Supply chain strategy | Opinion

PepsiCo targeted by new palm oil accusations

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Brand supply chains under continual scrutiny

The global brand is accused of ignoring deforestation and labour abuses in its supply chain

There is no let up in the activist focus on palm oil. The results of an investigation into a set of Indonesian customs export data by the environmental campaign group Rainforest Action Network (RAN) has not been good news for PepsiCo. The company finds itself embroiled in accusations of being responsible for destroying vital rainforest because of a lack of transparency and understanding of the actions of its suppliers.

RAN says that, as recently as November 2016, one of the food giant’s suppliers was shipping palm oil into the US from ports and refineries known to be sourcing it from companies destroying the globally vital Leuser ecosystem.

It also accuses the business of “knowingly” continuing to get its palm oil from suppliers with documented child labour, worker exploitation and land rights abuses on their plantations. “PepsiCo claims it will deliver improved health and well-being through the products it sells, but the fact remains that it peddles conflict palm oil today,” was the verdict offered by Gemma Tillack, RAN’s agribusiness campaign director.

PepsiCo’s most recent progress report on its palm oil action plan, from September 2016, states: “Respect for human rights, sustainable sourcing and zero deforestation are paramount to PepsiCo and our work in sustainable agriculture.” The report outlines areas where the company is making progress and acknowledges ongoing challenges in its palm oil supply chain, including “allegations of human rights and labour violations” against plantations owned by Indofood, a PepsiCo joint venture partner featuring in RAN’s report.

Supply loophole

PepsiCo is accused by RAN of refusing to take action despite an acknowledgement that its complex supply chain is tainted. RAN alleges that the company is ignoring a loophole that excludes Indofood from its palm oil policy, despite “substantial documentation”, RAN says, of Indofood’s involvement in deforestation and human rights abuses.

Speaking to Innovation Forum, Aurora Gonzalez, senior director, communications, PepsiCo, says: "We continue to take action to deliver on our public goal to purchase 100% physical certified palm oil. And we will continue to invest in the measures necessary to deliver progress on that goal" She argues that PepsiCo’s joint venture in Indonesia is with Indofood, and "entirely separately" there is a palm oil division named IndoAgri Resources. "For the past year, PepsiCo has been a proxy in RAN’s campaign against IndoAgri.Though our relationship is with Indofood, PepsiCo has sought to help address these claims with IndoAgri."

Investors under fire

PepsiCo is not alone in being targeted – the RAN report also calls out a number of financial institutions including BlackRock and JP Morgan for backing and profiting from the company’s exploits.

Many big brands still, inevitably, rely on their suppliers – usually large traders – to assure them they are fulfilling their No Deforestation, No Peat, No Exploitation commitments without necessarily doing the due diligence needed to ensure compliance. Such is the nature of global supply chains – but it comes with risks.

“The traders … often put the blame on complex supply chains or wanting to continue engagement with rogue suppliers in order to transform their behaviour – which often fails to succeed,” says Deborah Lapidus, campaigns director at Mighty Earth which last year exposed palm oil company Korindo for clearing some 30,000 hectares in violation of the policies of Wilmar and Musim Mas (before their supplier agreements were terminated).

Activists have been accused of attacking big brands unfairly. But equally companies have to be careful that suppliers, joint venture partners and subsidiaries align with the brand’s core public values, or risk being the subject of the next NGO campaign.

Economics kick in

Of course, with harsh corporate growth imperatives in place, particularly in the food and FMCG sectors, it is understandable how supply chain risks are being overlooked, especially with the complexities involved in sourcing from multi-tiered suppliers and traders. But it is increasingly unacceptable in the eyes of most stakeholders and, in the long-term, becoming more risky economically.

“The tragedy of the rampant deforestation and climate pollution we’re seeing in industries like palm oil and soy is that it’s entirely avoidable,” Lapidus argues, pointing to the 125m hectares of degraded lands available in the tropics where palm oil and other commodities can be grown without destroying forests or natural ecosystems.

And NGO campaigning has ever-more evidence on its side to argue the case to big brands that being irresponsible is bad for business. Many activist groups began their campaigning on a moral and ethical standing. But, now, they increasingly have the power of economics behind them, as traders, retailers and financiers starting to suspend or divest from companies that ignore their obligations.

Please note that this content has been updated since its original publication. 

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