potential income a specific farm can generate if managed optimally.

Supporting farmers with the appropriate offering is the key cornerstone of our multi-year FBPs, which present the farmers with a journey out of poverty based on their individual situation and farm profile. These plans are created through one-to-one consultations between our Farm Services specialists and the farmer, and involves an evaluation of the farm landscape - soil analysis, age of cocoa trees, presence of alternative crops and livestock, as well as categorization of the agricultural skills which the farmer already possesses.

This year we mapped the geographical location, as well as the size of 394,305 (+42%) active cocoa farms, covering 66% of our global direct supply chain in 2020/21. We also increased census interviews with cocoa farmers to 390,019 (+34%), capturing socioeconomic and household data.

The uniqueness of our approach is the support and training we provide at individual farm level. We have found that coaching on-farm, paired with technical advice that relates specifically to each farms needs, is the most effective method of supporting farmers in implementing skills they learn during training. Following farm diagnostics, skills analysis and data collection, we provide three types of services to support cocoa farmers - productivity packages, seedling distribution and income diversification packages.

The first is productivity packages, which are

a combination of product offerings, such as planting material to boost soil fertility, and on-farm training in good agricultural practices. Our productivity packages include follow-up visits by our Farm Services specialists who provide both farm diagnostics and technical advice throughout the year.

1 Pluess, J. (November 2018), Children's Rights in the Cocoa-Growing Communities of Côte d'Ivoire, Abidjan: UNICEF Côte d'Ivoire. Available from: https://sites.unicef.org/csr/css/synthesis-report-children-rights-cocoa-communities-en.pdf (accessed August 5, 2021).

2 Cocoa Farmers in Ghana experience poverty and economic

vulnerability (2017). Available from https://cocoainitiative.org/ (accessed August 2, 2021).

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