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PALM OIL


Palm Oil Why It Matters

Strategy and Approach


Background and Context

As one of the world’s leading food and beverage companies, a steady, sustainable supply of crops is central to our business. Sustainable agricultural practices are also critical to meeting the increasing demand for food as the global population grows. PepsiCo sources crops across 60 countries and supports over 100,000 jobs throughout our agricultural supply chain. We’re using this global scale to drive progress toward more sustainable agricultural standards and practices around the world. Our goal is for PepsiCo to be a catalyst for change, in the field, because we recognize that transforming how we grow food is an essential part of building a more sustainable food system.

Palm oil, the most widely used edible oil in the world, is a key focus area. While PepsiCo is one of the largest global buyers of palm oil in the consumer products industry, our purchase in 2020 represented less than 1 percent of the global supply. It is used primarily in our snack food manufacturing because of its wide availability and shelf stability. We use palm oil in Asia and other markets where it is readily available and relatively close to the production base. In the United States, however, very little palm oil is used because we rely on other edible oil crops that are widely grown in North America. We have a complex global supply chain with 36 direct suppliers that source palm oil from over 1,500 mills and tens of thousands of farmers who grow the palm fruit.

In 2020, our global purchase of palm oil was 451,100 metric tons (MT), of which palm kernel oil comprised approximately 3,700 MT, and sourced approximately 6,100 MT Independent Smallholder (ISH) Credits to recognize the efforts of smallholders. Our top suppliers were Oleofinos, AAK, and Wilmar, and the top three countries from which PepsiCo sourced palm oil were Indonesia, Malaysia, and Colombia.

Strategy

We are committed to playing our part in realizing a sustainable palm oil industry. Our strategy articulates our specific role and the actions we intend to take in our own supply chain and to catalyze wider change. It is informed by our understanding of the key sustainability challenges facing palm oil, including deforestation, biodiversity loss, the role of smallholder farmers, and respect for human rights.

During 2020, we reviewed and updated our strategy to reflect increased commitments on climate change and sustainable agriculture, industry developments and feedback from stakeholders, including our supply chain, peers, collaborative initiatives, and civil society.

Our goal is to promote the transformation of the palm oil sector to support thriving communities, human rights and the health of vital ecosystems and source 100 percent sustainable palm oil, which includes 100 percent Roundtable on Sustainable Palm Oil (RSPO) certified. To meet our goal, we have set three interconnected commitments:

  • Sector Transformation towards 100 percent No Deforestation, No Peat, No Exploitation (NDPE): Drive industry-level change toward 100 percent NDPE, including delivery within our own supply chain.
  • Thriving Communities and Ecosystems: Address systemic issues facing communities and ecosystems in priority landscapes, including deforestation, land and workers’ rights, and economic viability.
  • Transparency and Accountability: Promote and demonstrate transparency and accountability in our value chain and across the wider sector through collaboration, engagement, and reporting.
Palm Oil Strategy

We will turn these long-term commitments into action through a series of time-bound targets. These will evolve over time as targets are met and as our understanding of the issues and how to tackle them develops. The full list of targets can be found in our Palm Oil Implementation Plan, which is attached to our policy. Current priorities include:

  • Drive industry-level change toward 100 percent NDPE, including delivery within our own supply chain.
    • By 2022, 100 percent of our palm oil supply will be covered under the NDPE principles or within a timebound initiative that demonstrates progress to delivering, as measured by the NDPE IRF.
    • Build capacity among our direct suppliers to ensure that all suppliers score greater than 80 percent through our supplier scorecard process by the end of 2025.
    • From 2021, use our market scale and engagement to support RSPO uptake and effectiveness through continued commitment to 100 percent RSPO certification, through at least 95 percent being physically certified, with the balance comprised of ISH credits.
  • Address systemic issues facing communities and ecosystems in priority landscapes, including deforestation, land and workers’ rights, and economic viability.
    • In Mexico, implement the RSPO smallholder Certification to bring 5,000 MT ISH to market by 2023 and source 100 percent domestic production of RSPO Mass Balance (MB) by 2025.
    • Conserve or restore at least 140,000 hectares (ha) by the end of 2025.
  • Promote and demonstrate transparency and accountability in our value chain and across the wider sector through collaboration engagement and reporting.
    • Provide transparency to stakeholders including our value chain, peers, civil society, and others through ongoing disclosure.
    • Collaborate with stakeholders in developing an industry roadmap for Independent Verification of NDPE compliance by the end of 2021 and apply this in our supply chain as soon as practically possible.
Policies

Our strategy is underpinned by a series of policies that are embedded in our business and supply chain. In 2018, we published our updated Global Policy on Sustainable Palm Oil, which outlines our commitment for sustainable palm oil as part of a broader suite of related global policies regarding human rights, forestry stewardship, land rights, and our Supplier Code of Conduct. The policy provides our long-term vision for a sustainable palm oil sector and updates our NDPE commitments.

In February 2020, we published an update to the policy, which reflects engagement with civil society, developments in the palm oil sector, and further understanding of the challenges and opportunities to meet our goals for sustainable palm oil. The update strengthens our policy, including by:

  • Extending the scope of the policy to include all palm oil that is produced by PepsiCo’s palm oil suppliers, rather than just the oil that we receive;
  • Highlighting our commitment to independent verification as a key part of delivering an NDPE palm oil supply chain;
  • Clarifying our requirement for our suppliers to respect human rights, in line with the United Nations Guiding Principles on Business and Human Rights (UNGPs) and other internationally recognized frameworks; and
  • Expanding our commitment to a no-deforestation cutoff date of December 31, 2015.

The policy is supported by an implementation plan, which was updated in early 2021. It provides stakeholders with an overview of how we translate our policy vision into specific actions and results. We review our policies and commitments on a continuous basis.

COVID-19 Impact

2020 was an unprecedented year for communities around the globe due to the COVID-19 pandemic. Global economic declines, as well as supply chain disruptions, have impacted our industry, but our commitments to sustainable sourcing remained in full effect. While there were some practical impacts to our sourcing of palm oil and related programs, including delays to landscape initiatives, an inability to engage suppliers and others in our value chain on the ground, and changes to ways collaborative platforms operated, we were able to work with others to limit and minimize any disruption.

Sector Transformation Towards NDPE


PepsiCo is committed to drive industry-level change toward 100 percent NDPE, including delivery within our own supply chain. During 2020, PepsiCo:

  • Through collaboration with our peers and suppliers, we recognized improved supplier performance towards NDPE through the NDPE Independent Reporting Framework (IRF). 80 percent of our Tier 1 suppliers provided deforestation and peat profiles for the palm oil volumes that they source. The profiles represent approximately 74 percent of PepsiCo’s total palm oil volume in 2020.
  • Achieved 100 percent RSPO certification by sourcing over 99 percent RSPO physically certified palm, and covering the remaining through the purchase of Independent Small Holder (ISH) Credits,
  • Was recognized for its commitment to smallholders by the Sustainable Palm Oil Farmers Forum Indonesia (FORTASBI), who presented us with an award for the impact that our investment in ISH credits has made to the livelihoods of farmers in cooperatives in South Sumatra.
  • Worked with our suppliers to help them realize an additional 11 percent increase on their overall sustainability performance score, based on our supplier scorecards. The average score of our suppliers has increased by 106 percent from the 2017 baseline.

Our future commitments, as set out in our recently updated Palm Oil Strategy, include to:

  • By the end of 2021: 100 percent of direct suppliers have internal systems in place to measure, manage, and report NDPE progress across their entire supply base and report via the NDPE IRF.
  • By the end of 2022: 100 percent of our palm oil supply will be NDPE delivering or within a time bound initiative that demonstrates progress to delivering as measured by the NDPE IRF.
  • Build capability of our direct suppliers, so that all suppliers score greater than 80 percent through our supplier scorecard process by the end of 2025.
  • From 2021, use our market scale and engagement to support RSPO uptake and effectiveness through continued commitment to 100 percent RSPO certification, through at least 95 percent being physically certified, with the balance comprised of ISH credits.

NDPE Progress


Measuring Progress Towards NDPE

The NDPE Implementation Reporting Framework (IRF) Active Working Group is one of the workstreams of the Palm Oil Collaboration Group (POCG), which PepsiCo co-convenes. The group now includes more than 30 companies and is responsible for the NDPE IRF, a reporting tool designed to help companies to systematically understand and track progress in delivering NDPE commitments in their palm oil supply chains. For more information on the POCG, see the Collaboration section.

The NDPE IRF recognizes that RSPO certification is the strongest guarantee of delivery, but also allows companies to report on volumes that are at different stages of progressing towards delivery, where certification has not yet been achieved.

During 2020, PepsiCo made progress towards operationalizing profiles for NDPE by working with the POCG and our suppliers to help them implement reporting on mills against the framework including by providing information and training via webinars and one-on-one discussions. We also worked through the NDPE IRF working group to develop and finalize the methodology for profiles on labor and land rights. Please see the NDPE IRF website for more information.

As an example of our engagement with suppliers, in early 2020, we hosted a workshop in Campeche, Mexico for our suppliers in Latin America on completing the deforestation and peat profiles. From this workshop, we were able to build out training tools with our implementing partners, Proforest and Peterson, and initiate a global webinar series for other regions.

Supplier Progress Towards NDPE

Working with our suppliers, we were able to create a baseline of current performance in our supply chain. For 2020, 80 percent of our Tier 1 suppliers were able to provide us with the full profiles for deforestation and peat for the volumes that they source to PepsiCo. The profiles represent approximately 74 percent of PepsiCo’s total palm oil volume in 2020. We expect all suppliers to provide full profiles by the end of 2021.

Palm Oil IRF Reporting

These profiles show a range of performance across the many hundreds of mills in our supply base. They provide information for PepsiCo and our suppliers to identify how and where to provide support and guidance to mills and other stakeholders so that they can improve their performance against the framework.

Palm Oil Progress to No Deforestation

As our updated palm oil strategy highlights, we will continue to work with our direct suppliers to ensure they have a system in place to report deforestation and peat profiles by the end of 2021. By the end of 2022, we will require suppliers to have 100 percent of our palm oil supply be NDPE delivering or within a time bound initiative that demonstrates progress to delivering as measured by the NDPE IRF.

A priority for the NDPE IRF Active Working Group (Working Group) is how to engage mills that score in the lower sections of the framework. The Working Group engaged stakeholders including NGOs to establish a principle of inclusion and support for these mills, rather than exclusion, providing that progress is being made. As part of the dialogue, PepsiCo hosted a workshop focused on the approach to mills that have not yet been engaged through either certification, training or other methods on sustainability issues. The Working Group will continue the discussions in 2021 and take the learnings to develop practical strategies and approaches to support mills.

The Working Group is also collaborating with other workstreams in the POCG on shared issues, including the Production and Protection Beyond Concessions (PPBC), Social Issues Working Group (SIWG), and Independent Verification Working Group (IVWG) (see the Collaboration POCG section for more information on the POCG working groups).

Engaging our Suppliers on the NDPE IRF

To reflect the framework’s importance and support the goals set out in our Palm Oil Strategy, PepsiCo will integrate the IRF into our supplier scorecard process (see Supplier Engagement section for more information on our supplier scorecards) during 2021. Reporting and performance against the NDPE IRF will make up half of the total supplier score, encouraging ongoing improvement against the IRF and helping to guide how we support suppliers towards delivering their and our NDPE commitments.

Palm Oil Scorecard
New PepsiCo scorecard with NDPE IRF

Roundtable on Sustainable Palm Oil (RSPO) Certification

As part of our goal to sustainably source palm oil, we set a target of sourcing 100 percent RSPO physically certified palm oil by the end of 2020. We increased our sourcing from 82 percent in 2019 to over 99 percent in 2020 through the RSPO Mass Balance physically certified supply chain model, and procured ISH credits for the balance, thereby achieving 100 percent RSPO certification.

In 2020, we procured approximately 6,100 MT of ISH credits, which are an effective way to recognize efforts made by smallholders to reach the level of RSPO certification (see Sustainable Palm Oil Farmers Forum Indonesia [FORTASBI] video regarding the impact of ISH credits). During 2020, we received an award from FORTASBI in recognition of the support that PepsiCo’s sourcing of Roundtable on Sustainable Palm Oil (RSPO) ISH credits had made to the livelihoods of farmers in cooperatives in South Sumatra (see FORTASBI video on PepsiCo’s impact through ISH credits on an individual farmer).

Palm Oil RSPO Certified

In 2021 and beyond, we will continue to focus on using our market scale and engagement to support RSPO uptake and effectiveness through a continued commitment to 100 percent RSPO certification, with at least 95 percent being physically certified, and the balance comprised of ISH credits.

PepsiCo continues to support the RSPO more broadly. Since becoming an RSPO member in 2009, we have been actively working with the RSPO and suppliers to promote the benefits of membership, which includes to the environment, workers, local communities, and business overall. In 2018, PepsiCo participated in the revision of the 2013 principles and criteria, which strengthened the RSPO Standards, particularly on smallholder inclusion. 100 percent of our direct suppliers have been RSPO members since 2017. PepsiCo also co-chairs the RSPO Shared Responsibility Working Group (see Collaboration section).

Independent Verification

PepsiCo recognizes the important role that independent verification plays in delivering NDPE commitments on palm oil. Independent verification is essential for credibility by providing assurances that information and claims on compliance and progress towards NDPE are accurate. Independent verification tools, methodologies, and approaches are evolving rapidly, and PepsiCo is committed to working with our peers, suppliers, and civil society to develop and deploy the most effective approaches, including in our supply chain.

Our aim is to support an industry-wide approach to independent verification of NDPE with agreed objectives and standards that have broad industry and civil society support. We believe this approach should be underpinned using a credible methodology and third-party verifiers, as well as appropriate transparency.

While PepsiCo strongly supports the RSPO and the certification process, we understand that RSPO certification alone is not currently sufficient to ensure independently verified compliance with our policy and NDPE commitments on palm oil. We aim to work with others to address existing gaps, which, following the adoption of strengthened standards through the updated RSPO Principles and Criteria in 2018, primarily relate to the verification process. A key goal is that RSPO certification can offer credible independent verification of NDPE in the future. In parallel, we want to develop approaches which can be used for uncertified production areas or are in progress towards certification, such as through landscape initiatives.

We will inform this work with our experiences to date (e.g., our approach to the verification of mill data – See Traceability under the Traceability and Accountability section) and build on successful examples of verifying delivery of NDPE practices. Simultaneously, we are exploring various tools and approaches to independent verification of NDPE beyond mill and plantation level audits. PepsiCo and others are discussing and testing the use of new and complementary independent verification approaches and technologies, such as satellite monitoring of deforestation and peatland clearance, social risk assessments, and worker monitoring systems.

In 2020, we made progress through the establishment and work of the Independent Verification Working Group (IVWG), one of the workstreams of the POCG (see Collaboration section). PepsiCo co-convenes the group alongside Unilever, which is focused on determining approaches to independent verification for progress on deforestation, land rights, and labor rights. The group has created functional working groups, which have a defined scope and started outlining frameworks for action. The groups are linking up to already existing initiatives, including the social issues aspect of the IRF, the CGF Palm Oil roadmap and the IRF data verification protocol. In 2021, the group is committed to producing a roadmap for Independent Verification, which can outline commitments to verification on the ground, based on the agreed mechanism within the working groups. This will contribute to the implementation of PepsiCo’s commitment to transparency and accountability in our own supply chain and across the industry.

Supplier Engagement

Engaging with our suppliers is critical for delivering our commitments and helping to realize a sustainable palm oil industry. We work with suppliers throughout our value chain through commercial relationships, collaborative initiatives, and specific programs with our direct suppliers. Specifically, we seek to foster continuous improvement through our Supplier Scorecards.

Supplier Scorecards

Our Supplier Scorecards provide a means to track and encourage progress of our suppliers towards sustainable palm production. The scorecards engage suppliers on several areas (traceability and verification; certification; policy and implementation; grievance management; and transparency) to highlight areas for improvement for suppliers and ways in which PepsiCo can support them. We can therefore identify more capable partners who are poised to help drive industry leading actions, as well as suppliers at the other end of the spectrum with which we can focus capability building efforts to improve their foundational programs.

In 2017, we created the criteria, methodology, and initial evaluations, which ultimately led to our first Supplier Scorecards. In 2018, the scorecards were implemented across our entire Tier I supply base. In 2020, we continued to share the assessments with suppliers and are working with them to develop time-bound action plans unique to each situation.

Through the implementation of the scorecard and engagement with our suppliers, we observed marked improvement across the scorecard criteria from 2019 to 2020. In 2020, the overall performance improvement on the supplier scorecards against 2019 was 11 percent. The average score of our suppliers has increased by 106 percent from the 2017 baseline.

Palm Oil Supplier Scorecard Metrics

Utilizing the information from the scorecards, we were able to continue our engagement with suppliers and support capability building to help improve practices. In 2020, we delivered this through a variety of engagement methods including one-on-one sessions with subject matter experts and live webinars, with a focus on policies and timebound plans and the NDPE IRF. 50 suppliers participated in these engagements, which were delivered in multiple formats, and the webinar trainings were recorded for future access. To further support capacity building of our suppliers, PepsiCo established a digital library of resources, with supporting documents.

Higher performing suppliers (in the top 25 percent) were approached to partner with us on industry leading protocols and practices, such as traceability to mill verification and development of the NDPE IRF.

In 2021, capability-building activities will further expand to cover additional topics where our suppliers require support in improving practices. This will include webinars and workshops on the new scoring to include the NDPE IRF, as well as the continuation of targeted one-on-one engagement to facilitate improvements.

See the NDPE Progress section for more information.

Collaboration

To deliver systemic change we have increased our efforts to engage in and lead collective initiatives and actions with peer companies and suppliers. These initiatives include:

Palm Oil Collaboration Group (POCG)

Since 2017, PepsiCo has been a lead convener of the POCG to address key sustainability issues and challenges in the palm oil space with companies throughout the value chain and other stakeholders in a pre-competitive manner. The POCG has four active working groups:

  • The NDPE IRF Active Working Group (IRF AWG), which is responsible for the development, dissemination, and technical advancement of the IRF tool.
  • The Social Issues Working Group (SIWG), which aims to foster collaboration to address human rights issues on the ground.
  • The Production and Protection Beyond Concessions (PPBC) group, which focuses on analysis of areas outside of concessions that are high risk for deforestation, thereby allowing for prioritization to plan where action is needed.
  • The Independent Verification Working Group (IVWG), which is focused on determining approaches to independent verification for progress on deforestation, land rights, and labor rights.

In addition to the four working groups, the POCG also meets twice each year to discuss topics that are key for the industry. In 2020, due to COVID-19 restrictions, the meetings were held virtually in June and November. PepsiCo also supported the development of the POCG website in order to boost the process of engagement, transparency, and external communication on the progress of the four working groups.

In 2021, one of the group’s priorities is to develop a strategy for engaging mills who have not been engaged or are facing challenges toward progress. The strategy will define the direction of travel for currently low performing mills under the IRF and how to engage and continue to make progress in a collaborative manner.

Consumer Goods Forum Forest Positive Coalition of Action (CGF FPC)

PepsiCo is an active member of the CGF, including work streams on deforestation and palm oil. We are an original signatory to the CGF FPC, which was launched in 2019. The coalition focuses on systemic change underpinned a theory of change based on supply chain management and integrated land use approaches. The CGF FPC aims to accelerate efforts to remove commodity-driven deforestation from our individual supply chains; set higher expectations for traders to act across their entire supply base; drive more transformational change in these key commodity landscapes; and transparently report on progress to ensure accountability.

PepsiCo’s participation includes being an active member of the Palm Oil Working Group and Co-Chair of the Production Landscape Working Group. The Palm Oil Roadmap was launched in 2020.

RSPO Shared Responsibility Working Group

PepsiCo co-chairs the RSPO’s Shared Responsibility Working Group, which calls for all RSPO members to do their part to “Mobilize, Act and Transform” to fulfil RSPO’s mission. The Shared Responsibility requirements relate to the environment, information and outreach; human rights; complaints and grievances; land use; and Free, Prior and Informed Consent (FPIC). PepsiCo will continue to represent consumer goods manufacturers on the group in 2021.

Federación Mexicana de Palma de Aceite (FEMEXPALMA)

Founded in 2016, Femexpalma represents palm growers and extractors and seeks to be a catalyst for sustainable oil palm cultivation in Mexico. PepsiCo is supporting Femexpalma to implement sustainability across the palm growing regions in Mexico and further promote the RSPO by providing technical support and capacity building.

AIM – Progress

PepsiCo is a member of AIM – Progress, a forum of leading Fast Moving Consumer Goods (FMCG) manufacturers and common suppliers, assembled to enable and promote responsible sourcing practices and sustainable supply chains. The key objective is to build capability so that member organizations and their suppliers have the knowledge, confidence, and ability to develop and execute robust responsible sourcing programs. They do this through focusing on the issues that matter, such as respect for human rights, and prioritizing practical action to create lasting change in global supply chains. They also foster collaboration between brands and suppliers (with due respect for anti-trust legislation) to drive convergence in approaches to responsible sourcing.

Tropical Forest Alliance (TFA)

The TFA is a multi-stakeholder partnership platform, initiated to support the implementation of private-sector commitments to remove their deforestation from their palm oil, beef, soy, and pulp and paper supply chains. Hosted by the World Economic Forum, PepsiCo is a partner of the TFA and supports its mission, goals and objectives, including through active involvement in programs and initiatives to end commodity-driven tropical deforestation.

Interlaken Group

PepsiCo is a member of the Interlaken Steering Committee, an informal network of individual leaders from influential companies, investors, CSOs, government, and international organizations. The purpose of the Group is to expand and leverage private sector action to secure community land rights. Together they develop, adopt, and disseminate new tools and advance new pre-competitive mechanisms to accelerate private sector learning on responsible land rights practices.

Thriving Communities and Ecosystems

PepsiCo aims to address systemic issues facing communities and ecosystems in priority landscapes, including deforestation, land and workers’ rights, and economic viability.

We are committed to engaging in on-the-ground initiatives with industry, civil society, and others that support the transition to responsible production and play an active role in the wider transformation of the palm oil sector. These include both landscape projects that support conservation, restoration, community development, smallholder inclusion, responsible production practices, and issues-based programs that tackle specific challenges.

In 2020, PepsiCo made the following progress:

  • As part of our Coalition for Sustainable Livelihoods Program in Aceh and North Sumatra, Indonesia, we supported training for 500 smallholders and 93 forest rangers, as well as tree planting of 30,000 seedlings in Aceh Tamiang.
  • As one of seven companies in a coalition to develop a landscape program for sustainable palm oil in the districts of Siak and Pelalawan, we supported the establishment of seven village support programs, engaged with over 20 mills on sustainability, and aligned with the Government of Pelalawan on the coalition’s role in supporting the implementation of a district action plan.
  • Through the joint work of the PepsiCo Global Foundation and the PepsiCo Mexico Foundation, we laid the groundwork for the 2021 launch of Agrovita, which seeks to enhance access to markets for local growers in Mexico.
  • Through our collaboration with Proforest and FEMEXPALMA, we helped two mills in Mexico achieve under the RSPO standard through a capacity building program.
  • In collaboration with Lestari Capital, Nestlé, Procter & Gamble and Wilmar, PepsiCo helped to establish the Rimba Collective, which aims to protect and restore over 500,000 ha of tropical forests in Southeast Asia and therefore create a significant private sector-enabled forest conservation initiative.

Our future commitments as set out in our recently updated Palm Oil Strategy include to:

  • Deliver against landscape targets in Aceh and Riau in Indonesia and other identified priority landscapes.
  • In Mexico, implement the RSPO smallholder Certification to bring 5,000MT ISH to market by 2023 and source 100 percent domestic production of RSPO Mass Balance by 2025.
  • Conserve or restore at least 140,000 ha by 2025.
  • Continue our support to the development of WRI RADD deforestation monitoring system and ensure its operation and use in Aceh and Riau by the end of 2021.
Landscape Programs

Coalition for Sustainable Livelihoods (Aceh and North Sumatra, Indonesia)

PepsiCo is a founding member of the Coalition for Sustainable Livelihoods (CSL). CSL is a group of civil society and private sector organizations with a shared interest in sustainable development, active investments in the Aceh and North Sumatra provinces of Indonesia, and a strong desire to work collaboratively with government. The coalition members have agreed to work collectively to achieve common objectives for smallholder livelihoods, sustainable agricultural production, and conservation in North Sumatra and Aceh.

The Coalition aims to create sustainable commodity value chains (including palm oil) that create business and livelihood opportunities for the people of Aceh and North Sumatra, while preserving natural resources. Since 2018, the Coalition has been working to develop solutions to systemic challenges, such as smallholder legality while also moving to implementation of programs on the ground. Throughout 2020, PepsiCo has supported the implementation of the recommendations for action in Aceh Tamiang and has continued to participate in the wider CSL coalition.

Production, Protection, Inclusion in Aceh Tamiang
As part of its role in the CSL, PepsiCo has been supporting the development of the Aceh Tamiang district initiative and implementation of the landscape plan that the coalition has formulated. In late 2019, the district government formally adopted the plan and signed an agreement to work together towards specific targets on deforestation, livelihoods, and productivity in partnership with local stakeholders (a production-protection-inclusion model). In support of this plan, PepsiCo is investing in partnership with PT Mopoli Raya, Forum Konservasi Leuser (FKL), and IDH in the restoration of 300ha of forest and supporting at least 500 smallholders to become more productive and sustainable. PepsiCo is currently implementing this partnership work on the ground, while also supporting the development of a government-led landscape management body and working with other stakeholders to develop an effective monitoring system and response protocol to deforestation alerts.

In 2020, PepsiCo’s support allowed for the training of 500 smallholders in good agricultural practices, sustainability and risk analysis of local palm oil producers; the training of 93 forest rangers for improved forest protection; and tree planting of 30,000 seedlings. In partnership with the government, the clearing of illegal palm oil has begun. In addition, the site on the cleared land has been identified for the establishment of a community-led nursery for indigenous trees used in reforestation and agroforestry. The nursery will be established in 2021. For more information, please see our Statement on Working Together to Preserve the Leuser Ecosystem.

Siak-Pelalawan Landscape Program (Riau, Indonesia)

In Indonesia, PepsiCo is one of seven companies that are working together on a landscape program for sustainable palm oil in the districts of Siak and Pelalawan. The goal of the program is to create sustainable landscapes across both districts, which will produce deforestation-free and exploitation-free palm oil and maintain or enhance key conservation areas. This will build upon existing local efforts and multi-stakeholder platforms to advance a shared vision of sustainable, inclusive palm oil production models. The program has three phases which are: 1) design the intervention, 2) define the partnership and 3) implement the intervention. In 2019, the partners worked to complete the first phases.

In 2020, the Coalition established a final definition of the partnership and implemented activities within the workplan including support to local communities, engagement of mills, improving traceability, and coordination of deforestation monitoring. Some highlights from 2020 include:

  • Support to seven rural communities, including the training of and funding for seven full-time village facilitators to work in local communities, and the completion of participatory mapping in the seven villages which will form the basis of ongoing village support programs;
  • Engagement of more than 20 mills on sustainability, and work to collect traceability to village level (at a minimum) for all mills in the project area; and
  • Alignment with the government of Pelalawan regarding the coalition’s role in supporting the implementation of the District action plan. This builds on an agreement that was signed between the coalition and the Siak District Government in 2019 to support the Siak government’s plan for sustainable governance of the District, ensuring that the coalition is working in alignment with the government of both districts.

OXFAM FAIR Partnership

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 Company-Community Partnerships address sustainability, human rights, and economic development issues holistically through a multi-stakeholder, inclusive, and landscape-based approach. PepsiCo has contributed funds for the project. It provides relevant business perspective to the initiative, as well as shares the lessons in its own supply chains and with its sector peers. Initial scoping and development had begun in Riau, Sumatra, but was moved to tackle local economic development needs in Sulawesi during late 2018.

In 2020, the movement restrictions presented by COVID-19 created significant problems and delays in implementation against the project plan. Nevertheless, Oxfam and partners were able to complete the first stage of work, which has been to build on the initial scoping study with a more detailed investigation and strengthen engagement with local stakeholders to identify the root cause of problems present in the area and gauge interest from critical stakeholders including mills, farmers, local government, and civil society. This phase has examined comprehensively the social, economic, and environmental conditions and situations in the local area (e.g., tenure aspects, actor mapping; livelihoods; gender analysis; commodity value chains, particularly oil palm, cocoa, and coconut; the need for strengthening farmer capacity). A final report was delivered to PepsiCo and other stakeholders in December 2020, and we are reviewing the recommendations and options for next steps.

Mexico Holistic Palm Program – “Un México Palmero Sustenable!”

Mexico is one of the largest suppliers of palm oil for PepsiCo. In 2016, we created a holistic and inclusive palm oil sustainability program for Mexico in collaboration with Oleopalma, Femexpalma, and Proforest, and expanded in 2018 and 2019 with RSPO and Nestlé, respectively. Through the holistic program, PepsiCo engages with all levels of the supply chain to support the adoption of good sustainable practices. PepsiCo has built capacity among smallholder farmers; helped to establish nine demo farms; supported RSPO certification for mills; promoted the RSPO Smallholder Support Fund; and assisted in land conservation efforts.

Of the almost 8,000 oil palm producers in Mexico, nearly 95 percent of palm oil groves are less than 20 hectares. This represents approximately 85 percent of national fruit production. Inclusion of smallholders is fundamental to meet a growing domestic demand for palm oil through sustainable intensification and to improve livelihood opportunities. The productivity rates of smallholders in Mexico are among the lowest globally and have the potential to double. To help drive scale and expand the existing capacity building component of the Smallholders Program, nine demo farms were launched in 2019. The demo farms enable the demonstration of good sustainable agricultural practices, including nutrient management, productivity, quality and improving livelihoods. The program seeks to demonstrate the productivity potential to growers in the region. To date, these growers have demonstrated an 80 percent increase in yields, from an average of 9 tons/ha to more than 16 tons/ha.

Recognizing the criticality of support mills to reach RSPO certification and smallholders’ inclusion, PepsiCo sponsored a capacity building program, in collaboration with Proforest and Femexpalma, for mills, associations, and producers to build technical capacities of the Mexican palm oil sector on sustainability topics. These include RSPO certification schemes, evaluation, and conservation of High Conservation Values (HCV) in addition to the implementation of the RSPO Smallholder certification, internal control systems and the evaluation of risks. Through this program, PepsiCo supported the certification of two mills under the RSPO standard in 2020 and is targeting the certification of three additional mills in 2021. PepsiCo has also supported the training of over 670 professionals on sustainability issues in Mexico and across Latin America. Finally, the program is also targeting an important milestone in 2021, with the certification of five smallholder associations under the RSPO Independent Smallholder standard, which would be the first group of certified smallholders in Mexico.

PepsiCo has also supported the protection of over 70,000 hectares under the identification of High Conservation Values in the Southeast of Mexico. PepsiCo also supported the creation of the HCS-HCV probability maps to facilitate the conservation of forests and high conservation values on the smallholder’s context. These tools have been developed by Proforest and endorsed by the RSPO and High Carbon Stock Approach (HCSA) and cover the four-palm oil producing states. The HCS-HCV probability maps will be launched in 2021, and may serve as a resource to support the 18 Mexican mills to meet NDPE commitments. Visit the website to learn more about the program.

In 2021, PepsiCo launched Agrovita, which further expands on the existing holistic program. Developed jointly with The PepsiCo Foundation and the PepsiCo Mexico Foundation, Agrovita seeks to enhance access to market for local growers through developing the value chain; promoting economy recovery; supporting improved food security and water access; and addressing sustainability challenges across value chains at scale – including cocoa, plantain, and palm oil (see the video and launch page).

Rimba Collective

PepsiCo is a founding and development partner of Rimba Collective, which is poised to be one of the largest private sector-enabled forest conservation initiatives ever launched in Southeast Asia. The initiative, which aims to protect and restore over 500,000 hectares of tropical forests, was developed by Lestari Capital, an impact-focused enterprise, in collaboration with its founding partners which include PepsiCo, Nestlé, Procter & Gamble, and Wilmar.

Rimba Collective aligns with the Indonesian Government’s focus on protecting the country’s natural capital whilst generating resilient jobs, attracting high quality international and domestic capital, and driving economic development to recover from the COVID-19 crisis. The initiative’s 25-year project agreements will directly benefit 32,000 local people in forest-frontier communities, thereby strengthening equitable livelihoods and providing a secure source of income. It also contributes to the Indonesian Government’s targets to expand social forestry, accelerate peat and mangrove restoration, and reduce deforestation.

The Collective also complements the palm oil industry’s efforts to end deforestation by integrating and embedding funding for conservation across the supply chain. The initiative’s project portfolio will initially focus on Indonesia, before expanding to projects across Southeast Asia. Projects funded by Rimba Collective will be prioritized based on the potential to protect and restore large, continuous areas of natural ecosystems and critical habitats. Other priorities include generating measurable ecosystem service benefits and resilient livelihoods for local communities. All projects will undergo third-party verification (see the website for more information).

Issue Programs

World Resources Institute RADD (WRI RADD)

In 2019, PepsiCo joined other major palm oil producers and buyers to support and fund WRI’s development of a new, publicly available radar-based forest monitoring system known as RADD. This partnership between PepsiCo and Bunge, Cargill, Golden Agri-Resources (GAR), Musim Mas, Nestlé, Sime Darby Plantation, Unilever Mondelēz International, and Wilmar will make it easier for companies and other stakeholders to see deforestation happening in near-real-time and with greater accuracy. The RADD system is currently being developed for Indonesia and Malaysia, and the preliminary results indicate that the system can detect tropical deforestation several weeks earlier than optical-based systems. With this information, producers can quickly mobilize follow-up actions on the ground and work to improve the sustainability of commodity supply chains. Partner companies will periodically receive alerts about detected deforestation events and will provide crucial feedback to improve the RADD system throughout its development over the next year. The open nature of the system will enable companies – in addition to governments, civil society organizations, and concerned stakeholders – to monitor forests using the same information source and standards.

PepsiCo began discussions with WRI in 2020 on potential support for the implementation of the system in Aceh Tamiang, which would include making the system available to government officials and enforcement agencies. This would be accompanied by training on use of the system, thereby allowing the Aceh Tamiang government to improve its capacity in monitoring and enforcement. We expect to formalize and implement this project with WRI and other partners in 2021.

Child Protection and Safeguarding - Business for Social Responsibility (BSR)-Led Coalition

In 2019, PepsiCo joined together with other palm oil buyers and producers to launch a program to protect the rights of children living on oil palm plantations. The program ran until the end of 2020 and included the development of a Child Protection and Safeguarding Implementation Manual as well as a series of capacity building workshops to enable suppliers to learn, discuss, and implement pragmatic measures to strengthen the rights and protection of children. PepsiCo, together with major companies including Colgate Palmolive, Nestlé, Procter & Gamble, and Wilmar, among others, are working in collaboration with Business for Social Responsibility (BSR) to deliver the program. The collaboration is part of an ongoing series of workshops, conducted by Wilmar in 2017 and 2018, for suppliers to improve working conditions and livelihoods of plantation workers. There were more than 190 participants in four workshops that were held in person or virtually across 2020. The participants included senior government, private sector, and union representatives, alongside plantation and mill companies, civil society, and industry organizations. A detailed implementation manual for child protection is now publicly available and free to access, including pictorial guides and other resources. These efforts have resulted in positive brand and supplier engagements, with a deeper understanding of salient labor issues facing the oil palm sector.

Using Technology to Strengthen the Voice of Workers

To strengthen our engagement with workers in our value chain, PepsiCo has partnered with Cargill and Proforest to pilot the new “ULULA Worker’s Voice Tool” that uses technology to drive human rights and inclusive impacts among our palm oil producers. The tool, developed by ULULA, provides real-time information on key risk indicators at the plantation level and enables local teams and management to receive complaints and feedback directly from workers, making it easier to identify areas of improvement and collaborate on corrective action. Aggregate results from the tool will be shared with PepsiCo, Cargill, and the Roundtable on Sustainable Palm Oil (RSPO).

Transparency and Accountability

PepsiCo aims to promote and demonstrate transparency and accountability in our value chain and across the wider sector through collaboration, engagement and reporting.

Communicating and engaging directly with our stakeholders, including peers, suppliers, communities, investors, civil society, governments, certification bodies, and others is a critical step of our due diligence, in continuing to build trust and to receive important feedback on our strategy and programs. We do this through several avenues, including our reporting efforts, one-on-one meetings, participation in forums and working groups and collaborations that seek to tackle the systemic issues underpinning many of the environmental and social challenges facing the sector.

In 2020, PepsiCo:

  • By working with our suppliers and peers, we were able to establish mill-level traceability accounting for approximately 97 percent of our source volume via our Traceability Protocol, thereby marking a nearly 30 percent increase since the beginning of the program.
  • In consultation with our suppliers and our peers, we made progress in resolving several grievances that have been identified in our supply chain, including the 12 that remain open. We also closed a long-running grievance related to our relationship with Indofood (see PepsiCo Sourcing of Palm Oil from Indonesia).
  • Through collaboration with external experts, we undertook a formal review of our grievance approach for our agricultural supply chain to better understand the related challenges and identify ways to strengthen our grievance process.

Our future commitments as set out in our recently updated Palm Oil Strategy include to:

  • Provide transparency to stakeholders including our value chain, peers, civil society, and others through ongoing disclosure, delivering the following priorities from 2021:
    • Supply Chain disclosure including:
      • Annual publication of mills, refineries, and direct suppliers
    • Assessment of forest and social risks in our palm oil supply chain
      Regular reporting on progress against our policies and goals including through:
      • Annual disclosure on PepsiCo website, including progress towards NDPE, as measured by NDPE IRF
      • Reporting through industry platforms including RSPO, CDP, Palm Oil Collaboration Group, and the CGF Coalition of Action
    • Public disclosure on actions taken to address non-compliances and grievances linked to our palm oil supply chain including through:
      • Disclosure of progress on PepsiCo website of grievances managed through our Agricultural Supply Chain Grievance Process
      • Playing a leading role in developing industry wide approaches to deforestation monitoring and responses, including appropriate disclosure on progress
    • Collaborate with stakeholders in developing an industry roadmap for Independent Verification of NDPE compliance by end of 2021 and apply it in our supply chain as soon as practically possible
Reporting and Disclosure

This Palm Oil Progress disclosure is our sixth year of reporting and builds on comprehensive reports in 2017, 2018, and 2019. It is part of an annual reporting cycle, which also includes Annual Communication of Progress to the RSPO. For the 2019 report, we moved to an online format to reduce duplication and allow for regular updates to our approach and programs. We also publish our annual update of our direct supplier and mill lists, which provide transparency of our supply chain. The information here is supplemented by other topics on our ESG Topics A-Z website, including on human rights, deforestation, climate change, land rights, agriculture, and sustainable sourcing.

Traceability

Palm oil supply chains are complex, often involving multiple tiers of suppliers and thousands of intermediaries. Building better information systems is therefore an important step to achieving our goals and prioritizing opportunities for improvement.

Traceability to Mill

We continue to strive towards 100 percent traceability to the mill in our supply chain, and to ensure high standards of traceability reporting. At the end of 2020, our suppliers reported approximately 97 percent of our palm oil volumes were traceable to the mill level. Since the start of the program, mill traceability has increased by nearly 30 percent. Achieving the 100 percent traceability target has, however, been challenging given the complexity of the supply and the availability of data from direct suppliers in some of our markets.

Palm Oil Traceability

While we have information on the traceability of the remaining approximately 3 percent of palm oil volumes, we do not currently believe the quality of data is sufficient, as the supply chain complexity in countries like India can complicate the ability of suppliers to provide timely and complete data. In addition, due to the COVID-19 pandemic and logistical restrictions, many palm oil traders had to rely on domestic supplies in countries where traceability is still challenging (e.g., China, India), so their reported traceability figures were lower than usual. We will continue to work with our suppliers to close the gap and continue to strive for 100 percent traceability.

Traceability Protocol

In 2020, PepsiCo’s Palm Oil Traceability Protocol continued to help our suppliers improve the quality of data provided to PepsiCo. Under the Traceability Protocol, our suppliers are required to provide the name of the palm oil mills, GPS coordinates of the mills, and traceability percentages. A supplier training program for the protocol was also implemented for suppliers. We also established a traceability helpdesk with Peterson to provide suppliers with ongoing assistance. The Protocol is also the basis for independent verification undertaken by suppliers to verify the quality of the management systems used to collect their supply chain data. With this effort, we have established mill-level traceability accounting for approximately 97 percent of our source volume. The Protocol has been adopted by other companies, including Cargill.

Based on our evaluation of the quality of the data received to date, we implemented a risk-based approach to independent third-party verification of the mill traceability data, and 100 percent of the suppliers who will supply to us in 2021 have either undergone verification or are scheduled to do so.

Traceability to Plantation

PepsiCo is also committed to driving traceability to plantation (TTP) in our supply chain by working together with our direct suppliers to further understand the production base. During the verification visits, we started collecting information on the percent of oil traceable back to plantation from our suppliers. We also reviewed publicly disclosed information regarding Traceability to Plantation data as reported by our direct and indirect suppliers.

Since launching our Traceability Protocol, we collected information from 36 suppliers, which represents approximately 49 percent of our volume reported traceability to plantation.

In 2021, PepsiCo will continue to support TTP in our supply base through our engagement with suppliers and sector initiatives such as the NDPE IRF.

Assessing Risks

We assess risks in our supply chain and the palm oil industry more generally to identify geographic areas and issues that have the highest likelihood of incidence of noncompliance. This helps us to prioritize our efforts to raise standards. In addition to formal risk assessments, we also rely on other sources of information, including:

  • Engagement with direct and indirect suppliers.
  • Feedback from assessments and audits conducted as part of our sustainable sourcing and sustainable agriculture programs.
  • Participation in collaborative forums.
  • Feedback from civil society including through reports and direct engagement.
  • Experience and knowledge of PepsiCo employees.
  • Working with Proforest and other organizations with expertise in managing natural resources sustainably.
  • Risks discovered and addressed through our grievance mechanism.

From these sources, we have established that the following risks are most significant to our palm oil supply chain:

  • Smallholder Production: Approximately 40 percent of palm oil is grown by smallholder farmers, who are vulnerable to other risks in the palm oil industry.
  • Worker Rights: Risks for workers in the supply chain include rights of temporary workers, working hours and pay, forced labor, and child labor.
  • Deforestation/Peatlands: Indonesia contains approximately 36 percent of the world’s tropical peat, and had the fourth highest loss of primary rain forest in 2020. From 2002 to 2019, over nine million hectares of natural forest were lost.
  • Land Rights: There is growing potential for land rights disputes as new plantations are established.

PepsiCo engages in industry platforms designed to tackle risks, including the World Resource Institute’s Global Forest Watch (GFW) Universal Mill List and the GFW Pro platform, to identify risks at the mill and plantation levels.

Grievance Management and Remedy

We recognize that our policies and programs may not prevent all adverse impacts in our value chain. In line with the UN Guiding Principles for Business and Human Rights (UNGPs), we aim to provide effective remedy where we have caused or contributed to those impacts and to using our leverage to encourage our suppliers and partners to help enable remedy where we find impacts directly linked to our business operations, goods or services.

In July 2017, we formalized a grievance mechanism for our agricultural supply chain to complement our existing programs and processes to prevent, identify and manage environmental and social concerns throughout our value chain. The mechanism allows third parties to raise concerns that our environmental and social goals and policies may not be upheld within our agricultural supply chain. Our approach is set out here.

We engage our direct suppliers who source from the companies at the center of the complaint to:

  • Validate the allegations;
  • Demonstrate the importance we attach to addressing the concerns raised;
  • Understand corrective action steps already taken and planned in the future; and
  • Influence those actions and monitor progress towards completion and ultimately address the complaint.

At the end of 2020, a total of 28 grievances were registered in our system, including legacy grievances. The majority of concerns relate to palm oil production in South East Asia. Most have a combination of environmental and social concerns, primarily deforestation and labor rights issues. A total of 12 of the grievances have been closed, and four were deemed to be “out-of-scope” by PepsiCo. The remaining 12 remain open, and we continue to engage with suppliers, peers who received similar grievances, and others to make progress. We expect to publish more detailed information on grievances and our grievance management in 2021.

For further information on our work in addressing palm oil challenges in Indonesia, please see PepsiCo Sourcing of Palm Oil from Indonesia.

In 2021, we will continue to address existing and new grievances, as well as complete the review of our grievance process to ensure it is meeting its objectives, as outlined below.

Grievance Mechanism Review

Our grievance mechanism for our agricultural supply chain complements our existing programs, and enables us to more effectively manage grievances related to key commodities and work with our suppliers and external stakeholders to address challenges as they arise, including by taking commercial action, where appropriate.

Through our management of the mechanism over the past three years, we have gathered insights and identified several areas where we can improve our grievance process to help us more effectively use our leverage in encouraging our suppliers and business partners to provide remedy.

Since 2020, we have undertaken a formal review of our grievance approach for our agricultural supply chain to better understand these challenges and to identify ways to strengthen our grievance process in line with the UNGPs. The review is being led by an organization with expertise in the UNGPs and grievance mechanisms, and we expect it to be completed in 2021. The review has examined (1) the best role for PepsiCo to play when grievances are presented; (2) how we can further encourage systematic grievance management and resolution throughout our supply chain and with peers; and (3) how we can best support the improvement of external grievance systems, such as the RSPO complaints mechanism. External stakeholder input, including from affected parties and civil society organizations, has played an important part of the review.

Anticipated outcomes from the review include:

  • Enhancements to our grievance mechanism to improve its effectiveness and efficiency in line with the UNGPs;
  • Improved coordination with others that share the grievance in question, including peer companies and suppliers;
  • Formal guidance for managing non-compliances with suppliers and business partners, including criteria by which actions up to and including suspension, and requirements for re-entry of suppliers would occur;
  • Public disclosure of grievances linked to PepsiCo's agricultural supply chain, including actions taken by PepsiCo, and its suppliers and business partners to address them; and
  • A statement on the role and expectations of satellite monitoring in identifying and addressing non-compliances in our supply chain.
Stakeholder Engagement

We meet directly with stakeholders 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 strategy and accelerate progress toward our goals.

PepsiCo also engages regularly with NGOs with missions ranging from environmental conservation to protection of human rights. Among the issues raised in 2020 were:

  • An updated approach to sustainable palm oil that recognizes the need to adopt a forest positive mindset. We launched our new Palm Oil strategy in April 2021 to reflect our commitment to sustainable palm oil in our own supply chain and across the industry.
  • Closer collaboration with peers to maximize our impact. PepsiCo is a leading member of the CGF Forest Positive Coalition and the Palm Oil Collaboration Group, which both seek to do this.
  • The scope of our policy and the request to apply our policy to companies in our supply chain at the company-wide level. Our updated palm oil policy applies to companies at the company-wide level;
  • The need for greater confidence in the independent verification that standards are being met throughout the palm oil supply chain. PepsiCo co-led the development of a workshop with industry and civil society at RT17 to discuss the role of independent verification, and is committed to convene and participate in follow-up meetings;
  • Greater clarity and visibility on our agricultural grievance process. These views have been accommodated into the review of our grievance process, led by an expert external organization.