The Climate Change Concern for PepsiCo
Climate change will have a negative impact on PepsiCo’s value chain in two large ways: the impact of higher temperatures and flooding on agricultural yield and a dwindling fresh water supply.
First, climate change poses a direct danger to the availability and costs of agricultural raw materials. PepsiCo relies heavily on raw agricultural materials for their products. Through increasing temperatures, droughts, and extreme flooding, studies from the EPA that climate change harm the quantity, quality and cost of agricultural crops and the global food supply at large.
PepsiCo should be alarmed by these prospects as their supply chain is so dependent on the availability, and prices of the agricultural market.
Second, climate change is posing a significant threat to the global supply of fresh water – a key component of PepsiCo’s supply chain. A report from the Intergovernmental Panel on Climate Change stated that increasing temperatures from climate change will lead to intense water scarcities throughout the world. In 2016 alone, the costs to businesses of conditions such as droughts, water scarcity, and pollutions was $14 billion, an 81% increase from 2015.
This is troubling for PepsiCo because fresh water is not only a key ingredient for their beverages, but also because many of the areas affected are strong agricultural suppliers for PepsiCo. These suppliers rely heavily upon a clean water supply. In fact, 70% of all the world’s fresh water is used by the agricultural industry.
PepsiCo’s Addresses The Concern
PepsiCo has announced plans to address the climate change issues affecting their supply chain by focusing on two big areas: Greenhouse gas emissions (GHG), and increased water efficiencies
GHG Emission Reduction
In May 2017, PepsiCo announced its vision for GHG reduction as part of its Performance with Purpose initiative. The plan lays out steps for achieving a 20% reduction in GHG emissions across the PepsiCo value chain over the next decade. PepsiCo focuses its efforts on reducing Scopes 1, 2, and 3 emissions across its supply chain..
Scopes 1 and 2 Emissions
Scopes 1 and 2 emissions include on-site energy generation, fleet fuel, and purchased electricity. PepsiCo plans to reduce their Scope 1 emissions in the following ways:
- Improvements to energy efficiency through their Resource Conservation (ReCon) program. This is a global comprehensive platform of tools and resources to improve energy, water and waste efficiencies in their manufacturing processes.
- Increased use of on-site renewable energy. The firm is in the process of transferring the energy supply of many of their plants to renewable sources.
- Improvements in fleet efficiency. The firm has already transferred many of their fleet vehicles to full-electric (EVs) or Compressed Natural Gas (CNG), which emits far fewer GHG tailpipe emissions than a traditional diesel freight truck. The company will continue these efforts over the next ten years.
Scope 3 Emissions
PepsiCo’s greatest opportunity for GHG reductions is in Scope 3 emissions – which currently account for 92% of the firm’s entire carbon footprint. For PepsiCo, these emissions come primarily from operations in farming, packaging, manufacturing and third-party transportation. The firm plans to reduce Scope 3 emissions by:
- Improving vendor and cooler efficiencies
- Developing alternative packaging materials,
- Increasing recycled content in packaging materials.
- Incorporating environmentally-conscious design into product development process.
PepsiCo was able to reduce its operational water use per unit of production by 26% in 2015 compared to 2006. This saved the firm more than $80 million during 2011 – 2015. The firm plans to continue these efforts by increasing the water efficiency in their operations and partnering with farmers and governments to better replenish local watersheds.
At large PepsiCo claims that its broader environmental sustainability agenda has delivered to the firm more than $600 million in cost savings over the past five years. These continued efforts over the next 2 – 10 years will assist the firm in adapting to the circumstances and capturing significant value.
Other Steps for PepsiCo to Take
In addition to the steps already being taken, I would recommend that PepsiCo work to improve the communication systems across all stakeholders in their supply chain. We know that better communication and information flows will allow supply chain stakeholders to be more efficient across the whole chain. If PepsiCo can integrate communication systems that allow their processing plants to be in sync with their agricultural and water suppliers for instance, then the firm would have a better sense of climate conditions and be able to better prepare.
A lasting question for me is in what ways will an increase in flooding affect PepsiCo’s ability to efficiently transport goods throughout its supply chain?
According to the Greenhouse Gas Protocol, scope 1 emissions are ones that occur directly from the firm’s plants and operations, scope 2 emissions occur from the firm’s consumption of purchased electricity, heat or steam, and scope 3 emissions are an indirect result from activities in the firm’s supply chain such as transportation activities, the extraction of raw materials and fuels, and waste disposal
 Climate Impacts on Agriculture and Food Supply. The U.S. Environmental Protection Agency. https://19january2017snapshot.epa.gov/climate-impacts/climate-impacts-agriculture-and-food-supply_.html#crops
 Climate Change and Water, Intergovernmental Panel on Climate Change. http://www.ipcc.ch/pdf/technical-papers/climate-change-water-en.pdf
 The Guardian: PepsiCo Takes on Coca-Cola with Latin American Water Plan, Alison Moodie: https://www.theguardian.com/sustainable-business/2016/dec/22/pepsico-challenges-coca-cola-with-latin-america-water-plan
 Performance With Purpose. Pepsico.com http://www.pepsico.com/sustainability/Performance-with-Purpose
 PepsiCo Exceeds Global Water Stewardship Goals. PepsiCo.com. https://www.theguardian.com/sustainable-business/2016/dec/22/pepsico-challenges-coca-cola-with-latin-america-water-plan
 PepsiCo Exceeds Global Water Stewardship Goals. PepsiCo.com https://www.theguardian.com/sustainable-business/2016/dec/22/pepsico-challenges-coca-cola-with-latin-america-water-plan