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Climate change: Mars and PepsiCo offer lessons in decarbonization, call for a 'redesign' of supply chains

·Anchor/Reporter
·6 min read
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  • PEP
  • MKC
  • MKC-V

Setting ambitious climate targets is one thing. Actually delivering on those promises is another.

And for large multinational companies, the path to net-zero emissions is often a long and winding maze down a complex layer of suppliers that span across the globe.

“90% of our footprint is embedded in the raw materials or packaging or goods and services that we buy. So if we don't transform what we buy, we're not going to make any progress,” Barry Parkin, Chief Procurement and Sustainability Officer for Mars, told Yahoo Finance. “If you're going to change your carbon footprint, we're gonna have to re-design the supply chain.”

With world leaders vowing increased scrutiny over businesses’ climate policies at the UN Climate Change Conference (COP26) and regulators crafting disclosure rules to increase transparency around firms' climate risk profiles, executives are scrambling to accurately map their carbon footprint.

Companies that have already set detailed, science-based targets describe the practice as a ‘monumental task,’ particularly in efforts to reduce Scope 3 or indirect emissions.

“When you start actually breaking down the numbers, you realize that some of the people in your supply chain have half a million farmers that they're interacting with,” said Shannon Graham, Director of Energy, Sustainability, and Infrastructure at Guidehouse, a consultancy firm that helps clients decarbonize their organizations. “It's huge. The scale starts to sort of boggle your mind and how you can affect change.”

'The impact is massive' for the climate

In the case of Mars, that process began with assessing the operations of 20,000 raw material suppliers in more than 100 countries.

When the confectionery and pet food company first set out to reduce absolute emissions from its business footprint two years ago, it learned that just 10% of its top 200 suppliers had any climate targets in place and that its top suppliers accounted for roughly 80% of Mars’ total greenhouse gas emissions.

The firm honed in on 30 of the biggest suppliers, predominantly large-scale farms that were supplying to other competitors globally. Parkin said Mars set out to map where their materials were being sourced by visiting the operations in person or in some cases utilizing satellite technology.

Graham said it can often take from six months to two years to map out a supplier’s carbon footprint, depending on how much data is available.

“​​We might be 1% of (a supplier’s) sales. But if they change, the impact is massive,” Parkin told Yahoo Finance. “We estimate we've impacted somewhere around $500 billion in business already.”

ROSTOV-ON-DON REGION, RUSSIA - OCTOBER 8, 2021: A worker operates a potato receiving machine at a PepsiCo plant. PepsiCo is one of the world's largest manufacturer of soft drinks producing also dairy products, chips, snacks, and other food products. Erik Romanenko/TASS (Photo by Erik Romanenko\TASS via Getty Images)
A worker operates a potato receiving machine at a PepsiCo plant on October 8, 2021, in the Rostov-on-Don region in Russia. (Photo by Erik Romanenko\TASS via Getty Images)

Another company hoping to reduce emissions through its supply chain is PepsiCo, which set out to change agricultural practices in 7 million acres of land that is used to grow materials for its products. 40,000 farmers operate in their supply chain.

“They don't all sit in one place. They don't all grow the same crops. They don't have the same level of sophistication. And we’ve basically committed to bringing all of them along,” Jim Andrew, PepsiCo’s Chief Sustainability Officer, told Yahoo Finance.

With more than 90% of the company’s greenhouse gas emissions coming from assets that are not owned or controlled by the company, PepsiCo (PEP) launched a large-scale education campaign, working with medium- and large-sized farms to introduce new farming practices. For instance, regenerative farming, which incorporates cover cropping and crop rotation, aims to improve efficiency but also take carbon out of the atmosphere and return it back to the soil.

While the practice itself has been around for decades, Parkin and Andrew say just 1% of farmers have actually adopted it, in part because of the cost associated with a complete overhaul.

Juan Robleto, 46, works at the
Juan Robleto, 46, works at the "Santa Francisca" farm where coffee rust led to the cutting and burning of coffee trees and where they are now growing other varieties of coffee and cocoa in Las Nubes, El Crucero, Nicaragua on October 16, 2017. (Photo: INTI OCON/AFP via Getty Images)

Climate is a 'business imperative'

The cost to scale the practice and ‘prime the pump’ has come with a hefty price tag for Mars. 

The firm has already invested $1 billion to help suppliers transition to a more sustainable operation over the last few years. And CEO Grant Reid recently said the company is prepared to invest another $1 billion.

“Our experience with small [suppliers] is that we need to invest pretty heavily back at the smallholder farm to support,” Parkin said. “Often they are on the edge of poverty and have no reserves. So if you want to drive changes for others, you have really got to prime the pump. And, our experience also is that you've got to commit to the long term.”

The scale of the challenge has also led companies to unlikely partnerships.

Earlier this year, Mars launched a new coalition with PepsiCo and McCormick (MKC), working with Guidehouse to educate suppliers about their carbon footprint and develop tools to reduce their impact on the environment. The Supplier Leadership on Climate Transition (Supplier-LoCT) enrolls small businesses, that often supply to competing firms, through a months-long course to set them on a path to decarbonization.

IMAGE DISTRIBUTED FOR PEPSICO BEVERAGES NORTH AMERICA - A Walmart shopper recycles a bottle of Pepsi as part of a campaign co-sponsored by PepsiCo and Walmart as part of a joint effort to increase recycling rates of plastic, glass and aluminum beverage containers locally on Friday, Oct. 22, 2021 in Tulsa, Okla. Shoppers who bring their beverage containers to be recycled at the Walmart stores on 71st Street and Memorial Drive, and 111th Street and Memorial Drive, as well as the Sam's Clubs in Tulsa Hills and Sheridan, will be presented with opportunities to win free rewards and exciting prizes like Super Bowl tickets. Scaled nationally and globally, local efforts like these support a circular economy and help advance the shared missions of PepsiCo, Walmart, and Sam's Club to achieve 100% recyclable or compostable packaging by 2025. (Nick Oxford/AP Images for PepsiCo Beverages North America)
A Walmart shopper recycles a bottle of Pepsi as part of a campaign co-sponsored by PepsiCo and Walmart as part of a joint effort to increase recycling rates of plastic, glass and aluminum beverage containers locally on Friday, Oct. 22, 2021 in Tulsa, Okla. (Nick Oxford/AP Images for PepsiCo Beverages North America)

Still, PepsiCo and Mars largely remain an exception, as many companies lag far behind their publicly stated net-zero pledges. While 80 percent of the S&P 500 companies offer disclosures on climate change each year through CDP, a non-profit that runs the world’s largest environmental disclosure reporting mechanism, just 30 percent have offered concrete science-based targets for how they plan to decarbonize by the middle of the century.

Mars has already slashed 7% of its emissions from 2015 levels. It’s on track to reduce an additional 20% in the next 4 years.

Meanwhile, PepsiCo has set out to reduce its indirect emissions by 40% by 2030. Andrew says the company has set measurement tools in place to track its progress yearly to ensure the timeline is within reach.

“There’s no choice. The science is clear what needs to happen is clear,” Andrew said. “We need to have a healthy planet to have a healthy business. The health of the planet is a business imperative”

Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita

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