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Sustainable Sourcing


Sustainable Sourcing Why It Matters

Approach

Our Positive Agriculture ambition aims to embed integrity, fairness, and stewardship throughout our agricultural supply chain. We expect our suppliers to adhere to the same standards of integrity to which we hold ourselves. Therefore, all suppliers, vendors, contractors, consultants, agents, and other providers of goods and services who do business with or on behalf of PepsiCo entities worldwide are expected to follow our Supplier Code of Conduct (SCoC) and all other relevant policies as a condition of doing business with us. These include:

Many of these standards are based on international conventions including the Universal Declaration of Human Rights; the International Covenant on Civil and Political Rights; the International Covenant on Economic, Social and Cultural Rights; and the ILO Declaration on Fundamental Principles and Rights at Work.

Our approach to sustainable sourcing is operationalized through:

  • Our Sustainable Sourcing Program (SSP) - a supplier engagement program for our most business-critical first-tier suppliers and business partners that includes formal risk assessments, third-party audits, corrective action, and capability building.
  • Our Sustainable Farming Program (SFP) - a farm-level continuous improvement program that helps us assess our direct growers, identify potential gaps relative to our policies, and implement plans to safeguard human rights and embed regenerative agricultural practices. (see also: Agriculture).
  • Our procurement practices - our supply contracts include our SCoC, and we provide training on it through the SSP and on our website. In purchasing categories with time-bound commitments to sustainable sourcing, such as palm oil, our procurement teams use tools such as supplier scorecards to evaluate and compare performance of individual suppliers against our expectations.
  • Tailored programs - in cases where we identify potentially high risk or priority supply chain concerns, we deploy specific programs to improve knowledge, awareness, and outcomes.
Sustainable Sourcing Program Overview

Our SSP builds supplier awareness and capabilities on the issues and expectations referenced in our SCoC. The program is targeted towards our strategic suppliers who provide PepsiCo with a range of key inputs including ingredients, packaging, and services; or manufacture on our behalf. It supports our long-term sustainable supply goals by addressing known risks and building capability within our value chain. Our approach is informed by regular engagement with our suppliers through the SSP process, and through our leadership positions with industry groups such as AIM-PROGRESS, Sedex, and the Consumer Goods Forum. It is also strengthened through engagement with expert non-governmental organizations (NGOs) such as Shift, to leverage best practices from our industry and beyond. Internally, the SSP strategy is reviewed annually in consultation with leaders from our human rights, sustainable agriculture, procurement, and legal teams to support business integration.

The SSP includes assessment of risk and compliance with our SCoC as well as third-party auditing of business-critical direct suppliers, contract manufacturing, and co-packing locations. In 2020, we expanded our SSP to additional segments of our supply chain to include joint ventures and franchisees in select markets, with a total of 101 countries now included in the program. We will continue to expand this risk-based approach to other geographies and segments of our supply chain in the future as part of our commitment to advance respect for human rights throughout our broader value chain.

Supplier Code of Conduct

Our SCoC is a cornerstone of the SSP. It sets out the expectations we have of our suppliers in the area of business integrity and anti-corruption, labor practices, health and safety, and environmental management. Suppliers are also expected to communicate and apply the SCoC and relevant policies throughout their supply chain. The SCoC is based on recognized international human rights standards and explicitly prohibits all forms of forced labor and child labor. Compliance with our SCoC is a part of PepsiCo’s supply contracts. The SCoC is available in 25 languages, and we provide open-access online training to help our suppliers further understand the principles of our SCoC in addition to more targeted trainings with our business-critical suppliers as part of our SSP.

In 2018, we revised our SCoC to clarify our expectations around several key issues, including forced labor and migrant workers protections, confidentiality, land rights, anti-corruption and bribery, working hours and rest days, environmental protection, and grievance mechanisms. As part of this process, we also revised our SCoC training to strengthen our guidance to suppliers on key issues such as recruitment fees, freedom of movement, and clear worker contracts.

Assessing Compliance

Suppliers are responsible for demonstrating compliance with our SCoC through activities including an initial risk assessment, SCoC training, a graded site-level Self-Assessment Questionnaire (SAQ), and participation in on-site audits as requested. The SSP leverages the Sedex Members Ethical Trade Audit (SMETA) methodology aligned to international standards in the areas of business integrity, labor practices, health and safety, and environmental management.

Where instances of non-compliance are found during on-site audits or virtual assessments, a corrective action plan with a timeline for remediation is put in place by the supplier and follow-up audits are conducted by an approved third-party auditing firm to verify implementation.

Grievance Mechanisms

While our policies and programs may not prevent all adverse impacts in our value chain, we aim to provide effective remedy wherever possible, including using our influence to encourage our suppliers and partners to provide effective remedy where we find impacts directly linked to our business operations, goods, or services. We have established a variety of mechanisms that allow our employees, stakeholders, and other potentially affected individuals to raise grievances and seek remedy. More information on our grievance mechanisms is available on our Human Rights page.

Our Speak Up hotline is an important component of our culture, ethics, and integrity, and we encourage our suppliers and business partners to use their own effective grievance mechanisms and make the PepsiCo Speak Up hotline available for their use through our SCoC.

In the spirit of transparency, we regularly publish information on the usage of our Speak Up program, including the number of reports and their categorical distribution. Our latest report can be viewed here.

Progress

We continued to engage suppliers around our Supplier Code of Conduct, and in 2020, 100 percent of our targeted business-critical direct suppliers completed the SCoC training.

In response to COVID-19 impacts on our supply chain, we worked closely with Sedex and AIM-PROGRESS members to support the development and adoption of the Sedex Virtual Assessment methodology. This allowed sites that could not allow on-site auditors in their manufacturing locations the ability to further demonstrate — through third-party verification — protection of worker health and safety, human rights, environment, and business integrity to meet our SSP expectations.

Sustainable Sourcing Progress and Challenges

In 2020, more than 490 on-site audits or virtual assessments were conducted or recognized with first-tier suppliers using the industry standard SMETA 4-Pillar Audit Protocol or an equivalent assessment. Following the on-site audit, sites were scored from red to green based on the severity and number of instances of non-compliance found on-site.

Among our Tier 1 strategic suppliers in 2020, the non-conformance rate for suppliers with highest risk — red audit results — was just over 7 percent of our total assessments and at year-end, and corrective action plans had been developed for 100 percent of these red sites, to be validated by the auditor upon their next on-site follow-up audit.

The top overall noncompliance findings in 2020 were focused in:

  • Health, Safety, and Hygiene
  • Environment
  • Working Hours
  • Regular Employment
  • Wages

Building supplier capability is an important aspect of the SSP.  Among other program actions, we continue to improve our focus on corrective action plan materials to include more robust guidance for suppliers on conducting root cause analysis of issues identified through the SSP and are moving to an online platform to further streamline corrective action management and provide access to training materials and resources to support suppliers’ continuous improvement.

Since the SSP launched in 2015, we have seen strong improvement from sites as they learn from audit findings, strengthen their internal management systems and capabilities, and resolve non-compliances. High-level results of this improvement over time are presented below, based on sites that have completed both initial and follow-up audits.

Sustainable Sourcing Site Improvement

What's Next

As we pursue our PepsiCo Positive ambition, we will continue to evolve and enhance our programs in line with our sustainable sourcing goals. Key areas of focus for 2021 include:

  • Expanding the scope of our program to support engagement with our business-critical and potentially high-risk areas within our supply chains through continued engagement in multi-stakeholder initiatives and collaborative efforts;
  • Extending the principles of our Supplier Code of Conduct to more franchisees and joint venture partners;
  • Deepening the specificity of our program tools to assess and address risks in upstream supply chains, such as waste collection practices and responsible recruitment;
  • Evaluating opportunities to further test targeted assessment techniques - such as specific audits designed to detect modern slavery or to be used with contract labor brokers - as these methodologies become available;
  • Continuing to analyze our multi-year supplier data set to better understand trends in supplier challenges, root causes of recurring non-compliances, and to evaluate the effectiveness of our program;
  • Improving our ability to provide suppliers with targeted training and capability building opportunities based on the challenges identified through their assessments and audit results.

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