A spoonful of climate change?
“Climate change can impact both food security and our business by posing risks to the long-term health and viability of the ingredients we use in our foods,” according to Diane Holdorf – The Kellogg Company’s Chief Sustainability Officer [1]. As a food company, Kellogg’s is most vulnerable to the effects of climate change in the form of shocks to its supply chain, manifested through limited availability, unpredictability, and consequently fluctuating prices of the ingredients it uses. In one example, a 2008 drought in Egypt disrupted rice production before the government shut down exports. Given the popularity of The Kellogg Company’s Rice Krispies product, this presented a real problem [1]!
To date, Kellogg’s has focused its efforts in tackling climate change on its upstream agriculture and manufacturing processes, since they are the largest contributors to emissions across the value chain [2]. In 2008, the company set reduction targets of 15-20% in its greenhouse gas emissions, water use, energy use per metric tonne of food, and waste send to landfill metrics relative to 2005 levels. As of 2015, it had succeeded in reducing the latter by 62%, but had fallen short on the others with reductions of 12%, 7.4%, and 11% respectively [3]. Per the company’s 2015 CSR Annual Report, this was caused in part by the acquisition in 2012 of the Pringles brand, whose production processes uses twice as much energy and 70% more water than those of other Kellogg Company’s products. Going forward, the company has set more ambitious milestones – seeking to reduce greenhouse gas emissions, and energy and water use by 15%, increase its use of low-carbon energy by 50%, and implement water re-use projects in 25% of plant between 2015 and 2020 [5]. Additionally, it is looking to have 30% of its plants sending zero waste to landfill by the end of 2016 and improve its use of packaging made from recycled materials [4].
Kellogg’s is also taking steps to engage its external stakeholders in its mission to reduce the company’s environmental impact. The company has instituted a Responsible Sourcing Initiative and will now require its key suppliers to track and report their own emissions targets – 75% will do so by 2020 [6]. Further, between 2015 and 2050, it has committed to helping suppliers reduce their emissions by 50%. In the same vein, the company is encouraging the adoption of “climate-smart agricultural practices” for 15,000 small farmers in communities it sources from [5].
The company has also been playing a role in climate change related advocacy efforts. During the UN’s 2015 Climate Week, The Kellogg Company’s Chairman & CEO John Bryant wrote a Huffington Post op-ed presenting the business case for addressing climate change with Unilever CEO Paul Polman [5]. Kellogg’s has also participated in President Obama’s Climate Data Initiative, the White House American Business Act on Climate Pledge, the Climate Declaration, and Business for Innovative Climate and Energy Policy [5]. This summer, the firm joined a group of its peer companies and non-profits like the Ceres Group to brief Republican lawmakers on the business risks climate change presents to make the case for climate policy [1].
I think Kellogg’s could enhance its efforts to tackle climate change in a number of ways. First, the company could be more conscientious about meeting its self-set environmental targets – considering the impact on its metrics before acquiring products like Pringles, for example. Second, I think Kellogg’s could use Unilever as a role model in this sphere. In the 2015 Climate Survey, 20% of 624 sustainability experts from 69 countries chose Unilever as the company that has “achieved the most real, substantial advances [7].” One reason Unilever is such a leader in this category is because it has set and achieved more aggressive targets – aiming to achieve zero net deforestation by 2020, become “carbon positive” by 2030, and source 100% of its energy from renewable sources, for example [8] [9]. The more interesting angle Unilever has taken, in my mind, is considering the environmental impacts of its products from a consumer use perspective. 2 billion people use Unilever products every day. Recognizing that power, and that 70% of the greenhouse gas emissions from their products come from their use, the company calculates metrics on a consumer use basis [10]. Aligned with this, it has made a significant push to include its consumers in its environmental crusade. By 2020, the company intends to “reach 400 million consumers with products and tools that will help them to reduce their greenhouse gas emissions while washing and showering.” Finally, it is “encouraging our consumers to wash at lower temperatures and at the correct dosage in 70% of machine washes by 2020 [11].” I find Unilever’s work in the climate change space inspiring and think Kellogg’s would benefit from learning from its leadership position and emulating its efforts in including the consumer in how it approaches tackling climate change.
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Sources:
- Hardcastle, Jessica Lyons. “Food, Beverage Execs to GOP: Climate Change Is Hurting Our Supply Chains Read More: Http://www.environmentalleader.com/2016/05/31/food-beverage-execs-to-gop-climate-change-is-hurting-our-supply-chains/#ixzz4P4iu9zVs.” Environmental Leader. Environmental Leader, 31 May 2016. Web. 04 Nov. 2016.
- Karen Henry. “Kellogg Pledges to Slash Operations Emissions 65% by 2050 Read More: Http://www.environmentalleader.com/2015/12/08/kellogg-pledges-to-slash-operations-emissions-65-by-2050/#ixzz4P4jOByIF.” Environmental Leader. Environmental Leader, 8 Dec. 2015. Web. 03 Nov. 2016.
- “Kellogg Company 2015 Year-End Sustainability Milestones.” (n.d.): n. pag. Kellogg Company. 15 Dec. 2015. Web. 03 Nov. 2016. <http://www.kelloggcompany.com/content/dam/kelloggcompanyus/corporate_responsibility/pdf/2015/2015YearEndSustainabilityMilestones15Dec2015.pdf>.
- “Kellogg’s 2015/2016 Corporate Responsibility Update.” (n.d.): n. pag. Web. 3 Nov. 2016. <http://www.kelloggcompany.com/content/dam/kelloggcompanyus/corporate_responsibility/pdf/2016/Kelloggs_CRR_2015%20FINAL.pdf>.
- “Kellogg Company Climate Policy.” (n.d.): n. pag. 7 Dec. 2015. Web. 3 Nov. 2016. <https://www.kelloggcompany.com/content/dam/kelloggcompanyus/corporate_responsibility/pdf/2015/ClimatePolicyFINALDecember15-2015.pdf>.
- “Kellogg Company Announces New, Ambitious Global Greenhouse Gas Emission Goals Across Manufacturing and Agricultural Supply Chains.” Kellogg Company News Room. Kellogg Company, 8 Dec. 2015. Web. 03 Nov. 2016. <http://newsroom.kelloggcompany.com/2015-12-08-Kellogg-Company-Announces-New-Ambitious-Global-Greenhouse-Gas-Emission-Goals-Across-Manufacturing-and-Agricultural-Supply-Chains>.
- Moodie, Alison. “Unilever and Tesla Top List of Companies Leading the Fight on Climate Change – Survey.” The Guardian. Guardian News and Media, 12 Nov. 2015. Web. 04 Nov. 2016. <https://www.theguardian.com/sustainable-business/2015/nov/12/climate-survey-change-conference-unilever-tesla-united-nations>.
- “What Matters to You.” Unilever Global Company Website. Unilever, n.d. Web. 03 Nov. 2016. <https://www.unilever.com/sustainable-living/what-matters-to-you/>.
- “Reducing Environmental Impact.” Unilever Global Company Website. Unilever, n.d. Web. 03 Nov. 2016. <https://www.unilever.com/sustainable-living/the-sustainable-living-plan/reducing-environmental-impact/>.
- “UNILEVER’S POSITION ON GREENHOUSE GAS EMISSIONS IN CONSUMER USE.” (n.d.): n. pag. Unilever. Web. 3 Nov. 2016. <https://www.unilever.com/Images/greenhouse-gas-emissions-in-consumer-use-position-statement_tcm244-423155_en.pdf>.
- “Our Metrics.” Unilever Global Company Website. Unilever, n.d. Web. 03 Nov. 2016. <https://www.unilever.com/sustainable-living/the-sustainable-living-plan/our-approach-to-reporting/our-metrics/>.
I believe that Kellogg’s climate change strategy overlooks one of the most important inputs required for Kellogg’s products: water. Climate change will have a profound impact on water demand and availability; by 2030 water demand is forecast to exceed water supply by 40% (Henderson et al. 2016). More than 25% percent of water use in the United States is used for irrigation/agriculture. Kellogg’s climate change plan MUST tackle how it will address significant water strain. You note that they plan to implement water reuse projects in 25% of their plants, but this statistic is vague and does not speak to how Kellogg’s plans to adapt the impact that climate change will undoubtedly have to agriculture thanks to stressed water resources. Furthermore, the agricultural industry will fundamentally change as growing seasons and geographies shift in response to changing temperature and weather conditions. These water-related elements, not the incremental GHG emissions from cereal production, are the primary issues that Kellogg’s must address in the face of global climate change.
Henderson, Reebecca, S Reinhart, P Dekhtyar, A Migdal. Climate Change in 2016: Implications for Business. HBS N2-317-032.
Thank you for this post! I really found it interesting that Kellogg includes its consumers in its environmental impact. This is a unique perspective from other companies I have read so far. I still seem to see a lot of companies spending time talking about upstream and downstream consumption habits – this seems to be blame-gaming to me. Including your upstream and downstream consumption habits in your own optimizes you to improve the system as a whole. One interesting thing Kellogg could consider is requesting their newly-acquired (or to-be-acquired) businesses to improve their environmental impact before acquisition. It seems that acquiring Pringles had a significant negative impact on their goals as a company. By requiring soon-to-be-acquirers to improve some process, even incrementally, it will set up for improvements in the future. Overall, really well written thanks again.
I found the discussion about the sustainability complications the Pringles acquisition delivered to be interesting. Neil mentioned a potential solution where a target company is asked to address its sustainability gaps before being acquired. A challenge with that is the sustainability issues facing many companies often span a longer horizon. If a company seeks to pursue an acquisition for a strategic reason, it may not have the time to wait for such measures to be implemented. However, there have been interesting solutions published whereby companies are incorporating sustainability metrics into their deal due diligence, discounting the valuation of the target company on the basis of its sustainability efforts. Deloitte mentioned this in their report “How Green is the Deal?” (see below). If this became common place, more companies would feel the pressure to comply with the targets they set forth.
“Begin to incorporate CR&S metrics, goals, and targets into the deal valuation process. Along with the pure economics of the deal,
evaluate potential acquisition targets in terms of energy and water consumption, carbon footprint, solid waste and wastewater disposal, and other environmental concerns. Know and understand the potential costs associated with these factors”
https://www2.deloitte.com/content/dam/Deloitte/il/Documents/risk/CCG/other_comittees/how_green_is_the_deal_deloitte_102408.pdf
I agree with Molly- water scarcity is a huge issue facing a wide range of industries, and food manufacturers will certainly feel the pressure of climate change on their operating model. Kellogg led food makers in efficiency of water use according to a 2015 analysis by Lux Research of the Consumer Packaged Goods industry. Given that Kellogg operates such a resource-intensive business, a comprehensive water conservation strategy is needed to help mitigate the risks posed by a water shortage. Kellogg did include water conservation in its 2020 sustainability goals, and will work with farmers to use water and fertilizers more efficiently and protect their watersheds. It appears that some of these projects are also receiving federal funding.
Separately, I think it’s great that companies such as Unilever are considering a product’s lifecycle impact (the sum of environmental impacts caused by the product’s existence) and not just the raw materials and manufacturing processes. Consumer consumption patterns need to be addressed.