Week 5-LT Sustainability Paper
Week 5-LT Sustainability Paper
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Running head: SUSTAINABILITY 1 Sustainability ECO/415 October 4, 2010 Patrick O' Donnell SUSTAINABILITY 2 Sustainability The PepsiCola Company (Pepsi) began operations in 1898 and has placed emphasis on sustainability. Pepsi is an outstanding example of how sustainability is used to ensure longevity in business. Team B will define sustainability and explain why sustainability is important for success using Pepsi as an example. Team B will evaluate Pepsi in terms of sustainability, in particular, identifying financial and nonfinancial stakeholders, affects of economic decisions on financial and nonfinancial stakeholders, affect on profits when stakeholder reactions are considered, and sustainability successes and failures. Moreover, Pepsi will be compared with businesses in the industry in terms of sustainability. Pepsi’s sustainability strategy is discussed illustrating how Pepsi may create growth based upon sustainability successes, developing shortcomings into areas of sustainability growth, and identifying methods to advance stakeholder relationships. Last, Team B will clarify how specific actions and policies must be implemented. Sustainability Defined Sustainability is “of, relating to, or being a method of harvesting or using a resource so that the resource is not depleted or permanently damaged” (MerriamWebster, 2010, p. 1). By understanding sustainability, understanding how it all began is imperative. Sustainability began in “1969 with the passage of the National Environmental Policy Act (NEPA) whose purpose was to foster and promote the general welfare, to create and maintain conditions under which man and nature can exist in productive harmony and fulfill the social, economic and other requirements of present and future generations” (U.S. Environmental Protection Agency, 2010, SUSTAINABILITY 3 p. 1). Therefore, sustainability was put into effect to protect resources that man and the environment created for people to become more affective in society. Importance of Sustainability to Finance Success The importance of Sustainability to finance success is that it helps companies or manufacturers reuse materials. By reusing materials, they can protect the environment and cut costs on resources to create their product. Many consumers are looking for reuseable products or products that have been made of reusable products. For example: plastic, plastic is reused to make many products, companies reuse plastic so they can save on materials and save the environment. Commerce looks at sustainability as giving a business or a manufacturer the opportunity to save on costs by reusing products to help with the environment and their pocket book. Financial and NonFinancial Stakeholders Pepsi looks at sustainability as “investing in healthier future for people and our planet” (Performance with purpose, 2010, para. 1). Therefore, Pepsi wants to protect their consumers and the planet and they continue to replenish the needs of their consumers while saving on their resources to protect our planet. Here is a good example of what Pepsi is doing to help protect their consumers and the planet, “we will continue to build a portfolio of enjoyable and wholesome foods and beverages; find innovative ways to reduce the use of energy, water and packaging; and provide a great workplace for our associates. Additionally, we will respect, support and invest in the local communities where we operate by hiring local people, creating products designed for local tastes and partnering with local farmers, governments and SUSTAINABILITY 4 community groups” (Performance with purpose, 2010 para. 2). Sustainability helps Pepsi’s financial and nonfinancial stakeholders because their focus is to help communities, create jobs and give others the opportunity to sustain a source of income. Affect of Economic Decisions on Financial and NonFinancial Stakeholders Sustainability can be viewed in many ways, for example Pepsi categorizes sustainability in four different areas. These four different areas are “performance, human sustainability, environmental sustainability, and talent sustainability” (Performance with purpose, 2010, para. 3). Each type focuses on different factors, for example, performance is the “promise to strive to deliver superior, sustainable financial performance” (Performance with purpose, 2010, para. 4). Human sustainability is the “promise to strive to deliver superior, sustainable financial performance” (Performance with purpose, 2010, para. 4). Environmental is the “a promise to be a good citizen of the world, protecting the Earth’s natural resources through innovation and more efficient use of land, energy, water and packaging in our operations” (Performance with purpose, 2010, para. 5). Talent is the “a promise to invest in our associates to help them succeed and develop the skills needed to drive the company’s growth, while creating employment opportunities in the communities we serve” (Performance with purpose, 2010, para. 6). Therefore, sustainability has its affects on the economic decisions for the financial and the nonfinancial stakeholder, it all depends on how the company uses their sustainability to focus on the important aspects of what the stakeholders want or need from the company. Affect on Profits When Stakeholder Reactions are Considered SUSTAINABILITY 5 Stakeholders can be the community, shareholders, or customers and are all affected by the companies ability to operate sustainably. Because sustainability affects everyone, stakeholders are likely to react positively to efforts that increase sustainability. Laws, customer decisions, and investor decisions increasingly take sustainability into account and will have a negative effect on companies that have not made the effort. Measuring Success in Sustainability Pepsi is a wellknown company that has introduced many initiatives in several areas of sustainability. The areas identified by the company have been addressed with success in various areas throughout the company. Identifying areas that can be improved in different countries, based on current issues, has been a success because action has been employed instead of lofty goals. An example of this is “positive water balance” in India (Corporate Citizenship Report, 2010, p. 16). Because clean water is an urgent issue in India that needs to be addressed, the effect of the initiative is likely to be imposed quickly and lead to positive results for the company and the communities in which the company operates. The initiative calls for the same thing to happen in all countries that Pepsi operates in who have water issues. Addressing current problems is a strength of Pepsi. While addressing current issues is a good thing, the flipside to that is improvements in all areas of operation do not mean that all departments in the company find results with the same level of sustainability. Bringing third world operations to the level of the developed world may seem like a much bigger step. The idea that producing more trash in crowded countries while going to zero landfill in countries such as the United Kingdom (Corporate Citizenship Report, SUSTAINABILITY 6 2010, p. 17) can seem like a double standard at best, exploitative at worst. Certainly, one should not halt efforts just because of lack of parity; however, just because one area is further behind does not mean it should stay that way. Products also have a lack of equivalence in their move toward sustainability. Sun Chips, for example, has moved to compostable bags for at least one product (Corporate Citizenship Report, 2010, p. 1), whereas other products within the company have not made the same efforts. It is understandable that customers who are making healthier choices, such as whole grain chips, for themselves may be more sensitive to environmental impact; it doesn’t mean people do not have to live with the consequences of all products produced. Industry Comparison in Sustainability The range of products produced by Pepsi is staggering, though all are in fairly competitive markets. Creating products that differentiate Pepsi in terms of sustainability by design is one way Pepsi can stand out. Sun chips, for example, shows two areas of Pepsi’s commitment being both better for the environment and consumers than many competing snack options. The inclusion of whole grains and more environmentally positive packaging make it a different product, though sold in place of worse products. Across the whole line of products Pepsi is reducing sodium by 25% by 2015 in key global brands and reducing saturated fat as well (Corporate Citizenship Report, 2010, p. 8). Lower sugar and sugarfree options have been promoted as a healthier alternative, and Pepsi has provided a wide range of options. Expanding Sustainability Successes SUSTAINABILITY 7 Sustainability is “…policies and strategies that meet society’s present needs without compromising the ability of future generations to meet their own needs” (U.S. Environmental Protection Agency, 2010, para. 1). Pepsi’s sustainability focus has been on environmental and performance sustainability. Environmental Sustainability PepsiCo operates subsidiary companies like Lay’s, PepsiCola, and Cheetos (Home, 2010). These companies rely on many natural resources. Over the last few years Pepsi made a commitment to “…improve water efficiency use by 20% per unit of production by 2015” by using the following guidelines: Rinsing Gatorade bottles with purified air instead of water. Improving processes to manufacture bottled water. Capturing naturally occurring water found in potatoes to make a potato chips factory in the United Kingdom selfsufficient in water (2009 Annual Report, 2009, para. 1). Using the same guidelines in all the company’s products and plants would decrease the affect on the earth’s limited water resources. Because Pepsi made this commitment, water use per unit has decreased by more than 10% from 20072009 (2009 Annual Report, 2009, section 1). The company sees results from water efficiency efforts. Pepsi can be an even more environmentally sustainable company by expanding water efficiency guidelines into all operations from corporate offices to manufacturing plants and farmers. Performance Sustainability SUSTAINABILITY 8 Pepsi’s focus on company sustainability includes a goal to “Rank among the top two suppliers in customer (retail partner) surveys where thirdparty measures exist” (2009 Annual Report, 2009, section 1). Customer approval and happiness is important to Pepsi’s future. Happy retail customers translate into more orders hence more revenues. This cycle ensures Pepsi is sustainable and has a future in the business market. Pepsi can expand this goal into being the number one supplier to retail customers. A ranking of number one is a guarantee of company sustainability for current and future stakeholders. From Shortcomings to Growth Pepsi’s sustainability focus also includes human sustainability. To Pepsi human sustainability is “…a promise to encourage people to live healthier by offering a portfolio of both enjoyable and wholesome foods and beverages” (Human Sustainability, 2010, para. 1). To achieve this goal Pepsi needs to provide products with healthy choices for consumers. This is difficult to accomplish because many consider the company’s products to be junk food. Pepsi Cola, the company’s flagship product, can be used as an example. “A single can of Pepsi contains 41grams of sugar… and sugar has implicated in ailments ranging from obesity to diabetes to tooth decay” (Frankel, 2009, para. 4). If Pepsi’s goal is to provide healthier products, the company needs to consider the affect of the flagship product, Pepsi Cola. With an unhealthy product like Pepsi, the company is in a difficult position because the product is the foundation of the company. Pepsi may not be able to change the Pepsi Cola, but the company can try to make many other products as healthy as possible. The company can also start or support a current “stay active” campaign (Frankel, 2009, para. 12). Pepsi’s human sustainability can grow with an active SUSTAINABILITY 9 campaign or by changing current products to include healthier ingredients. Growing sustainability in the human sustainability area gives Pepsi a positive image in customer eyes and a future in the industry. Improving Stakeholder Relationships The first step to improving stakeholder relationships is to make sure the company knows who the stakeholders are and what the stakeholders need from the company. “Managing stakeholder relationships is achieved through a longterm commitment to a structured process focused on…identifying stakeholders, understanding expectations, managing those expectations, monitoring the effectiveness of stakeholder engagement activity, and continuous review of the stakeholder community” (Bourne, n.d., p. 4). Once a company knows who stakeholders are and what the needs are, the company can successfully communicate the necessary information to these people. The company can also relate to these stakeholders in specific ways to meet the needs of stakeholders at many levels. Addressing the needs of the stakeholders require communication and commitment from the company. This commitment leads to stakeholder loyalty, which translates to productivity, profitability, and sustainability. This type of stakeholder management is a sure path to success. “Good relationships with customers and business partners, a healthy corporate reputation, committed employees and efficient internal processes define the winners in today’s global economy” (TNS Stakeholder Management, n.d., p. 1). Relationships with stakeholders are important to the success of a company and should be managed with care and commitment. Implementation of Actions and Policies SUSTAINABILITY 10 Pepsi has placed much importance on the value of sustainability. Goals for Pepsi center attention to four factors all linking to economic, environmental, and social of the triple bottom line. Economically, Pepsi pledges to aid underdeveloped markets and countries providing the factors for sustainability to the stakeholders. Steps consist of identifying areas that can benefit from an operation, education, and training to enhance the local area economically. Pepsi continually researches for methods and replacements of sugar and fats in products following the trend to healthier lifestyles. As new processes are created, improvements to packaging are viable and more control to the supply chain becomes possible as more suppliers become involved. Measuring success will rely on Global Reporting Initiative guidelines and the longterm goals for each factor. Measurements for healthier products are decided by the percent of sugar and fat reduction in the multiyear plan. Measurements for environmental success integrate the community’s needs with development of new facilities that will establish resources for community support and meet company requirements. Conclusion Pepsi has realized the importance of obtaining relationships with stakeholders for creating improvements to gain success. By doing so, Pepsi acquires a valuable position in the market through sustainability. Pepsi is also able to pursue new business by offering affordable products acquired through sustainability practices. Pepsi is consistently growing with a mission to expand by using sustainability to improve products. Pepsi further enjoys productive support in developing and creating distribution networks across the globe to influence new ideas for the benefit of lowincome consumers. Therefore, SUSTAINABILITY 11 Pepsi has created opportunities through sustainability and produced positive outcomes that can bring benefits and advantages to improve international business. SUSTAINABILITY 12 References Bourne, Lynda. (n.d.). Stakeholder relationship management. Retrieved from http://www.mosaicprojects.com.au/PDF/SRMM_Intro.pdf Frankel, Carl. (2009). Corporate responsibility: PepsiCola’s 41 grams weigh heavily on sustainability. Retrieved from http://www.matternetwork.com/2009/1/pepsicolaissues annualsustainability.cfm Merriam Webster. (2010). Sustainability. Merriam Webster. Retrieved October 1, 2010, from http://www.merriamwebster.com/dictionary/sustainability PepsiCo. (2009). 2009 Annual report: Environmental sustainability. Retrieved from http://www.pepsico.com/annual09/environmental_sustainability.html PepsiCo. (2009). Corporate Citizenship Report Overview 2009. Retrieved from http://www.pepsico.com/Download/PepsiCo_2009_Sustainability_Report_Overview.pdf PepsiCo. (2010). Home. Retrieved from http://www.pepsico.com/Index.html PepsiCo. (2010). Human sustainability. Retrieved from http://www.pepsico.com/Purpose/HumanSustainability.html PepsiCo. (2010). Performance with Purpose. PepsiCo. Retrieved October 1, 2010, from http://www.pepsico.com/Purpose/PerformancewithPurpose.html TNS Stakeholder Management. (n.d.). Stakeholder management: Are you building sustainable and profitable stakeholder relationships? Retrieved from http://www.tnsglobal.com/_assets/files/Stakeholder_Management_Sales_Sheets_Stakeho lder_Management.pdf SUSTAINABILITY 13 U.S. Environmental Protection Agency (EPA). (2010). Basic information. Retrieved from http://www.epa.gov/sustainability/basicinfo.htm U.S Environmental Protection Agency. (2010). History of Sustainability. U.S. Evironmental Protection Agency. Retrieved October 2, 2010, from http://yosemite.epa.gov/r10/oi.nsf/8bb15fe43a5fb81788256b58005ff079/398761d6c3c71 84988256fc40078499b!OpenDocument
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