How PepsiCo turns green strategies to profit
Dubai: When PepsiCo’s then-CEO Indra Nooyi in 2006 introduced Performance With Purpose — an effort to put sustainability at the heart of the firm’s ethos — there was some scepticism from both investors and environmentalists.
Twelve years on, it’s hard to find a critic.
Nooyi — now chairman as well as CEO — has overseen consistent growth. The firm’s annual net revenues in 2017 were $63.5 billion. Environmental non-profit organisation Ceres highlighted the firm’s efforts in sustainability in its Turning Point report, published in February 2018, listing it as “among the companies meeting many of the Ceres expectations and taking the path beyond business as usual.”
Gulf News sat down recently with three of the executives responsible for turning Nooyi’s directives into hard action.
Roberta Barbieri is PepsiCo’s Vice-President for Global Sustainability, Christine Daugherty is VP for Sustainable Agriculture, and Murat Suer is VP of Supply Chain Operations for PepsiCo Middle East and North Africa.
Asked why PepsiCo would put what some would consider corporate social responsibility ahead of profits, all three were quick to make a business case for sustainable growth.
“I don’t believe it’s a straight cost,” Daugherty said. “Nothing is free, but at the end of the day a business impact is a real win throughout the supply chain. And when you think about sustainability, it’s not just one-and-done, this is continual improvement.”
Barbier added, “Most of the projects that we have implemented to reduce greenhouse gas emissions from our production plants have strong internal rates of return, so good paybacks. The cost savings we gain offset the capital investment required to do them.
“It’s just smart in any sense. Arguably, we would do these projects even if we didn’t have a climate target because it makes good business sense.”
The target she referred to is Pepsico’s aim to reduced its total greenhouse gas emissions by 2030 to 20 per cent below its total emissions in 2015, in absolute numbers, not matter how much it grows. “That’s what’s referred to as a science-based target,” Barbieri explained. “It’s not what we can conceivably achieve or feasibly achieve. It’s what’s needed to prevent two degrees of global warming temperatures.”
PepsiCo’s biggest challenge in the Middle East and North Africa (Mena) is water scarcity. It is, as Suer, points out a sparse environment, and governments are taking action to preserve their supplies.
Saudi export ban
In April, Saudi Arabia declared it would ban the export of water-intensive — corn, olives, grapes and pumpkins — by November this year. It has previously banned the export of watermelons, peaches, potatoes, onions and tomatoes.
“There’s like 30-35 years of water left,” said Suer. “It’s a national security topic for Saudi Arabia. They’re acting within their vision.
“Most of the countries in the Middle East and North Africa are water-scarce, so we need to be responsible.”
PepsiCo now maintains water-harvesting ponds at its plants, which feed water back into the same aquifer they draw water from. It is now water-positive in Jordan and India.
“Our programmes in the Mena countries are targeting towards creating a positive balance so that we don’t take more than what nature gives us,” Suer added.
Consumer pressure has a role to play in the greening of corporations — but only in certain areas, Barbieri said.
“Packaging I think consumers are accelerating their understanding and their pull, which is great, but it’s been a long time coming. From the climate perspective, the work that we do to reduce greenhouse gas emissions, not much consumer pull for that. We do that for other reasons.”
Suer pointed out that much consumer pressure came from developed economies. “In developing economies it’s much more about affordability,” he said.
But even in developing economies there were improvements and savings to be made.
“The way PepsiCo looks at an agricultural supply chain, we have to have business value,” Daugherty said. “If we think about engaging with our farmer and our supply chain, we have to have a win-win.”
A variety of potato using less water, increased yield and better pest resistance required less work to grow for the farmer.
“We get a better quality coming into the plant, and ultimately a better quality goes out to the consumer,” she said.
“Every year that those farmers are doing better in their crops, their land, their watershed, their soil, that will allow those individuals to increase their productivity, increase their financial ability, and that’s ultimately passed down to PepsiCo.”
Factbox: Ceres rankings
Ceres ranked PepsiCo a tier 1 firm — its highest rating — in numerous areas, including governance areas such as board oversight and management accountability, and in practical areas such as greenhouse gas emissions, water management and human rights, though it dropped to tier 3 on its use of renewable energy.
The non-profit also rated PepsiCo’s supply chain policies as tier 1, noting that its practices were getting on track (tier 2).