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.
Let’s Get Engaged
June 25, 2012
It has been a while since I’ve posted on the Performance Notes and, rest assured, I’ve been busy! I just returned from the Marlboro College Graduate Center in Brattleboro, VT – the location of a multi-stakeholder engagement dialogue concerning PepsiCo’s water use in India.
PepsiCo welcomed this strategic level of engagement because we recognize that we cannot achieve sustainability alone. As our recent report on Water Stewardship concludes: Much work remains to be done, and only an ongoing, productive partnership between governments, NGOs, businesses and other stakeholders will ensure significant progress. When we were asked by the India Resources Council and Calvert Investment Funds to participate in this dialogue facilitated by our colleagues at Ceres, we accepted without hesitation.
As some of my colleagues at PepsiCo have already espoused, the issue of water scarcity is becoming a hot topic, as evidenced by the 2012 World Water Week and the prominence of the issue at last week’s Rio+20 conference. PepsiCo has long taken water as a serious issue, and was one of the first companies in history to formally acknowledge water as a human right in 2010 following with the universal UN declaration. In April 2010, PepsiCo promised to respect the human right to water through world-class efficiency in our operations, preserving water resources and enabling access to safe water with specific and measurable objectives. Years before, CEO Indra Noori signed onto the CEO Water Mandate in 2007 and updated this commitment this year as a cosigner to a communiqué to heads of governments attending Rio+20. The mandate is a unique public-private initiative designed to assist companies in the development, implementation and disclosure of water sustainability policies and practices (language from the UN Global Compact website). In water stressed geographies like India, PepsiCo has stepped up its efforts to use water sustainably in its operations. I encourage you to check out PepsiCo India’s 2010/11 Corporate Citizenship Report to read more fully about our efforts there.
In a letter to PepsiCo this June, the IRC and Calvert expressed concern about PepsiCo’s Indian operations, specifically the fear of “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.” This being a concern PepsiCo also shares, I responded immediately to these valued stakeholders and agreed to a facilitated conversation.
What followed was a truly transformational experience. I am indebted to my colleagues at IRC, Calvert and CERES for their honest work and dedication to sustainability. The engagement started by focusing on concerns laid out by IRC in a recent report titled Deception with Purpose, which examines PepsiCo’s success in achieving Positive Water Balance in its Indian facilities. IRC’s main critique of our efforts was that we should do more to ensure water security at the community level, and we couldn’t agree more. Through effective dialogue, all stakeholders came to acknowledge PepsiCo as an industry leader in our work towards water security, and recognized that true change requires two core components: collaboration and time. An amazing thing happened: together, we came to an understanding that holding fast to our seemingly opposing points of view would never move us up the sustainability ladder. This epiphany allowed us to let go of offensive and defensive bargaining and pushed us through towards a shared vision of truly just and sustainable water use, in and for community.
Once the engagement reached this level of conversation, we shifted into a deeply interesting conversation around the definition of “sustainable water use”. We came to realize that in order to make tangible steps forward, we needed to be speaking the same language. I’ll write again about this progression soon in Performance Notes, stay posted.
This experience has been both eye-opening and gratifying. On behalf of all of us at PepsiCo, I am deeply proud of how far we’ve come and humbled by the distance we have yet to travel to meet these complex sustainability challenges. Only through a shared and honest understanding of the issue can we begin to implement solutions that satisfy all stakeholders, be they investors, executives, consultants, NGOs, community members or local watersheds. Achieving sustainability is the work of all of us, and the time is ripe to make a tried and true commitment… so let’s do it. Let’s get engaged!
The Cabot Context
June 30, 2012
Our work with stakeholders regarding our water use in India continues to be interesting and fruitful. I have been doing some research about other companies walking on the same path towards sustainable water use, and found this article about Cabot Creamery in Vermont. The article lauds CEO Richard Stammer in his decision to really ramp up the way the company understands and articulates its water sustainability, resulting in what the article’s author, Mark McElroy, claims to be “one of the most advanced context-based sustainability programs in the world.”
Context-based simply means the company is measuring sustainability against actual specified limits and thresholds of, in this case, water. It means measuring how much water is actually available as well as how much of the resource is needed and by which users. From there, one can take a contextualized approach in determining what sustainable really means, so that any particular resource user aligns their use with what is realistic or reasonable in terms of maintaining the health of the resource as well as what is “fair” it terms of ensuring the needs of the whole system or community. Taking a plant-by-plant perspective, Cabot got to work establishing specific thresholds for water use based on how much available water at each site could be allocated to each plant’s use. Of course, water is a renewable resource, and so rainfall must be taken into account when determining availability. Still, employing sustainability context goes beyond this to consider resource allocation, that is, what are the water use needs of all stakeholders in the watershed including the company or industry, other businesses in other industries, community members, and even the need of the watershed itself for maintaining a healthy level of replenishment.
Because of the inherent difficulty in slicing the pie equally for all users (which is to say, some industries like agriculture simply require more water, which is justifiable given that community members are reliant on this usage for food supplies), Stammer had to come up with an allocation measure that made sense to his company and its sustainability goals. As a result, this metric “would be based on the company’s contribution to gross domestic product (GDP), but it would first ensure that everyone’s domestic or household needs in the community are fully satisfied before allocating anything to organizations,” explains McElroy.
For PepsiCo, this is some fascinating food for thought. Cabot’s leadership in using such an attentive and thorough approach in understanding sustainable water use works for a few key reasons. First and foremost, the company is the first to do it, and often in the world of sustainability that means that it sets the precedent. In this case, I agree that the precedent is a good one. Still, successful implementation of this approach presumes that other companies will play by the same rules and use the same metrics. There are two overarching assumptions at work here in terms of this being a manageable approach: one is that the limits and allocations, once established, will remain more or less the same. By this I mean there lacks a measure of sustainability in terms of company resources that it will require to continuously ensure an accurate grasp on “sustainable”, including measurement of rainfall, evapotranspiration, water needs of the ecosystem, population levels, and area corporate contribution to GDP. Should, for example, an extreme weather event caused by global warming drastically change waterways and evaporation patterns around Cabot’s operations, what will it cost the company to update its measurement? The second assumption is simply that of scope. From what I gather, this program is in up and running only in Cabot’s main facilities, located in one state in one water-rich region (New England). Implementing such a comprehensive program to a company of say, PepsiCo’s size, is an entirely different ball game.
Cabot is clearly leading the way in establishing thoughtful and what I expect to be impactful changes in the way the company is measuring its sustainability. Understanding sustainability context is the first step leading companies and company leaders must undertake. Implementing context-based programs will take time, energy, and resources unmatched by common sustainability programs. But when we stop to consider that we are making these strides with the health and safety of our ecosystem and communities as top priorities, the lesson ought to be an easy one to embrace. For those of us in the corporate world, it is also a lesson in humility: we need sustainable ecosystems and communities in order to run sustainable companies. We all need to use resources to exist, and better yet, to thrive. Putting resource use into the context of true resource limitations is an essential step in ensuring our thriving existence far, far into the future.
The Metric System
July 1, 2012
As last week’s post referenced, a key question in tackling the sustainability challenge is how to establish the context in which we measure our progress. Measuring corporate water use is a theme that has been picked up by a number of companies, NGOs and government agencies over the past few years, and PepsiCo is proud to have taken a lead role in this work. In our recent engagement with stakeholders regarding PepsiCo’s water use in India, the scope and use of tools that measure water use became a central theme as we worked to build a shared understanding of sustainable water use.
First, a quick primer. In my view, the best framework for measuring a company’s water use is through the concept of a water footprint, akin to the more commonly known carbon footprint, which can be calculated for individuals and organizations in a myriad of ways through numerous “carbon calculators”. Both of these terms originate from a more overarching framework, the Ecological Footprint, which the Global Footprint Network defines as a measure of how much area of biologically productive land and water an individual, population or activity requires to produce all the resources it consumes and to absorb the waste it generates, using prevailing technology and resource management practices. PepsiCo is a longstanding partner of the Water Footprint Network and through this partnership has supported groundbreaking work to measure impacts of water use. A water footprint, simply put, is an “indicator of water use that looks at both direct and indirect water use of a consumer or producer” (See http://www.waterfootprint.org for more). As PepsiCo recently stated in our Water Stewardship report:
We believe — and fully support the Water Footprint Network dialog — that what is truly important is the impact of our water use, which is why we are strongly advocating to evolve the discussion from “water footprint as a number” to the “components of a water footprint that have the most impact,” with clear distinction of where, how and when the water is sourced and used.
In addition to the water footprint work, PepsiCo was instrumental in helping shape the World Business Council for Sustainable Development’s Global Water Tool, serving as an advisory board member.
In our own operations, PepsiCo employs the Resource Conservation (ReCon) tool. Our manufacturing facilities conduct self-audits of their water and energy uses and management practices, and identify and respond to conservation improvements by mapping resource-use streams within the facility. Values are then assigned to these streams based on the local cost of water. The tool is now being expanded to our franchise bottler network, co-packer partners and direct suppliers. Since 2009, the ReCon water conservation tool deployment has helped sites across the world identify 2.2 billion liters of water savings, with a corresponding cost savings opportunity of nearly $2.7 million.
PepsiCo takes sustainability seriously, and we understand the value of also being taken seriously. Going into the engagement, PepsiCo enlisted the help of Two Tomorrows, an international corporate sustainability agency, to help us identify the tools that could be best employed to meet and measure the concerns of our stakeholders as well as address and assure specific outcomes that the engagement yielded. Working with Two Tomorrows proved to be doubly beneficial. On a pragmatic level, Two Tomorrows does excellent work with a keen exposure to and knowledge of the sustainability field. Regarding transparency and trust, the relationship assured stakeholders of PepsiCo’s dedication to making accurate and realistic impacts regarding its water use in India.
As an outcome of the engagement, Two Tomorrows produced a survey report that assessed various water management tools already in existence, updating and augmenting similar work done by the World Business Council on Sustainable Development. Based on our collective needs, the report made two resource recommendations: use the Ceres Aqua Gauge to measure, manage and report on PepsiCo’s water use and reference the Water Footprint Network’s Assessment Manual as a preliminary tool for PepsiCo to communicate its water management strategies to stakeholders. The strengths of the Aqua Gauge lie in its usability and its focus on stakeholder engagement and disclosure, both central PepsiCo’s sustainability program. But stakeholders felt that there was a gap in the recommended solutions. Their concern was whether or not these tools could really understand and assess water impacts and limits at the community level. Our colleague at Calvert pointed to the Center for Sustainable Organization’s Corporate Water Gauge, a recently developed tool that is unique in that it employs a watershed-centric approach based on GIS technology, putting local limits and uses of water at the top of the priority list. It is a tool specifically designed for context-based sustainability.
While the Corporate Water Gauge’s capacity relies on the availability of GIS datasets, the process of finding and collectively employing these water measurement tools was illuminating. The quest to find a tool that would actually measure water availability and water use at the local level, which was a priority that all stakeholders agreed was essential to our work together, pointed to a profound commitment of all stakeholders to define sustainability in a very pragmatic, context-based way. It will no doubt take substantial effort on our part to use these tools to their full capacity. The benefit of using these specific resource in piloting a context-based sustainability program in India is two fold. First, we will undoubtedly make an important and imperative impact at the local level. Second, we will serve as partners to Ceres and the Center for Sustainable Organizations to make their tools even more robust by using them in conjunction in such an unprecedented way. This is certainly breaking new ground for us here at PepsiCo, and we continue to be impressed and humbled by the forward momentum that effective stakeholder engagement is able to generate.
A Defining Moment
July 20, 2012
For me, the best part of collaboration and conversation is the potential to reshape my perspective, from the tiniest of details to the most grandiose concepts. In PepsiCo’s recent stakeholder engagement concerning water use in India, I walked away with a renewed interest and dedication at PepsiCo’s most direct sphere of influence – the communities in which we operate. While focusing on water use at the local level, the conversation that transpired during our engagement ended up revolving around one huge topic: how we define sustainability.
From the onset, it is not surprising to me that each stakeholder arrived at the conversation with a slightly different interpretation of what it is to be sustainable. At the table were an investment specialist, a nonprofit activist, a sustainability consultant, a neutral facilitator, and me. We are all working on vastly different scales and for vastly different reasons. In preparation for the conversation, one thought kept me tethered to hopeful results: we are all dedicated to advancing sustainability. We all “get it” – why sustainability is important – and we all have ideas on how to advance sustainability in our lives, in our jobs, and in our society. And still, despite such shared dedication, our own personal and professional understandings of what it means to be sustainable remain so distinct from one another. Only after we began our conversation did it become clear to me that in order to make real, tangible progress on PepsiCo’s Indian operations, we all needed to figure out how to speak the same language. We weren’t going to easily meet stakeholder concerns about local level water security if one of us would measure success in terms of gallons of water saved while another would assess the community’s access to fresh, safe water. The journey toward establishing a shared definition of sustainable water use arose as the #1 priority for our work together
PepsiCo has done a lot of important work on sustainability in the past few years, water being but one of several sustainability foci. Our 2010-11 Citizenship Report outlines PepsiCo India’s goals and progress in the realms of Environmental Sustainability – which focuses on water, climate change, land and packaging, and community – as well as Human Sustainability and Talent Sustainability. In this report, we use the term “Positive Water Balance” to demonstrate the results of our water sustainability efforts over the past 3 years in India, which means that beginning in 2009 we have successfully given back more water than we used to manufacture our products. Through operational efficiency, agricultural innovations like direct seeding and drip irrigation, and in-plant water harvesting and recharging, we recharged and saved 10,143 million liters of water in India in 2010 alone.
I was aware of the need to “speak the same language” before our formal conversation actually began, when the India Resource Center voiced criticism of the PepsiCo’s Positive Water Balance definition. The primary critique was that PepsiCo should include the volume of supply-chain water use in its calculations, which it currently does not include. Supply-chain use would include the amount of water used to produce potatoes used for chips or sugar cane used for soft drinks, for example. Encouraging companies to include this level of resource use is becoming more and more apparent as a strategy from the sustainability community. For example, the Greenhouse Gas Protocol, which is the most widely used accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions, distinguishes direct emissions (Scope 1) from indirect emissions like supply chain, electricity generation, commuting and waste disposal (Scopes 2 & 3).
I appreciated IRC’s critique because it forced me to think about why Positive Water Balance is defined as it is. One question that came up for me in our conversation was where supply-chain begins and where it ends. In other words, water and resources are used to seed, grow and harvest crops…should PepsiCo be held accountable for resource use through the entire process of crop cultivation? And even once that limit determined, how would a company implement accurate measurement of water use at each farm? PepsiCo India has worked directly with over 22,000 farmers across 9 states. More than 45 percent of these are small and marginal farmers with a land holding of one acre or less. Forget about natural resource use for a second to consider the amount of organizational resources it might take to establish and maintain measurement of water throughout the country. This kind of question demonstrates the space between the rock and the hard place where sustainability directors of multinational corporations often find ourselves.
It was clear that we weren’t going to solve everything in the course of one afternoon, so we shifted our focus and worked towards establishing a shared understanding of sustainability that would meet our variety of interests and goals. It was important to all stakeholders that this definition address the IRC’s concerns about community-level water security, so that’s exactly where we started. Making sustainable water use a real and tangible possibility at the local level requires the ability to gauge and measure the actual amount of available water and water used, which compliments a lot of the work PepsiCo is already doing towards sustainability. Just last year, we worked with The Nature Conservancy to publish a report highlighting 5 pilot sustainability programs in 5 water stressed locations across the globe. We take local level issues seriously.
Being serious at the watershed level requires incorporating sustainability into local context, a topic I’ve blogged about a lot recently. Sustainability context is not necessarily a new concept. The Global Reporting Initiative, and its sustainability guidelines through which PepsiCo regularly reports, has long included sustainability context as a key principle for companies in defining disclosure content. As this stakeholder engagement has illuminated, determining the context for what exactly is sustainable is often a gradual evolution, best informed by a diversity of inputs, rather than a one-off management decision. GRI itself has been critiqued for falling short of specific guidance or accountability on this matter, and I can certainly understand why. Without opportunities like this most recent stakeholder engagement, we do not often get the opportunity to step away from our day-to-day experience to gain a new perspective and reflection on better understanding the impacts we have.
The journey towards a shared definition of sustainable water use for PepsiCo required mutual respect for difference as well as mutual interest in progress. Rather than run around in circles around the successes that we have already achieved, PepsiCo worked with stakeholders to set out on a new path designed collaboratively to address local concerns, provide new learning opportunities, and make clearer progress towards sustainability where it matters most – in community.
I am proud to share with you the definition that PepsiCo established with the IRC, Calvert, Two Tomorrows and Ceres for sustainable water use in its Indian operations. We are working now to design a pilot program for our Indian facilities that meets the values implicit in this definition. Again, we are grateful for the truly collaborative process that brought us to a new level of understanding sustainability, and for the strengthened partnerships that will support us in new levels of sustainability success.
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 and future water supply ample enough to ensure profitability.
- 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.
- Employing all reasonable means to safely recharge the water supplies for the communities where PepsiCo operates, starting in the least water secure communities.
- Expanding PepsiCo’s internal understanding of its water use and sustainable responsibility to include supply chain production as well as in-plant manufacturing use.
A Good Investment
August 1, 2012
Sustainability requires the convergence of many different perspectives, the channeling of many different strategies, and the realization of many different goals. At PepsiCo, we are realistic about our responsibility for the footprints we create as we walk the path towards sustainability. We are also encouraged by the reality that this work calls for true partnership, transparency and collaboration. No one is going to achieve sustainability on one’s own. Sustainability requires investment from all of us.
Calvert Investments takes this call to action literally. An investment firm that places a priority on social and environmental responsibility, Calvert authored a white paper on water sustainability and the water industry earlier this year. Calvert’s groundbreaking SAGE Strategies (SAGE stands for Sustainability Achieved through Greater Engagement) is a premier effort in the world of Socially Responsible Investing (SRI), and PepsiCo is proud to be an equity holding in the Large Cap Value Fund. This mechanism attracts investors who want to move companies to make measurable progress on vital ESG issues, as stated on the SAGE Strategies website.
As a representative in our recent stakeholder engagement around PepsiCo’s sustainable water use in India, Calvert voiced shareholder concerns around understanding and measuring our resource use impacts at the local level. For me, Calvert’s presence carried with it an important reminder that stakeholder engagement is a highly effective way for investors to make their voices heard, and to make tangible improvements to the way we do business at PepsiCo.
I’m pleased to share a recent announcement by Calvert to pilot a special fund that focuses on context-based sustainability reporting and accountability. In a letter to shareholders, Calvert explains that our recent collaboration around a sustainable water use in India has paved the way for exciting new opportunities in Socially Responsible Investing:
PepsiCo has set the bar for what similar companies should be doing; the need for context-based reporting is imperative as it helps a company fully understand their sustainability impact due to the fact that they will have something to measure their results against.
We are thrilled to partner with Calvert on this exciting pilot. In the coming months, Calvert will survey shareholders and current partner companies to gauge the interest and explore guidelines for the new fund, named Context-Based Strategies. Going beyond the scope of SAGE Strategies, the pilot of this fund will look at cutting edge tools and techniques to discern and measure sustainability context.
I’m lucky. Every day when I walk into work, I learn about and discover exciting and innovative solutions in the world of sustainability. So many of the progressive efforts I’m most impressed by are direct results of participating in a stakeholder engagement. In the sustainability field, we are cradled between enormous challenge and immense opportunities. Either way you look at it, creating a sustainable world is a daunting task to forge alone. The Context-Based Strategies pilot is one of so many innovations that feed my hope that the investments in change we make now will truly payoff in the future. Together, we design and build solutions that we couldn’t have come up with on our own, and they tend to be solutions that we can’t achieve alone. When we’re talking about something as vital as the health of the planet that provides for all of us, not as isolated individuals or organizations but as parts of a magnificent ecosystem, that is exactly how it should be.