Performance with Purpose: PepsiCo’s move to a sustainable supply chain

PepsiCo's size, brand power, and ambitious renewable energy targets could create a domino effect that has a widespread impact on the energy efficiency of supply chains and increased clean generation capacity.

Human activity is burdening our atmosphere with global warming emissions, and many of the world’s most revered companies are under increasing pressure and scrutiny to reduce their carbon footprints. By replacing oil, coal, and nuclear power with renewable energy sources, such as solar and wind, organizations can both establish themselves as good corporate and environmental stewards and reap the associated business benefits. Leveraging renewable energy protects companies from shifting oil prices, and it allows them to win business from other sustainability-focused organizations to potentially drive growth.[1] Not only is the private sector realizing that adopting the green trend is the right thing to do, it is also realizing that the Carbon Disclosure Project (CDP) is prioritizing supply chain engagement as a key component is its rating and reporting structure. For PepsiCo and other major corporations, a complete switch to renewables could ignite a domino effect, enhancing data disclosure and stimulating demand for clean energy across their supplier networks.[2]

The number of brands exploring the transition to 100 percent clean energy has been influenced by the RE100 initiative, which currently consists of 111 members.[3] While companies such as Anheuser-Busch and Mars have garnered significant media attention for their commitment to power their operations with renewables, PepsiCo is also taking strides to make its supply chain more sustainable.

Just recently, PepsiCo reported continued progress in strengthening its palm oil supply chain, including initiatives to promote human rights, responsible land use, and increased supplier transparency. The ultimate goal is for all palm oil to be sustainably sourced by 2020. As part of a progress report, PepsiCo reported that 89 percent of the palm oil it expects to use during 2017 has been traced to the mill level, up from 65 percent in 2015. In addition to traceability improvements, the company has introduced a scorecard that will enhance collaboration with direct suppliers and measure performance against several environmental metrics. Finally, PepsiCo has formalized its grievance system for dealing with claims of supplier misconduct. While these actions aren’t as drastic as those of other players in the consumer goods industry, they could prove to have a broad societal impact and influence the behavior of slow-moving companies in the space.[4]

In the medium term, PepsiCo has committed to reduce absolute greenhouse gas (GHG) emissions across its value chain by at least 20 percent by 2030. This target is in line with what climate science deems necessary to keep global warming below two degrees Celsius, and will build upon the 18 percent energy efficiency improvement the company achieved between 2006 and 2015. In order to achieve this goal, PepsiCo plans to follow a three-step process:

1.)   Transition to renewables in manufacturing processes where feasible

2.)   Work closely with both suppliers and farmers to decrease their GHG impacts through the PepsiCo Sustainable Farming Initiative

3.)   Implement less GHG-intensive packaging materials

Mehmood Khan, PepsiCo Vice Chairman and Chief Scientific Officer, highlighted his obligation to limit the impact of climate change:

“We believe combating climate change is critical to the future of our company, our customers, consumers and our world.  Our new target represents a meaningful and measurable contribution to meeting the two-degree global goal. Such rigor is now a requirement of any responsible business.”[5]

While PepsiCo is making great progress in reducing global warming emissions, I have a few recommendations that could potentially lead to a more resounding impact. Though PepsiCo is working with current suppliers to make their processes more environmentally friendly, I would encourage the company to follow in Apple’s footsteps and sign on additional suppliers that are devoted to procuring and generating clean power. In addition, I would actively recommend to them energy companies that offer verified renewable products. As cited earlier, anticipated energy price increases and taxes can also be used as incentives to lure in suppliers and reduce energy consumptions. Finally, to achieve scale and further drive down prices, I would leverage PepsiCo’s size and influence to form a buying group, inviting suppliers to band together as one entity to acquire and utilize renewable energy. A move such as this will surely attract the attention of other large organizations looking to benefit both financially and in the eyes of its consumers, resulting in a group of companies purchasing clean energy and allocating it back to their supply chains.[2]

Though the issue of climate change and trends toward sustainable energy in supply chain systems will undeniably evolve throughout my career, a couple of questions linger in my mind:

1.)   How does PepsiCo strike the appropriate balance when approaching suppliers to adopt renewables? Will it impact efficiency or take precedent over other projects they are working on?

2.)   Finally, are renewables the solution to lower emissions? How reliable are they in relation to fossil fuels, and are these sources actually growing as quickly as publicized?

(Word Count: 799)

References:

[1] Gordon, Kate. “Risky Business: The Economic Risks of Climate Change in the United States.” June 2014.

[2] Mace, Matt. “Domino Effect: Businesses Urged to Promote Renewables into Supply Chains.” Edie Newsroom, Edie.net, Nov. 2017, www.edie.net/news/10/Domino-effect–Businesses-urged-to-promote-renewables-into-supply-chains/.

[3] Lewis, James. “Engaging Your Supply Chain on Renewable Energy.” Renewable Choice Energy, 6 Oct. 2016, www.renewablechoice.com/blog-supply-chain-engagement-renewables/.

[4] “PepsiCo Reports Continued Progress Towards Goal of 100 Percent Sustainable Palm Oil.” CSRWire.com The Corporate Social Responsibility Newswire. 4 Aug. 2017, www.csrwire.com/press_releases/40239-PepsiCo-Reports-Continued-Progress-Towards-Goal-of-100-Percent-Sustainable-Palm-Oil.

[5] “PepsiCo Embraces Science-Based Targets in the Fight Against Climate Change.” CSRWire.com The Corporate Social Responsibility Newswire, 18 May 2017, www.csrwire.com/press_releases/40007-PepsiCo-Embraces-Science-based-Targets-in-the-Fight-Against-Climate-Change.

Previous:

The impact of Brexit on Kerry Group

Next:

Disruption of Video Game Retailers

5 thoughts on “Performance with Purpose: PepsiCo’s move to a sustainable supply chain

  1. Brandon – nice article (and not a single word to spare). I found the data on palm oil to be particularly interesting, and probably worthy of its own essay. Specifically, I’ve heard a lot of rumors about palm oil – not just regarding its high saturated fat content (bad for…. a person’s cholesterol, I believe) but also the lack of sustainable farming practices in relation to land use, endangered species, and local populations. For these reasons (among others), I agree that PepsiCo needs to be more responsible in sourcing its products (palm oil in particular) from the farmer’s field to the consumer’s mouth.

    It also sounds like PepsiCo is making a number of public relations promises; the RE100, the CDP, and the PepsiCo Sustainable Farming Initiative all sound impressive, but is there any enforcement mechanism? In other words, if Pepsi decides to abandon the agreement, is there any punishment in-place. I have found that for any contract, treaty, or agreement to be enforceable, it has to carry weight and, in some cases, penalties. I would be curious if PepsiCo would volunteer to an agreement that carried penalties.

  2. Brandon poses an interesting question at the end of the article. He asks, “How does PepsiCo strike the appropriate balance when approaching suppliers to adopt renewables? Will it impact efficiency or take precedent over other projects they are working on?”

    A number of consumer product companies are leading significant changes through their suppliers when it comes to fighting the climate change battle. The purchasing power held by consumer companies and retailers gives them significant influence over their suppliers’ business practices. The supply-chain collaboration has led to a reduction in carbon emissions of more than 3.5 million tons, with suppliers saving an average of $1.3 million per emissions-reduction initiative. In recent years, consumer companies and others have adopted more sophisticated and effective methods for changing their suppliers’ practices. They have gone from disseminating codes of conduct, performing audits, and fielding questionnaires to helping suppliers design and implement sustainability programs that directly support the companies’ own goals. Campbell Soup Company, in collaboration with the Environmental Defense Fund, offers farmers technologies, guidelines, and products to help them optimize their fertilizer use and improve soil conservation. Digital technology has also increased companies’ ability to assist large numbers of suppliers. In 2014, Walmart launched a program to help thousands of its Chinese suppliers make their factories more energy efficient through the use of an online tool. The program has enabled the average supplier to reduce its energy consumption by an average of 10 percent. Unilever uses a software tool, developed with the University of Aberdeen, to collect data on whether farmers in its supply chain are using sustainable practices. Unilever offers them the tool for free, with the aim of procuring 100 percent of its agricultural content from sustainable sources by 2020 [1]. Pepsico can leverage some of these best practices as it collaborates with its suppliers.

    Endnotes
    [1] McKinsey & Company. (2017). Starting at the source: Sustainability in supply chains. [online] Available at: https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/starting-at-the-source-sustainability-in-supply-chains [Accessed 29 Nov. 2017].

  3. The palm oil supply chain was an interesting part of the article. I found it interesting that Pepsi wants to promote human rights and responsible land use, yet the only numbers they report are on supply chain traceability. If they have 89% of their supply traced to mill, they should be able to report on the human rights and land use status of those mills. Leaving out numbers doesn’t necessarily mean the numbers are bad, but it certainly raises questions.

  4. Great read, Brandon. You start out by acknowledging that PepsiCo and other industry leading corporations’ are taking on the role of corporate and environmental stewards, in turn for associated business benefits, whether through more favorable partnerships or positive PR. Responding to your first question regarding how PepsiCo can strike the appropriate balance between business interests and renewable adoption amongst suppliers, I think Pepsi has enough pull as a leading brand to establish supplier standards that will gradually lead suppliers to modify their practices if they want to retain and/or gain business with PepsiCo.

    Moreover, I think the public and/or interest groups can hasten PepsiCo’s progress to reduce global warming emissions by continuing to scrutinize PepsiCo’s practices and raise negative PR, when necessary, to escalate to PepsiCo’s strategists where change is most necessary. It’s no coincidence that Saved by the Bellhorn noted that he “heard a lot of rumors about palm oil.” NGOs and interest groups had publicly attacked PepsiCo’s sourcing and links to deforestation and lobbied PepsiCo to transform its palm oil supply chain. Emma Lierley, a communications manager with the Rainforest Action Network, disclosed that “PepsiCo has been engaged by hundreds of thousands of emails, online petitions, phone calls, written letters and on-the-ground actions from supporters of the campaign, and over the past three years, our team has had extensive engagement with their sustainability team on these issues as well.”

    While PepsiCo and major corporations like it are increasingly taking on more responsibilities to drive environmental and social impact through their business operations, as a public company, PepsiCo’s obligation is to maximize the value that it provides to its shareholders. This begs another question — do non-profits and environmental advocates have a role in pointing out where change is most needed in order to push companies like PepsiCo to focus on change, or are positive PR and advantageous supplier selection and other associated incremental business benefits enough to incentivize corporations to drive progress related to climate change?

    Source: https://www.triplepundit.com/2017/05/ngo-attacks-pepsis-palm-oil-sourcing-links-deforestation-human-rights-abuses/

  5. I’d love to tackle your second question about renewables. Renewables are an extremely effective way to reduce emissions. It is undeniable that solar panels produce no carbon emissions when generating energy, unlike fossil fuels. It is true that renewables are intermittent, meaning that solar panels only generate energy when the sun is shining and wind turbines only generate energy when the wind is blowing. However, battery technology is rapidly improving and largely solves the problem of intermittency. Renewables technology is getting significantly cheaper, driving huge increases in volume and penetration. For example, residential solar panels cost less than half of what they used to a decade ago. In 2016, solar accounted for 39% of all new electric generating capacity, more than the capacity coming from all other sources, including coal and natural gas. It’s clear that renewables have an enormous impact and can help us achieve the carbon emission reductions we need to avoid the catastrophic effects of climate change.

Leave a comment