David Walker offers a simple mantra for multinationals going green: align globally and execute locally for profitability
The world’s largest consumer packaged goods companies are most often recognised through the lens of the billion-dollar global brands that they produce. However, to build a global business with which other businesses can be proud to affiliate, and from which consumers want to buy products, a company must realise that its true, long-term worth is determined by the investment it makes in its employees, in the communities where it operates and in the environment, as well as its financial performance.
From a sustainability perspective, these consumer-facing companies must find ways to make investments that will have an impact on greening the planet, while simultaneously delivering profitable growth.
It has been our experience that few global companies have achieved significant reductions in their environmental impact simply by launching a few large projects driven by central headquarters. Rather most, including PepsiCo, have discovered that they must leverage the comparative advantage of each market when choosing where to invest in green energy.
PepsiCo has publicly stated a target to reduce fossil fuel-based energy usage by 20% per unit for electricity and 25% for fuels, and achieve a reduction in absolute greenhouse gas emissions. To achieve these targets in a way that proves advantageous for all stakeholders as well as the planet, we have to find the right combination of technology and geography.
Wind energy is a clear example of where geography determines where an investment makes sense. Bionomicfuel.com lists the United States, Germany and India among the countries that use wind energy most efficiently. As an example of leveraging geographical advantages, PepsiCo India directly invested in three turbines, taking advantage of natural winds in the eastern mountains of the country to install more than three megawatts of electrical capacity. For this project to make sense, we installed the turbines where the wind was, as opposed to where the factories were located. We then worked with a third-party operator and the local electrical grid to feed electricity into the grid and take our benefit at the factory.
Location is also key to economic viability in both solar and biomass energy applications. Biomass applications are highly dependent upon a ready supply of sustainable raw materials. These materials are more plentiful in North America than in other developed markets. However, even in North America, a developed supply chain is required to justify a substantial investment. In a unique relationship between the city of Topeka, Kansas, and Frito-Lay, our snack-food division, the city is able to facilitate the supply of enough cellulosic-based biomass material to supply a 60-ton-per-hour boiler steam operation for the factory. Without the support of the city, this project would not have been nearly as viable.
According to recent research by Solarbuzz, solar energy demand has grown by an average 30% per year over the past 20 years. Particularly in markets where sunlight is abundant, solar technology is a great, cost-effective source of energy. Frito-Lay is taking advantage of this renewable source at facilities where sunlight is abundant, namely in Arizona, US, and Tarsus, Turkey. Solar facilities are capturing the energy of the sun to provide electricity for lighting, building heat in winter and cooking processes in the factory.
Large alternative energy projects typically cost more than $1m (£620,000) per megawatt to install. Regardless of the investing company’s intent, the economics are directly driven by the local cost of traditional fuels, availability of alternative sources and support of local authorities. As a result, other multinational companies such as P & G, Walmart and Unilever, to name a few, have announced a mix of projects that they are supporting around the world to help achieve their environmental objectives. Local viability, I am sure, is a key factor in each investment.
This is not to say that a global strategy is not essential. PepsiCo, like most multinationals, relies on broadly aligned and communicated corporate strategies to move our environmental sustainability agenda in the right direction. In March 2010, we unveiled a series of global goals and commitments that serve as guideposts for our global mission but, also give locally operating businesses the responsibility of devising their own local solutions. In the examples above, the local businesses found a way to align with the corporate objective in a meaningful and profitable way for their individual circumstances.
The best practice, I believe, for most companies is: align globally and execute locally to achieve both profitability and sustainability.