Kellogg’s Leadership in Fighting Climate Change

Kellogg is committed to reducing GHG emissions in its supply chain to prevent long term costs of climate change-driven disruption and cost inflation

“The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.” – Donald Trump

President Trump has since backtracked on the above 2012 tweet, referring to it as a joke, but the sentiment behind it is still felt by pockets of the business community. The fossil fuel industry in particular is continually vocal about how adapting business practices to fight climate change is in conflict with economic interests, most recently evidenced by the contention over the EPA Clean Power Plan that will reduce GHG emissions at the cost of driving coal-fired power plant operators out of business. Conversely, in the agriculture sector, which accounts for roughly 25% of global GHG emissions[1], leading companies are embracing the climate change problem and illuminating the supply chain challenges and costs it presents.

Food company Kellogg has particularly been focused on how storms, floods, drought, and shifting weather patterns lead to reduced crop yields or crop failures that reduce access to and raise prices for key agricultural inputs. The impact of these trends is already significant to food and beverage companies today. Kellog competitor General Mills has reported that extreme weather cost the company 3-4% of its annual production in a given year. Unilever estimates it loses $415 million a year due to extreme weather events. Over the long-term, input prices of corn and rice are expected to double by 2030, with half of the increase due directly to climate change.[2]

Rather than simply managing the upstream component of its value chain around climate change, Kellogg is attempting to tackle the root problem by reducing its overall contribution to the global carbon footprint. In 2015, Kellogg announced GHG reduction goals across its entire value chain. At a high level, Kellogg has pledged to cut GHG emissions 65% across its own operations and help suppliers reduce their emissions by 50% by 2050. To initiate the long march to 2050, Kellogg has set specific objectives to tackle over the near-term, focusing on reducing natural resource consumption in its manufacturing processes and sourcing responsibly upstream. On the resource consumption side, Kellogg has committed to expand the use of low-carbon energy in its plants 50% and implement water reuse projects in 25% of plants by 2020. On the supplier management side, Kellogg has pledged by 2020 to enable 500,000 farmers to implement climate smart agricultural practices, engage 75% of tier 1 suppliers to publicly disclose progress on emissions reductions and for its 10 priority ingredients, to achieve full sourcing from only environmentally responsible suppliers.[3] Kellogg has already made meaningful progress and is on track to meet much of its 2020 goal agenda, however, for the period beyond 2020 Kellogg has not communicated additional specific initiatives. The company has indicated publicly that it is undergoing a detailed road-mapping process both internally and with suppliers, iterating based on the results of its 2020 initiatives.

While Kellogg is making progress in reducing its own carbon footprint, isolated action is not enough to make a scaled impact. Kellogg is one direct contributor among many to GHG emissions (Kellogg’s 2017 revenues were ~$12 billion vs. global agricultural GDP of over 3 trillion)[4] and its initiatives will be meaningfulness if it there is not widespread diffusion of climate smart practices across the industry. Kellogg has taken on a leadership role along with other leading food and beverage companies, raising public awareness through media and collaborating with governments and NGOs to guide public policy. Kellogg was one of the 360 companies that issued a sharp rebuke to the U.S. withdrawal of the Paris climate accords. Where Kellogg should modify its leadership strategy is by refocusing the discourse around the business case for climate smart practices in order to shift norms in the private sector. Much of the rhetoric in Kellogg’s public communications around climate center on the critical social impacts, such as food security and homelessness.

It’s optically better for Kellogg to claim it cares more about the human cost than economics, however, pushback from the energy and other high-emission industries frames the tradeoff as economic destruction for a social good. Kellogg could actually drive more impact by more explicitly highlighting that it makes sense to be climate smart just to insulate itself from cost inflation and operational cost overruns. This can help shift sentiment in the broader business community to realize that embracing climate change is not a destructive but constructive economic force, and go a long way in accelerating global adaptation of climate smart.

One area I am unsure about is how Kellogg should prepare to respond to extreme weather events as they occur. Regardless of current GHG emission reduction efforts, there will be some level of increasing global warming moving forward and I wonder what supply chain design decisions would help Kellogg cope with this.

[1] Intergovernmental Panel on Climate Change, “2013 Fifth Assessment Report”, http://www.climatechange2013.org/images/report/WG1AR5_ALL_FINAL.pdf, accessed November 2017.

[2] Oxfam International, “Standing on the Sidelines”, https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp186-standing-sidelines-big10-climate-emissions-200514-summ-en_0.pdf, accessed November 2017.

[3] Kellogg, “2016/2017 Year End Sustainability Milestones”, http://www.kelloggcompany.com/content/dam/kelloggcompanyus/corporate_responsibility/pdf/2017/Year%20End%20Sustainability%20Milestones2017.pdf, accessed November 2017.

[4] World Bank, “World Bank National Accounts Data”, https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS, accessed November 2017.

[5] Kellogg, “Global Sustainability Commitments”, http://www.kelloggcompany.com/content/dam/kelloggcompanyus/corporate_responsibility/2017/Kellogg_Global_Sustainability_Commitments_Feb_2017.pdf, accessed November 2017.

[6] Oxfam International, Winston Eco-Strategies, “Global Sustainability Commitments”, http://www.kelloggcompany.com/content/dam/kelloggcompanyus/corporate_responsibility/2017/Kellogg_Global_Sustainability_Commitments_Feb_2017.pdf, accessed November 2017.

[7] Kellogg, “Climate Policy”, http://www.kelloggcompany.com/content/dam/kelloggcompanyus/corporate_responsibility/pdf/2016/Kellogg%20Company%20Climate%20Policy3-9-16.pdf, accessed November 2017.

[8] Kellogg, “Nurturing Our Planet”, http://www.kelloggcompany.com/content/dam/kelloggcompanyus/corporate_responsibility/pdf/2017/NurturingOurPlanet.pdf, accessed November 2017.

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11 thoughts on “Kellogg’s Leadership in Fighting Climate Change

  1. (800 words)

  2. Interesting topic. In addition to reducing their contribution to the global carbon footprint, and actively influencing policy, I agree that it is critical for Kellogg to take action to minimize the impact of severe weather events on their supply chain. Many companies, consulting firms, and research groups have been building strategies for how to be prepared for such events. I found this blog post (link below) to be particularly insightful, laying out 3 concrete actions organizations could take to prepare:
    1) Developing a contingency plan: “For example, if your main supplier of a certain food is in Florida and that state gets hit with a hurricane, do you have a secondary supplier in place?”
    2) Running test drills: To ensure that your contingency plans are adequate, running “fire drills” can help expose weaknesses in your plans in order to help you better prepare for the real emergency.
    3) Taking stock of underlying technologies: Ensure that IT systems are capable of supporting disruptions in supply chain in high-intensity, time-sensitive situations.

    https://www.covisint.com/blog/how-extreme-weather-affects-the-global-food-and-beverage-supply-chain/

  3. Reading about Kellogg’s efforts to reduce their carbon footprint reminds me of the Ikea case. Interestingly enough, Ikea was able to make investments that were beneficial to the environment and came with a positive ROI. I wonder if there are creative ways that Kellogg can impact the environment (i.e. smarter packaging) that can also achieve this dual win.

  4. Excellent analysis of how a major contributor to climate change is trying to clean up its own operations. The author poses an interesting dichotomy between the current political resistance to acknowledge and address climate change and corporate attempts to constructively help. It is surprising that politicians claim to represent corporate interests by trying to prevent increases in their costs but many corporations themselves are willing to invest in initiatives to protect the environment and their own businesses in the long run. I wonder how long companies such as Kellogg can sustain their investments if more widespread political change does not occur.

  5. Great article! It is very reassuring to see that companies continued to invest and develop sustainability programs regardless of presidential (mis)governments. As Mrs. Marissa has already brought some mitigation strategies to minimize the impact of extreme weather events into Kellogg’s supply chain, I would like to bring to the table another perspective of this very same problem: Kellogg’s 500,000 farmers.

    Very often, extreme weather events are localized (hail, frost, floods) and individual farmers are impacted into very different ways. Kellogg’s portfolio of suppliers is likely to provide a great level of protection to those events, and as Mrs. Marissa highlighted: if your main supplier gets hit with a hurricane, you will want to have a secondary supplier in place. But what about your Florida supplier? Is Kellogg simply going to move on and let the Florida supplier by itself?

    Farmers, specially small ones, are very dependent on yields from one harvest to be able to fund next year’s one and disruptions caused by such events can severely compromise their ability to sustain the business. Accordingly to the Food and Agricultural Organisation [1], farmers absorbs 22% of cost of disasters in developing countries and, when Kellogg thinks about sustainability, she cannot request its supply chain to follow sustainability guidelines and at the same time ignore the impact of clima change on its very own supply chain.

    In that sense, companies like Kellogg could, for example, leverage its scale to develop farmers cooperatives and help their suppliers when they need the most.

    https://www.theguardian.com/global-development/2015/mar/17/farming-absorbs-22-per-cent-cost-disasters-developing-countries-un-report

  6. Very interesting insight into Kellogg’s work to reduce its impact on climate change. My worry is that their efforts, while powerful on given their scale, may ultimately not be enough by themselves. However, it is clear that other players likely General Mills are following suit as seen below (1). Ideally, these efforts would be combined with broader policy actions from the government through focused lobbying efforts to improve the industries in a more rapid manner.

    “The companies’ goals as stated, are fairly straightforward:
    General Mills will cut absolute GHGs by 28% by 2025 “across the entire value chain.” By 2050 it will slash emissions up to 72%, with the exact number TBD, but at a pace that will keep them “in line with scientific consensus.”
    Kellogg’s 2050 target is to cut its own and supplier emissions by 65% and 50% respectively.”

    (1) https://hbr.org/2016/06/how-general-mills-and-kellogg-are-tackling-greenhouse-gas-emissions

  7. Thanks for sharing an interesting perspective on this important topic of climatic change impact on food industry and vice versa. I was impressed to read and learn about Kellogg’s initiatives to address climatic change. It was heartening to note that Kellogg is making efforts to both mitigate its impact on, and adapt to climatic change. I also appreciate the leadership role it has played along with other leading food and beverage companies in raising public awareness through media and collaborating with governments and NGOs to guide public policy. I think another area in which Kellogg could potentially pave the way is identifying and investing in technological solutions that help adapt to climate change. For instance, one such promising agricultural technology startup – Agrilyst – is an indoor-farm with better water retention, longer “sun” hours through LED lights, and adjustable CO2 levels, aimed at mirroring a ‘conducive climate of the past’ to help grow crops better [1]. In an indoor farm, water doesn’t inconveniently evaporate. LED lights can lengthen the hours of sunlight so plants can grow faster. CO2 levels can be tweaked. Even as the weather outside goes haywire, plants farmed indoors can live out an optimized version of the weather that they co-evolved with — the weather of the past or a weather-independent environment. By investing in such technologies, Kellogg can go a long way in dealing with climatic change and ensuring food security in the long term.

    [1] Heather Smith, “Will climate change move agriculture indoors? And will that be a good thing?”, Grist, February 3, 2016, http://grist.org/food/will-climate-change-move-agriculture-indoors-and-will-that-be-a-good-thing/, accessed November 2016

  8. More broadly speaking, where is the logical extent that Kellogg can take this thinking? Certain crops, such as almonds, are widely considered to be far less environmentally sustainable to grow and provide to consumers than other crops. This relates to water usage, and not climate change resulting from greenhouse gas emissions, but it falls within the broader umbrella of environmental sustainability. Does Kellogg take this to the point of exiting product categories where the product itself is arguably not environmentally sustainable in any large scale agricultural growing arrangement? Or do consumer preferences dictate the product offerings?

  9. Thanks Dawit – this is a really interesting read. Its fascinating (and heartening!) to see the extent to which Kellogg have developed a strategy to address the environmental impact of their operations and they appear to be implementing this in their manufacturing sites. I would argue however, that there are issues in their supply chain that they also should seek to address as part of their climate change agenda. Specifically, as a supplier to Kellogg, we found there was limited engagement on sustainability, but more of a price focus. As a major CPG player, they have a moral obligation to improve sustainability throughout the supply chain and they are uniquely well positioned to do this.

  10. Thanks for the great article. I agree that Kellogg is moving in the right direction through its initiatives to reduce its GHG emissions, carbon footprint, and environmental impact, but it is challenging to hold the company accountable on its progress. The data collection on carbon emissions would benefit from greater sophistication to more accurately quantify the environmental benefit of Kellogg’s initiatives, and the range and complexity of sources of environmental impact can be difficult for the company to manage.

    The methodologies widely used in industry to estimate emissions are often quite simplistic, failing to take into consideration idiosyncratic factors that affect environmental impact. Importantly, Kellogg and its peers, such as General Mills, have taken the additional step of welcoming public scrutiny and engaging with non-governmental organizations, leveraging work from CDP, the World Resources Institute, and others [1,2].

    Kellogg can continue to further sustainability goals by setting clear internal accountability targets, developing more thorough measurement methods, and maintaining transparency. By passing best practices to suppliers and setting ongoing, achievable, near-term targets, the company can further push the frontier of environmental impact in its industry [1].

    —–

    1. Winston A. How General Mills and Kellogg Are Tackling Greenhouse Gas Emissions. Harv Bus Rev. June 2016. https://hbr.org/2016/06/how-general-mills-and-kellogg-are-tackling-greenhouse-gas-emissions.
    2. Gowdy J, Winston A. Evaluation of General Mills’ and Kellogg’s GHG Emissions Targets and Plans: Independent Assessment Conducted by Winston Eco-Strategies for Oxfam’s behind the Brands Initiative. Oxford, UK; 2016. https://policy-practice.oxfam.org.uk/publications/evaluation-of-general-mills-and-kelloggs-ghg-emissions-targets-and-plans-indepe-610586.

  11. Dawitt, thanks for shedding some positive light on the maker of some of my favorite childhood cereals and snacks. While much of your article helps explain the goals and benefits for Kellogg as it relates to reducing GHG and combating climate change, I’d be interested to understand the cost structure dynamics at play here as well. You mentioned the financial impact of extreme weather events and input costs for corn and rice on the rise, but what are the costs of developing water reuse projects or low-carbon energy in its manufacturing plants? I also would agree with your point about Kellogg protecting itself from cost inflation and operational cost overruns, but I wonder what those savings realistically look like? Taking a look at high-level financials, it appears gross margins have compressed slightly over the past few years, but it operating margins have increased [1]. It would be difficult to attribute this to any particular eco-friendly business practice, but I did find that Kellogg has been working with OSIsoft on several of these energy efficiency initiatives. In a report published in 2016, OSIsoft claimed they saved a Kellogg manufacturing plant $3.3 million annually from reduction in energy costs [2]. This would seem to be quite a substantial impact given they have over 50 manufacturing plants worldwide. I hope Kellogg is able to recognize and publicize these results going forward, as it will certainly help them make a larger, industry-wide impact.

    [1] Morningstar Research, Kellogg Company, , Accessed November 2017.
    [2] Gothberg, John. Driving Sustainable Results in Energy Reduction. OSIsoft.com. 5 April. 2016. Web. 28 March 2017

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