PepsiCo Centers Sustainability With Its Pep+ Strategy

As the ESG/greenwash debate continues to rage, PepsiCo has announced what it calls a “fundamental transformation of what we do and how we do it”. With its climate action strategy centred on the reduction of GHG emission combined with resilience, the company appears to be centring sustainability in its development strategy.

The concept of sustainability has been evolving for over twenty years but this new strategy seems to embody the current model that, to be effective, an effective sustainability strategy needs to be comprehensive, balanced and integrated across society, environment and people. The reality is that the impacts of the pandemic, digital transformation and sustainability transformation are upending the dynamics of business operations and they cannot be ignored.

Ramon Laguarta, PepsiCo’s Chairman and CEO said that the strategy reflects the new business reality, where consumers are becoming more interested in the future of the planet and society. This is part of the great ESG debate today, about legacy companies and their environmental footprint. While PepsiCo has a massive global footprint, this kind of action across an international giant could have an ongoing impact on immediate and supply chain issues. As Laguarta pointed out, “imagine the scale and impact when applied to all 23 of our billion-dollar brands.”

The new programme, called pep+ (Pep Positive), covers a range of actions from the ways in which ingredients are sourced, as well as manufacturing and distribution. The company plans to maximize efficiency in its supply chain, while also adopting zero- and near-zero-emission technologies, modelled on lessons learned at its California Frito-Lay factory – including compostable packaging.

Examples given were plans to cut virgin plastic use in half by 2030 across all its brands, as well as using 50% recycled plastics in its packaging.  PepsiCo estimates that shifting to a 100% rPET bottle will lower GHG emissions by approximately 30% per bottle. The food & beverage giant also announced plans to build on the increased need for plant-based proteins, with Beyond Meat and the expansion of its SodaStream brand, to encourage people to make their own soda. The brand, currently in 40 countries, will bring new flavors into 23 more markets and introduce its new SodaStream Professional platform aimed at businesses in 10 additional markets by 2022.

As action on climate change grows increasingly important, and visible in the media and in consumers minds, companies using the amounts of plastics that PepsiCo uses are often called out for pollution, and for increasing fossil fuel use through the petro-chemical industry. What PepsiCo is now doing is incorporating climate risk into its business planning. That risk can come from extreme events affecting the supply chain, to new regulations, polluter pays costs on fuels and plastics and the risk of consumer backlash.

To date, PepsiCo has set goals to reduce absolute emissions across direct operations (Scope 1 and 2) by 75% and indirect value chain (Scope 3) by 40% by 2030 (against a 2015 baseline). According to the company, reaching these targets will enable the reduction of more than 26 million metric tons of GHG emissions, the equivalent of taking more than five million cars off the road for a full year. It also plans to be net water positive by 2040.

The climate action strategy is built around mitigation, with a 2020 US target of 100% renewable electricity being met, and a new target source 100% renewable electricity across all its company owned and controlled operations globally by 2030 and across its entire franchise and third-party operations by 2040.  

Perhaps more importantly, given that agriculture emissions result in ¼ of global emissions and 1/3 of PepsiCo emissions, the company is working to spread regenerative agricultural practices  across land equal to the company’s entire agricultural footprint (approximately 7 million acres) and sustainably source key crops and ingredients.  

The important thing in PepsiCo’s approach is the recognition that effective action is going to be about a lot more than just electricity – with agriculture a particularly difficult sector to address. The IPCC’s 2018 Special Report on 1.5°C warned that the warming already bedded into the climate system was going to bring increasing risks, even if many were going to be dependent on where and how you operate, as well as local levels of vulnerability. The IPCC’s recent 2021 report on the physical basis for climate change made the scientific reality even more of a concern.

There is no doubt that this is a big strategic commitment and the company should be lauded for it. The question is whether this sort of action is going to be taken sufficiently fast. Net zero emissions is a goal the IPCC suggested to provide a pathway to no more than 2 C of warming, to minimise the risks of climate change. To achieve that we need to see reductions of 45% from 2010 by the end of this decade and we’re not yet on a path to do so.

As a company PepsiCo scores highly in ESG reporting terms and, while there are significant challenges to a business model built effectively on extraction and pollution, it is taking steps to remediate some of the problems it causes. It’s not alone. PepsiCo has joined forces with Guidehouse, Mars, Incorporated and McCormick & Company for the formation of the Supplier Leadership on Climate Transition collaborative (Supplier LoCT).

This is an initiative to help engage suppliers in climate action and solutions, hopefully to address Scope 3 emissions over time.. Through the collaborative, the organizations will mentor and train suppliers in emissions reduction strategies and recognize their achievements. In turn, supplier progress will accelerate the ability of PepsiCo to deliver against its science-based targets to reduce greenhouse gas (GHG) emissions in its full value chain. These targets were set to align with the overall goals of the Science Based Targets initiative and RE100 to limit global warming to be consistent with the established goal of the 2015 Paris Agreement.

ESG is losing its lustre as a means of easily identifying which companies are taking effective action on climate and sustainability challenges and those that are not. It's clear that some sectors are more damaging than others but perhaps we need to understand that as Jennifer Motles, chief sustainability officer of PMI says, "Not all ESG issues are created equal."

Perhaps the question that needs to be asked is who are the best in class, in their sector? Which are addressing the challenges they face? If regulation and polluter pricing does come into play, those companies that have started to address these problems ahead of the curve are going to need to be recognised. Or perhaps those who are making no effort should be penalised.  That part of the debate is only going to get more challenging, which means that we need to start it today.