THIS DOCUMENT IS THE RESULT OF A HYPOTHETICAL ROLE-PLAY FOR ACADEMIC PURPOSES. IT IS A COLLABORATIVE PROJECT OF A COMMUNICATIONS CLASS IN THE MARLBORO GRADUATE SCHOOL MBA PROGRAM AND IS IN NO WAY AUTHORED BY THE ORGANIZATIONS REPRESENTED BELOW.
Moving from Deception towards Purpose:
PepsiCo’s Journey Toward a Sustainable Water Use Future
By Sophie Abrams
For the India Resource Center
In today’s dynamic world of business, companies compete for resources and are in constant pursuit of growth. This often trumps concern for the effects that a companies’ operations have on local communities. The India Resource Center (IRC) found this to be the case with PepsiCo’s water use in water scarce regions throughout the world. This report highlights work done by the IRC, who met with PepsiCo and other stakeholders to discuss the topic of their water use in India. Issues such as defining sustainability, PepsiCo’s claims of being “water positive,” and delving into the metrics and definition of water positive will all be addressed. We also talk about PepsiCo’s water use in a sustainability context, where water use is measured in regards to limits of water available locally.
The IRC found that PepsiCo is making progress towards sustainable water use in India. PepsiCo has also broadened their work with stakeholders, and plans to continue this in the future. We have listed specific progress areas in this report. However, there is still much work to be done. We therefore also include recommendations on areas where PepsiCo still has room for improvement.
In November, 2011, we at the IRC distributed a report titled Deception with Purpose: PepsiCo’s Water Claims in India. This report looked at an internal audit done at PepsiCo by Deloitte Touche Tohmatsu India Private Limited. The audit claimed that PepsiCo had achieved a water positive balance in regards to their operations in India. Their definition, “Positive Water Balance is achieved once the total volume of water credits exceed the total volume of water debits”, implies that they were putting back more water than they were consuming into the aquifers.
The IRC had numerous concerns with these claims, including the following:
- PepsiCo understated the amount of water they used in India by counting only water used in their factories, not that of their supply chain. This was a problem of inconsistent water credits vs. debits.
- PepsiCo was recharging groundwater in different areas than they were depleting it, which deprived local populations access to water.
- One in four PepsiCo plants in India were operating in water-stressed areas.
- Only half of PepsiCo’s plants had the cheap, effective rainwater harvesting programs that they advertised.
- PepsiCo was counting wastewater as water being put back into aquifers. This water was unusable for basic human needs such as drinking and washing.
After this report was issued, the IRC began speaking with Calvert Investments, a leader in sustainable investing, and realized both organizations had similar concerns. Together, we wrote a letter to Claire Wheeler, the Senior Director of Environmental Sustainability at PepsiCo. The letter voiced our concerns and requested a formal stakeholder dialogue with Claire herself. PepsiCo agreed to this, and following is an overview of the dialogue, and the proposed outcomes.
On June 9th, 2012, we met with Cody from Calvert, Claire from PepsiCo, and Andy a facilitator from CERES. Andy’s role as facilitator was to make sure all voices were heard, and to keep an unbiased account of the dialogue.
The dialogue started out with the Cody and myself addressing our concerns with PepsiCo’s water positive claims. This included:
- PepsiCo’s unbalanced “water balance accounting”
- Lack of support for local communities
- Looking at PepsiCo’s definition of water positive
- Claims of recharging groundwater being inaccurate
- PepsiCo using more than their fair share of water, and therefore depriving locals of access to clean water
PepsiCo pointed out that they are leaders in sustainability, and focused on major efficiency improvements in their factories. These were:
- A direct seeding program
- Technology improvements that are reducing water used
- Use of a Resource Conservation (ReCon) tool resulting in over 2 billion liters of water saved since 2009
- A report conducted with the Nature Conservancy on how to achieve water positive impact in water-stressed areas
- A partnership with water.org
PepsiCo also addressed the value of keeping their current definition of water positive, which Cody and myself had been hoping to redefine. At first, we were also hoping that PepsiCo would agree to a new audit, and this time include field testing to make sure that their current technologies and programs were actually in working order. Claire brought to our attention that this would be moving backwards, and suggested that we move forward to work together in PepsiCo’s future. I had to admit that this was a valid point, and so we proceeded.
In the end, all parties were able to reach outcomes that will be mutually beneficial for PepsiCo, the IRC, and the local communities in India that we represent. Following are some of the outcomes of the engagement (as summarized by Andy):
- Calvert, IRC, PepsiCo and Two Tomorrows establish an updated and unanimously agreed upon definition of sustainability.
- Calvert and the IRC request that PepsiCo clarify their definition of Positive Water Balance and educate their stakeholders, both locally and globally about what this term means and the measures that PepsiCo takes to quantify this initiative.
- All parties have agreed that PepsiCo will hire Two Tomorrows to assess a new set of water measurement tools and techniques and will implement new strategies to improve PepsiCo’s water usage and the manner in which they report their usage.
- The IRC requests that PepsiCo involve them in more routine meetings, on local and national levels. They also want PepsiCo to incorporate smaller NGO’s in their communications and future stakeholder engagements.
- All stakeholders agree that they will meet again for another stakeholder engagement in order to share their progress, new findings and provide updates regarding PepsiCo’s Positive Water Balance initiative.
Defining Sustainability and Water Positive
At this time, the IRC feels that PepsiCo is indeed making progress towards more sustainable water operations in India. We feel that they could potentially be leaders in the industry in regard to sustainable water practices. After the dialogue, PepsiCo agreed to further collaboration with stakeholders, as shown above, and we set out to agree on definitions of “water positive” and “sustainability” in regards to the topic at hand, PepsiCo’s industrial water usage. Following are the stakeholders’ final agreed upon definitions, including a note from Claire about the unchanged water positive definition:
Sustainable Water Use in PepsiCo India’s Operations: As a local, renewable yet limited natural resource, community access to water must not be compromised by PepsiCo manufacturing operations. PepsiCo’s water use in India will reach a sustainable level by:
- Contextualizing the clean water limits and thresholds of individual communities where Pepsico is operating, so as not to exceed these limits and so as not to deprive the community their basic right to water nor the company an future water supply ample enough to ensure profitability. [OUTCOME: Employ Corporate Water Gauge tool & assessment at all 39 sites; Apply a public Water Availability Ranking System using specific threshold figures (i.e. “Water Scarce” or “Water Secure”) to each of PepsiCo’s operating sites.]
- Prioritizing the needs of the people and community in order to maintain a flourishing relationship with the municipality as well as meeting the needs of both the shareholders and stakeholders. [OUTCOME: Use Ceres AquaGauge and work with local and national organizations to understand the landscape of water use with regards to PepsiCo operations.]
- Employing all reasonable means to safely recharge the water supplies for the communities where PepsiCo operates, starting in the least water secure communities. [OUTCOME: Continue to test and employ measures that produce “Water Credits” such as rainwater harvesting, in-plant water recycling, safe wastewater processing, etc.]
- Expanding PepsiCo’s internal understanding of its water use and sustainable responsibility to include supply chain production as well as in-plant manufacturing use. [OUTCOME: Use CERES AquaGauge and work with stakeholders to determine reasonable supply chain responsibility; Eventual redefinition of “Water Debit” to include supply chain water use.]
Positive Water Balance: total volume of water credits exceed the total volume of water debits.
- Water Credit = volume of in-plant water recharged and harvested, water re-charged through community programs and water saved through agricultural interventions.
- Water Debit = water intake in the production facilities.
Note: this definition is unchanged from the Deloitte LLC audit. It is my hope and charge to broaden the scope of Positive Water Balance to include sustainability context for our water use, namely to expand the understanding of Water Debits in this methodology. However, PepsiCo is unwilling to make that change at this point in our collaboration for the reasons stated in my previous post.
From the above definitions and agreements, we believe that PepsiCo is on the right track in working towards sustainability. They have clear tasks that will help them reach each component of the new sustainability definition. With regards to water positive, we will have to wait and see if PepsiCo can be urged forward with expanding their methodology to rightly reflect both the debits and credits of the supply chain.
The following are the areas that the IRC recognizes for improvement to PepsiCo’s operations and company policies:
Stakeholder engagement– PepsiCo agreed to hold the stakeholder dialogue, and listened to the concerns of both the IRC and Calvert. They kept up their end of the bargain and participated in further collaboration to come up with the agreed upon definitions above. There is room for PepsiCo to take this area further. This is discussed below.
Water efficiency improvements– PepsiCo has a goal “to improve water-use efficiency by 20 percent per unit of production by 2015 versus a 2006 baseline.” They are working to achieve this by using new water-saving technologies, using more efficient irrigation systems, using a direct seeding technique in India, and by working with groups like The Nature Conservancy and Water.org.
Transparency– PepsiCo is currently working on a press release about the stakeholder dialogue, illustrating that they are being transparent in regards to their current efforts to involve stakeholders on their journey towards sustainability.
Realistic goals for the future– PepsiCo was clear about not wanting to backtrack in their sustainability work. This meant that they did not want to change the definition of their term water positive. They did, however, agree to change the methodologies behind this measure. Since this was one of our major concerns, we feel satisfied that PepsiCo keep their current definition as long as the metrics behind this definition are worked out.
PepsiCo’s Areas for Improvement
With that said, there are still areas that the IRC feels where PepsiCo could be stronger, and where they must continue improving. Following are a description of these areas, along with the IRC’s recommendations for PepsiCo moving forward (you will notice some of these areas overlap with those mentioned above, indicating that PepsiCo has started work in this area, but has further to go):
Sustainability context- This is arguably the largest area that we see a need for improvement at PepsiCo. The Global Reporting Initiative’s (GRI) G3.1 guidelines define sustainability context as, “The report should present the organization’s performance in the wider context of sustainability.” The explanation then goes on to say, “The underlying question of sustainability reporting is how an organization contributes, or aims to contribute in the future, to the improvement or deterioration of economic, environmental, and social conditions, developments, and trends at the local, regional, or global level.” We find this to be extremely relevant to the current problems with PepsiCo’s water balance accounting. PepsiCo’s sustainability report shows percentages of water saved through efficiency reductions, but fails to provide actual numbers in regards to the amount of water used. For example, decreasing water usage by 17% does not tell how much water was actually used, because it is referring to 17% of a hypothetical number.
Recommendation: PepsiCo should work use the Corporate Water Gauge (CWG), a context-based tool that is used to help organizations with sustainable water use, and which could be used to define thresholds in water stressed areas in India. The most relevant piece of the CWG is that it can, “Determine net renewable water supplies in watershed(s) of interest, and allocate proportionate shares to facilities.” This way there is a concrete number that PepsiCo knows they must not exceed. In order for PepsiCo to contextualize their water usage, they would have to report that, for example, that last year PepsiCo used x gallons of water in region A, and this year were down to y gallons of water in region A, while comparing this to a threshold of Z gallons of water available in region A. While limits and thresholds can be difficult to calculate, the Corporate Water Gauge is an excellent tool to use as a starting point, and we’d really like to see PepsiCo take advantage of that.
Accountability: This covers two different areas in which we feel PepsiCo has room for improvement. The first is using vague language to sidestep setting concrete goals. For example, PepsiCo acknowledged that their supply chain “debits” were being ignored, even though they are using supply chain “credits” to their advantage in their water balance accounting. However, PepsiCo said that they would/could not currently change this, but (to quote Robert here), the sustainability definition included, “Eventual redefinition of “Water Debit” to include supply chain water use.” The IRC does not find “eventually” to be an acceptable unit of time when we are talking about an important issue such as water use in a water scarce area.
Recommendation: The IRC suggests that PepsiCo set measurable goals in this area, so this issue does not continue to be a problem and be ignored. If we are to stand behind PepsiCo and acknowledge their improvements of their water use in India, we want to know that they plan to follow through with counting their supply chain water debits. This was one of our main concerns about their 2011 audit. This also means that PepsiCo needs to set clear deadlines. This will help PepsiCo hold themselves accountable internally, and will give employees a set timeline, making these goals easier for the company to achieve. It would also mean that employees would be more aware of the shared vision of the company, and focused on the goal of improving their sustainability.
Along with this, is setting clear targets. When exactly will PepsiCo begin to incorporate their supply chain in their water balance accounting? As mentioned above, “eventually” is not acceptable.
Recommendation: PepsiCo sets clear targets with the number of liters of water saved and used each year, and goals for decreasing the numbers by a certain amount each year. When set against the defined thresholds of aquifers in the areas where their plants operate, PepsiCo could begin to set an example for other companies in their industry, and begin to lead the way in context-based sustainability reporting. As Bill Baue says in his article Embracing Science to Bridge the Sustainability Gap, “precious few companies take this final step of comparing impacts against the ability of our broader systems to absorb those impacts.” Since this is something that is currently lacking in many company’s sustainability reporting, it would benefit PepsiCo to be one of the companies that emerge as a leader in this area.
Transparency– PepsiCo has created the term “water positive,” and given it a clear definition (listed on page 4 of this report). The problem with this is that because PepsiCo created this term, their flawed methodology is technically acceptable. We feel, however, that it is misleading, since PepsiCo is currently using their flawed methodology.
Recommendation: That PepsiCo holds themselves accountable for a fair, clear water balance accounting methodology. Let’s look for a moment at their old water balance accounting. In 2009, “PepsiCo used or counted as “debit” 5168 mml of water… and claims to have saved or counted as “credit” 6004 mml of water… Hence a positive balance of 836 million liters.” This was only taking into account water used in factories as debits, but used water saved in agriculture on the credit side.
With new water balance accounting, PepsiCo would count water saved in the supply chain, but also water used in the supply chain. This would mean looking at water used to grow potatoes, sugar cane, etc. which were ignored in the last round of metrics. By expanding their water balance accounting to encompass the same areas on both the credit and debit sides, this gives the methodology more credibility.
Stakeholder engagement: In the future, the IRC plans to hold PepsiCo accountable for their promised continued interaction with stakeholders. More specifically, PepsiCo has agreed to work with local NGO’s in India to make sure that local issues are being taken care of. The IRC agreed to facilitate this process, and plans to uphold this.
Recommendation: PepsiCo teams up with NGOs in the areas in which they have operating plants, and continue building their community relations. In terms of outcomes, we would like to see PepsiCo participating in community programs that ensure access to clean drinking water in the communities where they have operating plants. This would be a departure from the accusations that they are using precious drinking water in wasteful industrial operations. It would also address the IRC’s concern that in water scarce areas available water should first go to the people, next to the municipals, and last to industrial use. If PepsiCo can do their part in helping ensure that water is getting to all three channels, this would be demonstrative of their concern for the people of India.
The IRC felt that the stakeholder dialogue with PepsiCo was an example of how important it is for large corporations to involve stakeholders in their decision-making. Their willingness to share outcomes from the dialogue showed a high level of transparency. While there is room for improvement in PepsiCo’s operations, the IRC recognizes that they are on the right track. We feel that working together with PepsiCo is a way to make people’s lives better in India, and we hope that through continued involvement PepsiCo and the IRC can work together towards a more water-rich future. We hope to see PepsiCo leading the way in sustainability reporting and to witness their success for positive water impacts in India.
 Robert ter Kuile. “Let’s Define Susty!” forum. 2012.
 PepsiCo Water. http://www.pepsico.com/Purpose/Environmental-Sustainability/Water.html
 GRI G3.1 guidelines. Page 11.
 Corporate Water Gauge. Center for Sustainable Organizations. Thetford Center, VT. May, 2012. Page 2.
 Embracing Science to Bridge the Sustainability Gap. Bill Baue. April, 2012. The Guardian.
 Deception with Purpose: PepsiCo’s water claims in India. India Resource Center. 2011. Page 2.