IFC’s appraisal considered the environmental and social management planning process and documentation for the Project and gaps, if any, between these and IFC’s requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable period of time, are summarized in the paragraphs that follow and (if applicable) in an agreed Environmental and Social Action Plan (ESAP). Through implementation of these measures, the Project is expected to be designed and operated in accordance with Performance Standards objectives.
PS1: Assessment and Management of Environmental and Social Risks and Impacts
Environmental and Social Assessment and Management System, Policy and Management Programs. PepsiCo published a sustainability strategy, pep+ (https://www.PepsiCo.com/who-we-are/ourcommitments/PepsiCo-positive), in 2021 placing sustainability and human capital at the center of growth and value creation, by operating within planetary boundaries and inspiring positive change for the planet and people. This strategic focus has enabled PepsiCo to achieve visible progress across the three pillars of pep+: (i) Positive Agriculture - promoting regenerative practices to support the restoration of farmland approximately equal to the company's entire agricultural footprint, sustainably sourcing key crops and ingredients, and helping improve the livelihoods in its agricultural supply chain and communities; (ii) Positive Value Chain - helping to build a circular and inclusive value chain through actions aimed at achieving Net-Zero emissions by 2040, becoming Net Water
Positive by 2030, and helping build a world where packaging never becomes waste; (iii) Positive Choices - inspiring people to make choices that help create better outcomes for them and the planet and expanding portfolio of healthier offerings whilst driving new packaging solutions across beverages and convenient foods.
To support the implementation of pep+, PepsiCo has taken steps across each stage of its complex value chain in a manner designed to reduce their climate-related impacts, replenish watersheds and minimize water use, innovate more sustainable packaging and recapture packaging materials, and improve livelihoods. Under this strategy, the value chain is divided into: (i) agricultural sourcing, (ii) R&D and manufacturing, (iii) distribution, (iv) consumption and (v) post-consumer. Rather than having a stand-alone document stating its sustainability goals, PepsiCo has developed an ESG Topics A-Z resource (link) to address the broad range of sustainability-related topics that matter to its business and key stakeholders. This resource also contains disclosures aligned with a number of key ESG reporting frameworks.
Regarding agricultural sourcing activities, PepsiCo sources more than 30 agricultural crops and ingredients—such as potatoes, corn and oats—from approximately 60 countries. Under its Positive Agriculture pillar mentioned above, it has defined a set of policies and goals focusing on regenerative agriculture with the overall objective of: building soil health and fertility; reducing and sequestering carbon emissions; improving watershed health; protecting and enhancing biodiversity; and improving farmer livelihoods. Key sustainability requirements defined in the PepsiCo Global Sustainable Agriculture Policy aim to (i) integrate environmental, social and economic sustainability within agricultural production, (ii) comply with governmental laws, regulations and industry standards, (iii) optimize the use of resources to improve farm productivity and preserve soil fertility, water and air quality, and (iv) mainstream biodiversity values into agricultural operations, reduce greenhouse gas emissions, and promote animal welfare practices.
PepsiCo also has a Global Supplier Code of Conduct (“Supplier Code”), wherein it sets out its expectations for its third-party suppliers in the areas of business integrity and anticorruption, labor practices, occupational health and safety, and environmental management. It states specific requirements to comply with local regulations and applicable International Labor Organization standards and to encourage suppliers to have a diverse workforce and provide a workplace free from discrimination, harassment or any other form of abuse; it also has requirements related to minimum wages, working hours and benefits, prohibition of child and forced labor, respect for employees' freedom of association and collective bargaining, safe and healthy working conditions, compliance with applicable food safety standards, and ensuring that all land acquisitions meet IFC PS5, including free, prior and informed consent when applicable. Through its Supplier Code, PepsiCo expects all its third-party suppliers doing business with or on behalf of PepsiCo to follow all relevant policies, including its Global Sustainable Agriculture Policy (2016), Stewardship of Forests and Natural Ecosystems Policy (2023), and Global Policy on Sustainable Palm Oil (2020), among others. Under the Stewardship of Forests and Natural Ecosystems Policy, PepsiCo strives to realize deforestation free sourcing by 2025 and natural habitat conversion-free sourcing by 2030, following existing sector wide cut-off dates or December 2020, as applicable. Thus, PepsiCo's Supplier Code meets PS2 and PS6 requirements and all PepsiCo Mexico suppliers will be eligible under the project.
PepsiCo's climate strategy is centered around two pillars: mitigation - reducing GHG emissions to
decarbonize its operations and supply chain; and adaptation - reducing vulnerabilities to the impacts of
climate change by incorporating climate risk and adaptation in its business continuity plans and risk management processes.
Identification of Risks and Impacts and Monitoring and Review.
PepsiCo uses ESG reporting as the primary method for informing key stakeholders about its sustainability goals and progress on its sustainability targets. PepsiCo's stakeholders include investors, potential and current employees, customers and consumers, suppliers, nongovernmental organizations (NGOs), and regulators.
PepsiCo's reporting suite consists of the following: (i) an ESG Summary with a higher level overview of its pep+ agenda and annual progress; ii) ESG Topics A-Z: an evergreen deep dive on over 50 sustainability-related topics designed to provide accessible, consistent information for a greater insight on PepsiCo's ESG strategy, management, policies, progress and partnerships; iii) ESG Performance Metrics: Time-series data about its key sustainability goals, aimed at supporting ESG analysis, primarily for investors, ESG raters and NGOs; and iv) indices and framework responses and other topic-specific disclosures, mapping its reporting to specific metrics established by leading reporting frameworks, including the Global Reporting Initiative (GRI), the Sustainable Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures (TCFD) and CDP (formerly the Carbon Disclosure Project) climate, water and forest responses. As frameworks and regulations pertaining to ESG continuously evolve, PepsiCo aims to maintain transparency in reporting its strategy, goals, initiatives and progress on ESG demonstrated by its extensive disclosure of ESG indicators.
Resource Efficiency and Pollution Prevention
PepsiCo has publicly stated its goal to reduce absolute GHG emissions across its value chain by more than 40% by 2030 against a 2015 baseline, including a 75% reduction in GHG emissions from its direct operations (Scope 1 and 2) and a 40% reduction in indirect emissions from its value chain (Scope 3). PepsiCo aims to achieve net-zero emissions by 2040. Details of its progress are published on its Task Force on Climate-related Disclosures (TCFD) report (link). In 2022, Scope 1 & 2 greenhouse gas emissions were 4.3 MM tCO2.
Water stewardship has long been one of PepsiCo's top priorities, and Pepsico has a vision to become net water positive by 2030. To achieve this, PepsiCo has adopted an approach to watershed management that includes: (i) improving water-use efficiency across its value chain — on farms and in manufacturing facilities; (ii) replenishing water and improving the health of the local watersheds that are most at risk where PepsiCo operates; and (iii) increasing safe water access for communities that face water insecurity, including scarcity and unsafe water sources.
The scope of PepsiCo's Sustainable Farming Program (SFP) includes requirements on (i) waste management with the aim of minimizing adverse effects on the environment and communities; (ii) agrochemicals, aiming to optimize agrochemical use through integrated pest management (IPM) (iii) nutrient management plans that optimize ecosystem, soil and planet health. It also requires suppliers to ensure that all agrochemicals applied are registered in the geography of use and for the relevant crop.
Organizational Capacity and Structure.
PepsiCo's Board of Directors considers ESG issues to be an integral part of its business strategy oversight. To this end, its Sustainability, Diversity and Public Policy Committee assists the Board in providing more focused oversight of key sustainability, diversity, equity and inclusion and public policy matters. This Committee is comprised entirely of independent directors and reflects a mix of public policy, risk, international and science-related skills, qualifications and experience. At the Executive Committee level, a Sustainability Committee composed of members of PepsiCo senior leadership management team regularly reviews its strategy and progress toward its pep+ goals, presenting its findings to the Executive Committee. This provides opportunities for its senior leadership to align on major strategic issues relating to ESG.
Emergency Response.
PepsiCo requires suppliers to create a safe and healthy working environment for their workers. The SFP requires that suppliers have an emergency preparedness action plan that provides essential information tand ensures that staff have access to relevant emergency response equipment in the event of a fire, emergency, natural disaster or accident.
Labor and Working Conditions
As mentioned above, PepsiCo's requirements with respect to its suppliers are detailed in its Supplier Code, which was updated in April 2023. All PepsiCo 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 its Supplier Code and all other relevant policies as a condition of doing business with it. Compliance with the Supplier Code is required in PepsiCo's supplier contracts, and suppliers are also required to have management systems in place to cascade down the requirements in their own supply chains. The Supplier Code aligns with PS2 requirements, including clear employment terms, prohibition of child labor and forced labor, recruitment, anti-discrimination, working hours, occupational health and safety, payment in accordance with minimum wage levels and overtime compensation, freedom of association, and grievance mechanisms.
To implement the Supplier Code, PepsiCo undertakes an onboarding process for its strategic suppliers to inform and train them about the Supplier Code. During onboarding, strategic suppliers also complete a self-assessment, and the results together with contextual risk information from external data providers provides an initial level of risk that may be followed up by audits.
PepsiCo uses a risk-based approach for continuous monitoring of its strategic suppliers’ compliance. Frequency of audit or assessment is conducted at each site based on risk, usually once every three years, with greater frequency at sites with higher risk driven by geography and category risk and previous results. Where instances of non-compliance are found during on-site audits or virtual assessments, a corrective action plan (CAP) with a timeline for remediation is put in place by the supplier. Follow-up audits are conducted by an approved third-party auditing firm to verify effective implementation. Audits follow the Sedex Members Ethical Trade Audit (SMETA) methodology aligned to international standards in the areas of business integrity, labor practices, health and safety and environmental management.
For direct farm suppliers, the scope of due diligence and monitoring is laid out in the Fundamental Principles of the Sustainable Farming Program (SFP) document (https://www.PepsiCo.com/docs/default-source/sustainability-and-esg-topics/PepsiCo-sustainable-farming-program-scheme-rules.pdf), which entails foundational principles on cross-cutting pillars and indicators, including health and safety, employment conditions, community employment conditions and practices, farm management, agrochemical, biodiversity, energy, waste, water and GHG, among others. Suppliers are informed about the Supplier Code when onboarded and required to conduct an initial risk assessment (site level self-assessment) with additional on-site audits depending on risk identified.
Grievance Management.
PepsiCo requires suppliers to have an effective Grievance Management system in place for grievances raised by workers within their operations or by third parties, which elevate potential violations to management in line with the UN Guiding Principles. Supplier's employees or contractors may also report suspected violations of the Supplier Code in the PepsiCo “Speak Up” system available worldwide and allowing for anonymous complaints (where permitted by law).
Biodiversity Risk management on the Supply Chain
PepsiCo's Stewardship of Forests and Natural Ecosystems Policy actioned through the Supplier Code commits suppliers to realize deforestation-free sourcing by 2025 and natural habitat conversion-free sourcing by 2030, following existing sector-wide cut-off dates or December 2020, as applicable. Through a risk-based approach, PepsiCo screens risk to deforestation of its suppliers. It is currently developing an onboarding process to be fully implemented by December 2025 to achieve its 2025 goals for deforestation and 2030 target for natural habitat conversion, in line with existing corporate goals. To implement deforestation and conversion free goals, PepsiCo first assesses the risk of deforestation for each commodity at a national level (through Maplecroft's Deforestation Index). For high-risk areas, PepsiCo's partners are engaged to map supply chain sourcing and where needed trigger action. PepsiCo benchmarks all suppliers to PepsiCo's Sustainable Sourcing Program (SSP) which includes risk screening for agricultural products, verification of policies and systems in place aligned with PepsiCo's goals, third-party audits, corrective actions and capacity building for those suppliers not already certified through a credible sustainability production standard or system. High Carbon Stock (HCS) and High Conservation Value (HCV) toolkits, along with ingredient-specific tools, are used to identify areas not to be converted. While HCS and HCV approaches may not cover all types of natural habitat, under this current project, the risk of significant natural habitat conversion by 2030 is low.
Wheat and cornmeal suppliers in Mexico are located in areas of low deforestation risk and are managed through PepsiCo's Sustainable Sourcing program. For palm oil products, PepsiCo targets sourcing 100% RSPO certified mass balance from CPO suppliers committed to No Deforestation, No Peat and No Exploitation (NDPE) with 31 Dec 2015 deforestation cut-off date and tracked deforestation and peat free performance through the NDPE Implementation Reporting Framework (IRF). PepsiCo aims to source cocoa and dairy seasoning products from suppliers with policies and systems in place targeting deforestation free sourcing by Dec 2025 and natural habitat conversion by 2030.
As part of ongoing public reporting, PepsiCo will annually report on its corporate goal towards achieving no-deforestation and conversion-free commitments within PepsiCo's supply chain management system, as part of its on-going public reporting of these goals.
