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Summer 2021 Internship Series: Secret Ingredients in Pepsico’s ESG

tresataOctober 8 2021

This blog post is part of the Summer 2021 Internship Series, where we highlight the works of our summer interns. Erin DeRubertis is the author of this particular post.



I never thought my 8 weeks as an intern at Tresata would teach me to look at the ingredients label on every product I pick up at the grocery store, and then consciously put back the ones with palm oil listed as an ingredient. When I found out I would be researching red herrings, or inaccuracies, in company ESG reports, I was excited – I’ve looked at many company reports and expected to find the same detailed information in ESG claims. I wanted to see the extent to which my chosen company, Pepsico, provides truly transparent information regarding its environmental, social, and corporate governance. One of the hot-button resources Pepsico purchases to make their products is palm oil, so I first looked into how well they operate sustainably in this area.

First of all, palm oil typically has a controversial background. It is a type of vegetable oil used to produce everything from food to beauty products, and its sourcing has been known to have detrimental effects on the environment like deforestation, pollution, and loss of biodiversity. While not all palm oil sourcing is done unsustainably, it is an important line of business to verify if a company uses a significant amount in their supply chain as there are a lot of questionable business practices in this industry.

This is why Pepsico’s ESG claim surrounding its palm oil sourcing piqued my interest. Pepsico claimed to “achieve 100% sustainably sourced palm oil by 2020.” This is a rather strong claim, especially around such a controversial topic like palm oil, so I had to know: does Pepsico truly put its best effort into achieving the positive outcomes it strives for by sourcing palm oil from the most sustainable countries? Or, could this be a red herring in Pepsico’s highly-touted ESG report? To view sustainability of countries in Pepsico’s supply chain through the lens of Pepsico’s definition, I analyzed gender equality, corruption, and deforestation in palm oil producing countries.

GENDER EQUALITY IN PALM OIL PRODUCING COUNTRIES

When you dig down deep into companies’ supply chains, you can expect to find countries that perpetuate gender inequality – low pay for female workers, few opportunities for political involvement, and unfair educational standards. Do the positive outcomes Pepsico claims to foster in its palm mill communities extend to women? Or does Pepsico say it promotes positive outcomes, only to source palm oil from countries with poor standards for women? 

Pepsico sources its palm oil from 16 countries all over the world, but has the most mills located in Indonesia and Malaysia, countries which produce the most palm oil. To analyze gender equality in countries in Pepsico’s supply chain, I used the Gender Gap Report from 2020, which scores countries based on 4 subindices: economic participation and opportunity, educational attainment, health and survival, and political empowerment. The scores range from 0 (complete gender disparity) to 1 (complete gender parity). 

In my analysis using Tresata’s intelligence discovery engine, TIDES, I found that Pepsico does choose to source its palm oil from countries with higher gender gap scores than average, lending credence to their claim of supporting gender equality. Countries within Pepsico’s supply chain on average scored a .714, while the average of all other palm oil producing countries (that Pepsico steers clear of), was a .674. 

The distribution of countries’ gender gap scores with Pepsico’s countries in darker red, most of Pepsico’s countries actually have some of the highest gender gap scores of all palm oil producing countries. The two outliers are Malaysia and Guatemala. Pepsico does have the second highest number of its mills located in Malaysia, and Malaysia has less gender equality than other countries in the supply chain; however, Malaysia’s score of a .677 is still higher than the average gender gap score of other palm oil producing countries. Therefore, Pepsico isn’t quite perfect in terms of gender equality in its sourcing countries, but the company at least generally sources from more gender equal countries. 

CORRUPTION IN PALM OIL PRODUCING COUNTRIES

I next looked at corruption in countries in Pepsico’s supply chain and again found some good news. The Corruption Perception Index scores countries from 0 to 100 based on corruption in the country’s government, with higher scores signifying less corruption. The average score of countries within Pepsico’s supply chain as of 2018 was 35.467, higher than the average score of other palm oil producing countries in 2018, 30.714. Pepsico does appear to broadly be sourcing from relatively less corrupt nations.

This graph shows the distribution of all palm oil producing countries’ CPI scores, with Pepsico’s countries in darker green. Countries in Pepsico’s supply chain fall mostly in the middle, so although they don’t pass the test with flying colors, they’re not failing either. However, Malaysia, which we previously noted was one of the most commonly sourced from countries in Pepsi’s supply chain, has a CPI score of 47, good for the second highest CPI score among all countries that produce palm oil. If Pepsico was to further evaluate the extent of the positive outcomes they perpetuate in Malaysia, they would have to consider Malaysia’s lower gender gap score on one hand, but its higher CPI score on the other hand.

DEFORESTATION IN PALM OIL PRODUCING COUNTRIES

When researching deforestation linked to Pepsico’s supply chain, I found less promising news than my findings about gender equality and corruption. I found data regarding deforestation in palm oil producing countries from 1990-2015 from Our World in Data. In this time period, countries within Pepsico’s supply chain mostly decreased their deforestation levels with the exception of Peru, Papua New Guinea, Thailand, and the Dominican Republic. Contrastingly, most other countries that produce palm oil increased or maintained deforestation levels over the same period. Pepsico is doing a mediocre job of sourcing from countries with decreasing levels of deforestation in recent years. 

The kicker is, however, that although deforestation levels are decreasing in countries in the supply chain, the scale at which deforestation occurs in these countries is significantly larger than other palm oil producing countries. The countries in Pepsico’s supply chain experienced an average of almost 200,000 more hectares of deforestation since 1990 than all other palm oil producing countries. 

Countries like Indonesia and Brazil have extremely high levels of deforestation, which prompted me to conduct a case study regarding Pepsico’s involvement in Brazil.

CASE STUDY: PEPSICO AND BRAZIL 

Analyzing Pepsico’s palm oil sourcing from Brazil led me to wonder: which regions of Brazil experience the highest levels of deforestation? Are Pepsico’s palm mills located in these regions?

The region of Pará, outlined in red below, experiences the highest levels of deforestation according to The Global Forest Watch.

Here the news gets a little bit worse. The next map shows where Pepsico’s Brazilian mills are located.  

All six of Pepsico’s mills are located in the region of Pará, near this large dot. 

The region of Pará is not the only region in Brazil that produces palm oil. The region of Roraima, located just northwest of Pará, also produces palm oil, and is outlined in red below. 

If Pepsico truly wants to achieve the positive outcomes it claims to perpetuate in all the places it sources palm oil from, the company should consider relocating some of its palm mills from Pará to Roraima to contribute less to the problem of deforestation in Pará. 

CONCLUSIONS

My research on Pepsico’s ESG claim taught me to be more skeptical of companies’ ESG assertions, but not to become an exclusive Coke drinker and throw away thoughts of ever drinking Pepsi again. To its credit, Pepsico does, on average, source palm oil from more gender equal, less corrupt countries. Most of Pepisco’s sourcing countries are currently decreasing their levels of deforestation. Countries in Pepsico’s supply chain, however, are the ones experiencing devastating levels of deforestation. And in Brazil, all six of Pepsico’s palm mills are located in the region with the highest levels of deforestation, which is most likely also the case in other countries with high deforestation levels.

Are you looking for a scalable solution to assess ESG risk transparently within your supply chain? Contact us at curious@tresata.com.

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