{"id":14181,"date":"2016-11-04T18:09:22","date_gmt":"2016-11-04T22:09:22","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/pepsicos-sustainability-focus-is-the-company-performing-with-enough-purpose\/"},"modified":"2016-11-04T18:24:54","modified_gmt":"2016-11-04T22:24:54","slug":"pepsicos-sustainability-focus-is-the-company-performing-with-enough-purpose","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pepsicos-sustainability-focus-is-the-company-performing-with-enough-purpose\/","title":{"rendered":"PepsiCo\u2019s sustainability focus: Is the company Performing with [\u201cenough\u201d] Purpose?"},"content":{"rendered":"

\"pepsico-montage-v3\"<\/a><\/p>\n

Introduction<\/p>\n

The world\u2019s population is expected to grow by nearly 20% from 7.4B to 9B by 2050. This growth will substantially increase food production requirements with estimates that production will need to increase by as high as 70 percent to meet demand. [1] To hit this level of production, food and beverage industry will need to overcome operating with lower yields and increased production costs caused by climate change. Interestingly, the food and beverage industry is a key contributor to the phenomenon which stands to hurt their profitability in the long-run. The top 10 companies \u2013 including PepsiCo \u2013 emit 263.7 million tons per annum of GHGs which is the equivalent of being the 25th most polluting country in the world. [2]<\/p>\n

PepsiCo is a large, multinational player in the industry. The company generated more than $63B in net revenue in 2015 with 22 brands like Frito-Lay, Pepsi-Cola, Quaker, and Tropicana. [3] Their brands are leaders in key categories (e.g., Gatorade, #1 sports drink, Quaker, the #1 hot cereal, Sabra, the #1 hummus) and are well-positioned for continued growth. Climate change poses detrimental risk to PepsiCo\u2019s supply chain by limiting availability of key natural resources required for its product.<\/p>\n

Supply and Demand Effects of Client Change<\/p>\n

Agricultural raw materials from suppliers are the primary input for PepsiCo\u2019s products and they are being impacted by climate change a few key ways. Firstly, agriculture uses a substantial portion of the world\u2019s available freshwater supply and water availability is becoming increasingly limited. There is also an increasing prevalence of shocks to the systems like storms, floods, drought, and shifting pattern, which cause crop failures and supply disruption. [3] Some other issues caused by climate change which impact agriculture include changes in average temperature, rainfall, soil quality, and pest \/ diseases.<\/p>\n

Climate change regulation also poses a threat to PepsiCo\u2019s business model. Governments are seeking creative ways to reduce global warming. For example, San Francisco\u2019s mayor recently banned water bottle purchases due to the amount of oil and carbon dioxide emissions required to produce the plastic bottles. This directly impacts the demand for PepsiCo\u2019s products since it has Aquafina as part of its portfolio. Additionally, government regulation may directly impact operating costs when governments choose to tax or set limits for greenhouse gas emissions.<\/p>\n

Performance with Purpose<\/p>\n

Core to PepsiCo\u2019s approach is its Performance with Purpose strategy, which the company describes as \u201cour goal to deliver top-tier financial performance while creating sustainable growth in shareholder value.\u201d [1] Moreover, according to Indra Nooyi, Chairman and CEO, the \u201cstrategy is built on sustainable business practices that optimize our near-term operating efficiency and profitability while ensuring that we are well positioned to deliver long-term business growth.” [1] The strategy has three different focus areas (Product, Planet, and People) and over the past ten years since its launch has made significant progress towards reducing its contribution to climate change and has developed new technology to help suppliers increase their yield.<\/p>\n

Notable operational improvements to reduce their carbon footprint include:
\n\u2022 Reduced water use per unit of production by 25.8%, exceeding their goal of 20%, and reduced costs by $80M over five years
\n\u2022 Provided access to safe water to 9 million people through PepsiCo foundation
\n\u2022 Improved energy efficiency by 18% and absolute GHG emissions by 4%
\n\u2022 Reduced packaging material. [1]<\/p>\n

One example of PepsiCo\u2019s contribution to the supply side is with the potato farmers in water-stressed UK. They developed i-crop technology with Cambridge University and employed different irrigation method to halve water use and cut GHG emissions by 50% since 2010. [1]<\/p>\n

PepsiCo\u2019s primary goals for 2025 as part of Performance with Purpose is to:
\n\u2022 Improve water-use efficiency by 15% among direct agricultural suppliers in high- water-risk sourcing areas
\n\u2022 Reduce absolute GHG emissions by at least 20% across value chain by 2030
\n\u2022 By 2020 only purchase HFC-Free Equipment in the U.S. [1]<\/p>\n

This shift to focus on improving the efficiency of its supply side will significantly reduce PepsiCo\u2019s exposure to climate change risk.<\/p>\n

Plan Forward<\/p>\n

Despite considerable focus on sustainability as part of its Performance with Purpose strategy, PepsiCo has come under scrutiny for its simultaneous funding of lobbying groups and politicians described as \u201cclimate deniers,\u201d who oppose climate change regulation. [4] PepsiCo has the potential to be a true industry leader and should focus on ensuring that its corporate actions and messaging is consistent with the work its done on the sustainability front. According to Oxfam, \u201cif each of the Big 10 companies made the same commitment to cut emissions from agriculture as PepsiCo UK, together they could save an extra 80 million tons of CO2e compared to business as-usual by 2020.\u201d [2] Moreover, the company should critically examine whether the targets it has set for itself are aspirational and will protect its future profitability.<\/p>\n

Word count: 798<\/p>\n

[1] PepsiCo, Inc., \u201cPerformance with Purpose 2025 Agenda,\u201d http:\/\/www.pepsico.com\/docs\/album\/sustainability-reporting\/pepsico_sustainability_report_2015_and_-2025_agenda.pdf, accessed November 2016.
\n[2] \u201cStanding on the sidelines: Why food and beverage companies must do more to tackle climate change,\u201d Oxfam Briefing Paper, May 20, 2014, file:\/\/\/Users\/kamishahyde\/Downloads\/bp186-standing-sidelines-big10-climate-emissions-200514-en.pdf, accessed November 2016.
\n[3] PepsiCo, Inc., \u201c2015 Annual Report,\u201d https:\/\/www.pepsico.com\/docs\/album\/annual-reports\/pepsico-2015-annual-report_final_s57dqszgmy22ggn.pdf?sfvrsn=0, accessed November 2016.
\n[4] Richard Valdmanis\u00a0and\u00a0Grant Smith, \u201cU.S. companies tout climate policies, fund climate skeptics,\u201d Thomson Reuters, September 6, 2016, http:\/\/www.reuters.com\/article\/us-usa-election-climate-donations-idUSKCN11C0ED, accessed November 2016.<\/p>\n

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