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A Roadmap for Sustainability among Food and Beverage Producers

California’s food processing directors and executives face sustainability challenges including climate change, water scarcity, supply chain management and increasing regulation.  In their Roadmap for Sustainability the respected nonprofit Ceres provides a comprehensive and useful guidebook to implementing sustainability practices that can help the agriculture and food processing industries manage sustainability.

The implications for food processing are neatly summarized on Cere’s website, and are presented below:

 

Food & Beverage

BottlesWith a global population of more than seven billion, the social and environmental impacts of food and beverage production can be staggering. According to the Food & Agricultural Organization of the United Nations (FAO), agricultural irrigation accounts for approximately 70 percent of all global freshwater use.
Within this context, it is clear that Food and Beverage companies face considerable sustainability challenges—including climate change, water scarcity and supply chain management—but the sector also has a significant opportunity to become part of the solution by finding ways to capitalize on a growing need for healthier, more sustainable food and beverage options.

Some Food and Beverage companies are demonstrating leadership in disclosure, water management, supply chain monitoring and transportation management. But there are areas for improvement across the sector, including the formal engagement of stakeholders, promotion of more sustainable product offerings and employment training and support. Companies in this sector that performed consistently well across The Ceres Roadmap expectations were PepsiCoThe Coca-Cola Company, H.J. Heinz, and Campbell Soup.

This assessment includes 26 large consumer-facing U.S. food and beverage companies that are involved in the production of packaged foods, meat or agricultural products and alcoholic and non-alcoholic beverages. The analysis that follows includes a summary of the sector’s progress within each of the four chapters of The Ceres RoadmapGovernance, Stakeholder Engagement, Disclosure and Performance.  Within the Performance section—which covers operations, supply chain, transportation and logistics, products and services and employees—those issues that are of greatest relevance to the sector have been highlighted.

GOVERNANCE FOR SUSTAINABILITY

While the industry has made progress in identifying key sustainability risks and mitigation strategies, board level oversight of these issues is not yet widespread. Of the 26 companies assessed, only nine have explicit oversight for sustainability assigned to a board committee, 11 disclose formal executive management oversight and seven disclose that they have both in place. Campbell Soup, alone among the companies in this sector, links executive compensation to sustainability performance. Campbell includes sustainability metrics in its balanced scorecard, an internal tool used to determine annual incentive compensation for executives and managers. Compensation is linked to objectives such as defining and communicating long-term sustainability goals; making progress against environmental and safety targets; developing baseline metrics in packaging and agriculture; and enhancing employee and investor engagement.

Strong management systems are critical for the implementation of sustainability-focused policies. Of the 26 companies assessed, 15 reference environmental management systems. Yet only two, Coca-Cola Enterprises and Kraft Foods, have more than 75 percent of their operations certified according to ISO 14001. Though labor relations are important for this heavily unionized industry, almost half of the companies assessed do not disclose a formal policy on freedom of association for their own employees.

STAKEHOLDER ENGAGEMENT

Detailed disclosure of substantive stakeholder engagement is lacking among Food and Beverage companies despite their considerable impact on a wide array of stakeholders, including employees, customers, suppliers and contractors, investors, local communities and civil society. This raises concerns over the companies’ processes for identifying material sustainability issues and developing effective strategies.

PepsiCo and Campbell Soup disclose much of their stakeholder engagement efforts. Campbell Soup solicits feedback from suppliers, employees, investors, consumers, community groups and policy makers on issues such as health and nutrition, food safety and quality, environmental stewardship, community relations, and employee engagement. As part of its CSR and sustainability strategic planning, the company conducts a materiality assessment of these issues and has identified strategic benefits of engagement on these topics.

DISCLOSURE

All Food and Beverage companies assessed provide at least some level of disclosure on sustainability issues, but few meet the expectations set forth in the Roadmap. More than 50 percent of the companies assessed (14 companies) use the GRI Guidelines, with Hormel Foods standing out as the only company using GRI guidelines at the A+ level.

Kraft Foods and The Coca-Cola Company have had their sustainability reports externally verified to noteworthy standards, such as the International Standard on Assurance Engagements 3000. The Coca-Cola Company also discloses risks associated with water scarcity, climate change and regulatory efforts to improve public health and reduce obesity in its annual financial filings to shareholders. While the majority of companies assessed participate in the Carbon Disclosure Project (20 companies), environmental and social reporting is otherwise lacking.

PERFORMANCE


OPERATIONS

For many Food and Beverage companies, the environmental footprint of their direct operations is smaller than that of their heavily resource-dependent agricultural supply chains. However, impacts and risks arising from direct energy use and carbon emissions, as well as water and waste are significant. Greenhouse gas (GHG) emissions are most commonly associated with livestock production, mechanized food production processes, transportation and logistics and refrigerant gases for cold storage. The majority of companies within this sector have identified climate change as an important issue and 73 percent (19 companies) are addressing it by setting GHG emission reduction targets and 61 percent (16 companies) are increasing their use of renewable energy. H.J. Heinz has set a goal of sourcing 15 percent of its energy from renewables, including biomass and biogas, by 2015. Campbell Soup reduced its carbon emissions per unit of product by 12 percent between 2005 and 2010, and has set a goal to source 40 percent of its energy from renewable or alternative energy sources by 2020.

The majority of Food and Beverage companies assessed (19 of 26) identify water scarcity as an important business risk and 73 percent (17 companies) have set targets to reduce operational water use. For those operating in water-scarce regions, water use can be a contentious issue between large companies and local communities. To maintain their social license to operate, top performing companies in this sector have recognized the need to manage water resources more efficiently. For example, PepsiCo has set a company-wide goal of reducing its water consumption by 20 percent per unit of production by 2015 (based on 2006 levels). The Coca-Cola Company has a similar 20 percent efficiency goal for both its owned operations and those of its bottlers. By the end of 2012, all of the company’s bottling plants will be required to implement local water sustainability programs that address external risks facing the plants’ water sources.

SUPPLY CHAIN
Supply chain management is a key sustainability challenge for Food and Beverage companies. Although companies in this sector demonstrate overall strength in supply chain management, with 10 of 26 companies included in Tier 1 for the supplier engagement, most companies in this sector limit this engagement to first-tier suppliers.  Given the size and complexity of Food and Beverage supply chains, these companies must broaden this engagement to avoid overlooking significant sustainability impacts that occur further down the supply chain.

Food and Beverage companies are also seeing growth and expansion of their supply chains into emerging economies where weaker regulation and enforcement of environmental and labor laws pose significant risks. Agricultural ingredients, which some companies source directly from growers but many source through traders or intermediaries, are also associated with considerable environmental and social impacts and risks. For instance, some companies have been accused of complicity in human rights violations such as child and forced labor, as well as the deforestation of tropical rainforests, through their procurement of agricultural commodities. Labor rights violations are not limited to developing countries; contract farm workers in North America are often exposed to poor working conditions and wages, and lack protection of human rights, such as freedom of association and non-discrimination.

In response to growing pressure from NGOs and consumers, as well as concerns about supply security, companies are setting specific targets to increase the use of sustainably sourced and certified raw materials, particularly for commodities such as cocoa, soy, sugar and palm oil, where environmental and social concerns are especially high and traceability is a key challenge. Subsequently, a number of industry-specific multi-stakeholder initiatives, such as the Roundtable on Sustainable Palm Oil, have emerged. Such initiatives have prompted companies including General Mills, Kraft Foods and H.J. Heinz to commit to sourcing 100 percent certified sustainable palm oil within the next three years.

While companies are taking commodity-specific steps to improve the sustainability of their agricultural supply chains, the industry has a long way to go in terms of setting broad and high sustainability standards and implementing robust monitoring systems. With respect to setting workplace and human rights standards, The Coca-Cola Company is conducting regular external audits of suppliers and has strong disclosure of audit results. Seven of 26 companies have strong social supply chain standards, which address a broad range of ILO Conventions, while the lowest performing companies (seven of 26) show no evidence of having supply chain standards. For supply chain policies to be effective they must have detailed standards and processes for managing non-compliance. Yet, the majority of companies (21 of 26) do not have in place formal programs to audit suppliers for compliance with these standards.

TRANSPORTATION AND LOGISTICS
Although performance varies across the industry, most of the companies evaluated (19 of 26) are taking some action to gain efficiencies and reduce the environmental impacts of transportation and logistics. The eight companies (30 percent) included in Tier 1 are implementing formal programs and targets to reduce vehicle fleet emissions. Strategies for meeting these targets include using renewable energy sources, such as biofuels, and light-weight packaging to reduce fuel requirements. Companies such as Kraft, Sara Leeand PepsiCo are partnering with the U.S. EPA in its SmartWay program, a public/private initiative to help improve fuel efficiency. Sara Lee’s logistics team has redesigned pallet configurations to better utilize space in its trucks and warehouses. Using a 2007 baseline, the company has committed to a 20 percent reduction of CO2 emissions for transport of goods by 2012.

Despite these efforts, only 30 percent (eight companies) disclose any program to improve the environmental performance of outsourced logistics, and where in place such programs tend to be weak and lacking quantitative targets and time lines.

PRODUCTS & SERVICES
The Food and Beverage industry is responding to an increasingly health-conscious consumer base, as well as the growing concern of policy makers and health professionals about obesity. Companies including General Mills and PepsiCo are responding in part by setting new goals to reduce sugar, salt and fat in their products. As consumers become more health conscious, they are also demanding more information about the quality and safety of their food products. In some regions there is an ongoing debate about the risks and benefits of genetically modified food ingredients such as soybean, corn and canola. Consumers are also becoming increasingly concerned about the use of growth hormones and antibiotics in the meat and dairy industry. While nutritional labeling is gaining some momentum in the U.S., regulatory standards lag behind Europe.

For Food & Beverage companies, product sustainability requires an examination of how products are grown. While more than 60 percent of companies (16 of 26) in the Food & Beverage sector are offering customers organic and fair trade products, for most companies these options continue to be a small proportion of product offerings. For example, Dean Foods is the only company that discloses sufficient information to determine the percentage of revenue derived from organic products. Companies should disclose the percentage of revenues attributed to sustainable products so that investors and other stakeholders can better understand the contribution these products make to the overall success of the business.

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