2019 Theo Impact Report

TheoChocolateInc

Theo Impact Report

impact

report

2019


3

Executive Statement

4

Mission, Purpose, & Values

5

10

12

Ethical Sourcing

Workplace & Responsible

Manufacturing

Environmental Impact

14

15

Community Involvement

Key Performance Indicators

& Action Plan Summary


executive statement

To Our Stakeholders,

The first Theo Impact Report is an important milestone for Theo Chocolate. Since our founding we have been

deeply committed to positive impact and transparency. Taking this step to compile and report our holistic

impact is an evolution of our on-going commitment.

At our factory, in the heart of Seattle, we open our doors daily for people to see how we make chocolate from

bean to bar, firsthand. We hope this Impact Report does the same thing for our business practices. This is our

invitation to get to know Theo a little better. Please come take a closer look.

Ethics and sustainability are critical to decision making at Theo. In 2019, we put people first by investing heavily

in workplace safety and benefits. The people who work at Theo are the company’s heart and soul, making

responsible urban manufacturing possible.

We strive to continually find ways to deepen our impact. Throughout this report you will find areas we identified

for improvement over the coming year.

This is just the beginning of the conversation we’d like to start with you. If you have feedback on the Impact

Report, we’d like to hear. Please email Info@TheoChocolate.com so we can take it into account for next year.

Sincerely,

Etienne Patout

CEO, Theo Chocolate

3


mission, purpose & values

Theo Chocolate was founded in 2005 to create a positive impact through chocolate. We are committed to

making high quality chocolate, ensuring everyone who touches the business thrives.

In this report, we dive deep into partnerships with our most important stakeholders: cocoa farmers and

Theo employees.

At Theo, our Mission, Purpose and Values help guide our decision making. Our Values were created by

Theo employees in 2017.

MISSION:

As a company rooted in cocoa, our

mission is to create a more beautiful,

compassionate, and enduring world by

responsibly making delicious and

inspiring products for everyone.

PURPOSE:

We invite people to discover a better

world through chocolate.

VALUES:

Community

We cultivate relationships that create a

safe, supportive, and engaging workplace.

Honesty

We are honest about our products,

practices, and challenges.

Excellence

We are passionate about doing our best

as individuals and as a team.

Well-being

We make choices that nurture the health

and well-being of our employees,

partners, and planet.

Hear directly from Theo employees about

our Values at

https://theochocolate.com/careers

4


ethical sourcing

Ethical sourcing is core to who Theo is as a company. We source

organic and fair trade ingredients whenever available and

possible, and prioritize purchasing from small holder farmers.

We partner fairly with cocoa and ingredient sourcing partners

to pay them living incomes, with the goal of supporting thriving

and resilient communities.

Theo sources fair trade cocoa from outside the conventional

cocoa growing industry to retain full visibility into our sourcing.

The conventional cocoa growing industry still faces ethical

challenges including poverty wages for cocoa farmers and the

use of forced child labor. At Theo, we strive to show cocoa can

be purchased in a different way that allows everyone to benefit.

We do this because we believe fairness and well-being should be

for all, not only for some.

Since Theo’s founding, we have sourced 10,000 metric tons of

organic and fair trade cocoa from 10 different countries across

Central America, South America and Africa. That volume could

fill 5 miles of semi-trucks, end-to-end, with cocoa beans.

history of eastern

Congo cocoa

Theo began purchasing cocoa beans from the Democratic Republic of

Congo (DRC) in 2012 by partnering with Eastern Congo Initiative (a NGO),

our trading partner ESCO Kivu, and smallholder farmers in Eastern

Democratic Republic of Congo. People in Eastern Congo have lived through

years of conflict and violence, compounded by low access to health care

and government infrastructure. Investing to develop a militia-proof crop has

supported stable economic development, as farmers now return to their land after times of heightened insecurity.

Theo partnered with ESCO Kivu and cocoa farmers to invest over $800,000 in infrastructure, cocoa capacity

projects, and direct payments to farmers which supported increasing quality and yield. This specifically funded the

distribution of cocoa fermentation boxes, farmer training along with post-fermentation infrastructure. The

partnership has developed Watalinga, Eastern Congo into a successful organic cocoa growing region, bringing

benefits to the farmers and community.

5


2019 ORGANIC COCOA PURCHASES

All cocoa beans Theo purchased in 2019 came from Watalinga, Eastern Congo. These purchases directly support the

livelihood of over 6,200 cocoa farmers and their 34,000 family members. Having close relationships with farmers mean

we know how much they are paid for their cocoa, something many conventional chocolate makers cannot identify.

In 2019, Theo purchased

1,225

METRIC TONS

OF COCOA BEANS

from Eastern Congo

While we have purchased cocoa beans from Peru in the past, we did not purchase cocoa from the

Norandino Cooperative in Peru in 2019, as we had an adequate supply of the beans.

WHAT INFLUENCED THEO’S 2019 COCOA PRICE?

$2.04 PER KG

$2,098

PER METRIC TON

AVERAGE BASE

PRICE TO FARMERS

The base price fluctuates slightly based on market

prices. ESCO Kivu ensures organic cocoa purchased

on behalf of Theo is purchased at approximately

20-25% higher prices than surrounding prices in

DRC for conventional beans to reflect the higher

quality and ensure living income prices.

FERMENTATION

PRICE INCENTIVE

If cocoa meets fermentation requirements,

this additional price incentive is added at

the time of purchase from farmers. The

fermentation price incentive has increased

the percentage of cocoa meeting target

fermentation levels from 70% to 90%.

6


2019 PRICE PER METRIC TON OF COCOA BEANS*

$2,940

Fairtrade

International organic

$3,338

Theo average

$2,312

Conventional

market average

Our 2019 cocoa

purchases were

44%

above Conventional

market prices

14%

above Fairtrade International

organic minimum prices

*Theo average price paid for organic cocoa includes the fair trade development fund premium. It is the FOB price we pay when the organic cocoa is picked up.

Fairtrade International price based on fairtrade.net listed minimum price FOB, plus organic and Fairtrade International premiums (as of Oct. 1, 2019).

Conventional Market Price based on International Cocoa Organization average monthly prices Jan-Oct 2019 .

$200

PER METRIC TON

FAIR TRADE

DEVELOPMENT

FUND

Fair trade premiums are paid to the community

as a development fund, which the Watalinga

Cocoa Farmers Association determines how

to spend. Theo does not provide input on how

this money is spent as we respect farmers’

right to self-determination.

$3,338

PER METRIC TON

FREIGHT ON BOARD

(FOB)

This is a blended cost of what we pay for cocoa beans

imported into the US and what we pay for cocoa beans

that are processed into cocoa butter and liquor, before

being imported into the US.

FOB cost is the price when our transporter takes

possession of the cocoa beans. This includes costs for

final processing, infrastructure, transportation, farmer

training and agronomists.

7


FAIR TRADE DEVELOPMENT FUND IMPACTS

Because of the

Watalinga Cocoa Farmers

Association emphasis

on using the fair trade

development funds for

education, 3,900

children now have

access to schooling in

their community.

The Watalinga Cocoa Farmers Association development fund spending:

THEO’S

CONTRIBUTIONS

TO COCOA

FAIR TRADE

DEVELOPMENT

FUND

per Contract Year

2018:

$360,00O

2019:

$245,000

SINCE 2005:

$1.9

MILLION

BUILDING A LOCAL

UNIVERSITY

FUNDING LOCAL

COMMUNITY PROJECTS

2017-2018 CROP

35% 23%

40% 2%

2018-2019 CROP (PLANNED)

29% 20%

47% 4%

CASH FOR FARMERS

FUNDING THE

WATALINGA COCOA

FARMERS ASSOCIATION

Community projects consisted of: building 16 classrooms, equipping 7

previously existing classrooms, 2 new primary schools, 4 health clinics,

1 pharmacy, 1 store, funding a rabbit breeding/sewing/literacy program

8


OTHER INGREDIENT FAIR TRADE DEVELOPMENT FUNDS

Theo’s purchases of other ingredients have also contributed over $147,000 to fair trade development funds.

The two highest volume ingredients we buy, after cocoa, are sugar and coconut.

SUGAR: $141,44O

began sourcing fair trade in March 2014

INGREDIENT SOURCING

COCONUT: $6,300

began sourcing fair trade in January 2016

Every ingredient used in our treats has a purpose. It has been thoughtfully chosen to provide the best flavor experience

while using minimal ingredients. We leave out lower-quality, lower-cost fillers, for example, choosing to use 100% cocoa

butter instead of soy or sunflower lecithin emulsifiers.

Whenever available and possible, we are committed to choosing ingredients that are:

Fair trade certified • Organic • 100% soy and palm oil free • Kosher certified • Local

THIRD-PARTY CERTIFICATIONS

We’ve chosen to certify our products with rigorous third-party organizations, so you can

trust that the statements we make about our ethical and sustainable practices are true.

In 2019, we transitioned to a new icon on the front of our treats to demonstrate

our products are Non-GMO, the “Organic is Always Non-GMO” icon. We made

this change to educate our customers that when they see the USDA Organic

certification, they can rest assured that it is also Non-GMO.

We are proud of our Fair for Life and For Life fair trade certifications because we believe

they have some of the highest standards, covering both the ingredients we buy and our

business practices across the entire supply chain. We are currently the only chocolate

maker in the United States with these certifications.

97%

of our 2019

product sales

came from

organic and fair

trade certified

products

Fair for Life certification covers our products

so you can trust they are made in an ethical

manner with a responsible supply chain.

We encourage you to review our most recent certification audit results:

Fair For Life results. For Life results.

Learn more about all our certifications.

For Life certification covers our company.

It validates that our company and business

practices are socially responsible.

WHAT’S NEXT IN 2020:

• Living income prices for cocoa were recently identified for Ghana and Ivory Coast. In the absence of research that

identifies a living wage cocoa price for DRC, Theo or our trading partner ESCO Kivu, will be talking with farmers to validate

that the prices they are paid contribute to earning a living wage.

• Our trading partner, ESCO Kivu, has always paid farmers in Watalinga above conventional market prices for organic cocoa

beans on Theo’s behalf. In 2020, we will partner with ESCO Kivu to determine a cocoa floor price in case the price of cocoa

drops in the future.

9


workplace & responsible

manufacturing

At Theo, there are two elements we focus on to foster a great work environment: our culture and responsible

manufacturing. At the end of 2019, Theo employed 97 people, 7 of which were seasonal. All employees are central

to achieving our mission.

FAIR TRADE WORKPLACE

We are proud to be the only chocolate company in the United States that is Fair for Life fair trade certified. This

certification is unique in that it not only checks how the producers of the ingredients we buy are treated, but it also

annually audits our own office and production facility to ensure people who work for Theo are paid and treated fairly.

Our current workplace score from the October 2019 audit is 194 out of 240 points for base standards. We received 27

bonus points for areas above the base standards.

Please learn more about our Fair for Life certification audit results at fairforlife.org

CULTURE

Theo’s workplace culture is honest and inclusive. To involve all employees in how the company is run, we have a group

that meets every other month called TheoLink. This provides a way for employees to collaborate, communicate and

enact new ideas to improve the company and community. In past years, TheoLink has been responsible for identifying

and implementing the following workplace improvements:

• Enhanced alternative transportation benefits

• Waste reduction opportunities, including new compost bin locations

• Ways to encourage volunteerism

• Improvements for annual company employee events

Additionally, the company shuts down once every three months for an All Team Meeting to ensure critical communications

reach everyone. At the end, the Leadership Team sets aside time to answer any questions or take new ideas.

SAFETY

As a manufacturing facility, safety for Theo employees is a top priority. In 2019,

we invested heavily in improving safety in our factory. A new cocoa bean roaster

not only increased our production capacity, but also provided significant safety

enhancements versus the previous roaster. New engineering improvements,

manufacturing processes, and safety training were also put into place.

When a safety incident does occur, our Safety Committee identifies new ways

to fix concerns. This resulted in workplace adjustments in 2019, like changing

out knife styles after accidental lacerations and reducing compost barrel sizes

to lessen weight being lifted.

10


Over the past year, significant changes in our employee safety programs and culture were instituted. We believe the enhanced

focus on Safety is increasing people’s comfort to report less severe incidents or report earlier after an incident occurs. While the

total number of reportable safety incidents increased in 2019 vs 2018, the severity of incidents decreased.

Safety Tracking

2018

2019

REPORTABLE SAFETY

INCIDENTS

3

16

Source: OSHA 300A Form

Safety Incidents by Quarter

8

% OF INCIDENTS

WITH MISSED WORK

33%

19%

AVERAGE # DAYS ON MODIFIED

WORK ASSIGNMENTS

160

54

3

4

1

Q1 (JAN-MAR) Q2 (APR-JUN) Q3 (JUL-SEP)

Q4 (OCT-DEC)

Throughout 2019, our focus on safety brought down the number of reportable incidents across the quarters despite an

increase in production hours in the back-half of the year. So far in Q1 of 2020, only one reportable incident has occurred vs

the eight that occurred in 2019.

In 2020, our goal continues to be an on-going reduction in both incidents and missed work. We continue to identify ways

to enhance safety and will conduct manager safety training in the factory, warehouse, and confection kitchen.

BENEFITS

In 2019, we finished collecting employee feedback on what would make Theo an even better place to work. In response,

we rolled out key benefits enhancements.

Wellness Series:

Including free, on-site health screenings and

series of health education sessions

Life Insurance:

Voluntary Life Insurance offered

Medical Premium for Dependents:

Increased from 25 to 35%

Vision:

Added glasses/contacts benefit

401k

Transportation Benefits:

Increased transit subsidy and began carpooling and

bicycling incentives

401k:

Increased to 3% match

Financial Wellness:

Financial planning, credit counseling and first-time

home buyer education and down payment assistance

Parental Leave:

Eight weeks of full pay

Parental Leave, enhanced dependent coverage, and the 401k match increase were planned for 2020-2022, but we were

able to launch them earlier than anticipated. In 2020, we will continue assessing the best course to support Theo

employees’ health and interests.

11


environmental impact

At Theo, we take steps to reduce the negative environmental impact our business practices may have.

In our Seattle Factory, we actively compost and recycle any materials possible. This past year we installed a new

cocoa bean roaster and partnered with our county regulatory agency to pioneer the first cocoa roasting regulations

in Washington State. These efforts involved establishing limits for VOC’s, smoke opacity and particulate emissions to

ensure there are no negative environmental impacts from the cocoa cleaning and roasting process. We are proud to

roast cocoa without any daily limitations. This is a result of the time and investment made to ensure our new roaster

operated well below the state’s emission limits.

2019 UTILITIES USAGE

As a growing company, the overall utilities used are increasing as we run our factory for more hours. Due to this, in

2019 we began tracking the efficiency of our utilities used per pound of chocolate manufactured. Our goal moving

forward is to decrease the amount of utilities used per pound of chocolate made.

Efficiency of utilities used per lb chocolate made:

ELECTRICITY: KWH GAS: THERMS WATER: GALLONS

2019 0.63 0.011 0.57

In 2020, we will start looking at feasibility of several efficiency projects to reduce our use of critical resources.

• Electricity reduction through lighting replacement with high-efficiency technology

• Water recycling and reuse in manufacturing

• Natural gas reduction through improved use of insulation and replacement of inefficient equipment

2019 WASTE CONTRACTS

Our waste contracts with City of Seattle waste management

are heavily weighted to Compost and Recycling services.

However, we do not track the actual pounds picked up. We will

be working to identify a method to quantify and reduce our

garbage waste stream.

Recycle

35%

Garbage

22%

Compost

43%

Cardboard: In addition to city recycling, we work with a recycler

who picked up 26 tons of cardboard this past year.

12


PACKAGING

In 2019, we initiated a project to understand the benefits of moving from petroleum-based plastic packaging to

plant-based flexible packaging. Pending results of production and shelf study tests, we plan to transition all products

in flexible packaging to plant-based packaging in 2021.

Results found the transition will reduce

Emissions resulting

in toxic freshwater

impact by

14.8%

Fossil fuel use by

23.9%

annual savings that could power

3 average US homes per year

Greenhouse gas emissions by

1.95%

Each year this is the same amount of carbon that is

sequestered by 23 tree seedlings grown for 10 years

EMPLOYEE TRANSPORTATION

Alternative transportation subsidies are available for employees who commit to take public transportation,

bike, carpool or walk. In 2019, we enhanced these subsidies to reduce single occupancy car commuting.

21%

of Theo employees elect

to receive alternative

transportation subsidies

AGRICULTURAL PRACTICES

Smallholder cocoa farmers tend to live on their farmland, so organic

practices have a direct impact on the health and safety of their families

and communities, along with the earth.

In Eastern Congo, our trading partner ESCO

Kivu employs 17 agronomists. These

agronomists support farmers with

sustainable cocoa growing training, including

regenerative agriculture practices.

11,000

hectares of

cocoa that are

organically

farmed

INGREDIENT TRANSPORTATION

When transporting cocoa from Eastern Africa and sugar from Brazil in 2019, we used lower environmental impact

options such as rail and boat instead of driving and flying product. This reduces emissions, and the costs, of bringing

ingredients to Seattle.

13


community involvement

Theo supports the creation of thriving and resilient communities. There are three ways we have traditionally been

involved in supporting the communities where we do business.

CASH DONATIONS

Since 2005, Theo and our customers have donated $92,000 to at least 29 organizations through the

proceeds of selling various partnership bars.

PRODUCT DONATIONS

Over the years, Theo has donated products to non-profits and Food Lifeline for redistribution to food banks and meal

programs throughout Western Washington.

In 2019:

38,000 lbs

of chocolate donated to Food Lifeline

EMPLOYEE VOLUNTEERING

Theo encourages employees to actively contribute to the community by

providing paid time off for volunteering, what we call Theo Match.

For every two hours an employee volunteers, outside of work, for a

charitable organization, Theo pays a bonus equivalent to one hour of the

employee’s regular pay, up to twelve bonus hours each calendar year.

$8,500

of finished goods donated to non-profits

In 2020, our goal is to develop a community involvement strategy to

ensure we are strong partners in the communities where we do

business, both Seattle and Cocoa Origins. 2018

Hours employees

volunteered through

Theo Match:

112

91

2019

ACKNOWLEDGEMENTS

Thank you to the many people who make Theo the unique, mission-driven company it is:

Theo employees (past and present) whose day-to-day passion and hard work brought these results to life.

• ESCO Kivu and the cocoa farmers in Watalinga, Eastern Congo who partner to produce ethically and sustainably

grown, delicious cocoa in an environment of on-going instability.

Theo customers who join us hand-in-hand to create positive change through chocolate.

The focus of this report is on the most material areas of impact, so not all of Theo’s business practices are covered.

We welcome any feedback you have - please send your questions or comments to Info@TheoChocolate.com

We look forward to continuing the conversation with you.

14


key performance indicator

& action plan summary

Ethical Sourcing

KPIs

Organic cocoa purchased

• 1,225 mt in 2019

• 10,000 mt historically

Average price for cocoa (usd/mt)

Theo paid $3,338 in 2019

• +40% vs c-market $2,312

Fair Trade development funds

• $245,000 for 2019 contract

• $1.9 million historically

2019 cocoa bean purchases restated April 2020

Action Plans

• DRC farmer conversations to

validate current pricing is

contributing to earning a living wage

• Setting farmer cocoa floor prices

with ESCO Kivu

Workplace

Employees: 97

2019 Safety incidents: 16

Fair for Life workplace score: 194,

+27 bonus points

• Continue reporting Safety incident

numbers and conduct safety training

• Assess the best course to support

Theo employees’ health and interests

Environment

Utilities used per lb of chocolate

made:

• Electricity: 0.63 KWH

• Gas: 0.011 Therms

• Water: 0.57 Gallons

Employees receiving alternative

transportation subsidy: 21%

Organic hectares of cocoa: 11,000

• Progress on assessment and

implementation of utility efficiency

projects

• Plastic packaging: Progress on

transitioning flexible packaging to plant-based film

by the end of 2021

Community

Donations & Contributions

• $92,000 in cash contributions since founding

2019 product donations: 38,000 lbs

chocolate plus $8,500 in finished goods

Employee volunteer hours through

Theo Match

2019: 112

Develop a community involvement

strategy to ensure we are strong partners in

the communities where we do business - both

Seattle and Cocoa Origins

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