FOSTER INCLUSIVE GROWTH

Extra-financial Performance towards Danone's 2030 Goals

FOSTER INCLUSIVE GROWTH

We will continue to invent pioneering ways to foster inclusive growth for vulnerable partners in our food chain across the world, including family farmers, street vendors and waste pickers. We will keep building sustainable solutions for access to nutrition and safe drinking water for low-income communities. We keep on supporting our farmers and suppliers to implement sustainable sourcing practices and we protect human rights in our own operations and in our supply chain. And we will maximize the impact of our social innovation funds through scale and transformation of business practices starting with Danone Communities, the Danone Ecosystem Fund and the Livelihoods funds.

We will continue to invent pioneering ways to foster inclusive growth for vulnerable partners in our food chain across the world, including family farmers, street vendors and waste pickers. We will keep building sustainable solutions for access to nutrition and safe drinking water for low-income communities. We keep on supporting our farmers and suppliers to implement sustainable sourcing practices and we protect human rights in our own operations and in our supply chain. And we will maximize the impact of our social innovation funds through scale and transformation of business practices starting with Danone Communities, the Danone Ecosystem Fund and the Livelihoods funds.

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"Our Goal Foster Inclusive Growth is about the company’s mission, it’s illustrating the dual project while creating growth opportunities for Danone in the future. It is about the why and the how we do business at Danone. This is what makes Danone a unique company."


Corinne Bazina – Danone Communities CEO

 

OUR 2018 PERFORMANCE

 

Through its mission, to bring health through food to as many people as possible, Danone considers access and affordability of nutrition as essential to its strategy.

 

We believe that affordability, combined with the existence of an appealing and available daily offer, is an important factor to increase the frequency of consumption and to have an impact on dietary habits. Affordability and accessibility is also key for low income populations which are at greater risk of malnutrition.

Adapted offers to local communities

Danone invests in understanding local public health challenges and dietary practices through the NutriPlanet program covering 54 countries. The Nutriplanet program was designed to provide in-depth knowledge of every food-related aspect of our local contexts and to enable the definition of appropriate strategies to promote healthier choices that are community relevant (for more information, see section Impact people’s health locally).


In addition to understanding local needs and challenges, Danone seeks to answer the fundamental issue of malnutrition by driving continuous improvement of its products. In 2018, 25% of volumes sold in 2018 were fortified products (compared to 30% in 2017). This percentage indicator is calculated on the scope of the Nutrition & Health Scorecard, for the Essential Dairy Products and Early Life Nutrition divisions (See Methodology Note).

 

In parallel, we apply the Growth Across Pyramid method to provide populations in difficult situations with good, healthy and affordable products via specific distribution models for improved accessibility. For instance, in Indonesia, the Waters subsidiary AQUA developed the AQUA Gallon which was among the first of its kind to be distributed in Indonesia, and in 2016 reached over 9 million Indonesians in low income populations every month.

 

In Ghana, Fan Milk launched FanMaxx, an affordable drinkable yogurt which benefits from a long shelf life (4 months) and which is particularly suited to African markets where the cold chain is not always failsafe. 

 

Finally, with our commitment to health and nutrition during the first 1,000 days of life in the Early Life Nutrition Business, Danone acknowledges the key role that breast-feeding and diet play in infant development and in preventing malnutrition.

Building on our social innovation funds

Danone is also building on social entrepreneurship as a driving force to bring nutrition solutions to low income populations. We chose, more than ten years ago, to invest in social businesses with an ambition to develop access to affordable healthy products, as well as to address the needs of low income populations in terms of safe drinking water and alleviating chronic malnutrition. Danone created Danone Communities, an innovative fund dedicated to developing market-based social businesses (for more information see section Social innovation).

 

Among social businesses supported by the Fund, NutriGo in China fights against chronic infant malnutrition by selling an affordable fortified complementary food in rural areas. In France, Danone and Danone Communities support the MALIN programme, which targets low income families with children below 3 years old. By alleviating the cost of adapted nutrition, giving access to affordable fruits and vegetables as well as providing training on adapted nutrition and tips for affordable recipes, the MALIN Programme impacts eating behaviors and contributes to the healthy growth of children. In 2018, the programme has been officially supported by the French government as a concrete solution to fight poverty, thus being part of the French “poverty plan”. Grameen Danone in Bangladesh is giving access to children from low income families to an affordable fortified yogurt. The yogurt provides 30% of Recommended Daily Allowance of key micronutrients and is sold in rural areas through door-to-door circuits and in small shops.

 

In parallel, Danone is committed to working with its smallholder farmers to strengthen their resilience and develop their own family subsistence agriculture through the launch and support of the Livelihoods Fund for Family Farming (for more information see section Social innovation).

 

At Danone, we work to uphold and embed sustainable sourcing and responsible procurement standards across our value chain. When it comes to milk, our number one ingredient, we take a local-first approach and foster our suppliers’ resilience through long term contracts. For our remaining ingredients, materials, services and goods, we work to ensure our first-tier suppliers respect specific social, environmental, and ethical standards. For our upstream supply chain, our due-diligence aim at advancing on traceability, risk assessment and preventive actions through engagement with our main suppliers and collective action. In parallel, we develop and support projects aimed at on-the-ground transformation of sourcing for key ingredients.

 

RELATIONSHIP WITH MILK PRODUCERS

Danone sources milk, directly and indirectly, from over 58,000 farms in some twenty different countries.

 

Danone’s partnerships with its direct milk producers cover technical aspects, such as milk quality and the farm’s economic performance, as well as environmental and societal aspects.

 

For more information on our relationship with our farmers please refer to our 2018 Registration Document.

Trading and pricing practices with farmers

Danone has developed innovative contracts with producers in the United States and Europe to reduce milk price volatility, thereby offering better visibility and financial stability: The Cost-Performance Model (CPM) contracts.
These contracts define price of milk taking production costs into account and are developed in partnership with milk producers or their organizations. This model was also launched in Russia starting in 2017.

 

In 2018, 24% of total milk collected directly by Danone comes from producers working with Danone under CPM contracts (versus 19% in 2017).

MilQSat (previously FaRMs - Farmers Relationship Management)

MilQSat tool was developed in 1997 by the Essential Dairy and Plant-Based Business to evaluate the performance of direct milk producers, in the areas of quality, food safety and traceability. The initiative subsequently evolved to integrate economic, social and environmental criteria. In 2018, the tool was gradually being refocused on its initial purpose. More specialized and dedicated tools are progressively being developed on topics such as animal welfare, greenhouse gas emissions (Cool Farm Tool), water consumption and social dimension. 

Cool Farm Tool

Since 2017, Danone is rolling out a new tool (Cool Farm Tool) dedicated to calculating greenhouse gas emissions generated by livestock. Cool Farm Tool is provided by the Cool Farm Alliance, a cross-sector platform connecting food industries, scientific organizations and NGOs, which works to develop and promote use of assessment systems for sustainable agriculture.

 

In 2018, 14 entities had implemented the tool (same as in 2017). The tool was not further deployed as focus was made on monitoring entities in which it is already implemented.

Monitoring of animal welfare

A new tool dedicated to animal welfare at suppliers was developed in conjunction with the MilQSat tool in 2017. It has been designed together with our NGO partner, Compassion in World Farming (CIWF), and a scientific partner, the Spanish Institut de Recerca i Tecnologia Agroalimentàries (IRTA). This tool is already used by the Essential Dairy and Plant-Based Division in 14 countries (versus 10 countries in 2018).

 

See our animal welfare progress report for 2017 - June 2018 here.

 

At Danone, we work to uphold and embed sustainable sourcing and responsible procurement standards across our value chain. When it comes to milk, our number one ingredient, we take a local-first approach and foster our suppliers’ resilience through long term contracts. For our remaining ingredients, materials, services and goods, we work to ensure our first-tier suppliers respect specific social, environmental, and ethical standards. For our upstream supply chain, our due-diligence aim at advancing on traceability, risk assessment and preventive actions through engagement with our main suppliers and collective action. In parallel, we develop and support projects aimed at on-the-ground transformation of sourcing for key ingredients.

 

RELATIONSHIP WITH SUPPLIERS EXCEPT MILK

 

Through its RESPECT program, Danone monitors non-milk suppliers targeting responsible supply and continuous improvement. We also work directly with some producers further up the supply chain, particularly through projects supported by the Danone Ecosystem Fund and the Livelihoods Fund for Family Farming (see Social Innovation).

 

RESPECT program

The program covers all purchasing categories of first tier suppliers except for raw milk (see above).

 

Implemented since 2005, the RESPECT program relies on the Sustainability Principles for Business Partners built around three pillars: Fundamental Social Principles, Environmental Principles and Business Ethics Principles.

 

These Principles are included into supplier contracts as a ‘sustainability clause’ and compel them to pledge that Fundamental Social and Business Ethics Principles are already respected not only within their own organizations but by agents, suppliers and sub-contractors. They also commit to striving towards implementation of Environmental Principles.

 

Since 2017, Danone is upgrading RESPECT to evolve towards a due diligence approach and reinforcing its requirements on human rights (see Registration Document 2018 and section Human Rights below).

 

Risk mapping

In 2017, Danone mapped major potential risks for the twenty most exposed categories of procurements. Risks were analyzed according to a grid based on ISO 26000, GRI G4 and SA 8000 standards, integrating potential impacts of purchased products in the areas of social and Human Rights, local communities, consumers, fair trade practices and the environment.

 

Following this analysis, 5 categories of procurement were prioritized in terms of Human Rights over the coming years: agency workers (see section Human Rights below), palm oil, cocoa, cane sugar and fruits. For the food categories, the potential risks brought to light are mainly situated in farms and plantations upstream in the supply chains. As for environment, this mapping confirmed the priorities already identified within the framework of Danone’s Forest Footprint Policy.

 

In 2018, Danone updated its risk mapping to include changes in its ingredients portfolio following WhiteWave acquisition.

 

Assessment of suppliers

Assessment of suppliers situated in the upstream part of the chain, at plantation level, is only possible when traceability is established, and places of production are identified. As of December 2018, Danone has achieved the following levels of traceability:

  • Palm oil: Danone works with the The Forest Trust to ensure traceability of palm oil. In 2018, 58% of the palm oil bought by Danone was certified “RSPO segregated”, 96% excluding WhiteWave scope. 
  • Fruit: following changes in Danone’s approach to fruits sourcing, traceability was reassessed at 100% traceable back to the first level of industrial processing after harvest.
  • Cocoa: 70% traceability back to country of origin.
  • Cane sugar: initiated this year with ProForest, 43% traceability back to plantations and 41% to back to mills.
  • Soy: Regarding soy in animal feed for dairy cows, Danone estimates that less than 5% of soy enter the feed ration of its dairy cows. After internal analysis, it appears that in North America and Brazil, soy purchased by dairy farmers is purchased locally in areas without risk of deforestation. Regarding soy imported into Europe, Danone worked with TRASE (Transparency for Sustainable Economies) to ensure the traceability of soy coming from Brazil: this import of soy presents a risk of coming from areas at risk of deforestation. As a remediation, Danone has implemented action plans in line with its soy policy and aims to promote local soy or local alternatives. For soy used in Danone North America plant-based products (coming from WhiteWave portfolio), it is cultivated entirely in the United States, while in Alpro products it comes mainly from European countries (France, the Netherlands, Belgium, Italy and Austria) and from Canada, considered as areas with very low risk of deforestation.

 

For more information, please refer to our vigilance plan available in our 2018 Registration Document.

 

For first-tier suppliers, assessment is based on CSR performance as self-declared on Sedex platform (Supplier Ethical Data Exchange). A risks analysis carried out by Sedex complements this self-declaration. Suppliers identified at risk by Sedex are audited by third-party organizations according to the SMETA (Sedex Members Ethical Trade Audit) protocol, which covers labor, health and safety, the environment and business ethics.

 

To reinforce its Human Rights approach, Danone conducted in 2018 an inhouse human rights risk assessment on the 4,000 sites registered on Sedex. As a result, the Company launched in 2018 a two-year Audit Plan for the 200 sites identified as high risk (see section Human Rights below).

 

Supplier registration on Sedex Platform

At the end of 2018, 4,043 tier 1 supplier sites were registered on the SEDEX platform, versus 4,082 in 2017

Number of SMETA audits on potentially high-risk suppliers

In 2018, Danone started implementing its 2018-2019 Audit Plan in addition to the audits resulting from Sedex risk analysis. All audits were performed by third-party organizations using the SMETA protocol (Sedex Members Ethical Trade Audit). On top of this, Danone has also access to audits commissioned by its peers on common suppliers through the Sedex platform and AIM Progress consortium for responsible sourcing. In total in 2018, 333 SMETA audits were conducted on Danone tier 1 suppliers, commissioned either by Danone or by peers.

Compliance with Danone remediation standards

Since 2017, Danone has monitored a performance indicator tracking audits launch and action plans closure in cases of critical non-compliance. These processes are managed by Danone’s central and local procurement teams.

 

At year end in 2018, 74.5% of Danone centrally managed suppliers (100% in 2017) and 41% of Danone locally managed suppliers (32% in 2017) were compliant with Danone’s remediation standards 
The decrease in the compliance rate for Danone centrally managed suppliers is related to the overall increase of audits performed hence the increase of critical non-conformities to close.

Overall, 51.8% of Danone’s suppliers were in compliance with Danone’s standards (vs 65% in 2017).

The decrease in the compliance rate is mainly due to the overall increase of the number of audits performed on Danone suppliers. The Company has adopted very high standards and requests the closure of all critical non-conformities, including the ones identified through audits commissioned by peers and still pending.

Our aim is to close all critical non-compliances and improve suppliers’ sustainability and ethical performance. Nevertheless, in some cases we see no alternative but to terminate relationships with suppliers who don’t collaborate.

Prevention and mitigation measures

In addition, Danone also deploys mitigation and prevention measures to avoid serious breaches within its supply chain such as:

  • Seeking to establish regular dialogue with first-tier suppliers on their responsible procurement process and monitoring implementation of corrective action plans by audited suppliers,
  • Certification processes for upstream agricultural productions at high-risk: RSPO for palm oil, UTZ for cocoa and for coffee in Danone North America, FSC or similar certification for paper, RTRS or Proterra for soy,
  • Collaborative projects to support producers, addressing both environmental and social aspects, by working on soil restoration, sustainable farming practices, and improving producer income and working conditions through the Danone Ecosystem Fund and the Livelihoods Fund for Family Farming,
  • Contribution to dedicated platforms such as POIG, SASPO and RSPO for palm oil,
  • Contribution to collaborative initiatives in favor of responsible procurement practices such as SAI Platform, AIM Progress and the Consumer Goods Forum (including to improve and reinforce RSPO certification practices and criteria).

Grievance mechanism

In 2017, Danone integrated two new dedicated categories of wrongdoings that may be reported via the Danone Ethics Line (see SDG 16) to cover suspected Human Rights and environmental violations. The reporting process guarantees whistleblower protection and was developed in consultation with staff representative bodies.

 

In 2018, the Danone Ethics Line received a worldwide total of 12 reports in the "human rights" category, which includes violations in the areas of Child Labor, Forced labor, Right to collective bargaining, Working time and Wages. The category is selected by the whistleblower, but all the reports received in 2018 focused on routine human resources matters. None of them qualified as a human rights violation, nevertheless all have been or are being pursued in thorough internal investigations.

No alerts were received as regards to environmental violations.

Subsidiaries performance towards our ambition

79%

of entities have onboarding of all buyers including a training on RESPECT program and objectives, as well as Responsible Sourcing Principles (Danone Way scope, see Methodology Note).

 

Danone is committed to protecting human rights in its own operations and in its supply chain.

 

In 2001, Danone formalized its seven fundamental social Principles, based on the standards defined by the International Labor Organization (ILO): abolition of child labor, abolition of forced labor, non-discrimination, freedom of association and right to collective bargaining, workplace health and safety, working hours and compensation.

 

As part of Danone’s commitment to human rights, in 2016 the Company joined the Consumer Goods Forum’s collective effort to eradicate forced labor from global supply chains. To meet this goal, in 2017 Danone updated its Fundamental Social Principles to include the three priorities identified by the Consumer Goods Forum: every worker should have freedom of movement; no worker should pay for a job; and no worker should be indebted or coerced to work. In 2018, this commitment was formalized in the Danone statement on forced labor.

RISK MAPPING

Following a risk mapping performed in 2017 on its twenty most exposed categories of procurements (see section Sustainable sourcing and Relationships with suppliers except milk producers above), 5 categories of goods and services procurement categories were prioritized in terms of Human Rights over the coming years: agency workers, palm oil, cocoa, cane sugar and fruits. For the food categories, the potential risks brought to light are mainly situated in farms and plantations upstream in the supply chains.

Reinforced responsible procurement practices with first-tier suppliers

Danone is upgrading its direct supplier assessment RESPECT program to evolve towards a due diligence approach focusing particularly on human rights (see section Sustainable sourcing and Relationships with suppliers except milk producers above). This process is inspired by the UN Guiding Principles on Business and Human Rights (UNGP) and contributes to the development of a vigilance plan, as required by the 2017 French Corporate Duty of Vigilance Law, available in our Registration Document 2018.

 

For Tier 1 suppliers, in addition to the existing process relying on the Sedex platform and SMETA audits (see section Sustainable sourcing and Relationships with suppliers except milk producers above), Danone aims at a more selective approach focusing on human rights risk. In 2018, the company conducted an inhouse human rights risk assessment on the 4,000 sites registered on Sedex, using geographical, sector-specific and trade data. As a result, the Company launched in 2018 a two-year Audit Plan for the 200 sites identified as high risk.

 

Procurement teams monitor the implementation of remediation action plans by suppliers. Danone has set up its own compliance standards for audit launch and audit closure. To ensure that no critical non-conformities related to human rights are left unaddressed, the company monitors their closure also for audits commissioned by peers on shared suppliers (see section Sustainable sourcing and Relationships with suppliers except milk producers above).

 

Danone also deploys measures to mitigate risks with first-tier suppliers by:

  • Providing RESPECT program training for buyers, covering risks related to forced labor and the Company’s commitment on the CGF’s three Priority Principles.
  • Seeking to establish regular dialogue with first-tier suppliers concerning their responsible procurement process and to monitor implementation of corrective action plans by audited suppliers.

Sustainable procurement further up the supply chain

Tackling Human Rights issues with suppliers situated further up the supply chain is only possible when traceability is established, and places of production are identified. Following the risk mapping performed in 2017, Danone is working, as a priority, on reinforcing traceability on ingredients identified as high-risk: Palm oil, Fruits, Cocoa and Sugar Cane (see section Sustainable sourcing and Relationships with suppliers except milk producers above). For more information, please refer to our vigilance plan available in our Registration Document 2018.

 

Danone is also already deploying mitigation measures to prevent serious breaches further up its supply chain such as:

  • Certification processes for upstream agricultural productions at high-risk: RSPO for palm oil, UTZ for cocoa and for coffee in Danone North America, FSC or similar certification for paper, RTRS or Proterra for soy.
  • Collaborative projects to support producers, addressing both environmental and social aspects, by working on soil restoration, sustainable farming practices, and improving producer income and working conditions through the Danone Ecosystem Fund and the Livelihoods Fund for Family Farming.
  • Contribution to collaborative initiatives in favor of responsible procurement practices such as SAI platform, AIM Progress and the CGF (including to improve and reinforce RSPO certification practices and criteria). 

Focus on workers employed through labor agencies or service providers

In November 2017, as a member of the Consumer Goods Forum’s collective initiative (see above), Danone committed to monitor its operations for forced labor practices by 2020. This commitment, which is included in Danone Statement on Forced Labor, aims at addressing the recruitment and situation of Danone’s temporary workers (workers employed through labor service providers and on-site contractors’ employees).

 

In 2018, Danone adopted an internal policy, the Global External Workforce Policy, requiring temporary work agencies or labor service providers that employ workers on behalf of the Company to respect the fundamental freedoms and rights of workers. The policy particularly targets forced labor practices such as recruitment fees. Co-led by the Human Resources and the Procurement and Cycle departments, the deployment of the policy is gradually starting within the HR function.

 

Following the adoption of the policy, the Company performed a risk mapping using multi-index criteria related to human rights issues (modern slavery, migration, corruption, etc.) and the number of agency workers in each region where it operates. Three regions were prioritized to start deploying the policy from 2018 onwards, based on dedicated human rights training tools and operational guidelines currently being developed.

 

In parallel, subsidiaries are also progressively empowered on the issue with the creation of a Human Rights section defining expectations for agency workers recruitment within the framework of the Danone Way approach (learn more on Danone Way in section Be certified as a B Corp).

Grievance mechanism

In 2017, Danone integrated two new dedicated categories of wrongdoings that may be reported via the Danone Ethics Line (see SDG 16) to cover suspected Human Rights and environmental violations. The reporting process guarantees whistleblower protection and was developed in consultation with staff representative bodies.

 

In 2018, the Danone Ethics Line received a worldwide total of 12 reports in the "human rights" category, which includes violations in the areas of Child Labor, Forced labor, Right to collective bargaining, Working time and Wages. The category is selected by the whistleblower, but all the reports received in 2018 focused on routine human resources matters. None of them qualified as a human rights violation, nevertheless all have been or are being pursued in thorough internal investigations.

 

Danone is acting to promote inclusive growth, and to create opportunity for all segments of the population to share in increased prosperity. As part of our efforts to foster inclusive growth, Danone is working with its Social Innovations funds to help empower vulnerable people in our global community, both professionally and by promoting access to clean water and nutrition.

 

For more information, please refer to Social Innovation section.

 

Examples of projects are also available in the Projects section.