The Hershey Company

FAIRR found no material evidence that Hershey’s achieved considerable progress in its understanding of the climate mitigation potential of ingredient substitution, nor in its TCFD-aligned scenario analysis coverage of animal agriculture. The company acknowledges the link between its animal protein portfolio and negative environmental impacts, including climate change. While this is encouraging, the company should acknowledge its exposure and reliance on animal-derived ingredients as a material business risk. Hershey's confirmed to investors that cocoa is the company's most significant emissions hotspot. The company's focus is on reducing emissions from this area and it has dairy as a lower priority. Hershey’s has not calculated the carbon abatement potential of ingredient substitution. The company confirmed that it will not be using protein diversification as a climate mitigation tool as it is a consumer-led company, and it has not identified enough demand for alternative products. In 2022, Hershey’s released its first high-level TCFD report, looking at the potential financial impacts of physical and transition risks, as well as identifying potential opportunities. Hershey's is still in the process of conducting its first TCFD-aligned scenario analysis. It is working with a third-party organisation to conduct modelling. Hershey’s informed investors that approximately 500 different physical assets have been built into the company's climate scenario model; these range from buildings to farm-level inputs. The company is prioritising assessing its key ingredients first, these include cocoa, dairy, and sugar. The company will share more in its May 2023 Annual Report and its 2023 CDP report.

Hershey’s has not achieved material progress in the strategy behind the inclusion of ingredient diversification as a climate mitigation tool, nor healthy and sustainable diets. Hershey’s continues to improve the sustainable sourcing of its dairy. In 2021, 80% of dairy volumes were sourced from suppliers enrolled in and assessed through the SDP. This is up from 68% in 2020. The company's goal is 100% by 2024, indicating it is on track to achieve its target. Additionally, the company reports that for FY21, 78% of its five priority ingredients (incl. eggs and dairy) were responsibly and sustainably sourced. The company shared that its definition of responsibly and sustainably sourced varies per commodity and constantly evolves. There are, however, four key components (1) traceability up to tier one suppliers (2) verification (3) on-the-ground transformation through investment, and (4) enrolment into its sustainable sourcing programmes. Hershey’s is looking to improve its definition of responsibly and sustainably sourced. Hershey’s has not set a target for ingredient diversification, and it does not plan to do so. The company shared with investors that it has relatively few inputs in its confectionery products and that dairy is a key commodity in its offering. The company has no plans to set a target to transition away from dairy. The company stated that it does not consider ingredient diversification as a significant climate mitigation opportunity for its confectionary business relative to other opportunities. The company generated $644.4 million in revenue from products labelled and/or marketed to promote health and nutrition attributes in 2021. This is up from $520.8 million in 2020. This increase, however, is due to greater demand rather than a company-driven strategy. Hershey's stated that as its core business is confectionary, people buy its products for indulgence and taste rather than for sustainability or health reasons. This means that taste is the company's number one priority.

Hershey’s has begun to expand its product offering and is continuing to invest in plant-based R&D, however, the pace of change is slow-going. The company recently launched its first vegan chocolate bar, providing two dairy-free flavours. Hershey’s shared with investors that due to the novel ingredients and smaller scale, the cost of production for plant-based chocolate is much higher than conventional chocolate; this leads to the customers paying a price premium, which is a barrier for many consumers. The company confirmed that it will not be reformulating products to reduce animal-derived ingredients. It claims that customers prioritise the taste of confectionary over its sustainability and health attributes. Hence, it argues that reformulating products would not appeal to its target customers. Hershey’s did not share the total number of plant-based SKUs or percentage of revenue derived from plant-based products, nevertheless, it confirmed this was a small percentage (low single digit) of total SKUs/revenue. The company does not have plans to share this figure in the short term due to its financial materiality. In May 2022, the company filed a patent to protect its technique of replacing milk proteins with products other than nuts, such as roasted corn, oats, and rice. This indicates the company continues to invest in plant-based R&D. Additionally, Hershey’s shared with investors that it is starting to consider the applicability of novel technologies, including precision fermentation, to produce dairy.

Hershey’s consumer engagement strategy has not evolved significantly since Phase 5. Compared to competitors, Hershey’s performs poorly in consumer engagement, as it does not have a strategy to accelerate the uptake of plant-based products. Also, the company does not highlight to consumers the health and sustainability benefits of its product offering. Hershey’s shared with investors that it only markets plant-based chocolate where it knows there is already a demand for it. The company stated it is a niche audience, and plant-based chocolate "doesn't belong everywhere". For example, the company has not placed plant-based chocolate in dollar stores because demand for these products is currently limited. There is no evidence that the company is investing time and resources in understanding which aspects of plant-based products (i.e., animal welfare, antibiotics, sustainability, health, taste, trend) appeal most to its target consumers to nudge them and enable dietary shift. The company has started internal discussions on eco-labelling and how it could use this as a value add. However, Hershey's is not planning to use eco-labelling on its products in the short to medium term and states it is a long way off doing this commercially. This is due to the potential backlash from greenwashing and a lack of data supporting environmental claims. There continues to be no evidence of the company collaborating with customers to increase consumer demand for plant-based products, nor evidence of increased marketing spend for these products.

Hershey’s has not disclosed metrics to track protein diversification, nor provided investors with a Scope 3 emissions breakdown at the animal protein level. Since 2019, Hershey’s has not disclosed to the CDP the percentage of revenue derived from chocolate. The company informed investors that it will not disclose its revenue from plant-based sales, its product portfolio split, or its exposure to animal proteins. In FY21, the company achieved a 6% reduction in absolute Scope 3 emissions compared to 2020. This enables Hershey’s to be 18% of the way to achieving its Scope 3 target of 25% emissions reduction by 2030 (2018 baseline). The company shared with investors that this reduction was achieved through reducing land-use change and deforestation linked to cocoa. The company currently provides the following breakdown of Scope 3 emissions: agriculture (including land-use change) accounts for 66.9% of total Scope 3 emissions. As part of the company's plan to achieve its SBTi targets, it will disclose more details on its Scope 3 hotspots and how it invests in these areas; Hershey’s is likely to disclose cocoa emissions and may consider disclosing dairy emissions in the future.

The company did not attend FAIRR’s technical roundtable on protein diversification. It met with FAIRR and the investors for an engagement dialogue. Hershey’s provided detailed responses to the follow-up questions and reviewed the final assessment.