Why PepsiCo Is Choosing to Incorporate Sustainability Reporting - Case Study Example

Sustainability at PepsiCo Contents Introduction 3 Why PepsiCo is choosing to incorporate sustainability reporting 3 Focuses for improvement 5 Stakeholders perceptions 6 Effect on stakeholders returns 8 Perceived threats and opportunities 10 Introducing Integrated Reporting 12 IIRC and the Pilot Programme 13 Structure and function of the IIRC and purpose of its Pilot Programme 13 Reasons for PepsiCo’s involvement in the IIRC Pilot Programme 14 References 16 Introduction Sustainability management is a concept which helps to run a business entity in a successful way without depleting its existing resources. It helps to maintain economic viability and nourishes the needs of future and present generation. Practice of a particular business organization should be sustainable for maintaining stability in the market. An unsustainable business entity cannot be able to exist in the competitive market. In this essay, the mentioned company is PepsiCo which is an American multinational beverage and food corporation headquartered in New York, United States. The company manufactures markets and distributes soft beverages and snacks in the global market. The management of this company is pleased to share the success and progress of this company through their sustainability report which is published in every financial year. “‘Performance with Purpose” is the major goal of this company to deliver sustained value to a wide range of customers around the world. PepsiCo is conscious about the health of consumers and for that reason they are offering healthy and diet foods and beverages. Again, the company is concerned about the packaging material which is an integral part for maintaining quality of food products. PepsiCo also offers safe and healthy working atmosphere to its employees. Why PepsiCo is choosing to incorporate sustainability reporting PepsiCo is going for sustainability reporting because the organization wants to measure their performance consistently and wants to do it with some specific purposes. “Performance with Purpose” is the goal of the organization. The organization tries to follow the recent trends of the outside world. Reason behind the selection of this kind of practice is company’s committed focus towards the consumer wellness and abiding the government policies. Currently the modern world is facing dearth of important resources, under this critical circumstances the organization is trying to come up with sustainability governance and stakeholder engagement. Retaining the talented workforce is also a complex factor for the modern day organizations. In order to develop the talent for the long term basis PepsiCo has selected this kind of reporting. The company has realised that the business does not work in the vacuum rather it operates under the guidance of the society. It means society is also an important part of the sustainability reporting for them. PepsiCo came up with this idea of sustainability reporting in the year 2007. With the help of this the organization tried to transform their portfolio to offer a vast range of foods and beverages and their main aim was to increase their top line growth. Three main pillars of the sustainability reporting of the company are human sustainability, environmental sustainability and talent sustainability. This kind of reporting helps the organization to find different innovative ways to reduce the organizational impact on the society and helps the company to reduce their costs and time. There is a significant impact of sustainability reporting on the organization in terms of workplace environment. PepsiCo has succeeded to offer secured workplace and has retained important human talents. In the year 2012, the organization achieved 49% of the beverage volume from the low calorie healthy juices. Due to the selection of this sustainability reporting the organization has reduced its environmental impacts significantly. Recently PepsiCo has come up with a plan to reduce their per unit water usage by more than 20% (PepsiCo, 2012). This endeavourer has offered the company Stockholm Industry Water Award and U.S. Water Prize award in 2012. The organization has reduced the package weight also by almost 350 million pounds. All these facts are indicating that the organization is committed towards the environmental and social stewardship and that is why it has chosen sustainability reporting. Talent development is also an integral part of the sustainability reporting. The organization is committed towards talented people. According to their organizational culture talented employees are the vital for the continuous success. PepsiCo has increased promotion rate of female talented executive in Asia pacific region up to 50% percent (PepsiCo, 2012). The organization has established Human Rights Operating Council for better coordination and monitoring purposes. All the above discussions are clearly articulating that for the overall sustainability and mitigating ever-changing issues in their global business practices the organization has chosen this kind of reporting. This kind of reporting has helped the organization to achieve their goal i.e. “Performance with Purpose”. Focuses for improvement Over the years, PepsiCo has given significant importance towards their social and environmental performances. The organization has anticipated that social and environmental sustainability is an inseparable part of the organizational development. Identifying the importance of social and environmental sustainability has become the core factor for the sustainable success of the organization. In the year 2007, PepsiCo introduced the concept of Performance with Purpose and since then social and environmental sustainability has become more integrated part of the business. The organization is a signatory body of United Nations Global Compact and caring for climate activity (PepsiCo, 2012). Across the globe the organization is highly recognized for their environmental and social sustainability but the organization has given significance focuses towards the improvement. As discussed earlier, PepsiCo is aiming to reduce their per unit water usage by 20% and the target year for achieving this goal is 2015. The organization has already done significant improvement in this area and it has succeeded to save almost 14 billion litres of water which has reduced the water cost of the company by $15 million (PepsiCo, 2012). The organization has come up with innovative technology to conserve the water. In their Funza plant, with the help of highly efficient water reclamation technology the organization is reusing 75% of the water. The technology is incorporated with low-pressure reverse osmosis system. The system meets all the standards of US Environmental Protection Agency. The organization is committed towards the supply of safe waters across the 3 million people of developing countries by 2015. In order to achieve that the company has partnered with Columbia University Earth Institute. Over the years, the organization has removed 95 tons packaging material every day. In the recent activity of Aquafina division, PepsiCo has successfully avoided the usage of plastic more than 135 million pounds. The current weight of Aquafina bottle is 16.9 ounce which is half of the weight of 2002 bottle (PepsiCo, 2012). In the case of Gatorade previously the company was using 45 grams resin now the company has reduced the usage of resin and it has become 39 grams. The result of this is PET reduction of 595,000 pounds. Due to the package light weight initiative the organization has succeeded to reduce the bottle waste up to 9 million pounds. The organization has always given focus towards the recycling of the solid wastes. Across North America PepsiCo has come up with almost 5000 solid waste recycling systems. Those systems have enabled the organization to recycle almost 196 million containers of beverages (PepsiCo, 2012). The organization has significantly focused towards the reduction of Green house gases. In between 2008 to 2012, production volume of food and beverages have been increased by 7% and 12% respectively but the organization has able to kept the level of green house gas emission constant. It is a significant improvement from the side of the company. The organization has improved their energy efficiency by 14% in compare to the 2006 (PepsiCo, 2012). This energy efficiency has helped the organization to save their cost almost $70 million in the year 2012. Stakeholders perceptions The organization is globally highly recognized for their sustainable initiatives. Business operations of the company are deeply related with the social and environmental factors. According to the perception of the organization, there are lots of stake holders across the world are significantly interested with the social and environmental performance of the company (Kass, 2013). Customers across the globe are the most important stakeholders of the company and are utterly interested towards the social and environmental performances conducted by the PepsiCo. The organization has identified that health conscious customers across the world have been shifting their focus from carbonated drinks to the health drinks with less calories. It has organised their products according to the shifting demands of the customers. Customer’s interests were evident when in 2012, 49% of total US beverages sales of the company came from juices only (Busco, Frigo, Riccaboni and Quattrone, 2013). The organization has a plan to offer the access of safe water to 3 million people of the developing countries. For achieving this goal the company has planned to partner with different water organizations across the developing countries. People, Government and the various water organizations across those developing countries are significantly interested with the social and environmental performances of the company. This initiative has raised the interest levels of the stake holders. PepsiCo has reduced the usage of resin in their Gatorade bottles. It has resulted in significant PET reduction. This initiative has grabbed the attentions of different environmental organizations. The organization has a come up with concept of Sustainable Farming Initiative famously known as the SFI. The main aim of this initiative is to reduce the emission of CO2 by producing the fertilizer from the manufacturing wastes and through this the company wants to improve the livelihoods of the framers. The project has been completed across the 14 countries. According to the perception of PepsiCo, farmers and different NGOs are significantly interested with this environmental and social development from the company. According to the perceptions of the organization, different social and environmental performances have generated the interests of suppliers also. The organization has reduced the packaging weight of their products by more than 350 million pounds and it has restricted the usage of plastic also up to 135 million pounds. This kind of environmental performances are significantly important for the suppliers of the company as they have to adjust their product specifications according to the fresh needs of the company (PEPSICO, 2012). The organization is eyeing for significant energy efficiency which can save the cost of the company up to $70 million, through reducing the usage and recycling the water the organization is trying to gain the optimum utilization of their resources. According to the perceptions of the company suppliers are may be relatively disinterested with the environmental and social performances. The reason behind this, suppliers have to adjust lots of specifications, related to the weight of the packages and usage of resin in the bottles and it may be an uphill task for them (Cummings and Worley, 2009). Effect on stakeholders returns According to the perception of the company, shareholders have significant importance on the organization in various ways. PepsiCo always strives hard to deliver long term financial and sustainable growth to share holders. The company has been associated with different social and environmental activities but the financial interests of share holders have not been compromised because of the expenses for running these initiatives. (PEPSICO, 2012) According to the above picture, from the year 2008 the organization has consistently maintained higher cumulative returns of the share holders in compare to the S&P 500 (PEPSICO, 2012). It also shows that the organization has given significant priority to shareholders. It further indicates that the organization has balanced its responsibilities suitably towards environment and shareholders. In the year 2012 the organization returned $6.5 billion to the share holders with the help of dividend and repurchase of shares. The organization does not perceive that stake holders are prepared to sacrifice their returns to improve the social and environmental performances (PepsiCo, 2012). If the organization would have perceived in that way, it could have compromise with the values and returns of the share holders. But all the above facts are indicating that the company never compromised with the share holders values always maintained high returns for the share holders. On the other hand, the real thing is that, the company always tried to use their environmental and social initiatives as the tools for increasing the values of the share holders. The company has brought about different operational changes which have helped the organization to save lots of financial resources. The company has gone for the optimum utilization of critical resources and backed the company to come up with continuous benefits for the share holders. Producing the financial rewards to the investors is an integral part of the mission statement of PepsiCo. It shows the level of commitment of the company towards the investors or shareholders. From this kind of high commitment level, it is impossible for the company to perceive that shareholders are prepared to sacrifice their financial returns (Cummings and Worley, 2009). Mission guides the organizations towards the long term vision. Here in this case also the company with its mission statement is indicating its long term perception towards the values of the share holders. Recently the company has announced that it will repurchase $10 billion share in the upcoming three years and also increased the dividend up to 5.6%. This fact is articulating that apart from the different social and environmental performances the company is focusing towards the returns of investors also. Perceived threats and opportunities Threats and opportunities are two major keywords that are associated with external business environment of an organization. A business always maintains its sustainability in both of its internal and external environment. Social and environmental issues are some important aspects to maintain sustainability in business. PepsiCo is getting some key opportunities from its external environment in case of sustainability management. The company has a strong presence in global market. Therefore, it is able to show the progressive strategies that are taken by the management for future benefits. Shareholders, customers, suppliers and other individual and institutions associated with this organization are spread across the world. They all get the above mentioned information through the sustainability report published by this company in each year. This published information will help the company for achieving more percentage of growth in the international market. Clear information increases the trust and dependency of the customers, suppliers and stockholders on this company and its offered products. This will help to increase the positive potentiality in the competitive market. This company can use its sustainability report for providing information about the newly launched product in the market. If PepsiCo launches any diet based beverage item or any healthy food product which has significant nutritional value then that information is mentioned in their sustainability report. People become aware about that kind of products and start consuming it. This information increases the volume of sale and at the same time the organization can maintain its corporate social responsibility. PepsiCo is such kind of organization which is involved in producing high quality foods and beverages in every part of world. The company has conducted several food safety programs for giving assurance to the customers about the safety of every food packages. Apart from the above mentioned opportunities the business may face few threats in case of their sustainability management. Water scarcity is one of the major threats as because the level of water is reducing day by day around the world. Now, it is a cost effective method for this company to get sufficient quantity of water for the purpose of production. People are adopting healthy life style in the present days and to cope up with such kind of life style and the company has to launch more variety of healthy food products and diet based beverage items in the market. Competition is becoming tough in this market. Proper strategies need to be adopted by management for offering innovative and healthy food products that are made without any preservatives. PepsiCo should take more initiative in case of reducing percentage of waste and developing recycling procedure. In case of talent management the company is also facing major threat. More professional development and skill development are required among employees for better sustainability management procedure in future days (Eccles and Krzus, 2010). Sometimes the company is failure for protecting human rights in the workplace and across the supply chain. Introducing Integrated Reporting Integrated reporting is a process which represents company’s performance in terms of financial, environmental, operational, functional, and social aspects. This concept is providing more wide view than the sustainability reporting. A successful company always wants to adopt integrated strategy to achieve significant financial result in future and at the same time it creates value for the organization. Integrated reporting can meet the needs of both sustainability reporting and statutory financial reporting. This report usually shows the information regarding sustainability performance and important information regarding annual financial report. Therefore, this report has to be prepared in a separate way by every organization (Eccles and Krzus, 2010). The purpose of making this report is to build a link between sustainability and financial performance and relevant outcomes. IIRC promotes the functions and guidelines of integrated reporting system whereas Global Reporting Initiative (GRI) promotes the use of sustainability reporting procedure. Differences between sustainability report and integrated report are as follows. Sustainability report primarily focuses on the non financial information of an organization whereas integrated report focuses on both financial and non financial information of any particular company. Again integrated report focuses on the short, medium and long term issues but sustainability report focuses only the long term issues. Integrated report supports to do more informed capital allocation in an organization but such kind of support cannot be given by sustainability report (Kass, 2013). IIRC and the Pilot Programme Structure and function of the IIRC and purpose of its Pilot Programme IIRC was formed in the year 2010 and aim of this organization is to create globally accepted framework for corporate, investment, accounting regulatory sectors as well as civil society also. Board of this company includes Chairman, Chief Executive [International Federation of Accountants], Chief Executive [Global Reporting Initiative], Director [The Princes Accounting for Sustainability Project], Chief Executive of IIRC, Chairman of the Board of Governors [International Corporate Governance Network] etc. IIRC has created several new reporting models that enable an organization to provide effective communication and create value for business in the society. Integrated reporting can bring fundamental changes within organization. IIRC helps the organizations for engaging themselves in integrated thinking because that will help in effective and productive capital allocation. Again a function of IIRC is to establish a healthy relationship between organization and its human resources. The organization is concerned to protect interests of all the related parties who are associated with any particular business entity. IIRC Pilot programme provides a perspective to the organization on the shortfalls of current corporate reporting procedure and relevant strategies. This programme also provides constructive feedback on the emerging integrated reporting system. IIRC launched its pilot program for 35 global investor organizations. The program helps to demonstrate global leadership in the field of corporate reporting. This program is recognized as ‘Innovation Hub’ of IIRC. Pilot program modifies the guidelines, principles, practical application and content of integrated reporting. This program will run until September, 2014 and within this time the participant organizations should test their organizational framework and prepare a report regarding this fact (Busco, Frigo, Riccaboni and Quattrone, 2013). Through this program integrated reporting system is moved from a general concept to a powerful tool for the improvement of business activities. Reasons for PepsiCo’s involvement in the IIRC Pilot Programme PepsiCo already completed almost 36 SFI pilot programs in 14 countries in the world by the end of 2012. Most popular pilot program of this company is to reduce carbon footprint of Tropicana Pure Premium orange juice. Largest single source of carbon emissions (approximately 35 %) was discovered in this product’s life cycle at the time of measuring carbon footprint (Eccles and Krzus, 2010). For handling this issue in an efficient way the company and its suppliers in Florida adopt multiple creative approaches such as using reduced-carbon fertilizers. The company uses the pilot program for testing two alternative fertilizers and comes to a decision that which fertilizer can reduce the percentage of carbon footprint in the Tropicana fruit juice product. Already the program has reduced 15 % of total carbon footprint in this item (Cummings and Worley, 2009). Again the company will test low carbon fertilized produced by Yara International which is one of the largest fertilizer producer in the world. The pilot program also proves that PepsiCo is working hand in hand with the suppliers of this company. Suppliers of this company are motivated through such kind of activities and they want to work with this organization in future days. Again through this system the organization is able to find more innovative ideas to do agricultural practices in a different way. The company relies on the natural resources for producing beverage and food products. For this reason, the company is keenly focused to reduce the percentage of carbon footprint wherever it can get scope. In the year 2012, PepsiCo conducted a pilot program for protecting human rights and at that time management reframed company’s policy, practices, training procedures and assessments in a significant way. References Busco, C., Frigo, M., Riccaboni, A. and Quattrone, P., 2013. Integrated Reporting: Concepts and Cases that Redefine Corporate Accountability. New York: Springer Science & Business Media. Cummings, G. T. and Worley, G. C., 2009. Organization Development and Change. London: Cengage Learning. Eccles, R. and Krzus, M., 2010. One Report: Integrated Reporting for a Sustainable Strategy. Beijing: John Wiley & Sons. Kass, A., 2013. Towards Mainstreaming Integrated Reporting - Theoretical Landscape and Practical Insights. Germany: GRIN Verlag. PEPSICO, 2012. PEPSICO ANNUAL REPORT. [Online]. Available at: http://www.pepsico.com/annual12/#letter-to-shareholders. [Accessed on 28th August 2014]. PepsiCo, 2012. Sustainability Report 2011/2012. [Pdf]. Available at: http://www.pepsico.com/Assets/Download/PEP_CSR12_2011-2012_Sustainability_Report.pdf. [Accessed on 28th August 2014]. Read More