In mid-July 2022, worldwide food and beverage giant PepsiCo announced the closing of a new $1.25bn 10-year green bond – its second such venture in the past three years. TMI caught up with Anna Palazij, Vice President, ESG Reporting and Strategic Investment, PepsiCo, to get the low-down on how the company facilitated this landmark ESG transaction, and how the proceeds will be put to use.
Anna Palazij
Vice President, ESG Reporting and Strategic Investment, PepsiCo
Eleanor Hill (EH): First of all, what does sustainability mean to PepsiCo? Why is ESG integral to the brand, and an essential part of the company’s future strategy?
Anna Palazij (AP): Now, more than ever, it is critical for leading global brands to play a central role in addressing the pressing and interconnected issues facing society and the planet. As a company that does business in more than 200 countries and relies on at least 25 different crops sourced from approximately seven million acres in 30 countries, we at PepsiCo have an opportunity to leverage our size and scale to help address the critical climate crisis and build a more resilient and sustainable food system.
We launched our sustainability programme, PepsiCo Positive [pep+], in 2021. The aim was twofold: to help address the many dynamic challenges our world is facing; and to provide a roadmap to fundamentally transform our business, thereby enabling us to have a positive impact on people and the planet. This strategic end-to-end business transformation creates growth and shared value for our stakeholders and puts sustainability and human capital at the centre of our company. We are focused on three pillars: positive agriculture, positive value chain, and positive choices.
EH: Tell us about your recent $1.25bn senior notes offering. Why did PepsiCo choose to issue a second green bond?
AP: The initial funding from our first green bond in 2019 has played a critical role in our sustainable transformation so far. We chose to issue a second, 10-year $1.25bn green bond to continue to channel investments into the critical areas required to build a more sustainable and resilient food system.
Our new green bond will focus on investments to deliver key environmental sustainability initiatives under two pillars of our pep+ agenda: positive agriculture and positive value chain, helping us deliver on our aim to operate within planetary boundaries [the thresholds within which humanity can survive, develop, and thrive for generations to come1]. We also want to inspire positive change for the planet and the people who inhabit it.
EH: So, what will the proceeds of this latest green bond be used for more specifically?
AP: We have defined four key categories to which the funding from this green bond will be allocated. The first of these is regenerative agriculture. Under this banner, PepsiCo is working to source key ingredient crops such as potatoes, whole corn, and oats in a way that accelerates regenerative agriculture. Investments from the new green bond can be used to adopt regenerative agriculture practices across our supply chain, including towards farmer training, practices to reduce [the use of] fertilizer, and watershed enhancement and improvement projects.
The second category is decarbonisation and climate resilience within our operations and value chain. But what does this mean in real terms? Well, by 2030, we aim to reduce our absolute greenhouse gas (GHG) emissions by more than 40% against a 2015 baseline, more than doubling our previous climate goal. Proceeds from the green bond may be used for initiatives to further these goals, including on-site sustainable energy generation, such as solar installations; investments in greener buildings that receive third-party verified certifications; energy efficiency and/or reducing GHG emissions at facilities; and upgrading of vending and cooling equipment. The funding may also be used towards the expansion of cleaner transportation, such as electric vehicles.
The next usage of proceeds category is the circular economy and virgin plastic waste reduction. One of our key pep+ goals is to strive to use 50% recycled plastic content in our packaging by 2030. We are already one of the largest users of food-grade rPET [recycled polyethylene terephthalate, known as PET, plastic] in the world, and the new green bond will enable us to continue our work to increase the use of more sustainable product packaging including recycled, compostable, and reusable materials. In addition, our new green bond framework enables us to direct funding to projects that strengthen recycling infrastructure and increase recycling rates in key markets.
The fourth category is the net water positive impact in our owned operations and throughout PepsiCo’s value chain, including those projects positively contributing to communities. Water stewardship has long been one of our top priorities and we have a vision to become net water positive in our operations by 2030. We will look to achieve this through reducing absolute water use and replenishing the local watershed with more than 100% of the water used.
Furthermore, the new green bond proceeds may be allocated to water recycling and reuse projects, including water efficiency improvements and investments to replenish watersheds in high water-risk areas. The latter may be through initiatives such as tree planting, rainwater harvesting and the rehabilitation of wetlands. Interestingly, we are also looking to fund the scaling of drip irrigation or other water-saving technologies for the farmers who supply us with key crops and ingredients.
EH: In what ways did the treasury and sustainability teams work together to ensure the success of this second green bond? Were any particular lessons taken onboard from first time around?
AP: PepsiCo is a large company and as such we regularly operate in a matrixed environment [which crosses organisational boundaries]. The combination of our experienced treasury team members who leveraged their capital markets expertise and bank relationships and our seasoned sustainability team was critical to our success in this green bond issuance – and other sustainability endeavours.
Generally speaking, sustainability requires a high degree of collaboration across internal boundaries, so this is not something new for us. What helped as we issued our second green bond, though, was the continuity of talent and knowledge. So, we have had a couple of people, who were also involved in the first issuance, working on this latest one – and that has proved beneficial.
EH: Thinking back to that inaugural October 2019 green bond, how was the July 2022 issue different? What’s changed in the updated green bond framework, for example?
AP: PepsiCo made several changes this time around. Firstly, it is a larger amount at $1.25bn compared to $1bn in 2019. The updated green bond framework also reflects our new pep+ agenda and the priority categories where funding can be directed. We have also introduced a new area for potential investments, regenerative agriculture, recognising this is an under-tapped resource for accelerating the world’s green transition and requiring investments and financial tools to drive progress. Each of these categories aligns with the 17 UN Sustainable Development Goals [SDGs].
EH: Where next for PepsiCo’s sustainability strategy? What are your wider goals/aims?
AP: We have just released our first Environmental, Social and Governance summary since the launch of pep+. While we are pleased with the exciting innovations that have been made so far in our transformation, there is still more work to be done and we cannot do it alone.
Alongside our value chain partners, communities, NGOs and government leaders, we will continue investing in action, innovation, and partnerships that enable us all to realise a more sustainable future. With this in mind, we’re embracing positive agriculture by sourcing crops and ingredients in a way that accelerates regenerative agriculture and strengthens farming communities. By 2030, we aim to spread the adoption of regenerative agriculture practices across seven million acres, improve the livelihoods of more than 250,000 people in our agricultural supply chain, and sustainably source 100% of our key ingredients.
We are also committed to creating a positive value chain that helps to build a circular and inclusive economy. This includes the goals of achieving net-zero emissions by 2040, becoming net water positive by 2030, working to build a world where packaging never becomes waste, developing a diverse and inclusive workforce and world, and empowering our employees with the tools and resources they need to make a positive impact.
In addition, we will continue to inspire people through our brands to make positive choices that create smiles for them and the planet. This includes expanding offerings with improved nutritional and environmental footprints, future on-pack environmental labelling, and marketing campaigns grounded in sustainable storytelling and action.
EH: What challenges do you see to achieving these aspirations? How much of an issue is greenwashing, for example? And what about a lack of sustainability standards?
AP: We have thought very hard on how to ensure that pep+ has a meaningful, tangible impact on building a more sustainable food system. And we are focused on the need for transparency and accountability. Reporting our sustainability data externally using industry-recognised standards informs our stakeholders about our performance, drives transparency, and enables us to accurately track our progress against achieving our goals. In addition, this enables us to produce consistent, comparable, and reliable sustainability disclosures, which are becoming increasingly important for stakeholders such as investors, banks, customers, and regulators.
Ultimately, we work hard to ensure that a sustainability mindset is embedded within the organisation – including the treasury team. Some of the challenges that exist in terms of achieving our ESG goals are the broader ecosystem of influences and issues that come into play throughout our sustainability journey – including food insecurity, climate, and others. But sustainability is a team sport, and it is something we are working to address across our value chain, and with our partners, to ensure that we are keeping people and the planet front of mind in everything we do.
