General Mills Takes on Climate Change

The consumer products sector is both a contributor to and victim of the adverse impact of the global increase in greenhouse gas emissions. General Mills, producer of beloved brands like Cheerios, Häagen-Dazs and Yoplait, is one of many packaged food companies recognizing their role in climate change, and the threat it poses to their long-term viability. De-forestation, declining water supply, warmer temperatures and more frequent extreme weather events are putting pressure not only on the productivity, availability and cost of raw ingredients but also company owned manufacturing facilities vis-a-via potential future regulatory requirements for water/waste discharge and carbon emissions. Taken together, the impact of climate change if not addressed will hinder the ability of General Mills to “deliver quality, finished product to consumers and ultimately, value to shareholders”1. To date General Mills has committed to reduce greenhouse gas emissions across their entire value chain – “from farm to fork to landfill”2 – 28% by 2025, and 41%-72% by 2050.

Company Actions

General Mills has one of the most comprehensive climate change policies in the industry, focusing primarily on the upstream (i.e. suppliers) and its direct operations.

 Upstream

According to John Church (EVP of Supply Chain), almost two-thirds of total greenhouse gas emissions occur upstream of General Mills direct operations, primarily in agriculture3. In response, the company is focused on the role of sustainable farming practices to reduce climate impact and mitigate concerns around access of raw ingredients. General Mills sustainable agriculture strategy includes: one, a commitment to sustainably source 100% of their 10 key ingredients (50% of total ingredients) by 2020; two, investments in a proprietary plant breeding program with the goal of providing climate resistant seeds; three, support for innovation that helps farmers track their environmental impact; and four, development of systems that help farmers identify and more rapidly adapt to changes in the weather1. General Mills also recognizes that organic farm practices focus on “healthy soils [that] help sequester carbon, enable farms to have a higher tolerance to drought and heavy rains and promote biodiversity so the farm can continue to be more successful in adapting to changing climate conditions”3. Consequently, the company is actively looking to source from an additional 250,000 organic acres by 2025.

Direct Operations

General Mills has been focused on reducing the carbon footprint of its direct operations since 2005, successfully decreasing greenhouse gas emission by 13% as of 2015 3. The company’s efforts which are ongoing have included the following. One, minimizing energy use at manufacturing facilities by leveraging energy meters on key equipment and deploying strict energy conversation policies. Two, identifying alternative energy sources at each manufacturing facility. For example, General Mills recently began burning discarded oat hulls from Cheerios production and converting whey from Yoplait production into biogas, to power the associated manufacturing plants. Three, optimizing product transportation to increase utilization, and thus decrease greenhouse gas emissions during transit.4

Additional Recommendations

The contribution of the consumer product sector to global climate change is unique in that most of it occurs upstream, outside of the direct control of packaged goods manufacturers like General Mills. Thus, the long-term success of General Mills in mitigating the negative impact of climate change on its business, is highly correlated to their ability to persuade suppliers to decrease their carbon footprints.

I believe there is an opportunity for General Mills in collaboration with other packaged food manufacturers to take a stronger stance with suppliers by threatening to end relationships with those that don’t materially reduce greenhouse gas emissions. I think this would apply the pressure necessary for the agriculture sector to respond quickly and effectively to climate change. Along similar lines, I also think General Mills, given their household penetration, has an opportunity to educate/change the behavior of consumers with respect to their environmental impact (i.e. encouraging consumers to recycle). By exerting their influence over both upstream suppliers and downstream consumers, General Mills can augment its impact on the global response to climate change.

I would also encourage General Mills to evaluate their supply chain to ensure it is resilient to supply/price shocks, a byproduct of climate change. This could take the form of buying commodity futures to hedge prices on key ingredient, establishing a diverse supplier base to hedge supply shocks, and leveraging R&D to explore the use of alternative materials/ingredients in production in the event of disruptions. Additionally, I think General Mills should continue to look for innovative ways to improve operations (transportation, equipment, manufacturing process, facilities) primarily through investments in greenhouse gas emission reducing technology, as well as get their facilities 100% LEED certified. Currently only 12% of the square footage at headquarters and 30% of space in their North America distribution centers is LEED certified2.

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Sources Used:

  1. “Policy on Climate”. General Mills Inc., July 2014. https://www.generalmills.com/News/Issues/climate-policy
  2. “2016 Global Responsibility Report”. General Mills Inc, 2016. https://globalresponsibility.generalmills.com/HTML1/general_mills-global_responsibility_2016_0036.htm
  3. John Church. “Inside the General Mills roadmap to a sustainable food future”. The Guardian, October 2015. https://www.theguardian.com/sustainable-business/2015/oct/23/general-mills-sustainable-supply-chain-un-climate-conference-paris
  4. “General Mills: Environmental Sustainability – Greenhouse Gases”. http://www.generalmills.com/~/media/Files/sustainability/GM_greenhouse.ashx

 

 

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4 thoughts on “General Mills Takes on Climate Change

  1. Thanks for the post – it was interesting to read about GM’s efforts to reduce its environmental impact by considering its internal operations, those of its suppliers, and your suggestions on consumer education. Another avenue I think GM is using is advocacy work. Along with other food companies, it has signed the Climate Declaration, is a member of Ceres’ Business for Innovative Climate and Energy Policy (BICEP), and is working to convince lawmakers to act on the climate change issue. Given GM’s size and that of the industry, these initiatives could prove to be powerful in spurring governmental responses. One other thing to note is that GM took a leadership position in its policies around climate change, eliciting responses from competitors such as Kellogg’s.

    http://www.environmentalleader.com/2015/10/05/food-giants-urge-climate-change-action/
    https://www.oxfamamerica.org/press/general-mills-takes-bold-stand-for-climate-action/

  2. Great post. I agree GM has incredible buying power and leverage over their suppliers. However, given their suppliers are a fragmented industry, and biodiversity (crops coming from different places made in different ways) is important to crop yield and plant-species longevity, is applying more pressure on suppliers an argument for consolidating the ever less-competitive farming industry? Alternatively, if GM truly wants to change the process, is this an argument for their own vertical integration on farming? They are already helping support resistant seeds and practices. Don’t know if that is economical for them but thought it may be an interesting point. Thanks for sharing your perspective on this!

  3. Very interesting post, thank you for sharing! I’m an intense consumer of GM’s products and I didn’t know about their role in climate change. This makes me think that, like me, millions of people consume (and thus, see) GM’s packages every day. Hence, I thought that, as an additional measure, they could advertise the actions the firm is taking towards sustainability or even educate the consumers by writing different quotes in their packages. This quotes should be short actions that consumer could easily take at home (use less water, control the use of light, etc.). This would also help GM improve its image among consumers. It’s a win-win!

  4. Great post! Regarding General Mill’s goals to sustainably source 100% of their 10 key ingredients, how much progress have they made? I applaud them for setting these goals, but I wonder if supply can keep up with increased demand. I know in regards to organic food supply, demand has been increasing in the US and outpacing supply. Farms can not make the switch fast enough. I would imagine there is a similar issue for sustainably sourced ingredients (however General Mills chooses to define it) and General Mills is hampered by the speed at which its suppliers can convert. I would be interested in hearing how they expect this sourcing to impact their pricing and/or margin. Consumers would be willing to spend more on a product from a company that is committed to positive social and environmental impact, so I am not worried about an incremental cost, but General Mills will have to do a better job of associating sustainability with its brand image if it wants to capture those consumers.

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