For corporations like PepsiCo, most greenhouse gas (GHG) emissions originate in the supply chain, which is challenging to manage. PepsiCo believes three elements — expectations, economics, and enablement — are essential for effective supply-chain engagement and action. Clear expectations guide supplier partners, while understanding the economic realities aids in creating profitable GHG reductions. Lastly, enabling suppliers through support and resources can facilitate a smoother transition towards shared net-zero goals. PepsiCo’s plan reflects these principles, forging a path toward a sustainable and resilient future.
Setting a net-zero goal is just the start of a climate strategy. The pressure is now on to deliver substantive progress. For many companies, the vast bulk of greenhouse gas (GHG) emissions lie outside the walls of their businesses in their supply chain – called “Scope 3” emissions. Having visibility to, quantifying, and ultimately managing these emissions is difficult. While these impacts lie outside of a company’s direct control, stakeholder expectations, reporting frameworks and business demands require large corporations to activate their partners and deliver progress.
The reward is high, if you can get it right. It’s not just about delivering a reduced planetary impact but also building a value chain that enables our future growth and is resilient in the face of climate change. The global climate crisis was the catalyst to launch our PepsiCo Positive (pep+) transformation and set a goal to become net zero by 2040. Since then, PepsiCo has taken supply-chain relationships to new levels of collaboration and built a range of strategies designed to bring supplier partners along on our journey.
Fundamentally, PepsiCo’s business is rooted in agriculture. Climate change will affect crops, and it will impact farmers and the yields they can deliver. We must have a clear strategy for the business to both manage our impact on the climate and make our company more resilient and competitive going forward.
Internally, we are constantly working to embed net-zero thinking into our teams. For example, PepsiCo incentivizes progress by making Scope 1 and 2 emissions reductions part of the compensation review process for the top 200 executives at the company, and we are working toward being able to more accurately quantify Scope 3 emissions so that we can include that metric in the future as well.
In our value chain, with more than 100,000 suppliers of varying sizes and capabilities, a one-size-fits-all approach will not achieve the needed impact towards net zero.
There are many approaches to take, and we have learned lessons along the way. But we believe there are three fundamental elements – expectations, economics and enablement – that you must get right in order to have successful supply-chain-partner engagement and, more importantly, supply-chain-partner action.
Setting clear and consistent expectations with supply-chain partners is the foundation for success. Companies must let suppliers know emissions reductions are important, particularly when it is something that will be measured over time.
In our agricultural supply chain, for example, farmers have different levels of understanding around emissions. Some are aware of climate change and its impacts, while for others, it isn’t even on their radar screens. As leaders, we must provide clear and consistent guidelines for our suppliers and other supply-chain partners, so they can understand their role in our journey now and into the future. We set out these expectations at our annual Global Supplier Summit and are asking our partners to take four specific, near-term actions:
- Report Scope 1 & 2 emissions to us by the end of 2023.
- Set, or commit to setting, a science-based target (SBT) by the end of 2023.
- Convert PepsiCo’s portion of electrical load to renewable electricity, where available, by the end of 2023.
- For agricultural suppliers, collaborate with us to develop an action plan for sustainable ingredients and to build regenerative agriculture acres by the end 2023.
Setting an SBT for emissions reductions provides a clear structure and framework. Tracking data across the value chain is vital to understanding the breadth and pace of progress.
This is a big shift for some of our suppliers’ operations. In some cases, this is not just about investment but also about making changes in the way they operate. More than ever, supplier relationships need to move from transactional to partnership. That’s where companies can use their scale and knowledge to help suppliers’ transition – acting as partners and providing support along the way.
When engaging supply-chain partners, companies often make the mistake of supporting them only with financial incentives (or disincentives). While economics are certainly critical, they come into play only after the foundation and expectations have been set.
One of the most powerful things to do is clarify for suppliers the economic realities and tradeoffs that come with GHG reductions. Decarbonization can be expensive, but the reality is it won’t always cost more. Reducing inputs, such as water and fertilizer, minimizing plastic use, and investing in renewable energy can all save money. Companies can help their suppliers do the math and understand the concrete ways they can come out ahead.
Companies must also consider how to better structure partnerships to lead toward a sustainable transition. Long-term agreements that incentivize and support sustainable transformation can be a great catalyst. PepsiCo signed a seven-and-a-half-year strategic commercial agreement with ADM to share costs and resources and closely collaborate on projects that aim to significantly expand regenerative agriculture by up to 2 million acres by 2030 across our shared North American supply chains. The length of the contract helps to instill confidence to invest in sustainable practices as well as achieving carbon reduction goals.
When it comes to net zero, the challenges are too complex and interconnected to leave implementation up to chance. As partners, we have offered guidance to help enable our suppliers as they navigate the interplay of strategies so that they can more easily make progress against our shared goals.
For example, we’ve created programs to guide on setting SBTs and have provided resources that outline different options for emissions reductions, particularly in moving to renewable electricity, as this can vary based on each supplier’s situation.
Companies, like PepsiCo, can also help solve sustainability challenges by using their scale and networks to invest in, and scale-up, promising start-ups and leverage relationships with some of the largest companies in the world. In doing so, making them more cost-efficient and accessible to our partners. For agriculture technologies, we are doing trials of promising solutions on demonstration farms around the world and investing in suppliers that we believe can make a real impact. For farmers, proven approaches are key to achieving buy-in and implementing solutions quickly and effectively. Through our pep+ REnew program, we are also working towards helping our supply-chain partners with aggregated buys of renewable energy to create scale and cost efficiencies that individual suppliers cannot achieve on their own.
Creating a sustainable value chain is difficult, but with the right approach, it is a powerful means to meet sustainability goals, create a more resilient organization and fuel improved business performance. At PepsiCo, that’s our end game, and the three fundamental elements – expectations, economics and enablement – will set us, as well as our supply chain partners, on the path to truly sustainable growth.