PepsiCo is committed to respecting the human rights of all workers and local communities throughout our operations and value chain. Supporting the safety, wellness, and equality of workforces across our value chain is important to our success as a company and to the success of our suppliers.
We expect our suppliers to adhere to the same standards of integrity to which we hold ourselves. Therefore, all suppliers, vendors, contractors, consultants, agents and other providers of goods and services who do business with or on behalf of PepsiCo entities worldwide are expected to follow our Supplier Code of Conduct and all other relevant policies as a condition of doing business with us. These include:
Many of these standards are based on international conventions including the Universal Declaration of Human Rights; the International Covenant on Civil and Political Rights; the International Covenant on Economic, Social and Cultural Rights; and the ILO Declaration on Fundamental Principles and Rights at Work.
Our approach to sustainable sourcing is operationalized through:
- Our Sustainable Sourcing Program (SSP) - a supplier engagement program for our most business-critical first tier suppliers that includes formal risk assessments, third party audits, mitigation and capability building.
- Our Sustainable Farming Program (SFP) - a farm-level continuous improvement program that helps us assess our direct growers, identify potential gaps relative to our policies, and implement plans to safeguard human rights and improve agricultural practices. (see also: Agriculture).
- Our procurement practices - our supply contracts include our Global Supplier Code of Conduct (SCoC), and we provide training on the SCoC through our Sustainable Sourcing Program and on our website. In purchasing categories with time-bound commitments to sustainable sourcing, such as palm oil, our procurement teams use tools such as supplier scorecards to evaluate and compare performance of individual suppliers against our expectations.
- Tailored programs - in cases where we identify potentially high risk or priority supply chain concerns, we deploy specific programs to improve knowledge, awareness and outcomes. For example, in 2018 we further expanded our SSP to include third-party labor suppliers and promotional item suppliers in select markets.
Sustainable Sourcing Program Overview
Our Sustainable Sourcing Program (SSP) builds supplier awareness and capabilities on the issues and expectations referenced in our Supplier Code of Conduct (SCoC). The program supports our long-term sustainable supply goals by addressing known risks and building capability within our supplier operations. Our approach is informed by regular engagement and through our leadership positions with industry groups such as AIM-PROGRESS, Sedex, and the Consumer Goods Forum, and engagement with expert non-governmental organizations (NGOs) such as Shift to leverage best practices from across our industry and beyond. Internally, the SSP strategy is reviewed annually in consultation with leaders from our human rights, sustainable agriculture, procurement, and legal teams to support business integration.
The SSP includes assessment of risk and compliance with our SCoC, and third-party auditing of business-critical direct suppliers and contract manufacturing and co-packing locations across 56 countries. In 2018, we expanded our SSP to additional segments of our supply chain including the addition of promotional items suppliers and third-party labor suppliers. We will continue to expand this risk-based approach to other geographies and segments of our supply chain in the future.
Supplier Code of Conduct
Our Supplier Code of Conduct (SCoC) is a cornerstone of the SSP. It sets out the expectations we have of our suppliers in the areas of business integrity and anti-corruption, labor practices, health and safety, and environmental management. Suppliers are also expected to communicate and apply the SCoC and relevant policies throughout their supply chain. The SCoC is based on recognized international human rights standards and explicitly prohibits all forms of forced labor and child labor. Compliance with our SCoC is a part of PepsiCo’s supply contracts. The SCoC is available in 25 languages, and we provide open-access online training to help our suppliers further understand the principles of our SCoC in addition to more targeted trainings with our business-critical suppliers as part of our SSP.
In 2018, we revised our Supplier Code of Conduct to clarify our expectations around several key issues, including forced labor and migrant workers protections, confidentiality, land rights, anti-corruption and bribery, working hours and rest days, environmental protection, and grievance mechanisms. As part of this process, we also revised our SCoC training to strengthen our guidance to suppliers on key issues such as recruitment fees, freedom of movement, and clear worker contracts.
In 2018, 100% of our targeted business-critical direct suppliers completed this Supplier Code of Conduct training.
Sustainable Sourcing Program Assessment Process & Main Findings
Suppliers are responsible for demonstrating compliance through activities within the SSP, including an Initial Risk Assessment, completion of SCoC training, a graded site-level Self-Assessment Questionnaire, and participation in on-site audits, as requested. Suppliers are expected to take action to correct any non-compliances identified through the on-site audits, with a focus on continuous improvement throughout their operations.
In 2018, more than 960 on-site audits were conducted or recognized with first-tier suppliers using the industry standard SMETA 4-Pillar Audit Protocol or an equivalent assessment. Following the on-site audits, sites were scored from red to green based on the severity and number of instances of non-compliance found on-site.
The top noncompliance findings in 2018 were focused in:
- Health, Safety & Hygiene
- Working Hours
- Regular Employment
Where instances of non-compliance are found during the on-site audit, a corrective action plan with a timeline for remediation is put in place by the supplier site and verification of closure conducted through follow-up review by an approved third-party auditing firm.
Since the SSP launched in 2015, we have seen strong improvement from sites as they learn from audit findings and demonstrate closure through a corrective action plan and subsequent follow-up audit. High-level results of this improvement are presented below, based on sites that have completed both initial and follow-up audits.
While our policies and programs may not prevent all adverse impacts in our value chain, we aim to provide effective remedy where we find adverse impacts in our value chain, including using our influence to encourage our suppliers or partners to provide effective remedy where we find impacts directly linked to our business operations, goods, or services. We have established a variety of mechanisms that allow our employees, stakeholders, and other potentially affected individuals to raise grievances and seek remedy. More information on our grievance mechanisms is available on our Human Rights page.
Our Speak Up hotline is an important component of our culture, ethics and integrity, and we encourage our suppliers and business partners to use their own effective grievance mechanisms and make the PepsiCo Speak Up hotline available for their use through our SCoC.
In the spirit of transparency, we regularly publish information on the usage of our Speak Up program, including the number of reports and their categorical distribution. Our latest report can be viewed here.
We will continue to evolve and enhance our programs in line with our sustainable sourcing goals. Key areas of focus for 2019 include:
- Further refining the scope of our program to support engagement with our business-critical and potentially high-risk areas within our supply chains by analyzing our multi-year supplier data set and continued engagement in the industry;
- Strengthening our audit risk scoring matrix to align with our salient human rights concerns (see also: Human Rights);
- Evaluating opportunities to test targeted assessment techniques - such as specific audits designed to detect modern slavery or to be used with contract labor brokers - as these methodologies become available;
- Analyzing our multi-year supplier data set to better understand trends in supplier challenges, root causes of recurring non-compliances, and to evaluate the effectiveness of our program;
- Improving our ability to provide suppliers with targeted training and capability building opportunities based on the challenges identified through their assessments and audit results.