Palm oil is the most widely used edible oil in the world and an ingredient in a variety of PepsiCo food products. Sustainably-sourced palm oil can provide important benefits. It contributes to the economic growth of many developing countries and improvement in the livelihoods of farmers. Oil palm trees yield four to ten times more oil than other leading oil crops on the same amount of land, so palm oil may offer environmental advantages.
Like many of our stakeholders, though, PepsiCo has ongoing concerns about how some palm oil is produced. Rainforest conversion, biodiversity loss and human rights abuses persist in various producing regions. Through our policies and actions, PepsiCo seeks to support the growth of sustainable palm oil, first by addressing standards in our own supply chain and then by partnering with others to drive improvement more widely. In this way, we hope that our collective actions will improve palm oil sustainability production across the industry, reducing the harm that may be done while expanding the benefits.
PepsiCo is a significant buyer of palm oil, which we use primarily in snack manufacturing because it is relatively stable and readily sourced in certain regions. In the United States, we use almost no palm oil, but it is used in Asia and other markets. In 2016, our global purchase of palm oil was roughly 480,000 metric tonnes (MT) of which palm kernel oil comprised about 4,600 MT. Our top three suppliers were Cargill, Oleofinos and Wilmar, and the top three countries from which PepsiCo sourced palm oil were Indonesia, Malaysia and Mexico.
Despite being a buyer of palm oil, our purchase in 2016 represented less than 0.8 percent of the global supply. The market for palm oil is highly fragmented, and the majority of palm oil does not receive sustainability certification. This means that, in order to meet our palm oil sustainability goal, we must strive to use our position in the global supply chain to promote industry-wide collaboration and action at scale to promote a sustainable future for the entire sector.
Our policies and commitments apply to the sourcing of palm oil for all PepsiCo brands and products worldwide. This includes our commitments to eliminating deforestation and human rights abuses from our palm oil supply chain. We believe that fulfillment of these policies and commitments will make our supply chain more secure and support stable social, economic and environmental conditions for producers, mills and the communities they support.
Engagement is an important part of our approach and helps to guide our actions. We meet directly with stakeholders on palm oil on a frequent basis and welcome the opportunity to listen to their concerns, receive input and advice about our programs, and explain our approach to supporting the development of a sustainable palm industry. Given the impacts associated with some palm oil cultivation, we understand that stakeholders want PepsiCo to move as fast as possible, which is why we have developed a dedicated, cross-functional, global team with deep expertise to execute our Palm Oil Action Plan and accelerate progress toward achieving our commitments.
In 2015, PepsiCo launched its Palm Oil Action Plan, committing to help advance palm oil sustainability in the industry. We published our first Annual Progress Report in 2016. The same year, we reiterated our specific commitment to source 100 percent certified sustainable palm oil as part of a new, broader set of sustainable sourcing goals under our Performance with Purpose 2025 Agenda.
Our second Annual Progress Report was published in July 2017 and provides detailed information on the strides we are making toward our palm oil sustainability goals. It covers all of the commitments in our 2015 Palm Oil Action Plan. In this report, we consider the following developments to best illustrate our recent progress toward meeting our palm oil commitments and addressing the challenges that remain:
- PepsiCo significantly improved visibility into our global palm oil supply chain and completed our first review of environmental and human rights risks. We made further progress on traceability to the mill level, now up to 89 percent, and implemented leading practices that will help increase transparency and accelerate the uptake of traceability systems across the industry. Data collection capability among suppliers needs further development, but we are confident it will improve. At the same time, we are investing in third-party verification to enhance data quality.
- For visibility to farms/plantations, a common industry definition on traceability is currently lacking, so we began collaborating with industry and other stakeholders to address this gap.
- We established a process of proactive engagement with all direct suppliers. In addition, we are developing a new supplier scorecard with emphasis on policy, engagement, certification and grievances. This work has provided us with better insights into the risk of non-conformance with our environmental and human rights policies. It has also improved our ability to prioritize how we mitigate that risk through supplier engagement and investment in positive impact programs, which we can now accelerate.
- We developed a grievance mechanism for dealing with environmental and social complaints involving palm oil and other agricultural raw materials utilized in our supply chain. Consistent with our commitment to the UN Guiding Principles on Business and Human Rights, we have sought to use our relationships to bring resolution to palm oil complaints involving our supply chain, including and beyond our direct suppliers.
- In 2016, we increased our procurement of physically certified sustainable palm oil to 16 percent of our volume using the Roundtable for Sustainable Palm Oil (RSPO) standard, and we are targeting 30 percent by the end of 2017. In some local markets, physically certified supply is not currently available, and greater investment in capacity building is required.
- We began a process to invest in the improvement of conditions in key sourcing regions, including Indonesia and Mexico. For example, we are sponsoring the National Interpretation of the RSPO Principles and Criteria in Mexico while supporting a program that will provide training on High Conservation Value (HCV) and High Carbon Stock (HCS) assessments.
- We expanded our stakeholder engagement to include broader interaction with civil society organizations and industry platforms. For example, we participated in a palm oil workshop hosted by Oxfam, helped lead palm oil traceability webinars under the auspices of the Consumer Goods Forum, and joined the Tropical Forest Alliance (TFA) 2020 Partnership. Though a number of strong platforms for collaboration exist, more effort is needed to drive improvement at scale, especially in regions where environmental and human rights issues are systemic, persistent across a broad landscape, and exacerbated by federal and local regulations that may not be sufficient or applied consistently.
- We are proud of our progress in 2016 but know that more is required. Through our extensive engagement, we have heard specific points of criticism about the need to move farther and faster. We are, however, encouraged by acknowledgement of our progress. In 2016, for example, our Palm Oil Action Plan was evaluated by the World Wildlife Fund in a global ranking of consumer goods companies, and PepsiCo was recognized for leading the way on progress on essential actions on sustainable palm oil.
In January 2018, we published further information about our palm oil sourcing and approach in Indonesia, including how we manage grievances raised by third parties. Following this, in March 2018 we published our list of direct palm oil suppliers as well as our palm oil mill list.
In February 2018, PepsiCo committed to participate in Oxfam’s FAIR Company-Community Partnerships project in Indonesia. The project promotes a model for sustainable palm oil that benefits women, smallholder farmers, local communities, the environment, and participating companies. FAIR Partnerships address sustainability, human rights, and economic development issues holistically through a multi-stakeholder, inclusive, and landscape based approach.
About FAIR Company-Community Partnerships
The rapid expansion of oil palm has often been accompanied by devastating loss of forests and exploitation of local communities. FAIR Company-Community Partnerships offer an alternative vision and business model for palm oil production.
FAIR is an acronym that stands for 1) Freedom of choice; 2) Accountability; 3) Improvement of benefits; and 4) Respect for rights.
At the core of the project is the promotion of rights and development aspirations among women, small-holder farmers, and host communities, while ensuring environmental protection and implementation of companies’ commitments to human rights, land rights, and zero deforestation/climate protection.
The initiative will operate as a multi-stakeholder platform that brings together companies across the palm oil value chain, local communities, local governments and a range of civil society organizations. PepsiCo is the first palm oil buyer to publicly commit its participation and will be joined by others as the project progresses. Participating companies are expected to invest financially, contribute expertise to the process, learn, and share best practices.
PepsiCo is contributing funds for the first eighteen months of project implementation amounting to nearly fifteen percent of the project budget. Other funding will be provided from a number of foundations and institutions, including the David and Lucile Packard Foundation, and other private sector participants. PepsiCo will also contribute relevant business perspective to the initiative as well as share the lessons in its own supply chains and with its sector peers.
“Multi-stakeholder collaboration is needed to ensure that palm oil production benefits women, smallholder farmers, and local communities and that our policies and commitments on human rights, deforestation, and land rights are more than just words on paper. The FAIR Company-Community Partnerships presents a unique vision for achieving this. We look forward to working with Oxfam and others through this project to benefit communities in Indonesia and applying the learnings more widely as we continue to advance our sustainable palm oil program.”
Michele Thatcher, Chief Human Rights Officer Senior Vice President, and Chief Counsel Global Human Resources, PepsiCo, Inc.
“As one of the world’s largest buyers of palm oil, PepsiCo’s participation in FAIR Company-Community Partnerships demonstrates leadership in the development of an alternative business model for palm oil production that seeks to truly benefit women and smallholder farmers. PepsiCo’s participation also demonstrates the company’s efforts to put its human rights and sustainability commitments into practice.”
Irit Tamir, Director, Oxfam America’s Private Sector Department