PepsiCo leaning in on sustainability goals: ‘Companies like us no longer have a choice’
The food sector has found itself in a precarious position due to its exposure to pressing sustainability challenges, from climate change to plastics pollution. As an industry, the risk of failing to act is clear, PepsiCo’s European sustainability VP Chris Daly believes.
“There are two risks to business. One is that the expectation is clearly there that businesses must operate sustainably and over time consumers will migrate away from brands that fail to make that move. Then you have the more direct impact. In a world where you have more extreme climate change you are getting a lot of variation in terms of crop prices and availability. This has a negative impact on the supply chain. Things like water shortages would make it very difficult for a beverage manufacturer to operate,” he observed.
“Companies like ourselves no longer have a choice... It falls on us to play the role we need to play and take responsibility here.”
To this end, PepsiCo recently released its latest sustainability report, which sets out the company’s stall and details how the group hopes to contribute towards a more sustainable food system.
While PepsiCo’s aspirations – dubbed ‘Winning with Purpose’ – build on previous progress made by the chips-to-soda manufacturer under its ‘Performance with Progress’ programme, the new initiative appears both broader and deeper in scope.
PepsiCo is focusing on areas where its capabilities have the potential to ‘make a real difference’, Daly explained. “We haven’t stepped back from anything we were doing with Performance with Purpose… but we want to use the skills we have to make real change happen. We have doubled down on areas like sustainable agriculture, packaging and water, as well as a continued journey on product improvement, while at the same time looking at people and planet from a climate perspective and a humanity standpoint.
"The focus we will bring with this 'Winning with Purpose' strategy we now have reflects two things: It reflects a greater intent to do more and then, secondly and more importantly, it focuses on areas we as a company and our skill set can add value.”
Lessons from the plastic problem
The problem of plastic pollution rocketed up the agenda over the course of a few short years as consumer awareness and a rapid shift in attitudes caught many in the industry off guard.
The strength of feeling and speed of backlash against plastics has left food and beverages manufacturers facing something of a dilemma. “Plastics have for many years been great for the food and beverage business because they allowed us to distribute products in a very safe way and extend shelf life so [products] have a broader distribution reach. It is only recently that we are beginning to see the problems caused by plastics and that plastic waste is a huge issue for us to deal with.”
In some respects, Daly suggested, this consumer environment empowers manufacturers to take swift and decisive action. “Consumers are speaking out loudly and that is the easiest environment for companies to take action.”
The sustainability expert is hopeful that solutions will be forthcoming. PepsiCo has already established a goal to use 25% recycled content in its plastic packaging by 2025 and reduce its use of virgin plastic across its beverage portfolio by 35%.
“I am quite confident that over the next 10 years this problem will go away through technology and better business processes across the value chain, which are supported and aided by government regulations. All of that will lead to an environment where we can manage the plastic problem.”
However, Daly added, progress may not be fast enough to please consumers: “The challenge in the short term is that consumers probably wonder why companies are not doing more. Changes have some lead time to come into place. There is a period of time where people will have to watch companies make progress but not necessarily solve the problem.”
Plastics was a problem 40 years in the making and within the space of just 3-4 years it has become a crucial issue for companies like PepsiCo. This experience has contributed to the company’s new sustainability strategy, which takes a holistic view of the food sector.
Daly elaborated: “In framing our agenda against this more sustainable food system [we aim to] avoid the same thing happening elsewhere. We have to go back in and look at how growth in demand… and its impact on the overall food system is having negative impact on the planet. [We need to identify areas] that we should step into and turn around before they become huge problems like plastic. Clearly within that space the climate impact is becoming extremely serious for us.”
Climate change and carbon commitments
In 2017, PepsiCo introduced a target to cut greenhouse gas emissions by ‘at least’ 20% by 2030.
Daly said that goal was based on advice from the Science Based Targets initiative. It also factors in the ‘significant’ amount of growth the company expects to achieve, meaning per unit carbon footprint reduction will be steeper still.
However, Daly added, it is possible that the company will ramp up its ambition further still. “We have the commitment of doing what we need to do for science… The carbon problem is becoming more of an extreme problem from when we established our targets so we will no doubt have to commit to do even more going forward.
“Right now we have a programme and are actively working against that. By doing so, we hope we will help to turn this carbon, climate change issue around.”
PepsiCo's global carbon footprint amounted to 69 million metric tonnes of carbon dioxide equivalents in the baseline year of 2015. A breakdown of the company’s total footprint reveals that agriculture, packaging, third party transportation and distribution make up the majority of emission drivers. Emissions from direct operations account for just 8% of PepsiCo’s footprint.
This poses its own challenges. When the company started ‘stepping up its carbon mission’ the ‘big change’ was looking beyond what PepsiCo could control directly to influence the inputs going into the business, Daly explained.
“It is probably one of the toughest areas in sustainability, but it is also one of the areas technology is having a huge play to enable us to move forward. Things like green energy and agriculture are two big levers that will enable us to make progress.”
Agricultural supply spotlighted
“If you look at our business today, the biggest impact we have is our agricultural suppliers,” Daly observed. This understanding has placed PepsiCo’s agricultural supply chain in the spotlight.
The company has two procurement models, direct sourcing from farmers and indirect sourcing from the commodities markets.
“With access to so many direct growers – for corn, for oats, for potatoes – that gives us a direct opportunity to use the expertise we have developed over the last two decades (and with technology continuing to improve we have the opportunity to do more on) to bring more sustainable agriculture to our growers, so their livelihoods can improve and bring more sustainable systems.”
The company achieves this though a ‘portfolio of tools’ tailored to the conditions across the markets in which it operates. In its European potato supply chain, for instance, PepsiCo introduced iCrop technology that feeds real time data back to potato growers to inform decisions on fertiliser use or irrigation.
Daly believes that ag-tech will be important to unlock to maximise productivity and minimise environmental impact. “There is no reason why the evolution of digital technologies, feedback and predictive analytics should not be exceptionally good for agriculture. By bringing technology to agriculture you should be able to change the game and potentially get a greater yield for less inputs…. We have been investing and providing these tools to our growers for many years. This is something we will absolutely continue investing in. We see it as the future.”
To build sustainability into its indirect supply chain, PepsiCo partners closely with NGOs, Daly continued. In areas like palm oil, the group works with the Roundtable for Sustainable Palm Oil. The company has also reduced its use of the controversial commodity in markets like Europe, he added.
“The palm oil space in particular is quite a complex one, where you solve one problem you create another one,” Daly told this publication.
“It is always a question in these areas: How do you navigate your way towards a brighter future, a fully sustainable future?”
‘Water could be the next plastics’
Looking to the future, Daly predicted that issues around water management are likely to gain traction.
“The concerns on water are significant. If you look at the forecasts, water could be the next plastics issue as people predict many more locations could be in water high risk areas.”
This is a big concern for a beverage manufacturer. PepsiCo is already working to get ahead of the curve in this area.
“Our strategy is very clear on this. We are a user of water in our beverage business and in the manufacture of potato chips. Where we operate in high risk water areas, we will 100% replenish the water by 2025 that we use in direct manufacturing operations.
“Within our manufacturing we have a continuous improvement process and we have committed to a 25% reduction in the amount of water we use by 2025 using a baseline of 2015. We are also working with our grower to reduce the amount of water we need in agriculture.”
Collaborate for maximum impact
Daly said that the response to plastics demonstrates that that there is a desire from industry to work together for maximum impact.
“When you look at the collaboration going on across industry in these areas – whether its McDonald’s and Starbucks, whether its ourselves and Coca-Cola – you are seeing companies coming together for a problem that is a problem for everybody. At the end of the day the people that work in those companies are all human beings who live on this planet and want to see it be a better place. What you are seeing is pre-competitive collaboration.”
By working together, brand owners are able to define standards that they can then invest against with confidence in the knowledge that they ‘aren’t going down the wrong path’. “That is very helpful to facilitate investment, because investment is the thing that will ultimately lead to change and investment takes time to execute.”
And it isn’t just plastics. Daly has observed a willingness to work together across ‘all areas’. For example, PepsiCo is working alongside Danone to improve the sustainability of dairy farming in Russia.
“It is very easy these days to call a peer company and ask them how they are dealing with a particular problem. People are open to sharing their solutions.”
In this ‘spirit of collaboration’ PepsiCo also expects its suppliers to step up – and Daly revealed that although discussions are ‘at an early stage’ the possibility of de-listing those that fail to act ‘is under consideration’.
“The only way this works is by acting together in the real sense of collaboration, therefore absolutely we are asking our suppliers to stand up to our sustainability commitments.”