Conflict Palm Oil and PepsiCo's Ethical Dilemma

Case Details Case Introduction 1 Case Introduction 2 Case Excerpts

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Faced with environmental and social criticism, in 2009, PepsiCo started an ambitious new sustainable development program called ‘Performance with Purpose’ under the leadership of Nooyi, who took charge as CEO in 2006. India-born Nooyi was a graduate of Madras Christian College in Chemistry, Physics, and Mathematics, a management graduate from the Indian Institute of Management, Calcutta, and Master’s in Public and Private Management from Yale. After stints with companies such as ABB, Johnson and Johnson, and Management consulting firm, Boston Consulting Group, she joined PepsiCo as the chief strategist in 1994. She served as the Senior Vice-President of Strategic Planning and Development and Chief Financial Officer of PepsiCo before becoming the CEO...

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Palm oil, obtained from the fruit of the oil palm tree (Botanical name Elaeis guineensis), was the most widely used vegetable oil in the world and went into the processing of a wide array of food products including cookies, chocolates, peanut butter, crackers, breakfast bars, potato chips, instant noodles, baby formula, margarine, and dry and canned soups. Its non-food uses were in detergents, soaps, personal care products, and as a feedstock for biofuels. The palm tree, native to Western Africa, was grown mostly in the tropics. About 85% of palm oil was sourced from the tropical countries of Indonesia, Malaysia, and Papua New Guinea (PNG) where rainforests mostly occurred...


In an effort to stop the tide of criticism against rainforest destruction and to get the sector to move toward sustainable palm oil, the global palm oil industry created the Round Table on Sustainable Palm Oil (RSPO) in 2004. The aim of RSPO was to promote the growth and use of sustainable palm oil. It was a not-for-profit group that united stakeholders from seven sectors of the palm oil industry comprising palm oil producers, processors or traders, consumer goods manufacturers, retailers, banks/investors, and environmental and social non-governmental organizations (NGOs), committed to produce, source, or use sustainable palm oil certified by the RSPO. As of 2015, RSPO had more than 1,700 members worldwide....


RAN, a prominent environmental NGO based in San Francisco, California, had been working to protect rainforests and the human rights of those living in and around those forests. Established in 1985, the organization’s mission was to “campaign for the forests, their inhabitants, and the natural systems that sustain life by transforming the global marketplace through education, grassroots organizing, and non-violent direct action.” RAN played a key role in strengthening the rainforest conservation movement globally by supporting activists in rainforest countries as well as mobilizing consumers and community action groups through media campaigns, conferences, and publications...


In March 2014, The Union of Concerned Scientists (UCS) released a scorecard grading the palm oil sourcing commitments of 30 top companies in the packaged food, fast food, and personal care sectors including PepsiCo. According to the report, PepsiCo, with a score of 33.7 points out of 100, had demonstrated “little commitment” to procuring palm oil from deforestation-free sources. Environmentalists demanded that PepsiCo should look into its palm oil policies and solve the Conflict Palm Oil problem....


Some environmental groups such as Greenpeace International (Greenpeace), RAN, (SumOfUs), and the UCS expressed concerns over PepsiCo’s new commitment. They felt that while PepsiCo had acknowledged the problem related to Conflict Palm Oil, its commitments fell short in several key areas as the sustainability measures adopted in the new action plan were weaker than the ones adopted by its peers in the consumer packaged food industry....


On May 20, 2014, a Global Day of Action to Cut Conflict Palm Oil was organized by Palm Oil activists wherein a series of events were held across the world to call on PepsiCo and other companies in the consumer food sector to cut down Conflict Palm Oil from their global product lines. Thousands of people took part in demonstrations around the world as they gathered on college campuses, beaches, public squares, and multiple PepsiCo factories to send a common message: “PepsiCo, the Power is #InYourPalm to eliminate Conflict Palm Oil”. Also a petition was launched by SumofUs calling on PepsiCo to commit to a zero deforestation policy for palm oil. More than 223,000 people from around the world signed the petition...


Following months of protests from several environmental groups over its use of Conflict Palm Oil, PepsiCo released a new palm oil commitment on September 21, 2015 (See Exhibit VII). Through its revamped policy, PepsiCo strengthened its commitment to upholding the rights of local communities and workers and identified the plantations where the palm oil used in its products grew...


In April 2015, UCS came out with a revised scorecard, ranking companies based on their commitment to deforestation free palm oil. The score of each company was recalculated to account for their progress compared to the previous year. As per the scorecard, in 2015, PepsiCo made remarkable progress on its commitment to source deforestation free palm oil compared to the previous year, by scoring 80.7 points out of 100 ...


Exhibit I: Key Financials of PepsiCo

Exhibit II: Global Demand for Vegetable Oil

Exhibit III: Palm Oil Supply Chain

Exhibit IV: Link between Consumers and Rainforest Destruction

Exhibit V: PepsiCo Palm Oil Commitment (May 2014)

Exhibit VI: Consumer Campaigns

Exhibit VII: PepsiCo Palm Oil Commitment (September 2015)

Exhibit VIII: UCS Scorecard for Packaged Food Companies (2015 and 2014)

Exhibit IX: Progress of Packaged Food Companies