ALL MATERIAL POSTED HEREIN IS THE RESULT OF A HYPOTHETICAL ROLE-PLAY FOR ACADEMIC PURPOSES. IT IS A COLLABORATIVE PROJECT OF A COMMUNICATIONS CLASS AT THE MARLBORO GRADUATE SCHOOL SUSTAINABLE MBA PROGRAM AND IS IN NO WAY AUTHORED OR RELATED TO THE ORGANIZATIONS REPRESENTED BELOW.
June 4, 2012
Attn: Claire Wheeler, PepsiCo Sustainability Director
Here at Calvert, where we hold PepsiCo’s stock in our Sage portfolio, we have become aware of questionable activities practiced by PepsiCo regarding company operations in India. The shareholders’ concerns revolve around how PepsiCo is dealing with clean water and water use, as it affects the surrounding local communities. We at Calvert are aware of your efforts demonstrating water consciousness through your “Positive Water Balance” initiatives, your involvement with CERES both in their Company Network and as being a part of their Aqua Gauge initiative, and having an audit conducted by Deloitte Touché Tohmatsu India Private Limited. This shows us that PepsiCo is making progress; however your shareholders believe that with PepsiCo’s available resources and attempts towards sustainability, you should be able to do more for the communities in India where a major portion of PepsiCo’s operations take place.
We are working with the India Resource Center (IRC) to look at PepsiCo’s claims regarding achieving “water positivity” in India. We at the IRC describe in our report “Deception with Purpose,” that we are concerned, after reviewing the audit done by Deloitte, that PepsiCo’s “water positive” claims are misleading, and perhaps exaggerated.
One example of this is that PepsiCo claims that they used or had a “debit” of 5.168 billion liters of water and had saved or noted it as a “credit” of 6.004 billion liters; therefore PepsiCo claims to have had a positive balance of 836 million liters. PepsiCo and Deloitte failed to include the amount of water used to produce the potatoes for chip production which required 21.82 billion liters of water to produce. They also failed to take into account the amount of water required to produce the sugar cane which is used in the beverage production. Our findings indicate that PepsiCo should be responsible for approximately 214 billion liters of water required to produce the sugar cane. Just by these two oversights, PepsiCo is off by approximately 234.984 billion liters of water required for their operations in India. This could have disastrous effects on communities in India that are located in water-stressed areas.
Our concerns show a problem from both a transparency viewpoint and a sustainability context. Some specific concerns from the report are as follows.
- PepsiCo underestimates the amount of water used in India. This was done by counting only water used in their food and beverage factories. PepsiCo is therefore failing to address the water used by their supply chain (for example, the water used to grow potatoes which are then used to make chips).
- PepsiCo may be projecting better numbers by using Water Balance Accounting that acts in their favor. For example, PepsiCo accepts water “credits” from agricultural practices, but does not include “debits” from agricultural practices. We see this as a flawed accounting system.
- Water issues are local issues. PepsiCo often uses water from one area, then recharges groundwater in another, meaning they are failing to address water issues in the area where they extracted the water. This will only increase an imbalance of water accessibility in the future.
- One in four of PepsiCo’s plants in India are in water-stressed areas. This is going to be problematic because PepsiCo will always need water to continue their operations. If they are operating in water-stressed areas, this will mean taking more water from the people in surrounding areas.
- Quality of water is as important as quantity. PepsiCo is using freshwater, converting it to wastewater, which is unusable, and failing to account for this wastewater.
- Deloitte Touche Tohmatsu appears to have a positive bias towards PepsiCo. No tests were ever done in the field. Deloitte used data provided to them by PepsiCo.
These concerns with water revolve around community and sustainability issues. India has a large population, and it is continuing to grow. From a sustainability context, we need to start looking to the future, and think about how we are going to support more life in a densely populated country. If large corporations like PepsiCo are claiming that they are helping local communities, we need to make sure that these claims are justified. We also need to understand how to incorporate a sustainable business with this type of culture and practice in order to thrive as a symbiotic community.
Due to PepsiCo’s established involvement with CERES, we at Calvert, in conjunction with the IRC, would encourage PepsiCo to follow the guidelines presented in the CERES Aqua Gauge initiative more strictly, which would entail a third party assessment. We would encourage CERES to facilitate this process and evaluate the results of another audit performed by an unbiased and non-connected firm. We encourage PepsiCo to follow the CERES Aqua Gauge initiative and the four sections of this document – Measurement, Governance & Management, Stakeholder Engagement, and Disclosure – with special emphasis on real data (collected and reported), transparent communication with stakeholders, and sharing information.
To expand on the disclosure portion of these requests, we ask that PepsiCo allow field testing performed and documented by a third party allowing them to determine their own figures and reports.
We fear that if PepsiCo continues the course they are on, they will both lose shareholders and engagement of the the general community, and will not be able to capitalize on any future markets which may present themselves. Pepsico is in constant competition with Coca-Cola and should be leading the industry; they should be on the top of the sustainability field for the beverage industry as well as the snack food industry. We also fear the consequences for the people of India if PepsiCo continues to use water at its current rate, and stops working towards more efficient water use and local water production around its current operating plants. Even with the achievement of reaching “water positivity,” PepsiCo must continue to expand their sustainable water use programs. If they don’t, we feel that they will meet more resistance and opposition from surrounding communities, activist groups, and other organizations in the future.
We at Calvert and the IRC value PepsiCo and the business you provide, which is why we are trying to establish this sort of connection in order to continue both the satisfaction of our customers (your shareholders), and the valued business your corporation provides. We urge you to address these shareholder concerns, and encourage you to strive to meet our expectations and criteria in our Water Funds. With PepsiCo’s resources and large presence in India, we hope to find a way to work together as we move forward towards a sustainable future. We are requesting from you, PepsiCo, a dialogue where we can address these issues and work towards solutions. This will not only improve your reputation as a leading competitor, but also as a company displaying change and progressive movement towards change in the industry.
The stakeholders at Calvert and the IRC have expressed their interest in pursuing these inquiries with PepsiCo, and hope that the IRC, CERES, Calvert and PepsiCo can work together in handling the stakeholder concerns.
Calvert Financial Associate/Advisor
Dear Mr. Durant & Ms. Abrams:
On behalf of PepsiCo, I wish to extend my sincere gratitude for the forthright and thorough nature of this request for stakeholder engagement around PepsiCo’s water sustainability in India. As the Senior Director of Environmental Sustainability, I can assure you that we welcome honest discussion with individuals, groups and advocates who represent community, environmental and social interests in PepsiCo’s operations. The issue of concern, that of addressing water security at the local level in PepsiCo India’s operations and the credibility of PepsiCo India’s existing accomplishments in water sustainability, will be reviewed in the context of our businesses and our sphere of influence. We fully recognize our responsibility to be a contributing member of community at both the local and global level, and as such welcome a formal stakeholder engagement process with the willing participants listed below. This engagement is to take place on Saturday, June 9th in Brattleboro VT.
We look forward to engaging in fruitful dialogue in a few short days.
Cody Durant, Calvert
Sophie Abrams, India Resource Center
Andrew Erickson, CERES
Julie Fahnestock, Independent Consultant