Palm Oil Sustainability

Our Approach and Policy

PepsiCo recognizes that we have an opportunity to use our 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 farmers in our global supply chain to help them incorporate industry-leading policies, practices and technologies, which are designed to make our food system more sustainable and productive. Palm oil, the most widely used edible oil in the world, is a key area of focus. While PepsiCo is one of the largest global buyers of palm oil in the consumer products industry, our purchase in 2018 represented less than 1% of the global supply, which we use primarily in snack manufacturing because of its wide availability and shelf stability. In the United States, we use almost no palm oil, but it is used in Asia and other markets. We have a complex global supply chain with 54 direct suppliers sourcing from more than 1,500 mills and tens of thousands of farmers who grow the palm.

We are implementing a strategy built on four pillars, reflecting our goal to have a supply chain with no deforestation, no peatland development and no exploitation and our aspiration to deliver this by the end of 2020:

1) Risk management: How we understand areas of concern and opportunity in our supply chain.

2) Supplier engagement: How we engage with suppliers to communicate expectations and improve performance.

3) Positive impact: How we work collaboratively to help transform the wider industry.

4) Transparency and stakeholder engagement: How we report on our progress and engage with the broader stakeholder community.

Our strategy is informed by our understanding of the key sustainability challenges facing palm oil, including deforestation, biodiversity loss and human rights abuses. We are also mindful of the economic benefits provided by palm oil production, including rural economic development and improved livelihoods for farmers. As we seek to expand these benefits while reducing any potential harm, it is important that we address standards in our own supply chain while addressing systemic issues through collaboration with suppliers, peer companies, civil society, governments and certification bodies, to help sustainable production become the norm and human rights be respected.

Certification of palm oil is part of our strategy, and we are working to source 100% Roundtable on Sustainable Palm Oil (RSPO) physically certified sustainable palm oil by 2020. We recognize, though, that certification is only one part of a holistic approach to building a sustainable palm supply chain. We augment certification with a risk assessment process that allows us to better understand our supply chain and prioritize actions and investments, including our approach to supplier engagement, impact programs that we support, and our reporting and stakeholder engagement.

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 sets out our commitment for sustainable palm oil as part of a broader suite of related global policies dealing with human rights, forestry stewardship, land rights and our Supplier Code of Conduct.

The updated policy provides our long-term vision for a sustainable palm oil sector and updates our commitments to no deforestation, no development on peatlands, and no exploitation of indigenous peoples and local communities (“NDPE commitments”). Attached to the policy is our implementation plan to 2020, which provides readers with an understanding of how we translate our policy vision into specific actions and results. We review our policies and commitments on a continuous basis.

Our policies and commitments apply to all palm and palm kernel oil that we use globally and covers our entire supply chain, from direct suppliers to production sources, as well as all of PepsiCo’s operations, subsidiaries, joint ventures, brands and products worldwide. We believe that fulfillment of these policies and commitments will make our supply chain more secure and support stable social, economic and environmental conditions for producers, mills and the communities they support.

Our Progress

Our fourth and most recent Annual Progress Report provides detailed information on the strides we are making toward our palm oil sustainability goals and includes the following developments across the four pillars of our delivery strategy:

Continued to manage risks in our supply chain, including:

Achieving 52% RSPO physically certified sustainable palm oil, exceeding our interim target of 50% for 2018. We aim to achieve 80% by the end of 2019 and 100% by the end of 2020.
Achieving 97% traceability to mill by the end of 2018, up from 94% in 2017 and 65% in 2016.
Implementing our Palm Traceability to Mill Verification Protocol, with 22% of our direct suppliers’ self-reported mill data independently verified.
Since launching our Traceability to Plantation Protocol, 26 suppliers representing 32% of our volume reported traceability to plantation.
Convening a group of companies and other stakeholders in a pre-competitive manner with the aim to develop an approach for monitoring and reporting on progress made against delivering NDPE commitments on palm oil volumes.
Supporting the development of a methodology to assess social risks in our supply base at the sub-jurisdictional level, enabling us to better understand human rights risks in our supply chain.
Supporting the World Resources Institute’s (WRI) Global Forest Water (GFW) satellite system for monitoring deforestation.

Statement on Independent Verification and Sustainable Palm Oil

PepsiCo recognizes the important role that independent verification currently plays and will continue to play 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 we are committed to working with our peers, suppliers and civil society to develop and deploy the most effective approaches, including in PepsiCo’s 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 by the use of 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 verification of mill data) 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, along with 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.

Engaged our direct suppliers to communicate expectations and improve performance, including:

Based on our supplier scorecards, overall performance scores for our suppliers improved by 39% as compared to the 2017 baseline.
Building capacity of 30 direct suppliers to enable them to create, improve and implement No-deforestation, No-peat development and No-exploitation (NDPE) policies, through webinars delivered in both English and Spanish.
Continuing to manage grievances raised by third parties through our Grievance Mechanism for our Agricultural Supply Chain.

Statement on Improving Our Grievance Process

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 formally established a grievance mechanism for our agricultural supply chain to help us prevent, identify and manage environmental and social concerns throughout our value chain and to address non-compliances against relevant policies, including our Global Policy on Sustainable Palm Oil. The mechanism 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 two 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.

We are therefore currently undertaking 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 the review to be completed by the end of March 2020. The review will examine (i) the best role for PepsiCo to play when grievances are presented, (ii) how we can further encourage systematic grievance management and resolution throughout our supply chain and with peers, and (iii) 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, will be 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.

Continued to support and invest in positive impact programs, including:

Continuing the implementation of our holistic program for sustainable palm oil in Mexico. Through the High Conservation Value (HCV) approach, 44,000 hectares of Oleopalma’s supply base in Mexico were assessed, which includes smallholders, medium and large palm-producers.
PepsiCo is a founding member of the Landscape Program in Siak and Pelalawan, Indonesia promoting sustainable palm oil production and improved livelihoods in these districts within the Riau province of Indonesia.
PepsiCo is also a founding member of the Coalition for Sustainable Livelihoods (CSL). The coalition has agreed to work collectively to achieve common objectives for smallholder livelihoods, sustainable agricultural production and conservation in the North Sumatra and Aceh provinces of Indonesia.

Statement on Working Together to Preserve the Leuser Ecosystem

PepsiCo is committed to implementing its sustainable palm oil policy globally, including in and around the Leuser Ecosystem. PepsiCo recognizes the value of the Leuser Ecosystem as a particularly sensitive and valuable ecosystem that should be protected in order to benefit the wildlife, natural resources and people of Aceh, North Sumatra and Indonesia. PepsiCo also recognizes that the situation surrounding the Leuser Ecosystem is complex and there is a need to balance development and conservation outcomes. In Aceh, the fragmented nature of the palm oil supply chain and the complications arising from various forest functions within the 2.6 million hectare Leuser Ecosystem, that is designated as a National Strategic Area for Environmental Protection Function[1], demonstrates the need for a multi-stakeholder approach.

The Leuser Ecosystem encompasses 38% of the land area of the district of Aceh Tamiang. Therefore, this program must seek to develop a vision for the landscape in Aceh Tamiang that is approved by stakeholders including local communities, civil society, government and private sector and balances the needs of development and conservation as desired by the people of Aceh Tamiang. We are committed to working with peers, suppliers, affected parties and local government in the district of Aceh Tamiang to develop a landscape program which can serve as a model for application across the Leuser Ecosystem and elsewhere. As part of the multi-stakeholder process, local private sector, government, affected parties and civil society in the landscape will work together to develop a governance system that supports improved decision-making for land-use planning and policy development. PepsiCo will, where appropriate support and contribute to this process. PepsiCo will also work with government and other stakeholders to support improved livelihoods in Aceh Tamiang while conserving remaining forest and restoring degraded areas where possible.[2]PepsiCo supports the Government of Aceh Tamiang district’s recently-announced plan to develop a sustainable landscape that is verified as a sustainable sourcing area for multiple commodities.

Where needed, we will support the Government of Aceh Tamiang in its plan to develop a forest monitoring system that can be integrated with existing procedures; and will seek to encourage greater enforcement of existing laws and policies, and moratoria on deforestation. PepsiCo, working with others, will also aim to establish a consistent forest monitoring system across the Leuser Ecosystem in 2020, learning from piloting efforts in Aceh Tamiang and other priority landscapes. In line with our traceability policy, PepsiCo will work with partners to catalyze the establishment of consistent traceability systems to identify and address the challenge of unsustainable palm oil in the supply chain.

PepsiCo will continue to monitor, engage and work collaboratively with all stakeholders to demonstrate the importance of land use planning, implementing the forest conservation and restoration work whilst improving the livelihoods of the communities and smallholders.

[1] Law no. 11/2006 on Governing Aceh, article 150 (1) (2) (3) and (4)[1] and Law no. 26/2007 on National Spatial Plan juncto Government Regulation 26/2008

[2] KEPUTUSAN BUPATI ACEH TAMIANG NOMOR 1680 TAHUN 2019

Engaged stakeholders and provided transparency, including:

Publishing our Global Policy on Sustainable Palm Oil reflecting our commitment to no deforestation, no development on peatlands, and no exploitation of indigenous peoples, workers and local communities (“NDPE commitments”).
Publicly disclosing direct suppliers and mills we sourced from.
Continuing to play an active role in other industry platforms such as the Consumer Goods Forum (CGF) and AIM-Progress.
Engaging with civil society to review our updated policy, progress, and future actions.

In January 2018, we published further information about our palm oil sourcing and approach in Indonesia, including how we manage grievances raised by third parties. Following this, in March 2018 we published our list of direct palm oil suppliers as well as our palm oil mill list. An updated list of direct suppliers and mills will be published soon.

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.

About FAIR Company-Community Partnerships

The rapid expansion of oil palm has often been accompanied by devastating loss of forests and exploitation of local communities. FAIR Company-Community Partnerships offer an alternative vision and business model for palm oil production.

FAIR is an acronym that stands for 1) Freedom of choice; 2) Accountability; 3) Improvement of benefits; and 4) Respect for rights.

At the core of the project is the promotion of rights and development aspirations among women, small-holder farmers, and host communities, while ensuring environmental protection and implementation of companies’ commitments to human rights, land rights, and zero deforestation/climate protection. The initiative will operate as a multi-stakeholder platform that brings together companies across the palm oil value chain, local communities, local governments and a range of civil society organizations. PepsiCo is the first palm oil buyer to publicly commit its participation and will be joined by others as the project progresses. Participating companies are expected to invest financially, contribute expertise to the process, learn, and share best practices.

PepsiCo is contributing funds for the first eighteen months of project implementation amounting to nearly fifteen percent of the project budget. Other funding will be provided from a number of foundations and institutions, including the David and Lucile Packard Foundation, and other private sector participants. PepsiCo will also contribute relevant business perspective to the initiative as well as share the lessons in its own supply chains and with its sector peers.

“Multi-stakeholder collaboration is needed to ensure that palm oil production benefits women, smallholder farmers, and local communities and that our policies and commitments on human rights, deforestation, and land rights are more than just words on paper. The FAIR Company-Community Partnerships presents a unique vision for achieving this. We look forward to working with Oxfam and others through this project to benefit communities in Indonesia and applying the learnings more widely as we continue to advance our sustainable palm oil program.”
- Michele Thatcher, Chief Human Rights Officer, Senior Vice President, and Chief Counsel Global Human Resources, PepsiCo, Inc.

As one of the world’s largest buyers of palm oil, PepsiCo’s participation in FAIR Company-Community Partnerships demonstrates leadership in the development of an alternative business model for palm oil production that seeks to truly benefit women and smallholder farmers. PepsiCo’s participation also demonstrates the company’s efforts to put its human rights and sustainability commitments into practice.”
- Irit Tamir, Director, Oxfam America’s Private Sector Department