Responsible and Sustainable Sourcing Guidelines for ... - PepsiCo

Responsible & Sustainable SourcingResponsible and Sustainable Sourcing is all about lookingat Procurement beyond the traditional aspects of cost,quality and assured supply. We must also prioritize ethicaloperations, respect for the environment, and bringingpackaging and ingredient innovation into our sourcingdecisions. Our strategy aggressively addresses these areas.Mitch AdamekSVP Strategic Supply ManagementOur goal is to continuously improve our internalprocurement practices by leveraging our world-wide talents,programs and policies across the globe to all employeesinvolved in purchasing functions and decisions.We extend our Performance with Purpose standards tosuppliers through specific programs and metrics of oursupplier scorecarding process in the areas of environmentalmanagement, protecting human rights, and innovativeresearch & development.4Responsible Sourcing Guidelines

Whether it is our Strategic Supply Management team orthe thousands of employees across the company thatinteract with suppliers everyday, we insist on the highestdegree of integrity in our supplier relations. We ensure allof our employees receive training on the legal and ethicalexpectations we place upon ourselves.We recognize that this journey involves many challengesand we will review our progress and set goals to keep theprograms moving forward.Most importantly, we understand our people turn ideasand programs into action. As we describe our approach,aspirations, and achievements for our Responsible &Sustainable Sourcing program, we have chosen to alsohighlight individuals and teams throughout PepsiCo thatlead our Performance with Purpose program with suppliers.Larry ThompsonSVP Government Affairsand Chief Legal CounselResponsible Sourcing Guidelines 5

Procurement Policies and ProgramsArturo DuranProcurement Director - MexicoMarcos ArenaLegal Director - MexicoIn Mexico, we take great pridein working with our suppliersto ensure they understand ourprocurement processes and theimportance of strong ethics in ourbusiness dealings.PepsiCo’s Employee Code of Conduct isavailable in 30 languages and appliesto every employee, officer and director,every division and subsidiary, andevery business transaction we makeworldwide.We are committed to the continuationof free enterprise and the legaland regulatory frameworks thatsupport it. Therefore, we recognizethe importance of laws that prohibitrestraints of trade, predatory economicactivities and unfair, deceptive orunethical business practices.In all of our business dealings withsuppliers and competitors, we:– Avoid any unfair or deceptivepractice and always presentour services and products in anhonest and forthright manner.– Treat all suppliers honestly,fairly and objectively.– Select suppliers based on merit,and make clear to all suppliersthat we expect them tocompete fairly and vigorouslyfor our business.Please visit www.PepsiCo.com to viewour full Employee Code of Conduct.6Responsible Sourcing Guidelines

Managing Ethics in ProcurementRelationshipsOur business decisions are madeon merit. We will never give or offer,directly or indirectly, anything ofvalue to a third party, including agovernment official, political party orcandidate, to corruptly influence thatperson’s business decision or to gainan unfair advantage.Gifts or entertainment given to orreceived from customers or suppliersmust never influence, or appear toinfluence, business decisions. Theremust be a legitimate business purposefor any business gift or entertainment,it must be in good taste and it must beconsistent with the law, with the giver’sand receiver’s policies.We have made responsible sourcingan integral part of what we do byembedding key components intosupplier contracts, and our policies andprocedures.Reporting Potential Violations ofthe Employee Code of ConductPepsiCo expects its employees,contractors, agents, customers andsuppliers to promptly report anyconduct or situation that she/hebelieves conflicts with our Codesof Conduct or violates a local, stateor federal law to their immediatesupervisor, Human Resources orthrough the PepsiCo Speak Up line at:1-866-729-4888 (From the U.S., PuertoRico and U.S. Virgin Islands)We utilize internal controls as wellas our supplier contracts to ensureour employees and suppliersunderstand our expectations forresponsible sourcing and ethicalbehavior. Our Speak Up lineprovides an appropriate methodfor employees and suppliers toconfidentially share concerns thatcan be investigated further.Susan ChaoFrito-Lay North AmericaSenior Counsel, OperationsResponsible Sourcing Guidelines 7

Sustainable AgricultureWe continuously take our learningsfrom the field and apply thebest practices across our supplynetwork. Over the past twoyears we have worked with theCarbon Trust and others, to helpour suppliers reduce their carbonfootprint and enabling Walker’sCrisps to become the first brand todeliver its Carbon Reduction Labelcommitment.India Efficiency StrategiesIn India, we have shown farmerstechniques to save approximately40% of their agriculture water bydirectly seeding rice paddies, ratherthan growing the rice through highlywater-intensive conventional seeding.By direct seeding only 1,800 hectaresof land, we can conserve waterequivalent to the combined yearlyuse of our snacks and beverageoperations across India.Ian Hope-JohnstoneAgro Best Practices - EuropeGroup Manager1.4 billion liters ofwater savings in Indiafrom franchise beveragepartners8Responsible Sourcing Guidelines

Our aim is to ensure PepsiCo has continued access to the key agriculturalraw materials necessary to supply growing consumer needs, whilerespecting the environment and communities involved in producing thoseraw materials. We strive to make farming more productive while preservingnatural resources, contributing to developing communities, and reducing ourenvironmental impact.PepsiCo’s agriculture decisions andactions are based upon the followingprinciples. Sustainable agricultureshould:• Optimize the use of resources toimprove farm productivity andeliminate the use of unnecessaryresources• Support increased farmproductivity, improving crop yieldsand nutritional quality to meetexisting and future global businessgrowth• Preserve and maintain soilfertility, water and air quality andbiodiversity within the agriculturalactivities• Enable local farming communitiesto protect and improve their wellbeingand environments• Integrate approved and crediblescience and technology• Comply with governmental laws,regulations and industry standardsPhoto: Dr. Gerhard Bester (left),Agricultural Research and Development Directorfor Frito-Lay (with Jack Wallace, a Frito-Lay grower)conducting water conservation researchResponsible Sourcing Guidelines 9

Supplier CSR AssuranceJorgette MariñezGlobal Supplier CSR AssuranceManagerMonica LaFranceJuice Concentrate ProcurementManagerImproving social responsibilityin the supply chain goes beyondmanaging risk for PepsiCo. Whensuppliers manage their operationsto the highest standards, productquality improves, costs areremoved from the supply chain,and we can be confident about theimpact to the people and resourcesapplied in the process.We have a responsibility to ensurethat our suppliers understand theirrole to honor and respect the people,environments and communities oftheir operations.PepsiCo has developed a SupplierCode of Conduct to clarify our globalexpectations in the areas of laborpractices, employee health andsafety, environmental managementand business integrity. It hasbeen translated into 18 additionallanguages, proactively communicatedacross the globe and is mandatoryin all procurement contracts. OurSupplier Code is based on the ILO,UNGC and other benchmark standards.We use our Supplier Code of Conductto articulate these priorities, andour Supplier Corporate SocialResponsibility (CSR) Risk Evaluationand Management Program to educate,validate compliance, and facilitatecontinuous improvements.In 2007, PepsiCo joined the SupplierEthical Data Exchange (Sedex) tofurther demonstrate our commitmentto sustainability in the supply chain.Sedex provides a web-based systemthat allows companies to maintaininformation, share data about policiesand measure business practices attheir production sites. Sedex membersuse the system to monitor productionsite activity and drive continuousimprovement of CSR performance intheir supply chains.We are also a founding member of anindustry-wide initiative called AIM-PROGRESS along with other ConsumerPackaged Goods manufacturersto work together to develop andimplement common methods ofevaluating CSR performance withinthe supply chain. PepsiCo continuesto lead expansion of AIM-PROGRESSacross the CPG industry.10Responsible Sourcing Guidelines

Supplier Code of ConductPepsiCo expects its suppliers to conduct business responsibly withintegrity, honesty and transparency, and adhere to the following:1. Comply with all applicable lawsand regulations of the countries ofoperation2. Compete fairly for our business,without paying bribes, kickbacks orgiving anything of value to securean improper advantage3. Encourage a diverse workforceand provide a workplace free fromdiscrimination, harassment or anyother form of abuse4. Treat employees fairly and honestly,including with respect to wages,working hours and benefits5. Respect human rights and prohibitall forms of forced or compulsorylabor6. Ensure that child labor is not usedin any operations7. Keep financial books and recordsin accordance with all applicablelegal, regulatory and fiscalrequirements and acceptedaccounting practices8. Respect employees’ right tofreedom of association, consistentwith local laws9. Provide safe and humane workingconditions for all employees10. Carry out operations with care forthe environment and comply withall applicable environmental lawsand regulations11. Deliver products and servicesmeeting applicable quality andsafety standards12. Support compliance with thisCode by establishing appropriatemanagement processes andcooperating with reasonableassessment processes requestedby PepsiCo13. Observe PepsiCo’s policiesregarding gifts and entertainmentand conflicts of interest whendealing with PepsiCo employeesOur strategic ingredients ofteninvolve highly complex supplychains. Communicating consistentexpectations to our suppliers,coupled with due diligence onperformance, allows suppliers tobe evaluated in the areas of cost,quality and CSR.Barry TaylorPepsiCo Worldwide FlavoursDirector of PurchasingStrategic IngredientsClare LynchPepsiCo Worldwide FlavoursContracts AdministratorResponsible Sourcing Guidelines 11

Food Safety and Quality AssuranceOur Supplier Raw Material Food Safety Policy outlinesminimum food safety requirements that suppliers, brokersand agents must meet for their ingredients to be used inPepsiCo products.PepsiCo has set cornerstones inlaying a solid foundation for rawmaterial food safety and qualityacross the organization and we willcontinue the journey to ensure thesafety of every PepsiCo product webring to market.Jerry RobertsWorldwide Supplier MaterialQuality and Safety AssuranceDirector12Responsible Sourcing Guidelines

Quality AssuranceMaria DunnePepsiCo InternationalVendor and Quality AssuranceDirectorAlmost any day, you can pick upthe newspaper and read about afood safety concern somewherein the world. Fundamental toour business are corporate-wideinitiatives to ensure that oursupplier-sourced materials arealways safe and functional.Our suppliers are required todemonstrate compliance withpolicy to conduct business withPepsiCo. Additionally, thesesuppliers must also demonstratethe same rigorous standards forthe raw materials they procure.Compliance to these guidelinesis essential for effective foodsafety management and qualityassurance.The PepsiCo Supplier Quality Assurance (SQA) mission is to develop and providea risk-based approach to supplier quality assurance. By sharing and aligningon best practices, we enable the delivery of consistent quality and food safetycapability in every market, and allow mutual recognition of supplier approvalsacross the PepsiCo business.Responsible Sourcing Guidelines 13

Sustainable PackagingWe distribute our products in a varietyof packages, each carefully designedto deliver convenience and appeal toour consumers while protecting theintegrity of our products. Our teamof engineers and packaging suppliersare dedicated to finding innovativedesigns, and are working continuouslytowards improving our packagingperformance while reducing ourpackaging footprint.Our goals are to design anddevelop packaging systems thatare environmentally responsiblethroughout their entire life cycle,provide safety and convenience toconsumers through innovation, andpartner with leading organizations topromote sustainable packaging andrecycling practices.Through ongoing engagementwith our packaging suppliers, wecontinually ensure that we have madethe optimal choices for packaging inany particular country of operation.PackagingReductionsIn 2009, PepsiCo’sAquafina® launchedthe Eco-Fina® Bottle,the lightest halfliterbottle of anynationally distributed dbottled water brandin the market.At a weight of 10.9grams, the Eco-Fina® Bottle is madewith 50 percent lessplastic, eliminatingan about 75 millionpounds of plasticannually.Across all brands and geographies, ourteams have, since 2003, redesignedpackaging to eliminate more than 80million pounds of plastic, reducingGHG emissions by 350 million pounds.Chris MeroPET Bottles & Closures ProcurementTechnical Group ManagerSriram TharmapuramInternational Packaging InnovationManagerFor our beverages, we continuouslyinnovate our bottles, cans andother packages to ensure thehighest rate of recycle-ability andminimal usage of overall materials.14Responsible Sourcing Guidelines

Sustainable PackagingBy working with our suppliers,we are able to incorporateleading edge technology into ourpackaging, which will be realizedwith our first compostable chipsbags coming to the market in 2010.Brad RodgersPackaging R&D - Frito-LayManagerElliott OrlikTechnology Innovation - EuropeManagerCompostable PackagingWhy make a better bag?We saw two problems with ourpackaging. Our bags were madefrom non-renewable materials, andthey sometimes end up as litter.We didn’t like that.The first step was to just use less.Since 2002 in the U.S., Frito-Lay haseliminated five billion square inchesof packaging by reducing thematerials we use by 10%.It was a good start but guesswhat?....We found the answerin nature. Today, 33% of every10.5oz SunChips® bag is made withrenewable materials.33%RenewablematerialsBut the really exciting news isthat in 2010, we plan to introduceSunChips® snacks in the firstfully compostable chip bag of itskind. These innovative bags aredesigned to decompose in 14weeks when placed in a hot, activecompost heap.So you eat the chips. The eartheats the bag. And we all live in acleaner world.Responsible Sourcing Guidelines 15

Naked Juice® Teams Upwith Rainforest AllianceNaked Juice® has become the first U.S.based juice company to team up withthe Rainforest Alliance, an internationalnonprofit organization working toensure sustainable livelihoods forpeople while protecting wildlife andthe environment.All bananas procured by Naked Juice®will now be sourced from RainforestAlliance Certified farms that meet thefollowing criteria• Environmental: Products grownresponsibly• Social: Improving conditions foragricultural workers• Economic: Implementing betterbusiness practicesWorking with the Rainforest Alliance isa great way to offer a better product toour consumers and make a difference –one banana at a time.16Responsible Sourcing Guidelines

Environmental Supplier OutreachPepsiCo has involved more than 200 of its largest suppliers across the globe intoa Resource Conservation and Outreach program, addressing nearly $10 Billion inannual purchases.These suppliers represent packaging and processed ingredients that directlyimpact our finished product and account for a high proportion of ourenvironmental footprint.These suppliers are actively engaged with PepsiCo’s buyers and work directlywith the NGO’s (Non-Government Organizations), government agencies and notfor-profitsto set goals for their respective operations.By partnering with the, ENERGYSTAR, Rainforest Alliance, FSC, SFI& others, we assist our suppliersin building strong practices thatbenefit our business relationships,communities and the environment.Europe ProcurementOur work with the Carbon Trust and the CarbonDisclosure Project has enabled our procurementteams to step-change how we engage oursuppliers, using real data and case studies tohighlight ways to improve our environmentalfootprint throughout the supply chain.Gerry Flanagan, Resin Procurement Manager - EuropeFiona Page, Responsible Sourcing Manager - EuropeMary WhiteStrategic Supply ManagementSupplier Outreach ManagerResponsible Sourcing Guidelines 17

Environmental Supplier OutreachPepsiCo & Refrigerants, Naturally!Michael SabaMarketing Equipment DevelopmentDirectorJudy PrioloMarketing Equipment ProcurementDirectorMany people do not realize that thelargest part of a vending machine’sgreenhouse gas emissions comefrom the energy required to run it.We’re committed to reducing allparts of the equation, includingrefrigerants and foam.18Responsible Sourcing GuidelinesIn 2006, PepsiCo joined other industryleaders and environmental groups inRefrigerants, Naturally! (RN), a globalinitiative focused on addressingclimate change and/or ozone layerdepletion caused by fluorinatedgases in point-of-sale refrigerationequipment. As part of RN, the groupis working together as an industryto substitute the use of fluorinatedgases through natural refrigerants inrefrigerated point-of-sale equipment.RN is supported by Greenpeaceand the United Nation EnvironmentProgramme and is recognizedas a “Partnership for SustainableDevelopment” by the UN Commissionon Sustainable Development.99%of Equipment isHFC-FreePepsiCo’s mission to deploy moresustainable equipment is part of thecompany’s commitment to sustainablegrowth.To accomplish this, PepsiCo is focusingon three areas:• Energy: Improving the energyefficiency of its machines, asenergy use accounts for thevast majority of refrigerationequipment’s GHG emissions• Foam: Eliminating HFCs fromthe insulating foam in vendingmachines, coolers and fountainequipment• Refrigerants: Using naturalrefrigerants instead of fluorinatedgases in its equipmentThe Environmental Protection Agency(EPA) recently awarded PepsiCoa 2009 ENERGY STAR SustainedExcellence Award in recognition of itscontinued leadership in protectingthe environment through energyefficiency.

Dear Supplier:Invitation:Annual Supplier Outreach SummitPepsiCo’s Sustainability Vision is simple in concept, but can be far-reaching inimpact. Corporate Social Responsibility and Environmental stewardship arecore parts of this vision. PepsiCo has long recognized its responsibility to be agood steward of the environment and foster healthy, vibrant and self-sufficientcommunities worldwide.As a valued supplier to PepsiCo, we invite you to Procurement’s SupplierOutreach Summit. This is an opportunity for your organization to understand theCorporate Social Responsibility and Resource Conservation programs we value,and the expectations for suppliers to support our aspirations in these areas.The morning session will include presentations and dialogue with PepsiCoexecutives, and representatives from several-Outreach in ActionOur commitment to Responsible andSustainable Sourcing is driven by directdialogue with our suppliers across theglobe.We invest in supplier relationshipdevelopment by sharing our bestpractices and providing access to ourPerformance with Purpose partnersvia annual summits and institutingday-to-day goal setting for continuousimprovement in these areas.Tara Norton,Sedex General Manager,discusses PepsiCo’s use of Sedexat PepsiCo’s Annual SupplierOutreach - Responsible andSustainable Sourcing Summit inJanuary 2009.Responsible Sourcing Guidelines 19

Supplier Diversity - United StatesBy developing minority & womenowned suppliers, PepsiCo is ableto foster strong competitionfor services and raise theperformance of all suppliers.In our business, diversity and inclusion provide a competitive advantage thatdrives business results. Our brands appeal to an extraordinarily diverse arrayof customers and are sold by an equally diverse group of retailers. To trulyunderstand the needs of our consumers and customers, PepsiCo must reflectthat diversity in our supplier base and in everything we do. Therefore, anintegral part of our mission is a commitment to purchase from a supplier baserepresentative of our employees, consumers, retail customers and communities.In 2008, PepsiCo achieved $1.2 billion in MWBE (Minority & Women-OwnedBusiness Enterprise) spend, marking the 6th consecutive year of double-digitpercent growth.We also earned national recognition from the Women’s Business EnterpriseNational Council and DiversityBusiness.com for Supplier Diversity efforts.Chris KnoxSupplier Diversity and DevelopmentDirector20Responsible Sourcing Guidelines

Supplier Diversity - InternationalMSDUK (Minority Supplier Development United Kingdom) is a private sectorled, not-for-profit membership organization created to provide a direct linkbetween its corporate members and ethnic minority businesses to enable thebuilding of mutually beneficial business relationships.David WilkinsonEurope Agro ProcurementDirectorThere are increasing opportunitiesfor ethnic minority ownedbusinesses to show not just UKbusinesses, but the world’s leadingcompanies, just what they can do.In 2004, PepsiCo was a founding member of the National Minority SupplierDevelopment Council (NMSDC) international-pilot program to inspire supplierdiversity in the UK. In July 2006, the pilot initiative matured and developed intoan independent, corporate-led program called MSDUK, along the lines of theNMSDC model in the US.During 2008, over £1 million of new business had been directed to MWBEbusinesses in the UK. In 2009, we developed a relationship with East MidlandsDevelopment Agency (EMDA), which promotes diverse businesses based in thearea close to the principal manufacturing and distribution centres in the UK.Republic of South AfricaIn the Republic of South Africa, our Simba®procurement team has achieved 8,000 tons ofcontracted raw materials from Black EconomicEmpowerment (BEE) Projects in 2008.Responsible Sourcing Guidelines 21

Development with PartnersWe continue to develop partnerships to focus on strategies to improve our actions with suppliers.FSC-US-0086The mark ofresponsibleforestry®Refrigerants,Naturally!22Responsible Sourcing Guidelines

Measuring our ProgressWe recognize there is growing interest by many stakeholders to understand how PepsiCo and our industry peersmanage our supplier programs. For many years, we have measured and monitored our performance in the area ofResponsible & Sustainable Sourcing internally. To learn more about Performance with Purpose and how it drivesPepsiCo’s guidelines for supplier relations please visit our web site at:www.pepsico.com/Purpose/Sustainability/Responsible-And-Sustainable-Sourcing.aspxor contact us at:responsiblesourcing@pepsi.comThis is a dynamic area and we continuously learn more about best practices and collaborate across the industryto incorporate the best thinking into our approach. As we learn more, receive feedback from stakeholders and astechnology advances, we will review, adjust and advance our goals. It will always be in the spirit to manage ourbusiness responsibly and maintain respect for the environment and communities in which we operate.Responsible Sourcing Guidelines 23

PepsiCo, Inc.700 Anderson Hill RoadPurchase, NY 10577www.pepsico.com© 2009 PepsiCo, Inc.