Why it matters
While PepsiCo is one of the largest global buyers of palm oil in the consumer products industry, our purchase in 2021 represented less than 1% of the global supply. It is used primarily in our convenient food manufacturing because of its wide availablility and shelf stability.
To the World:
We recognize that we have an opportunity to use global scale and resources to help influence positive change across our entire value chain - starting with the way our product ingredients are grown and sourced. We work with suppliers and farmers across our global supply chain to help them incorporate leading policies, practices and technologies that are designed to make our food system more sustainable and productive.
Background and Context
As one of the world’s leading beverage and convenient food 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 ingredients across 30 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 2021 represented less than 1% 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 40+ direct suppliers that source palm oil from over 1,700 mills and tens of thousands of farmers who grow the palm fruit.
In 2021, our global purchase of palm oil was nearly 440,000 metric tons (MT), of which palm kernel oil comprised nearly 3,700 MT, and sourced nearly 8,200 MT Independent Smallholder (ISH) credits to recognize the efforts of smallholders. Our top suppliers were Oleofinos, Wilmar, Cargill, and Willowton. The top three countries from which PepsiCo sourced palm oil were Indonesia, Malaysia, and Colombia.
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 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 goals 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% sustainable palm oil. To meet our goal, we have set three interconnected priorities:
- Sector Transformation towards 100% No Deforestation, No Peat, No Exploitation (NDPE): Drive industry-level change toward 100% 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, worker, and community 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.
We will turn these long-term goals into action through a series of time-bound targets. This includes a commitment to use our market scale and engagement to support Roundtable on Sustainable Palm Oil (RSPO) uptake and effectiveness through our continued commitment to 100% RSPO certification by ensuring that at least 95% of the volume is physically certified, with the balance comprised of ISH credits aligning with the requirements and demonstrating our commitment to shared responsibility.
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, with work continuing in 2022:
- Drive industry-level change toward 100% NDPE, including delivery within our own supply chain.
- By end of 2022, 100% 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 Implementation Reporting Framework.
- Build capacity among our direct suppliers to ensure that all suppliers score greater than 80% through our supplier scorecard process by the end of 2025.
- Address systemic issues facing communities and ecosystems in priority landscapes, including deforestation; land, worker, and community rights; and economic viability.
- In Mexico, implement the RSPO smallholder Certification to bring 5,000 MT ISH to market by 2023 and source 100% 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 and apply this in our supply chain as soon as practically possible.
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 principles 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 strengthened 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 human rights 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.
In 2021 the world continued struggling with the COVID-19 pandemic. Global economic uncertainty, as well as supply chain disruptions, have impacted our industry, but our commitment to continue to strive for 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 the ways collaborative platforms are operated, we continued to drive progress by addressing these challenges and by working with others.
Specific issues included:
- Traceability Data: many palm oil traders needed to rely on domestic supplies in countries where traceability is still challenging (e.g., China, India), so their reported traceability figures are lower than usual. Under normal circumstances, the traders could instead limit the suppliers from such sources and therefore achieve an overall higher traceability figure. We will continue working with our suppliers to increase visibility of the mills in our palm oil supply chain and encourage RSPO to build an understanding of why traceability and sustainable palm oil are important.
- Landscape programs: In terms of our on-the-ground impact work, PepsiCo has engaged with our suppliers and implementing partners to develop safety protocols to ensure the health of the producers, the local team, and implementing partners. While the local teams were still able to progress our joint programmatic aims broadly, some activities were impacted more than others – and reliance on other forms of communication became increasingly important. In Indonesia, movement restrictions delayed activities in our program in Aceh Tamiang by several months, as experts from outside the district were not allowed to enter. Furthermore, limitations on the size of gatherings meant that trainings and other meetings had to be staggered across a wider time period than originally planned. In Mexico, the global pandemic delayed the certification process for smallholder growers in our supply base and impacted the level of engagement with growers through group trainings and demo farm days. In 2021 good practices for remote work and support on the ground remained in place, however, it remained challenging to conduct visits on the ground.
- Collaborative platforms: COVID-19 also continued to impact some of the collaborative work that PepsiCo is doing, changing the format of the Palm Oil Collaboration Group (POCG) conversations, and transferring all meetings and workshops online. Even though the group of companies working in a pre-competitive collaborative manner were not able to meet face-to-face, we have embraced the challenge and managed to make the best out of holding the POCG workshops and various workstreams online, which allowed for greater inclusion and an even broader participation of stakeholders.
Sector Transformation Towards NDPE
PepsiCo is focused on driving industry-level change toward 100% NDPE, including delivery within our own supply chain. During 20201, PepsiCo:
- Through collaboration with our peers and suppliers, we recognized improved supplier performance towards NDPE through the NDPE Independent Reporting Framework (IRF). 80% of our Tier 1 suppliers provided deforestation and peat profiles for the palm oil volumes that they source. The profiles represent approximately 74% of PepsiCo’s total palm oil volume in 2020.
- Achieved 100% RSPO certification by sourcing over 98% RSPO physically certified palm, and covering the remaining through the purchase of ISH Credits.
- Worked with our suppliers to help them realize an additional 11% increase on their overall sustainability performance score, based on our supplier scorecards. The average score of suppliers has increased by 106% from the 2017 baseline.
Our future priorities as set out in our Palm Oil Strategy include:
- By the end of 2022: 100% of our palm oil supply will be NDP delivering or within a time-bound initiative that demonstrates progress to delivering as measured by the NDPE IRF. For the no E component of the IRF, PepsiCo will continue to support and align with the industry-wide adopted approach which is agreed upon through the Palm Oil Collaboration Group.
- Build capability of our direct suppliers, so that all suppliers score greater than 80% through our supplier scorecard process by the end of 2025.
Measuring progress towards NDPE
The NDPE IRF Active Working Group is one of the workstreams of the POCG, which PepsiCo co-convenes. The group now includes 28 Active Working Group 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 No-Deforestation and No-Peat 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 the methodology for profiles on labor and land rights. The development of labor and land templates for IRF are aligned with the needs of the sector and are currently undergoing further revision for achieving alignment. Please see the NDPE IRF website for more information.
In 2021 we conducted the following webinars with suppliers:
- Webinar to all suppliers in February 2021 to socialize PepsiCo strategy, IRF integration into supplier scorecards and how this will affect them, as well as instruct on IRF reporting deadlines.
- 2-day IRF LATAM workshop online to socialize IRF and discuss how to collaborate in LATAM on improving palm mill performance and reporting (contributed to setting up of POCG LATAM chapter).
Supplier Progress Towards NDPE
Working with our suppliers, we were able to create a baseline of current performance in our supply chain. For 20202, 80% 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% of PepsiCo’s total palm oil volume in 2020. We expect all suppliers to provide full profiles by the end of 2021.
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.
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% of our palm oil supply be NDP 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 is how to engage mills that score in the lower sections of the framework. The 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 group will continue the discussions in 2022 and take the learnings to develop practical strategies and approaches to support mills.
The NDPE IRF Active 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 integrated the IRF into our supplier scorecard process (see Supplier Engagement section for more information on our supplier scorecards) in 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.
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% RSPO physically certified palm oil by the end of 2020 and aim to continue to source 100% RSPO certified sustainable palm oil, while helping to lift production standards across the palm oil sector. We increased our sourcing from 82% in 2019 to over 99% in 2020 through the RSPO Mass Balance physically certified supply chain model and procured ISH credits for the balance. For 2021 we leveraged 98% RSPO mass balance physically certified and in recognition of the efforts made by smallholders to achieve RSPO certification, PepsiCo directly supported smallholders by purchasing ISH credits for 2% of the total, thereby achieving 100% RSPO certification.
In 2021, we procured nearly 8,200 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).
In 2020, we received an award from FORTASBI in recognition of the support that PepsiCo’s sourcing of 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).
In 2022 and beyond, we will continue to focus on using our market scale and engagement to support RSPO uptake and effectiveness through a continued target of 100% RSPO certification, with at least 95% 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% of our direct suppliers have been RSPO members since 2017. PepsiCo also co-chairs the RSPO Shared Responsibility Working Group (see Collaboration section).
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 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 Consumer Goods Forum (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.
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.
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 2021, 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 20203, the overall performance improvement on the supplier scorecards against 2019 was 11%. The average score of our suppliers has increased by 106% from the 2017 baseline.
Utilizing the information from the scorecards, we were able to continue our engagement with suppliers and support capability building to help improve practices. In 2021, we delivered this through a variety of engagement methods including one-on-one engagement sessions with suppliers and live webinars for suppliers, with a focus on the NDPE IRF. The majority of our suppliers participated in these engagements, which were delivered in multiple formats and languages. To further support the capacity building of our suppliers, PepsiCo established a digital library of resources, with supporting documents such as recorded webinars, guidance documents and previous presentations.
Higher performing suppliers (in the top 25%) were approached to partner with us on industry-leading protocols and practices, such as traceability to mill verification and development of the NDPE IRF.
See the NDPE Progress section for more information.
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)
POCG and focus on No Deforestation, No Peat and No Exploitation Implementation Reporting Framework (NDPE IRF).
Since 2017, PepsiCo has been convening the POCG to pre-competitively discuss key sustainability issues and challenges in the palm oil sector. Through this, we have led the creation of a space where companies can identify and overcome key challenges to the sector in addressing social issues, independent verification of progress, addressing deforestation outside concessions, and monitoring and reporting on progress, among other topics. Today more than 30 companies from all stages of the palm oil supply chain including producers, refiners, traders, manufacturers, and retailers are members of the POCG.
One of the key achievements of the group has been the development and rollout of the NDPE IRF, an industry-wide reporting tool for companies. PepsiCo is committed to striving to purchase 100% RSPO-certified volumes and believes that certified volumes offer the best guarantee that palm oil is grown in a way that complies with our NDPE goals. Nevertheless, as the RSPO recognizes, sustainability across all palm oil production requires pre-competitive collaboration to drive sustainable production.
We continue to believe that a shared framework for reporting will allow a common methodology to identify gaps and collaborate to drive progress and we are pleased with the continued progress in 2021 to further enhance the NDPE IRF through the POCG.
The POCG has four active working groups focusing on the topics below.
- NDPE IRF - Implementation Reporting Framework Active Working Group (IRF AWG) – responsible for the development, dissemination, and technical advancement of the IRF tool. It has achieved impressive progress over the course of two years with the Deforestation and Peat IRF fully rolled out and the social issues IRF (land rights and labor rights) advancing towards across the supply chain pilot in 2022. Sets of guidance and supporting documents have been developed in order to ease the process of producing IRF profiles. PepsiCo has also included IRF reporting in the new version of our supplier scorecards through which we engage our direct suppliers. We hope that this will further increase awareness about the tool across the industry. The capacity building activities for PepsiCo suppliers are directly and positively impacting the uptake and better understanding of the tool and contribute to PepsiCo’s work on sector transformation towards NDPE. Based on the IRF reporting, the POCG will be able to work towards positive impact on the ground, by identifying gaps and executing an informed decision-making process. The group is convened by the 28 Active Working Group companies.
- Social Issues Working Group (SIWG) – the aim of the group is to foster collaboration to address human rights issues on the ground. There are 3 sub-working groups focusing on recruitment practices in Malaysia, Human Rights Due Diligence (HRDD) tools and resources, and Indigenous People and Local Communities rights. The group has also fostered collaboration with stakeholders who are both company representatives and working within the realm of human rights. The group is convened by PepsiCo and Unilever. In 2021 one of the greatest achievements of the group was the publication of the HRDD library of tools.
- Production and Protection Beyond Concessions (PPBC) – focused on analysis of areas outside of concessions that are at high risk for deforestation. This allows prioritization in order to plan where action is needed. The group consists of different stakeholders – company representatives, NGOs, implementation partners, service providers - and is contributing to the pool of actions for addressing deforestation outside concessions. The group will contribute to the mill engagement strategy developed by the POCG in order to inform the scoping of priority areas for action. Conveners of the group are PepsiCo, Nestlé, and Cargill.
- Independent Verification Working Group (IVWG) – focused on determining approaches to independent verification for progress on deforestation, land rights, and labor rights. The group began work in 2020 and created functional working groups, which have a defined scope and started outlining a framework for action. The groups are linking up to already existing initiatives like the social issues IRF, the CGF Palm Oil roadmap, the IRF data verification protocol. In 2021, the group was committed to producing a roadmap for Independent Verification that can outline commitments to verification on the ground, based on the agreed mechanism within the working groups. In 2022, the group will continue with the development of verification guidance on the topics of deforestation, labor rights, and land rights. This will contribute to the implementation of PepsiCo’s vision around transparency and accountability across the industry. All three groups engage with different stakeholders – companies, NGOs, RSPO, practitioners, sourcing regions local organizations, who are all contributing to monthly focused discussions. The group is convened by PepsiCo and Unilever.
- Palm Oil Collaboration Group Latin America chapter (POCG LATAM) – In late 2021, PepsiCo actively supported and became co-convener (together with Cargill and AAK) of the POCG LatAm. The purpose of the group is to extend the space for collaboration by being more inclusive to companies and actors based in the Latin America region, as well as targeting topics that are a priority for the region.
In addition to the four working groups, the POCG also meets twice a year, historically at the fringe of RSPO Roundtable (RT) and EU RT, in order to discuss topics that are key for the industry. The last physical meeting took place in Bangkok, in 2019. In 2021, due to COVID-19 restrictions, the meetings were again held virtually in June and December and held twice to ensure we covered all time zones. Momentum continues to build, with all meetings well attended in 2021. There was an agreement reached between the POCG members that there will be changes made to the governance to include the establishment of a Consultation Group which has representatives from across the supply chain and aims to address topics that are of strategic importance for the group and further support improvement on the ground in a collaborative manner. In 2022, the POCG is aiming to hold an in-person meeting for the first time in three years to further facilitate the implementation and execution of the NDPE IRF and above workgroup priorities.
In 2021, PepsiCo continued to support the development of the POCG website in order to boost the process of engagement, transparency, and external communication on the achievements of the four working groups with participants’ portals for each of the working groups activated so members of each group can easily access resources shared within the working groups.
The work has developed in the following stages since the meetings ahead of the RSPO 2018 RT in Paris when PepsiCo first convened a group of companies and other stakeholders with the aim of collaborating pre-competitively to develop an approach to monitoring and reporting on progress against delivering NDPE goals. A three-phase development process was agreed on: Phase 1: Proof of concept; Phase 2: Trialing at scale; and Phase 3: Full implementation. We continue to support this iterative approach and have seen further enhancements made to the NDPE IRF in 2020 and 2021 and look forward to furthering pilots on the social portion of the IRF in 2022.
In 2020, the dissemination of the IRF for Deforestation and Peat continued and the uptake across the industry progressed, with many companies including the IRF as reposting request for suppliers and incorporating IRF requirements into their internal reporting systems. Additional guidance has been published, and PepsiCo supported and produced IRF introduction webinars openly available to everyone on the IRF website. The Deforestation and Peat template has been updated, and a document tracking changes between the versions have been published in order to ease the process of IRF incorporation in internal systems. The template was also translated into Spanish for dissemination in Latin America.
In 2021, the demand and sharing of No Deforestation and Peat (NDP) profiles have further increased. The NDP IRF template has undergone review for fixing technical issues identified through the use of the tool across the supply base. Additional documents have been developed for clarifying the use of IRF profiles. Continued discussions on the social IRF led to the alignment of land and labor questions with the United Nations Guiding Principles (UNGPs) for HRDD and further revision of the questions, in preparation for piloting across the supply chain in the first half of 2022.
Another major achievement of the IRF was the Data Verification protocol, published in November 2020 and developed by Peterson with active support from Proforest. The protocol outlines steps for verifying data for deforestation and peat IRF profiles. Companies in the AWG started applying the protocol and verifying their IRF profiles in 2020 and we saw continued expansion of this protocol use in 2021 supporting an increase in verified profiles further becoming the norm.
As we further close out Phase 2 and move into Phase 3, refineries and mills will be requested and supported to allocate fresh fruit bunches (FFB) to progress categories based on production practices in the concession or smallholder plot where the FFB is produced, which will become more feasible with increasing Traceability to Plantation (TTP) information.
Consumer Goods Forum Forest Positive Coalition of Action (CGFFPC)
PepsiCo is an active member and signatory to the CGF Forest Positive Coalition, which was launched in 2019. The Coalition of Action is committed to leveraging collective action and accelerating systemic efforts to remove deforestation, forest degradation, and conversion from key commodity supply chains (palm oil, pulp paper, soy, and beef). The Coalition focuses on systemic change across four key areas including: supplier and trader engagement; transparency and accountability; production landscapes; and government and stakeholder engagement. They were developed with significant input from both supply chain companies and other stakeholders. PepsiCo is an active member of the Palm Oil Working Group and co-chaired the Production Landscape Working Group. The Palm Oil Roadmap was developed by members and stakeholders were consulted throughout the process. In 2021, the Palm Oil Roadmap was published, with all underlying KPIs. PepsiCo’s Chief Sustainability Officer, Jim Andrew, shared details of the Coalition's ambitions during a panel session at the 26th Annual United Nations Climate Conference (COP26) in Glasgow. The Palm Oil Roadmap was last updated and published in June 2022. PepsiCo also took an active role in the development and publication of the Monitoring and response framework (MRF) under the Forest Positive Coalition of Action.
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 2022.
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 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.
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.
ISEAL Landscapes common reporting framework
In 2021 PepsiCo collaborated with Nestlé and Unilever in the support for development of landscapes’ common reporting framework, developed by ISEAL.
ISEAL, with support from Proforest, delivered an action-based landscape level framework to report on progress in landscape and jurisdictional initiatives and how the actions help progress towards delivering outcomes related to 4 pillars, including:
- Natural ecosystem conservation;
- Natural ecosystem restoration;
- Farmer inclusion and improvement of livelihoods; and
- Landscape partnership governance.
The metrics included in this framework can be used to measure the companies’ contribution to landscape partnership development and the delivering of landscape programs’ sustainability goals and outcomes.
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 2021, PepsiCo made the following progress:
- As part of our Coalition for Sustainable Livelihoods Program in Aceh and North Sumatra, Indonesia, we restored 300 hectares of forest previously given to oil palm (using a combination of tree planting and natural regeneration), established two farmer groups and a community nursery, trained 500 farmers in best practices (6 modules per farmer) and supported formalization of land titles for 789 smallholder plots.
- As one of eight 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 fifteen village support programs, engaged with over 50 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 Foundation and the PepsiCo Mexico Foundation, we launched Agrovita, which is a sustainable landscape program that seeks to enhance access to markets for local growers in Mexico.
- Through our collaboration with Proforest and Femexpalma, we have continued to support increased uptake of sustainable practices and uptake of the RSPO Standard through capacity building.
- In collaboration with Lestari Capital, Nestlé, Procter & Gamble, and Unilever 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 significant private sector-enabled forest conservation initiatives.
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 5,000 MT ISH to market by 2023 and source 100% domestic production of RSPO Mass Balance or local smallholder credits by 2025.
- Conserve or restore at least 140,000 ha by 2025.
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. In 2018, the Coalition worked on scoping and baselining opportunities, including mapping existing initiatives and outreach to stakeholders. In 2019, the Coalition worked on developing solutions to systemic challenges such as smallholder legality while also moving to the implementation of programs on the ground.
Specifically, the Coalition developed five working groups to address the key thematic areas requiring attention: governance, metrics, growth, and one for each district initiative (Aceh Tamiang and Tapanuli Selatan). Emerging from each group’s discussion were draft recommendations for action and investment for how CSL should move forward in relation to that specific topic. This has informed and guided our work with smallholders and other stakeholders in the Aceh Tamiang Landscape Program. Throughout 2021, PepsiCo has supported the implementation of the recommendations for action in Aceh Tamiang and has continued to participate in the wider 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 has invested in partnership with PT Mopoli Raya, Forum Konservasi Leuser (FKL), and IDH (The Sustainable Trade Initiative) in the restoration of 300 hectares of forest and supporting at least 500 smallholders to become more productive and sustainable. The first phase of this work was completed in 2021, with the project having restored 300 hectares of forest previously given to oil palm (using a combination of tree planting and natural regeneration), established two farmer groups and a community nursery, trained 500 farmers in best practices (six modules per farmer) and supported formalization of land titles for nearly 800 smallholder plots.
The work in 2022 will provide continued support for the development of a government-led landscape management body and engagement with other stakeholders to develop an effective monitoring system and response protocol to deforestation alerts. The landscape coalition is also supporting the development of a landscape level HCS/HCV (High Carbon Stock/High Conservation Value) map and capacity building for government institutions in sustainable land management.
Siak-Pelalawan Landscape Program (Riau, Indonesia)
In Indonesia, PepsiCo is one of eight 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. The program builds 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 phase 1. In 2020, the Coalition focused on final definition of the partnership and started implementing agreed activities. Coalition-wide activities within the workplan include support to local communities, engagement of mills, improving traceability and coordination of deforestation monitoring.
In 2020 and 2021, the Coalition has focused on implementing activities within the workplan, including providing support to local communities, engaging mills, improving traceability, and coordinating on deforestation monitoring. Some highlights from 2021 include:
- Mapping of high priority areas for conservation of forests and peat in the districts of Siak and Pelalawan, and training of 930 individuals on conservation activities.
- Began restoration activities starting with 5 hectares of peatland as a restoration pilot.
- Support to 15 rural communities including training of and funding for 7 full-time village facilitators to work in local communities, and the completion of participatory mapping in the fifteen villages which formed the basis of ongoing village support programs.
- Engagement of more than 50 mills on sustainability, and work to collect traceability to village level (at a minimum) for all mills in the project area.
- Alignment with government and Pelalawan on the Coalition’s role in supporting the implementation of the district action plan for sustainable palm oil. 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.
Mexico Holistic Palm Program – “Un México Palmero Sustenable!”
In Mexico, PepsiCo supported the first-ever RSPO-certified mill and will continue to support this work. In 2017, PepsiCo supported Oleopalma’s successful application to the RSPO Smallholders Support Fund, committing to match funding of the RSPO contribution 1:1, leveraging important resources to the benefit of smallholders to achieve the RSPO independent group certification while contributing to their livelihoods and ensuring the sustainable supply of certified palm oil and in addition, to serve as a model of sustainable development for the palm oil industry in Mexico. In February 2018, PepsiCo initially announced this as a three-year program to train and support 157 Mexican smallholder palm oil producers in adopting sustainable palm oil cultivation practices that can help maximize economic benefits while also protecting the environment. The program is expected to benefit more than 2,200 people and their communities. The program is supported by the RSPO Smallholder Support Fund and is in partnership with Oleopalma, Oleofinos, Federación Mexicana de Palma de Aceite (Femexpalma), Smallholder Associations and Proforest. In 2019, Nestlé joined the partnership to further the impact of the program and support the implementation of sectorial activities and technical components for allowing the compliance of NDPE commitments. In 2022, Cargill joined the program to allow for the collaboration to deepen their existing engagement with mills and independent producers between 2022 and 2025.
Of the almost 8,000 oil palm producers in Mexico, nearly 95% of palm oil groves are less than 20 hectares and represents approximately 85% of national fruit production. Inclusion of smallholders is fundamental to improving livelihoods and to meeting a growing domestic demand for palm oil through sustainable intensification. 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. It also seeks to demonstrate the productivity potential to growers in the region. To date, these growers have demonstrated an average of an 84% increase in yields, from an average of 9 tons/ha (in 2019) to 17 tons/ha in 2021.
In 2022, the program is targeting an important milestone with the certification of four smallholder associations under the RSPO Independent Smallholders Standard, which would be the first group of certified smallholders in Mexico. In 2022, the partnership estimates that Mexico will reach the milestone of five certified mills.
Recognizing the importance of building capacities to reach RSPO certification and smallholder inclusion, PepsiCo sponsored a training 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, such as RSPO certification schemes, evaluation and conservation of High Conservation Values (HCV), implementation of the RSPO Smallholder certification, internal control systems and evaluation of risks. The program has supported the certification of two mills under the RSPO standard in 2020, two mills in 2021 and is targeting the certification of one additional mill in 2022. PepsiCo has also supported the training of over 670 professionals on sustainability issues in Mexico and across Latin America.
PepsiCo has supported the protection of over 70,000 hectares under the identification of High Conservation Values in the Southeast of Mexico and the creation of the HCS-HCV probability maps to facilitate the conservation of forests and high conservation values in the smallholder’s context. These tools have been developed by Proforest and endorsed by the RSPO and HCSA (High Carbon Stock Approach) and cover the four palm oil-producing states. The HCS-HCV probability maps were launched in 2021 and are a resource that could support the 18 Mexican mills to meet NDPE commitments.
Visit the Mexico Holistic Palm Program website to learn more about the program.
In April 2021, Lestari Capital launched the Rimba Collective, an initiative with the aim of delivering USD $1 billion to forest protection and restoration in Southeast Asia over a 25-year duration. 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 founding partners including Nestlé, PepsiCo, Procter & Gamble, and Unilever, Rimba Collective complements the palm oil industry’s efforts to end deforestation by integrating and embedding funding for conservation across the supply chain. The initiative creates a transformative and sustainable financial model for long-term forest conservation investments that simultaneously support economic development and job creation for local communities.
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, such as primary rainforest, peatland and mangroves. Other priorities include generating measurable ecosystem service benefits (such as carbon sequestration, water purification, and soil health) and resilient livelihoods for local communities. All projects will undergo third-party verification.
Rimba Collective aligns with the Government of Indonesia’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, strengthening equitable livelihoods and providing a secure source of income. It also contributes to the Government’s targets to expand social forestry, accelerate peat and mangrove restoration, and reduce deforestation.
The Rimba Collective officially launched the mechanism with its founding partners at a virtual event on April 8, 2021. The event included a panel discussion with the founding partners, project proponents and government representatives discussing their perspectives on the Rimba Collective and the exciting path ahead.
Wern-Yuen Tan, Chief Executive Officer, PepsiCo APAC, said, “At PepsiCo we believe nature provides one of the most powerful levers we can pull to restore our planet and help meet the world’s climate targets. By working together through Rimba Collective, companies are demonstrating shared responsibility in restoring vital ecosystems and providing meaningful livelihoods to those living in and around forests. This partnership allows us to have an impact that reaches far beyond any one company or supply chain and helps to demonstrate the importance of forests in building a regenerative food system.”
The mechanism became operational in late 2021, and the focus for 2022 is the development of the project portfolio and the inclusion of additional partners from across the supply chain.
Future plans to support smallholders
PepsiCo will continue to build on the work we are undertaking in Latin America and Southeast Asia to support smallholders as we view smallholder inclusion as an important component of PepsiCo’s Palm Oil Policy and implementation plan. In 2022, we will:
- Seek to continue to support smallholder programs in Indonesia and Mexico, Including adding additional programs where appropriate.
- Continue to support independent smallholders through the purchase of smallholder credits. Smallholder credits are an effective way to recognize efforts made by smallholders to reach the level of RSPO certification. We have a goal to continue to source 100% RSPO certified volumes, of which at least 95% is physically certified and the remainder being comprised of independent smallholder credits, which provides support to independent smallholders who are outside our supply chain, giving farmers more options in the marketplace.
- Work together with multiple stakeholders in several landscapes to support the inclusion of non-certified smallholders into responsible supply chains. In Aceh Tamiang, PepsiCo has completed the first phase of a project with IDH and local grower Mopoli Raya to support improved productivity and sustainability of at least 500 smallholders. The project was launched in December 2019 and continued running throughout 2021. The next phase (2022 onwards) will explore supporting farmers to RSPO and ISPO certification where possible, as well as expanding to include new farmers where needed.
- Continue to support the Coalition for Sustainable Livelihoods. PepsiCo has ambitions to scale up the inclusion and support of smallholders across North Sumatra and Aceh through this program. In Riau, as a founding member of the Siak Pelalawan Landscape Program, PepsiCo is working with other stakeholders to ensure smallholders are supported under that program. In 2021, we continued supporting the seven villages from the 2020 program, and provided support to an additional eight, to build capacity for sustainable oil palm.
- Support the sharing of knowledge with growers and workers in Mexico through demo farm days (when COVID restrictions permit). These smallholder farmers serve as local champions of agricultural sustainability, having committed to demonstrate good practices on their farms and open up their plantations to workers and growers. The program strives to demonstrate the potential for a productivity increase upwards of 100% for smallholders in the region.
In 2021, PepsiCo launched Agrovita, in collaboration with the PepsiCo Foundation, a three-year program with the aim of adopting regenerative agriculture practices across 12 million hectares in the states of Tabasco and Chiapas with a focus on:
- Value chain development: Develop small and medium-sized producers in South Mexico for PepsiCo Mexico Foods (PMF) boutique crops, including plantain and cocoa to increase the availability in the local market.
- Improved food security and nutrition: The program seeks to contribute to improved food security and water access by supporting improvement of community infrastructure.
- Sustainable food systems: Engage in a multi-stakeholder and cross-supply chain approach to contribute to a more sustainable food system – promoting regenerative farms, thriving communities and a more resilient agriculture sector.
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. In 2021 the system was operational in Aceh Tamiang and we will continue to support implementation in 2022.
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 Policy 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 Wilmar, Colgate Palmolive, Nestlé, Procter & Gamble, among others, are working in collaboration with Business for Social Responsibility (BSR) to deliver the program. 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 palm oil sector. With growing support from partner brands, the industry is set to take much-needed collective action on addressing impacts on children’s rights.
To ensure suppliers are able to understand and implement the manual, and to support the development of KPIs that can be used to monitor implementation in the future, PepsiCo and others agreed to continue a further phase of implementation beginning in late 2021. This new phase will focus on trialing the implementation of the manual with suppliers and further refining the manual based on feedback from the field, as well as building capacity of selected suppliers and plantations to address and manage child protection issues. Findings will be shared with key stakeholders and suppliers at the end of this phase in early 2023.
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 RSPO.
Digital library for capacity building
To assist with the development of existing and new suppliers PepsiCo has established a digital library of resources. This library houses supporting documents, webinars, and other materials that suppliers may find as valuable references to aid in their sustainability journey and in interfacing with PepsiCo. We intend to continue updating this library with new resources and best practices as they are developed.
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.
- By working with our suppliers and peers, we were able to establish mill-level traceability accounting for 97% of our source volume via our Traceability Protocol and the traceability of mill data for our suppliers has been 100% independently verified, thereby marking a more than 30% increase since the beginning of the program in 2015.
- In consultation with our suppliers and our peers, we continued to address grievances that have been identified in our supply chain and played a leading role within the CGF to develop a best practice approach to grievance management through the Monitoring and Response Framework.
- 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, aiming to deliver 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 of progress.
- Continue collaborating with stakeholders in developing an industry roadmap for Independent Verification of NDPE compliance and apply it in our supply chain as soon as practically possible.
Reporting and Disclosure
This Palm Oil Progress disclosure is our seventh year of reporting and builds on comprehensive reports in 2017, 2018, 2019, and 2020. It is part of an annual reporting cycle, which also includes the 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 on this website is supplemented by related issues featured on our Environmental, Social, and Governance (ESG) Topics A-Z including human rights, deforestation, climate change, land rights, agriculture, and sustainable sourcing.
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% traceability to the mill in our supply chain, and to ensure high standards of traceability reporting. At the end of 2021, our suppliers reported approximately 97% of our palm oil volumes were traceable to the mill level. Since the start of the program, mill traceability has increased by more than 30%. Achieving the 100% 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.
While we have information on the traceability of the remaining approximately 3% 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% traceability.
In 2021, 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 97.4% 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% of the suppliers who will be supplying to us in 2022 have undergone verification or have scheduled this in 2022.
Traceability to Plantation
PepsiCo is also focused on 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 percentage 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 57% of our volume reported traceability to plantation.
In 2022, PepsiCo will continue to support TTP in our supply base through our engagement with suppliers and sector initiatives such as the NDPE IRF.
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% 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% of the world’s tropical peat, and had the fourth-highest loss of primary rainforest 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 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 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 2021, a total of 36 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 11 of the grievances have been closed, and five were deemed to be “out-of-scope” by PepsiCo. The remaining 20 remain open, and we continue to engage with suppliers, peers who share these grievances, and others to make progress. We expect to publish more detailed information on grievances and our grievance management in 2022.
For further information on our work in addressing palm oil challenges in Indonesia, please see PepsiCo Sourcing of Palm Oil from Indonesia.
In 2022, 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 four 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 was led by an organization with expertise in the UNGPs and grievance mechanisms, and completed in 2021. The review 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, played an important part of the review.
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.
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 the protection of human rights. Among the issues raised in 2021 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.
December 20, 2022