environmental sustainability report

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Contents

Strategy and approach 04 CEO Q&A 04 Achievements and pledges 06 Environmental challenges and PepsiCo UK & Ireland 07 - Climate change - Performance with Purpose - Resource depletion - Capability and governance - Water - Stakeholder engagement

Climate change 10 Reducing our energy use and carbon footprint

Sustainable supply chain 14 Carbon footprinting our products, working with farmers and suppliers

Engaging the public 18 Informing and inspiring consumers about the environmental challenges

Waste and packaging 22 Minimising resource depletion; reducing waste,

redesigning and recycling our packaging materials

Water 26 Using less water and reducing our water footprint

Scope, boundaries and assurance 30 Basis of reporting 32 Key data table 34 Assurance statement from Deloitte 36 Future challenges / Have your say 38Harvesting of Copella apples,

Boxford, Suffolk, September 2007

Design: H

oop Associates w

ww

.thisishoop.com

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Our first environmental sustainability report

PepsiCo UK & Ireland (PIUK) employs over 5,500 people across 13 locations, including the largest crisp manufacturing plant in the world located in Leicester, the Quaker Oats factory at Cupar in Scotland, Copella apple juice bottled at Boxford in Suffolk, and a number of other manufacturing, distribution and administration sites. Our core brands are Walkers, Quaker, Tropicana and Pepsi – but our business also includes a wide range of other products, including PJ’s Smoothies, Snack a Jacks and SunBites.

This environmental sustainability report is our first, and we hope it clearly lays out our understanding of the key environmental challenges we, and society, face – and our evolving response to those challenges. We would welcome your feedback on our report, and the strategy it outlines.

PIUK is a complex business, making a wide range of products and with supply chains that can stretch as far as South America, the Middle East and Asia. So we know we need to be clear about the scope of this report - what is covered and what is not. Unless otherwise stated any text or graphics relate to the activities of PIUK – not our parent company PepsiCo Inc, or other PepsiCo businesses. PIUK covers Quaker, Tropicana, Walkers and their sub-brands. Pepsi, 7UP and Gatorade are produced, sold and distributed in the UK by Britvic plc. Data reported are based on January-December calendar years, with the majority of data covering 2007. Most of the data cover all of our UK sites and facilities. In some sections, for example on sustainable supply chain, data will cover a wider scope – and this will be clearly stated. Independent assurance was carried out by “Deloitte & Touche LLP (‘Deloitte’)” on our 2007 data on energy use, water use and waste. For a more detailed explanation of the scope, boundaries and assurance of this report see pages 30-37, and our website pepsico.co.uk/environment. We also aim to publish equivalent reports on health and wellbeing, and talent and community. We plan to report on our progress in meeting our environmental targets.

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Strategy and approach

Peter Madden

Chief Executive Forum for the Future

Salman Amin

President PepsiCo UK & Ireland

Quality testing, Quaker Oats farm, Cupar, September 2007

CEO Q&A

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Q�� �Peter�Madden:�This�is�your�first�report.�Is�environmental�sustainability�only�now�becoming�more�important��for�PepsiCo�UK?�And�is�it�really�core�to�your�business?

A�� �Salman�Amin:�Our�business�has�always�relied�on�a�vibrant�society�and�healthy�planet�to�grow�and�meet�the�needs�of�our�consumers,�now�and�in�the�future.�Extreme�weather�conditions,�crop�failures�and�increased�commodity�prices�are�already�affecting�our�bottom�line�–�so�we�know�the�challenge�is�real,�and�here�now.�The�business�decisions�we�take�need�to�address�the�real�challenges�of�climate�change,�such�as�resource�depletion�and�water�shortages�–�and�move�our�business�towards�replenishing�the�planet.

Q�� So�how�does�your�vision�for�PIUK�fit�with�the�vision�for�the�rest�of�the�business�globally?�

A�� �Our�commitments�and�pledges�fit�closely�with�the�PepsiCo�global�vision,�that�Performance�–�achieving�financial�results�–�should�be�combined�with�Purpose�–�improving�people’s�lives.�By�fully�understanding�our�own�impact�on�the�environment,�we�can�find�better�ways�to�conserve�and�replenish�the�planet’s�natural�resources.�We�are�piloting�initiatives,�for�example�our�work�on�supply�chain�carbon�reduction,�to�share�lessons�with�PepsiCo�globally�and�with�our�other�partners.�

Q�� �Your�targets�and�progress�on�climate�change�and�resource�depletion�are�admirable.�But�how�do�you�intend��to�tackle�the�fundamental�challenge�of�growing�a�business�whilst�reducing�your�overall�emissions�and�natural��resource�demands?

A�� �Economic�growth�has�in�the�past�been�directly�linked�to�our�increasing�use�of�energy�and�natural�resources.�To�tackle�the�global�environmental�challenges�we�face,�that�will�have�to�change.�We,�and�others,�need�to�commit�to�renewable�energy,�improved�agricultural�practices,�less�intensive�packaging�materials,�and�identifying�other�transformational�ways�of�doing�business.�We�need�to�find�a�way�to�separate�developing�great�new�products�and�growing�the�business�from�an�ever-increasing�burden�on�the�natural�world.�We�have�already�begun�the�journey,�and�this�report�sets�out�some�of�the�milestones�we�will�achieve�on�the�way.

Q�� �For�a�brand�that�is�so�linked�to�soft�drinks,�tackling�water�scarcity�issues�is�critical.�Your�current�focus�is�on��reducing�water�use�in�manufacturing,�do�you�think�there�are�bigger�water�challenges�you�should�be�championing?

A�� �Reducing�the�water�we�use�to�make�our�products�is�important,�but�our�research�into�several�of�our�supply�chains�has�identified�water�‘hot�spots’�at�different�stages.�Agriculture�seems�to�be�a�large�water�user,�so�how�rainfall�and�irrigation�are�used�is�critical.�This�is�an�international�challenge,�and�we�are�working�with�PepsiCo’s�global�agriculture�teams�to�address�it.�In�fact,�we�are�already�taking�part�in�a�number�of�pilot�schemes�to�understand�how�to�‘get�more�crop�for�each�drop’.�In�the�longer�term,�reducing�our�products’�water�footprint�will�be�a�key�focus�globally.��

Q�� �For�many�the�key�sustainability�impact�of�a�snackfoods�business�is�not�environmental�but�linked�to�health�and��well�being�and�the�growing�obesity�crisis.�How�do�you�approach�that,�and�why�is�environment�separated?

A�� �We�know�that�the�growth�in�obesity�rates,�and�the�poor�diets�of�some�people�in�our�communities,�are�real�problems,�affecting�all�of�society.�We�know�we�have�an�important�role�to�play�in�finding�solutions.�We�have�a�clear�strategy�on�health�and�wellbeing�–�to�transform�our�portfolio�through�developing�new�products�and�reformulating�existing�products�to�make�them�healthier,�to�buy�new�businesses�making�healthier�products,�to�provide�clear�information�to�consumers,�and�to�develop�partnerships�with�community�health�experts.�We�will�publish�a�report�outlining�our�understanding�of�the�health�and�wellbeing�challenges,�our�progress�and�future�goals,�as�well�as�any�relationship�between�meeting�our�health�and�wellbeing�objectives�and�other�sustainability�challenges.

Q�� Over�the�coming�year,�in�what�areas�will�PIUK�really�lead�the�agenda�and�create�change�across�the�whole�industry?�

A�� �We�hope�to�continue�to�lead�by�example�–�through�engaging�our�supply�chains�and�developing�structured�approaches�to�reducing�carbon�together,�building�on�our�innovative�work�with�the�Carbon�Trust�and�the�Carbon�Disclosure�Project.�We�also�want�to�work�with�suppliers�and�growers�to�improve�our�agricultural�practices,�including�adapting�to�climate�change,�and�share�these�lessons�far�and�wide.�Lastly,�we�want�to�continue�to�develop�and�roll�out�carbon�labelling�and�ensure�that�we�help�consumers�become�more�environmentally�aware. 5

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Achievements and pledgesKey�achievements

PIUK reduced its carbon intensity (CO2e per kg of production) by 5.9% during 2007

Walkers Crisps energy use per kg of production reduced by 32% between 2000 and 2007

Quaker Oats manufacturing is powered by 100% renewable electricity

Launching the world’s first Carbon Reduction Label, with the Carbon Trust, on Walkers Crisps packets in March 2007 and holding Supplier Sustainability Summits to galvanise our supply chain

Founder partner of Carbon Disclosure Project’s Supply Chain Leadership Collaboration, gathering environmental data from suppliers

Sourcing 100% British potatoes for Walkers Crisps

Total PIUK waste reduced by 22.6% during 2007

Total PIUK waste to landfill reduced by 23.6% during 2007

18% less plastic used in Tropicana and Copella bottles

14% less plastic used in Walkers Crisps multipacks

16% less cardboard used in Walkers cases

Starch generated from slicing and washing potatoes was re-used to make our snack products, reducing our raw material footprint

Walkers Crisps water use per kg of production reduced by 42% between 2001 and 2007

Pepsi Cola water use per kg reduced by 39% between 2003 and 2007

Key�pledges

All energy used in PIUK manufacturing and distribution to be from renewable sources within 15 years

Increase total share of PIUK electricity from renewable sources from 8% to 14% within 3 years

Reduce PIUK energy use by a further 20% per kg of production within 3 years

Quaker to work towards adopting the Carbon Trust’s Carbon Reduction Label

Replace PIUK distribution fleet with the latest low-emissions vehicles, and reduce harmful pollutants by 60% within 10 years

Use waste frying oil from Walkers as a 5% mix biofuel in our distribution fleet

All our British manufacturing sites to be ISO 14001 accredited by the end of 2008

Reduce PIUK total waste to landfill by a further 20% during 2008

Achieve zero landfill waste across our total supply chain within 10 years

Commission life-cycle assessments of our major packaging materials to identify optimal choices for greenhouse gas and water reduction

All Quaker and Walkers packaging to be renewable, recyclable or biodegradable within 10 years

Donate surplus Tropicana, Copella and PJ’s Smoothies to breakfast clubs in deprived communities, diverting them from landfill

Reduce Walkers packaging weight by a further 10% by 2010

Achieve zero water intake at our Walkers Crisps manufacturing sites within 10 years

Reduce water use at British manufacturing sites by a further 45% per kg of production within 3 yearsWalkers potato sorting,

Lodge Farm, September 2007

Climate change

Resource depletion

Water

Climate change

Resource depletion

Water6

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Climate�change

Resource�depletion

Water

Businesses such as ours rely on vibrant societies to grow and succeed, and both rely on a healthy planet to support their activities and ways of life. As human activity puts the Earth under increasing stress, three major environmental challenges pose fundamental questions for society, and for business – climate change, resource depletion, and water shortages. We recognise that other issues, including biodiversity and species loss, pollution and toxins are important – but our focus in this report is on challenges where we believe we have the greatest ability to act and influence.

Climate�change�The Earth’s climate is changing, with an overwhelming scientific consensus that global warming is a grave threat to the planet, and that human activity is the primary cause.1

Only by acting together can businesses, consumers, governments, NGOs and faith groups address the threat. The influence and creativity of business has a key role to play in finding solutions.

The effects of global warming pose a direct threat to our business. Unpredictable weather events, increased drought, flooding, storms and forced migration pose a threat to our facilities, our employees, our supply chain in the UK and overseas, and our consumers. But there is also an opportunity to create new climate-change-resilient supply chains and products, to drive greater efficiency in our use of natural resources, and to find innovative ways to lower our carbon footprint.

In 2007 the Carbon Trust worked with us to prepare a detailed risk analysis for key supply chains in our business. This research found a range of physical, reputational, market and regulatory risks and opportunities for PIUK (see page 8).

Society

Environment

Environmental challenges and PepsiCo UK & Ireland

1 Fourth Assessment Report, Intergovernmental Panel on Climate Change

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PepsiCo IncPepsiCo�global�approach�–�Performance�with�Purpose— PepsiCo Inc, led by our CEO and Chairman Indra Nooyi, has a global vision – to deliver Performance with Purpose.

Globally we want to grow our business and our bottom line by being a recognised sustainability leader. Our global strategy on environmental sustainability is to minimise our use of energy and water, to minimise our packaging and waste, and to reduce our carbon footprint.

We believe that our business should be known not just for the financial results it generates, but for the imprint it leaves on society as a whole. We want to embrace ‘purpose’ in everything we do – by transforming our portfolio of products to make it easier for people to make healthier choices; by operating in a way that minimises our impact on the environment, with the goal of reaching a net-neutral impact and replenishing the planet; and by valuing our employees through training and retention programmes, ensuring that PepsiCo is the kind of company that good people want to work for.

Resource�depletion�The Earth today supports over 6 billion people, and its population is expected to rise to 9 billion by 2050.2 But if our society maintains its current lifestyles and business models the planet will not be able to support us. Research suggests that humans use energy from fossil fuels at 10,000 times the rate the Earth is able to produce it.3 There are finite limits to key natural resources such as coal, oil and gas. In addition forests and agricultural land are increasingly under threat. If everyone in the world lived as most Europeans do, we would need three planets to support us, and the average North American lifestyle requires the equivalent of five planets.4 These effects are already being seen as population growth and increased competition for land, and changing food consumption in Asia, impacts on demand for commodities and raw materials.

Natural resources are vital for our business as well as the planet. Our products completely depend on agriculture, which depends in turn on a certain climate (which forests significantly regulate), water provision, and fertile land to grow crops successfully. In addition almost every single stage of our supply chain is currently dependent on fossil fuel.

Water�Fresh water is vital to sustain life, our business operations and supply chain, and is critical to the agricultural raw materials that our products are made from – such as potatoes, oranges, apples, oats and corn. Economic growth, increasing population, and the effects of climate change are placing a growing strain on water resources now and will in the future. Competition for scarce water

2 World Population Prospects: 2004 Revision, United Nations, 2004 3 The Ecology of Commerce, Paul Hawken, 1994 4 One Planet Living, World Wildlife Fund for Nature, 2006

Prob

abili

ty

Impact

HighMediumLow

Regulatory cost exposure

Impact refers to cumulative revenue / cost imact 2008-2009, undiscountedHigh impact > c.£150MM, low impact < C.£25MMProbability: high > 0% before 2020, low < 10%

Keys

Reputation

Physical

Market dynamics

Regulatory

Sales impact from temperature rise

Low carbon products

Reputational impact onconsumer / retailers

Major site flood

Extreme weather – Oranges and potatoes

Hig

hM

ediu

mLo

w

Figure 1: Key PIUK climate change risks (Source: Carbon Trust and PIUK)

Impact refers to cumulative revenue / cost impact 2008-2019, undiscounted High impact >c.£150m, low impact <c.£25m Probability: high >50% before 2020, low <10%

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resources is risking community conflict and disruptions to supply, as it has done throughout history.5

Capability�and�governancePIUK has Board-level responsibility for the environment, with a direct reporting line into our Chief Executive. We have Sustainability Managers in place at all our manufacturing sites, a Central Sustainability team, and new Environmental Management Systems. We have implemented internal metrics and scorecards, have 100% corporate reporting on energy and water, and all British manufacturing sites will be ISO 14001 accredited by the end of 2008. We report to PepsiCo Inc quarterly on our key environmental metrics. We aim to have all 5,500 employees acting as ‘responsible stewards’. In 2008 we will build our environmental awareness communication across all sites.

Stakeholder�engagementPIUK has a Board of External Advisors to provide scientific, consumer and stakeholder perspectives to inform our decision-making and strategy. We have formed a series of partnerships with stakeholders to provide us with additional insights, expertise and knowledge on multiple aspects of sustainability, including the Carbon Trust, Carbon Disclosure Project and Forum for the Future (see ‘Future challenges’, page 38). We engage with public policy on climate change and sustainability, and support research in new areas, for example on consumer reaction to environmental labelling. We use a range of insight tools to gather stakeholder and consumer feedback on both our existing activities and future sustainability priorities for our business. An early draft of this report was shared with stakeholders and their feedback has been incorporated (see page 30).

Figure 2: Environmental risks, opportunities and impacts� (Source: Carbon Trust and PIUK)

Physical�Impacts��— Vulnerability of physical assets — Risk management, insurance and

adaptation costs— Workforce disruption— Business interruptions— Damage to supply chain infrastructure— Crop failures and low yields

Regulation�

— Regulation of operational emissions

— Carbon markets— Compliance costs— Disclosure— Tax, subsidies, credits— Product standards

Reputation�

— Consumer, retailer and societal perceptions

— Brand / image impact— Employee and investor

perceptions

Market�Dynamics�

— Changing consumer attitudes and demand patterns

— New technology, products and markets— Exposure to higher and fluctuating

energy costs— Exposure to higher and fluctuating

crop prices

5 A Climate of Conflict, Dan Smith, Janani Vivekananda (International Alert), 2004

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PepsiCo UK & Ireland Our�pledges— All energy used in PIUK manufacturing and distribution to be from renewable sources within 15 years

— Increase total share of PIUK electricity from renewable sources from 8% to 14% within 3 years

— Reduce PIUK energy use by a further 20% per kg of production within 3 years

— Replace PIUK distribution fleet with the latest low-emissions vehicles, and reduce harmful pollutants by 60% within 10 years

— Use waste frying oil from Walkers as a 5% mix biofuel in our UK distribution fleet

— All our British manufacturing sites to be ISO 14001 accredited by the end of 2008

Climate change

Climate�change�and�our�businessThe raw materials for our products – including potatoes, corn, wheat, oats and oranges – rely completely on the environment. As the planet warms, and local climates change, we are likely to face increased droughts and floods – alongside increased costs and fluctuating yields. We know that we need both to mitigate our business impact on climate change and to help our business and our supply chain by adapting to its effects.

Reducing�our�energy�useWe are committed to reducing our impact on climate change and to reducing our emissions of green house gases. Over the next 15 years we will work to radically transform our business model, replacing our existing use of oil, gas and fossil fuels in manufacturing and distribution with energy from renewable sources. This objective is challenging and will involve replacing much of our existing manufacturing and distribution infrastructure. It will require significant exploration of renewable alternatives such as hydrogen-powered

vehicles, bio-mass generators and new power sources. We need to work with our suppliers, experts in these fields, retail customers and other PepsiCo markets to make this pledge a reality. We will report on the progress we make and the challenges we face. Our total carbon footprint in 2007 was 209,797 tonnes CO2e. The largest contribution to our carbon footprint comes from the energy used at our manufacturing sites. Our direct energy use during 2007, the oil and gas burned at our sites, was 501,959,311 kWh. In addition our indirect energy use, the electricity used to power our facilities, was 144,848,084 kWh.

Our energy-reduction strategy reduced the amount of energy used per kg of Walkers Crisps production by 32% between 2000 and 2007 to 3.1 kWh. The energy used to make all of Walkers Crisps and snacks was 2.69 kWh per kg of production during 2007. This was achieved by a range of investments in new technology, waste reduction programmes involving all our employees and improved start up and shutdown procedures. Our employee air travel is not included within our carbon footprint (see page 36), but we estimate it to be 2,637 tonnes CO2e (around 1.3% of our total footprint).

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Gas 48.1% 100,930

Electricity 34.6%72,675

Distribution 13.9%29,168

Car travel 1.7%3,645

Oil 1.6%3,379

Figure 5: PIUK carbon footprint – 2007 breakdown (tonnes CO2e) *

Figure 4: Walkers Crisps energy use per kg of production (2000-07)

Figure 3: Quaker Oats manufacturing (Cupar) carbon emissions per kg of production (2000-06)

Kw

h/Kg

Euro 0

Euro 1

Euro 2

Euro 3

Euro 4

Euro 5

AA

BB

30

25

20

15

10

0 2005

2006

2003

2004

2002

2000

2001

0.40

0.35

0.30

0.25

0.20

0.15

0

0.05

Euro 0 1 2 3 4 5

NOx8 7 5 3.5 2

1990

1992

1995

1999

2005

2008

4.7

33%

3.3

2000

2006

Gas 48.1% 100,930

Electricity 34.6%72,675

Distribution 13.9%29,168

Car travel 1.7%3,645

Oil 1.6%3,379

Gas 48.1% 100,930

Electricity 34.6%72,675

Distribution 13.9%29,168

Car travel 1.7%3,645

Oil 1.6%3,379

Electricity 34.6%

Gas 48.1%

Distribution 13.9%

PIUK reduced its carbon intensity (CO2e per kg of production) by 5.9% during 2007

Figure 6: PIUK total production, and total carbon footprint (2006-07) *

PIUK�people��making��a�difference

“We have an ongoing programme to reduce our fuel use and eliminate empty journeys. In the last 6 months of 2007 we increased the amount of product carried by each of our lorries. This saved journeys totalling 157,000kms, or 41,000 litres of fuel, at this distribution centre alone. 2008 is looking even better with 90,000kms saved in the first 3 months.”

Chris Miller Northern Distribution team

Production

+10.3%

20072006

CO2e

+3.8%

* Includes PepsiCo manufacturing in Rotterdam and Zeebrugge for UK market.Excludes Britvic production. Excludes third party distribution, and employee air travel.

Oil 1.6%

Car travel 1.7%

Total: 209,797 tonnes CO2e

2007

2000

kWh/kg

3.1

4.6

– 32%

kg CO

2 e/tonnes oats

Walkers Crisps now use 32% less energy to make each pack than in 2000

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Renewable�and�local�energyAs well as reducing the overall amount of energy we use we are increasing the proportion of renewable energy. Currently 8% of our electricity is from renewables, and we will increase this to 14% over the next three years. At our Quaker Oats factory in Cupar, Scotland, we plan to invest £6m in a new combined heat and power biomass boiler, powered by the husks from our oats. The new boiler, which is around five times more expensive than a conventional fossil fuel boiler, will generate enough steam and electricity to power the site, reducing carbon dioxide emissions by 9m kg a year. In addition, for the first three years of operation, the site will prevent a further 1.8m kg of carbon dioxide a year being released as it will export over 1,300 megaWatt hours of renewable energy back to the National Grid. The move will further reduce carbon emissions by cutting over 172,000 road miles, as the oat husks will no longer have to be transported from the site, eliminating a further 600,000 kg of carbon dioxide emissions annually.

Reducing�our�distribution�footprintBetween 2000 and 2006 we improved PIUK’s fleet fuel efficiency by 12%. In 2007 we reduced our absolute distribution footprint by 4.3%, despite shipping 10.3% more products. This was achieved by vehicle technology investments including lower friction tyres and streamlining to reduce wind resistance, new journey-planning software, and a comprehensive training programme combined with an in-cab system that tracks fuel efficiency on a weekly basis. Over 90% of our drivers perform above our high fuel efficiency standard, every trip. Over the next 3 years we will move to the latest “Euro 5” models for all our HGV fleet, reducing nitrous oxides emissions – harmful pollutants – by 60%. We will continue to reduce unnecessary kilometres travelled and are collaborating with our retail customers to minimise empty truck journeys. We are rolling out biodiesel, containing waste frying oil at a 5% mix, to power our fleet. We will continue to explore new technology including electric and hydrogen engines. Additionally, since 2005 there has been a 13% improvement in our company car emissions.

� Case�study�—�Renewable�Energy— PepsiCo in North America has purchased renewable energy certificates equal to the

energy used by all our American facilities. The three-year purchase of more than 1 billion kWh helped to support the development of renewable energy capacity, including solar, wind, geothermal, biogas, bio-mass and low-impact hydro. At our snacks plant in Modesto, California, we’re building a solar collection and concentration system to supply nearly three-quarters of the heat needed to produce SunChips, a multigrain snack, from solar thermal energy.

Clim

ate change and energy

PepsiCo Inc

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A large proportion of our carbon footprint comes from agriculture and our supply chain. Find out what we are doing to tackle it.

� Dilemma

—�� �How�do�we�continue�to�grow�our�business,�but�reduce�our�absolute�environmental�impacts?�

Stakeholder�feedback“Everything we do or buy has a carbon impact and it is clear that consumers, and PepsiCo, want to take action to help tackle climate change. We believe the carbon label, with its built-in commitment to reduce the product’s carbon footprint, will act as a powerful bridge connecting carbon-conscious companies and their customers.”

Tom Delay Chief Executive, Carbon Trust

RefrigerantsWe have joined with other companies and Greenpeace in a global initiative called ‘Refrigerants Naturally!’. Its goal is to address climate change and ozone layer depletion caused by gases in refrigeration equipment. We are working together to substitute harmful fluorinated gases with natural refrigerants in refrigerated point-of-sale equipment.

Sustainability�in�our�investment�decisionsWe have incorporated sustainability criteria into our capital expenditure decision-making and we are using it on all capital expenditure requests over £2.5m. In this way we are trying to incorporate sustainability in projects from the start and track sustainability-related capital investment. We are currently exploring how sustainability criteria could be introduced into our new product development and innovation processes.

Total PIUK distribution footprint 2006: 30,489 tonnes CO2e

Total PIUK distribution footprint 2007: 29,168 tonnes CO2e

2007

Production

+10.3%

2006

Figure 7: PIUK total production and total distribution footprint (2006-07)

Excludes third-party distribution.

Fuel footprint

-4.3%

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Sustainable supply chain

� Our�pledges— Collaborate with suppliers and farmers to publish joint

carbon reduction strategies within 3 years

— Quaker to join Walkers in making a carbon reduction commitment across its whole supply chain

— Tropicana to identify action plans for carbon reduction across its whole supply chain

— Commission research on oat and potato agricultural and storage practices to identify further savings in greenhouse gas emissions and water use for Quaker and Walkers

The�carbon�footprint�of�our�productsWe have reduced the energy and water used in PIUK’s direct operations, but our work to understand the lifecycle of our products has shown us that the majority of our footprint lies outside our four walls. We want to use our influence through our supply chains, and collaborate with our suppliers, growers and others to minimise our environmental impact.

We have a great opportunity to work closely with our suppliers to encourage them to understand and reduce their carbon footprints, and to identify opportunities where we can work together to reduce our collective impact on the environment. Through collaborative investigation and action we hope to develop a more economically-secure supply chain that is able to face the tough climate change challenges that lie ahead, one that we believe will bring long-term future benefits to PIUK, our suppliers and the environment.

Supply�chain�carbon�reductionIn 2006 and 2007, working with the Carbon Trust, we analysed the carbon footprint of our Walkers Crisps. This research told us that a large proportion of the environmental impacts of our products came from agriculture and our supply chain. At the end of 2007, following Walkers’ adoption of the carbon label and its carbon reduction commitment, we brought together key suppliers of raw materials and packaging at a Supplier Sustainability Summit. The summit looked at common environmental risks and opportunities, where carbon minimisation approaches could be shared, and any shared barriers to progress. During 2008 we want to move towards shared carbon goals and targets across our supply chain.

PepsiCo UK & Ireland

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Tropicana�orange�juice’s��carbon�footprint

Walkers�Crisps’��carbon�footprint

Methodology: Carbon Trust (2006-7) – Carbon footprint per standard 34.5g bag: 75g

Growing potatoes, and the sunflowers for our oil, together are the largest contributors to Walkers’ footprint.

Manufacture: producing crisps

from potatoes

Distribution: bringing our crisps to you

Disposal of the empty

packs

Packaging supply chain

15%

Our raw materials: potatoes,

sunflowers and seasoning

44%

30% 9% 2%

Methodology: ISO 14040 – Carbon footprint per 1 litre carton: approx 1.1 kg

Figure 8: Walkers Crisps’ carbon footprint

Figure 9: Tropicana orange juice’s carbon footprint

Orange growing and

juicing

Cross-atlantic shipping

37% 42%

Packaging supply chain

6%

Our supplier, Citrosuco, uses 100% renewable energy sources in its juicing operation.

Bottling

Distribution, supermarket refrigeration

and other

7% 8%

15

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� Case�study�—�Citrosuco— Citrosuco is the sole supplier of not-from-concentrate orange juice to Tropicana UK and Ireland. It is a family-owned

company, with a Brazilian orange business founded over 40 years ago. An excess of 20% of its plantation area is set aside as nature reserves. Another equivalent area is populated with palm trees and other vegetation – retaining rain water, and providing natural wildlife habitats. The reserve areas exceed the Brazilian environment agencies’ required legal limit. Citrosuco is rolling out new environmental systems to its orange farms, leading to higher efficiencies in pesticide and fertilizer use, for example by analysing the optimum time of day and weather conditions for applying – and then using less. The company juicing factories are powered by biomass (sugar-cane fibre), and use no fossil fuels. Nutrients like nitrogen are extracted, further processed through composting, and then reused to naturally fertilize nearby farms. Citrosuco’s truck fleet is currently being upgraded environmentally, with new larger tanks being fitted to existing trailers; these can carry 30% more juice, with the same number of trips and reducing fuel use. The efficiency of Citrosuco’s ships has been improved by utilizing deck space to transport specialty goods, such as large wind-turbine blades and generators.

Sustainable supply chain

Collaborating�on�carbon�management�PIUK is one of 12 founder members of the Carbon Disclosure Project’s Supply Chain Leadership Collaboration (SCLC). This aims to dramatically increase the number of its members’ suppliers (to thousands) reporting on climate change mitigation efforts and adaptation strategies. The project trials data-sharing systems and builds participants’ capability to respond to the climate change challenge, whilst making it easier by employing a common questionnaire (and reporting standards), to remove suppliers’ need to respond to different customers’ individual requests. Our membership demonstrates to our suppliers how important we feel climate change is to business decision-making, along with our desire to work collaboratively. Through our membership we can also explore possible links between corporate level disclosure and product carbon footprinting information provision, to support our Carbon Reduction Label work. PIUK has selected 30 suppliers to take part, focusing on those with whom we can collaborate to develop significant supply chain carbon footprint reduction strategies.

Investing�in�research�–�sustainable�farming�and�agriculture�We are investing in a number of research projects by leading experts on sustainable farming and agriculture. We commissioned a Life-Cycle Assessment of potato and oat agricultural practices, and an energy audit of potato stores for Walkers. The audit will assess different types of stores (e.g. box, bulk, old and new) to identify where CO2e savings can be made. We have commissioned an assessment of the climate change risks and opportunities for European oats production, to be carried out by the University of Bath. We are looking at how to reduce soil erosion from potato farming, and what varieties of potato would consume less water whilst growing. Quaker was a founder member of Linking Environment and Farming (LEAF), which helps farmers make a positive environmental contribution by improving their growing and harvesting practices, and their use of water and fertiliser. In 2008 we will work to develop our capacity building with farmers and growers, and improve our training and support for our agricultural supply base. 16

S4977_env_report.indd 16 12/6/08 11:11:38

� Dilemma

—� �Faced�with�competitive�pressures,�how�do�companies�collaborate�through�their�supply�chains�on�carbon�management?

Stakeholder�feedback“The Supply Chain Leadership Collaboration is a key step towards a unified business approach to climate change. By bringing together the purchasing authority of some of the largest companies in the world, PepsiCo and others can encourage suppliers to measure and manage their greenhouse gas emissions. This will enable large companies to work towards measuring their total carbon footprint, the first step towards managing and reducing it.”

Paul Dickinson Chief Executive, Carbon Disclosure Project

Engaging our supply chain is important, but we also have an opportunity to inspire consumers on sustainability. Find out what we are doing to tackle it.

Quaker Oats being harvested, ScotlandWalkers potatoes, Lodge Farm

17

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Consumers�and�the�environmentOver the last two years the level of consumer concern and interest in environmental issues, but particularly climate change, has increased dramatically. Many consumers are challenging retailers and consumer brands to tell them more about the impact of the products they buy, are calling for strong action from companies, and asking for positive environmental choices to be made easier. With our portfolio of brands, and our packaging, marketing and promotions, we have great potential to engage with consumers to build their environmental knowledge and inform their choices. We have three work streams in 2008: raising the carbon literacy of the public through carbon labelling; focusing on the provenance of our products; and incentivising the public to holiday in Britain. Carbon labelling is our primary priority and we believe it will become a key tool in creating the demand for low carbon products.

Walkers�and�carbon�labellingResearch from the UK Government, NGOs and other companies shows that consumers are increasingly concerned about the environment, and want to know more about the environmental impact of the products

they buy. In 2006 and 2007 we worked closely with the Carbon Trust to measure the carbon footprint of a packet of Walkers Crisps, and understand how we can reduce it. The value of 75g of CO2e per 34.5g bag, calculated using the Carbon Trust’s rigorous methodology, includes every key step in the process, from planting the potato seed, to the pack arriving in store, through to disposal of the empty packet. After assessing the footprint we, and the Carbon Trust, wanted to communicate the information – and a commitment to reduce the carbon impact of our crisps – to the public. The launch of the Carbon Trust Carbon Reduction Label on our crisp packets was the result. The announcement of the trial was welcomed in the media as a groundbreaking initiative – the first carbon label in the world (see page 20). But supportive media coverage is not our measure of success. We want to know how consumers are responding.

Engaging the public

Our�pledges— Quaker to work towards adopting the Carbon Trust Carbon Reduction Label

— Walkers to incentivise and engage the public on holidaying in Britain during 2008

PepsiCo UK & Ireland

18

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Consumers recalling a carbon label on Walkers Crisps

Consumers�and�carbon�labellingIn July 2007 and February 2008 we commissioned consumer research from Populus to take an early snapshot of how consumers are responding to the new carbon label. This research sought to understand awareness, perception and impact of carbon labelling among consumers, and to track perceptions from the launch in March 2007.

The research shows that awareness of carbon labelling is reasonably high, with 78% of consumers saying they have heard of it (rising to 85% for consumers who are concerned about the environment). There is a low level of cynicism towards carbon labelling and a belief that it could, over time, help consumers to make a difference. 31% of consumers say it “allows people to make a modest, personal contribution to the problem of climate change” and 20% say that “it is a positive development and more companies should do it”. Only 21% of consumers state that it is “purely a gesture”. Carbon labelling shows real potential to drive behaviour change by increasing

consumer awareness of the environmental impact of the food they buy. 79% of consumers now say that the label makes them “more aware of the environmental impact of the products and services they choose to buy”. A minority of consumers (5%) recall seeing the label on products. Of those, 17% recalled seeing the label on a packet of Walkers Crisps in July 2007. By February 2008 this number had risen to 32%.

At such an early stage we think these results are encouraging, and suggest that consumers are hungry for more robust information on the carbon impact of the products and services they buy and public declarations of support for our commitment to reduce. In April 2008 Walkers backed the second phase of the Carbon Trust leadership in this field, by supporting an evolved logo. The new label design includes four core elements: a footprint logo, the carbon footprint number, an endorsement by the Carbon Trust and a written reduction commitment. Our research, along with that of the Carbon Trust and other partners, suggests the new logo will be even more easily understood by consumers.

12%

10%

21%

6%

20%

31%

I don’t know/care

It is confusing and difficult to

understand

It is purely a gesture

It is an effective way of addressing the problem

of climate change

It is a positive development and more companies should do it

It allows people to make a modest, personal contribution to the problem of climate change

Figure 10: Consumer reaction to Carbon Reduction Label (research undertaken by Populus)

Figure 11: Consumer reaction to Carbon Reduction Label (research undertaken by Populus)

On-line omnibus study with 1000+ adults 18+, July 2007 and February 2008

On-line omnibus study with 1000+ adults 18+, February 2008

July 2007

17

February 2008

32

40

30

20

10

0July 2007

% Agree somewhat

% Agree strongly

February 2008

47

23

47

32

40

50

60

30

20

10

0July 2007 February 2008

47

15

49

22

It makes me more aware of the environmental impact of the products and services I choose to buy

It helps me to reduce the carbon footprint of my regular shopping items

July 2007

% Agree somewhat

% Agree strongly

February 2008

47

23

47

32

40

50

60

30

20

10

0July 2007 February 2008

47

15

49

22

19

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Carbon�labelling�–�the�journey�aheadWe know that we are at the start of a journey on carbon labelling. In 2008 and beyond we will work with DEFRA, the Carbon Trust and the British Standards Institute to agree an industry-wide common methodology for carbon footprinting and labelling. We, and others, will work to bring other partners to the initiative – and to engage with consumers to increase their understanding of what the label shows. With our opportunity to engage millions of consumers, we will continue to watch the consumer response – and whether information on carbon can truly help people make better environmental choices.

Sourcing�locally�–�Great�British�Potatoes�In August 2007 Walkers, supporting its role as an iconic British brand, announced that it would switch to sourcing 100% British potatoes for all its crisps. Following Walkers’ carbon label commitment to reduce its carbon footprint, moving to source only British potatoes would reduce food miles, and support British farmers. The move meant that Walkers would be buying an additional 40,000 tonnes of potatoes per year from the UK, on top of the existing 420,000 tonnes. To inspire and engage consumers about the move, Walkers refreshed its packaging, ran a TV advertising campaign, and used outdoor, press, radio and online communications.

Supporting�green�holidaysIn 2008 Walkers has moved further, and is incentivising consumers to holiday in Britain rather than flying abroad. Walkers’ Brit Trips campaign which ran for several months, was designed to inspire consumers with all there is to see and do in Britain, telling them “There’s no need to go to the airport. It’s all right on your doorstep – this is just one way you can help reduce your family’s carbon footprint.” Research conducted with the Energy Savings Trust in advance of the campaign, suggests real carbon emissions will be avoided. To help engage consumers Walkers partnered with a wide number of organisations on the campaign, including the National Trust and The Royal Society for the Protection of Birds.

Engaging the public

A key consumer concern is whether our packaging is sustainable. Find out what we are doing to tackle it.Financial Times,

March 200720

S4977_env_report.indd 20 12/6/08 11:11:52

� Dilemma

—� �How�do�we�respond�to�demands�from�consumers�or�retailers�that�might�increase�our�carbon�footprint?�

Stakeholder�feedback“Walkers’ partnership with the Trust allows us to celebrate the very best that Britain has to offer by encouraging visitors to enjoy some of the country’s most beautiful and precious properties and countryside. This makes for an ideal partnership.”

Stephen Swift The National Trust

“Walkers has worked with British growers for many years but this move shows a real commitment to British farming and provides growers with the reassurance they require. I hope that other packers and processors within the UK will follow suit and support British production.”

Peter Kendall President, National Farmers’ Union

Engaging consumers on sustainability

21

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PepsiCo UK & Ireland

Waste and packaging

Waste,�packaging�and�our�businessThe majority of our packaging comes from non-renewable sources, such as fossil fuels, and landfill capacity in the UK is finite. As a result, we are committed to reducing the energy and non-renewable raw materials used to manufacture our packaging, and are using a scientific life-cycle assessment approach, along with the waste hierarchy, to deliver change: reducing and recycling our direct waste, and redesigning and minimising our packaging.

Reducing�and�recycling�our�wasteDuring 2007 we reduced the total solid waste produced in our UK operations by 22.6%, from 43,326 tonnes to 33,536 tonnes. We reduced the amount of solid waste sent to landfill by 23.6% during 2007, to 3,476 tonnes. Overall 90% of our waste was recycled during 2007 amounting to 30,060 tonnes. Over 700 tonnes of foil and plastic

film waste was recycled to make pallets and park benches. In 2008 we aim to reduce our waste to landfill by a further 20%. Britvic plc have reduced the waste sent to landfill following the manufacture of Pepsi Cola, 7UP and Gatorade by 58% between 2002/3 and 2006/7 – from 680 tonnes to 282 tonnes.

Our Quaker business has worked with the charity Fare Share to distribute surplus food to others who would benefit, rather than see it go to landfill. Over the next three years we plan to work with Magic Breakfast to donate surplus Tropicana, Copella and PJ’s Smoothies to breakfast clubs in schools serving deprived communities. This will reduce our waste to landfill by several hundred tonnes.

Our Green Team at Theale head office reduced paper use by 30% over 6 months by educating other staff about printing and paper use, and changing our default printer settings to black and white, double-sided printing.

Our�pledges— Reduce PIUK total waste to landfill by a further 20% during 2008

— Achieve zero landfill waste across our total supply chain within 10 years

— Commission life-cycle assessments of our major packaging materials to identify optimal choices for greenhouse gas and water reduction

— All Quaker and Walkers packaging to be renewable, recyclable or biodegradable within 10 years

— Quaker and Walkers to roll out Forestry Stewardship Council paper-based packaging, where appropriate, within 3 years

— Donate surplus Tropicana, Copella and PJ’s Smoothies to breakfast clubs in deprived communities, diverting them from landfill

— Reduce Walkers packaging weight by a further 10% by 2010

22

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PIUK�people��making��a�difference

“We wanted to drive awareness about waste, so we filmed a refuse truck full of ‘waste’ which was being taken to a landfill site. It vividly showed the production teams what they were throwing away. Following the impact of the film we installed equipment to recycle more, and it has led a 10-fold decrease in landfill over the last 6 months. Further action plans are in place to reduce it further with a vision of zero landfill. Further action plans are in place to reduce it further with a vision of zero waste going to landfill.”

Paul Wells Coventry snacks plant

Figure 12: PIUK total production and total waste (2006-07) *

Total UK waste in 2006: 43,326 tonnes

Total UK waste in 2007: 33,536 tonnes (22.6% reduction)

Total UK waste sent to landfill in 2006: 4,547 tonnes

Total UK waste sent to landfill in 2007: 3,476 tonnes (23.6% reduction)

2007

Production

+10.3%

Total waste

-22.6%

2006 2007

Production

+10.3%

Waste to landfill

-23.6%

Figure 13: PIUK total production and total waste to landfill (2006-07) *

* Solid waste from UK sites, and PepsiCo manufacturing in Rotterdam and Zeebrugge for UK market. Excludes Britvic plc production, Skelmersdale, and corporate offices.

2006

Walkers Crisps packets are now 4% lighter, avoiding 1,700 tonnes of CO2e

During 2007 we recycled 90% of the waste from our UK operations

23

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Using�less�packagingAcross our brands we have reduced the raw materials used to make our packaging by using light-weight materials and by investing in new high-precision machinery.

Over the last five years we have reduced the amount of plastic used to make our Tropicana and Copella bottles by 18%, and are using 4% less film to make a Walkers Crisps packet. Working with the corrugate case supplier, SCA Packaging, our Quaker Oats facility at Cupar has reduced the amount of corrugate used by 30% over 5 years by moving to cases with open tops and reduced sides rather than traditional fully-enclosing cases.

By 2010 we hope to make our Walkers Crisps and snacks packaging 10% lighter, using fewer resources and less energy to produce than before. Walkers is investigating reducing the seal depth of its standard crisp bag, which could save a further 2,800 tonnes of CO2e by the end of 2009. We are working with several of our retail customers to measure and reduce our packaging. In 2008 Quaker will move to using recycled cardboard in its boxes.

Investing�in�packaging�researchWe are using life-cycle assesments and internal metrics and scorecards to identify optimal packaging choices. We have a number of specific research projects underway, including:

• Exploring the potential use of recycled industrial waste plastic film in our multi-pack crisp packets. This would mean that we are reducing the amount of (non-renewable) fossil fuels that we are depleting. We hope to conduct a trial later this year, with potential application in 2008/9.

• Undertaking a study into a number of new biodegradable packaging films to assess their compatibility with existing or future infrastructure.

• Continuing trials looking at how different forms of crisp packaging degrade when dropped as litter. These are comparing the performance of our current crisp packaging against a range of bio-degradable films.

Waste and packaging

24

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PIUK�people��making��a�difference

“We are reusing starch generated from slicing and washing potatoes to make our snack products. This has reduced the need to import starch from Europe, reduced the associated transport carbon emissions and has saved the PIUK business over £1m this year. In 2008 we will increase our usage and hope to be 100% self sufficient by next year.”

Pete Flanaghan EMS and project team

� Dilemma

—� �Does�the�consumer�focus�on�packaging�risk�diverting�attention�from�larger�environmental�goals?

Achievements over last 5 years

Reducing raw materials

16% reduction in cardboard

used per case

3,500 tonnes of paper saved 1,970 tonnes

4% reduction in film used

per pack

360 tonnes of OPP film 1,710 tonnes

14% reduction in film used

per pack

450 tonnes of OPP film 1,260 tonnes

9% reduction in cardboard

used per case

1,000 tonnes of paper saved 563 tonnes

18% reduction in plastic used

500 tonnes of PET plastic

2,340 tonnes

CO2e avoided *

* Since change

Walkers Crisps cases

Walkers Crisps packets

Walkers multi-pack film

Tropicana and Copella bottles

Doritos and snack cases

25

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PepsiCo UK & Ireland

Water

Our�pledges— Achieve zero water intake at our Walkers Crisps manufacturing sites within 10 years

— Reduce water use at British manufacturing sites by a further 45% per kg of production within 3 years

— Invest in research to identify the most environmentally sensitive ways of irrigating our agricultural raw materials

— Carry out research to identify operations that risk contributing to water shortages

Water�and�our�businessWater is essential for all foods: for growing, washing, processing and cooking them. How much water we use is important, and we are committed to minimising our water footprint through greater efficiency in our operations. But we know that where we source our water from is just as critical, with stressed sources causing great damage to local communities and eco-systems. We are committed to helping suppliers reduce their water footprint and avoiding water conflict with local communities.

�Using�less�water�in�our�operationsOur total water use across all our operations was 1,564m litres in 2007. Between 2001 and 2007 we reduced the water used to manufacture Walkers Crisps by 42% from 13 l/kg of production to 7.6 l/kg. At our Leicester factory alone, this amounts to 700m litres of water saved. During 2007 we reduced the water used to produce all our crisps and snacks by 2.3%, from

6.67 l/kg to 6.52 l/kg. This reduction was achieved by a comprehensive analysis of all water usage and improved measurement through the installation of water meters to cover the major usage areas. The Walkers team developed engineering solutions to reduce equipment water use and created sources for recycled water. Training and communication sessions were held for all employees to drive awareness of the need to reduce water use and how they could play a part. Performance was tracked between lines and shifts, with the best performing teams being rewarded and recognised for their efforts. Projects are underway to capture water extracted from potatoes during slicing and frying, to treat it and reuse it. As a result we will move to zero water intake at all of our Walkers Crisps manufacturing sites within 10 years, starting with our Leicester plant, eliminating the need to bring mains water onto our sites.

Where we source our water from is crucial. None of our factories or offices in the UK and Ireland is in a region that the Environment Agency identifies as under “serious water stress”. 26

S4977_env_report.indd 26 12/6/08 11:11:59

Peterlee

Skelmersdale

Warrington

Lincoln

Thurmaston

LeicesterCoventry

Boxford

Theale

Cupar

Richmond

Dublin

Drogheda

Figure 15: PIUK total production and total water use (2006-07)

Figure 16: PIUK locations, and major water users

Total PIUK water use 2006: 1,505m litres

Total PIUK water use 2007: 1,564m litres

The water used to bottle 1 litre of Tropicana reduced by 17% during 2007

Major water users (over 20m litres per annum)

None currently operating in areas defined by Environment Agency as seriously water stressed

Other PIUK sites

Production

+10.3%

Water use

+3.9%

20072006

Includes PepsiCo manufacturing in Rotterdam and Zeebrugge for UK market. Excludes Britvic plc production and Thurmaston.

Figure 14: Walkers Crisps water use per kg of production (2001-07)

Litres/kg production

7.6

13

– 42%

2001

2007

27

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Using�less�water�in�our�supply�chainPepsiCo provides guidelines to suppliers and growers on environmental management, including their water management practices. The majority of our oats and potato growers are in regions of the UK that have historically suffered only limited water stress. During 2008 we will extend our relationships with our supply base, especially within the agricultural sector.

We will continue to develop practical indicators and guidelines for minimising agricultural use of water, and for reducing the impact of agricultural inputs on water quality.

For Tropicana we estimate that the vast majority of our water footprint, 99.74%, occurs in the growing of the oranges in Brazil. 98.5% of the water used to grow our oranges comes from rainfall, with only 1.5% from irrigation diverted from rivers. Around 0.21% of the total water use occurs during the production of the packaging and less than 0.05% during bottling.

Our orange juice supplier uses waste water to irrigate a sustainable palm tree plantation of four million trees next to their orange-juicing factory. When making Copella apple juice, we estimate 47% of the water footprint is used to irrigate the apple orchards.

Investing�in�water�researchWe have partnered with the Scottish Crop Research Institute to investigate new potato varieties that would require less water. We are investing in new research into irrigation optimisation. The project aims to compare the effectiveness of various agricultural irrigation systems aimed at managing and conserving water resources from surface and borehole sources.

� Case�study�—�water�access�in�developing�countries— The Earth Institute at Columbia University will receive £3m from the PepsiCo Foundation during

the next 3 years directed at projects in India, Brazil, China and Africa. These will identify a series of high-impact, community-based activities and practical solutions to improve water access and recommend innovative methods to improve water productivity. PepsiCo Inc has also formed a £1.25m partnership with H2O Africa, the charitable organisation founded by Matt Damon, to deliver on-the-ground clean water projects in Niger, Mali, Senegal and other countries in Africa. Both initiatives will drive sustainable water practices as part of PepsiCo’s ongoing commitment to support the Millennium Development Goals (MDGs).

Water

PepsiCo Inc

Our supply chain is also a large part of our carbon footprint. Find out what we are doing to tackle it.28

S4977_env_report.indd 28 12/6/08 11:12:00

� Dilemma

—� �Should�sourcing�be�shifted�away�from�water-stressed�regions�or�countries,�or�should�suppliers�be�engaged�to�reduce�their�water�footprint?

Stakeholder�feedback“Water, or the lack of it, is a growing global challenge. The stark reality is that by 2025 an estimated 1.8 billion people will be living without enough water to survive. To produce the world’s food right now takes some 86% of the world’s fresh water – a staggering 200 million litres every second. We simply cannot sustain our current water habits. Food businesses need to consider their “water footprint” and actively support improved stewardship of water as a vital resource with enormous value to society. To do this, they need to engage with the communities that supply and consume their products and use their influence with their supply chains.”

Jim Haywood Environment Director, Business in the Community

0.21%

Packaging supply chain

99.74%

Orange growing (98.5% rainfall, 1.5% irrigation)

0.05%

Bottling

Figure 17: Tropicana water footprint

Water footprint of 1 litre of Tropicana: 1,100 litres (inc rainfall) 20 litres (exc rainfall)

Walkers potato harvest 2007

29

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Performance�against�previous�targetsPIUK 2007 Operations target (excludes non-UK sites)

2007

% target reduction

% actual reduction

energy use, kWh per kg production

3 5.2

water use, litres per kg production

5 2.1

landfill waste 10 21

We exceded our 2007 targets on energy and waste and under-achieved on water.

On energy, we saw significant gas burner technology improvements, combined with improved yields on raw material use (e.g. potatoes). In addition, downtime and wastage control programmes delivered better running efficiencies.

To be more responsive to customer needs, we decreased average product run lengths, which led to more frequent cleaning, which is a major water user. Additionally, we experienced a higher than forecast production volume of more water-intensive products.

The installation of the Leicester starch production plant made a major contribution to the reduction in total waste. Waste from the Walkers Crisps production process, at both Leicester and Peterlee, that was previously sent off site for recycling, was reprocessed to become a raw

material for other PIUK products. Improved waste performance at key facilities was also driven by staff engagement and initiatives.

Stakeholder�engagement�on��this�reportIn March 2008 we shared an early draft of this report with 18 senior representatives from NGOs, academia, retail customers and suppliers at two stakeholder workshops, facilitated by Forum for the Future. These stakeholders provided a series of recommendations both for our reporting in this, our first report, and for our future reporting and strategy. We responded to many of their recommendations for this report, including:

• Reporting on trends in absolute environmental impacts (e.g. total carbon, waste and water year-on-year);

• Showing performance against existing targets;

• Featuring ordinary PIUK employees and the projects they have initiated;

• Showing more historical data (e.g. pre-2006 and 7); and

• Outlining key agricultural research programmes.

Stakeholder feedback was critical in strengthening our report. We sincerely thank all those who generously gave us their time, and look forward to continued dialogue to use external perspectives to shape our approach (see page 39).

Scope, boundaries and assurance

30

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GRI�indexWe have reported on a number of the GRI Key Performance Indicators, either in whole or in part. In the Key data table (pages 34-35) we note which of the GRI indicators we have received assurance for, and where they can be found in the report. In addition to these there are other GRI indicators and areas we have sought to cover.

GRI reporting framework In our report

Strategy and Analysis Strategy and approach

Organisational profile Strategy and approach / Scope, boundaries and assurance

Report parameters Strategy and approach / Scope, boundaries and assurance

Governance, commitments and engagement Strategy and approach

GRI Indicator In our report

Initiatives to reduce greenhouse gas emissions and reductions achieved

Climate change Sustainable supply chain

EN18

Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation

All chapters EN26

Glossary of terms NGO A non-governmental organisation is a legally constituted organisation created by private persons or organisations with no participation or representation of any government.

ISO 14001 This is is the recognised international specification for an Environmental Management System (EMS). An EMS certified to ISO14001 standards means that an organisation can demonstrate that it has robust environmental management practices, and is committed to improving upon them.

CO2e CO2equivalents – the amount of CO2 which would have to be released in order to have an equal impact on the atmosphere as the specific amount of another greenhouse gas released.

CDP The Carbon Disclosure Project (CDP) is an independent not-for-profit organisation aiming to create a lasting relationship between shareholders and corporations on the implications for shareholder value and commercial operations presented by climate change. Its goal is to facilitate a dialogue, supported by quality information, from which a rational response to climate change will emerge.

GRI The Global Reporting Initiative has pioneered the development of the world’s most widely used sustainability-reporting framework and is committed to its continuous improvement and application worldwide.

UOM The units of measurement used in our indicators, for example litres, kilogrammes and kiloWatt-hours.

31

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Basis of reporting

Reporting�period�and�entities�coveredThe PIUK Environmental Sustainability Report (“the Report”) provides data and information for the period January-December 2007, except where specifically noted. Data within the Report, unless otherwise stated, covers all of our UK sites and facilities. In some sections, for example on sustainable supply chain, data will cover a wider scope – and this will be clearly stated. Unless otherwise stated, any text or graphics throughout the report relate to the activities of PIUK – not our parent company PepsiCo Inc, or other PepsiCo businesses. PIUK includes Quaker, Tropicana, Copella, PJ’s, Walkers and their sub-brands. Pepsi, 7UP and Gatorade are produced, sold and distributed by Britvic plc.

Following stakeholder feedback, we have included a small number of case studies on PepsiCo Inc activities on water and energy saving. These are delineated from the main report text in blue coloured boxes. Following stakeholder feedback we have also included a selection of data and case-studies on Pepsi Cola production by Britvic plc.

Scope�of�dataData are collected twelve times a year, by the Central Sustainability team, directly from the team of seven Site Sustainability Managers and three Facilities Managers. The Central team collate and review these data in spreadsheets, which are then published for the Vice President of Operations and his team to review and drive performance against. The data for Rotterdam and Zeebrugge are collected in a similar way by our PepsiCo European counterparts, with the data being then

provided to the Central Sustainability team once a year. PIUK has been collecting certain of these data (e.g. energy) since 1999.

In 2007, all our 7 current UK manufacturing sites (see www.pepsico.co.uk/about) reported environmental performance data and this is represented in the report. In figures 5, 6, 12, 13 and 15 – showing the PIUK carbon footprint, energy use, water use and waste – we have also included the share of the footprint or impact of PepsiCo manufacturing in Rotterdam and Zeebrugge, produced for the UK market (e.g. for each facility we have included the energy, water or waste use or generation associated with their production destined for the UK market). Data in some sections, for example on product-level carbon footprints, cover a wider scope – and this is clearly stated.

We were not able to verify or include in this report energy, water and waste data from several overseas PepsiCo production sites that supplied small volumes to the UK market during 2007:

- Because of a fire in 2007, production of Walkers Lights was temporarily transferred to Veurne in Belgium (equivalent to 0.24% of PepsiCo production for the UK). This site also supplied further Walkers products during the year (equivalent to 0.03% of PepsiCo production for the UK);

- Hermes in France provides overflow capacity for our juice production site in Zeebrugge (equivalent to 1.41% of PepsiCo production for the UK);

- Borgloon in Belgium also produces small quantities of ambient juice (equivalent to 0.07% of PepsiCo production for the UK);32

S4977_env_report.indd 32 12/6/08 11:12:08

- Naked smoothies, introduced to the UK in late 2007, are produced in the United States (equivalent to 0.004% of PepsiCo production for the UK);

- Nobby’s Nuts are produced in Zandaam in the Netherlands (equivalent to 0.44% of PepsiCo production for the UK);

- PJ Kick was produced in Hamburg, Germany (equivalent to 0.08% of PepsiCo production for the UK) before production ceased;

- A PepsiCo facility in Canada provided overflow capacity on Snack a Jacks for one month in 2007 (equivalent to 0.01% of PepsiCo production for the UK);

- Silea in Italy manufactured Gatorade for the UK market (equivalent to 0.17% of PepsiCo production for the UK);

- Because of changes in PIUK, our production site in Newark closed and did not submit any data through our corporate reporting. During the time Newark operated it produced 1.68% of PepsiCo production for the UK;

- In addition, we have not included data from two sales offices in Ireland (Dublin and Drogheda), our satellite depot at Bellshill, or our various trans-shipment points around the UK. It was not possible to collect data from these locations, but we will endeavour to include them in our data next year.

We did not systematically collect data from third-party companies that manufacture or pack our products, for example Britvic plc. Based on stakeholder feedback, we have separately listed a small amount of data on Pepsi Cola, bottled in the UK by Britvic. These data are not included in our corporate totals or key performance graphs. For further information on the environmental performance of Britvic, and the products they manufacture, go to:

www.britvic.co.uk/CorpEnvironment.aspx

We did not collect data from third-party companies that distribute our products.

We have also included energy, water and waste data for products that we have manufactured in the UK for export to other markets. The most significant of these is at Cupar, our sole UK production site for Quaker, where 48% of the volume produced is exported. In addition other PIUK sites exported 2,680 tonnes of finished products, equivalent to 0.58% of PIUK production volume. Our Lincoln site also exported 7,140 tonnes of Quavers pellets to other PepsiCo companies – equivalent to 1.54% of PIUK production volume in 2007. When other PepsiCo business units choose to report in future, we will work with them to agree a common approach, and avoid double-counting.

Quality�of�dataWe have Site Sustainability Managers in place at all our manufacturing sites, a Central Sustainability Team, and are developing an Environmental Management System. We have implemented internal metrics and scorecards, have 100% corporate reporting on energy and water, and all plants will be ISO 14001 accredited by the end of 2008. Comparability of data from year to year may be affected by changes in the number and attributes of PIUK facilities, changes in the methodology for determining certain data and continual improvements in our performance measurement systems. Although we are confident in the overall reliability we recognise that some site level variations in data collection methodologies may exist. This is minimised through providing training to sites as well as through communications with the sites and business units.

For a detailed explanation of our data definitions, collection methods, and basis of calculation please see the Key data table on pages 34-35.

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Indicator�title�(measure)

Definition UOM 2007�Value Geographical�Scope

How�collected Basis�of�calculation GRI�Indicator

1���Direct�energy�use†

Our�direct�energy�use�arises�as�a�consequence�of�the�activities�of�PepsiCo�production�in�and�for�the�UK�market,�from�sources�that�are�owned�or�directly�controlled�by�PepsiCo.�In�this�report�these�are�our�on-site�gas�and�oil�burners.

kWh 501,959,311 PIUK�sites,�Rotterdam,�Zeebrugge.

Each�site�inputs�values�for�gas�(kWh)�and�fuel�oil�(litres),�from�supplier�bills�into�site�spreadsheet.�

12�times�p.a.

Fuel�oil�(l)�converted�to�kWh�using�DEFRA�conversion�factor.

All�sites’�gas�(kWh)�and�litres�of�fuel�oil�(kWh)�then�aggregated�in�central�spreadsheet.

EN3

2���Indirect�energy�use†

Our�indirect�energy�use�arises�as�a�consequence�of�the�activities�of�PepsiCo�production�in�and�for�the�UK�market,�but�occurs�from�sources�controlled�by�other�companies.�In�this�report�indirect�energy�use�covers�the�electricity�procured�from�the�national�electricity�grids�of�the�UK,�the�Netherlands�and�Belgium.

kWh 144,848,084 PIUK�sites,�Rotterdam,�Zeebrugge.

Each�site�inputs�values�for�electricity�(kWh),�from�supplier�bills�into�site�spreadsheet.�

12�times�p.a.

All�sites’�electricity�(kWh)�then�aggregated�in�central�spreadsheet.

EN4

3���Total�carbon�footprint†

Our�total�carbon�footprint�includes�the�CO2e�arising�from�our�direct�and�indirect�energy�use,�the�fuel�used�by�our�distribution�fleet�and�employee�car�travel.�It�does�not�include�employee�air�travel.

tonnes�CO2e

209,797 PIUK�sites,�Rotterdam,�Zeebrugge.

Outputs�from�the�indirect�&�direct�energy�use�measures,�in�addition�to:

-�Distribution�fleet�–�aggregation�of�fuel�(litres)�purchased.

-�Car�travel�is�an�aggregation�of�fuel�purchased�on�company�fuel�cards,�and�mileage�claimed�by�employees�using�their�own�cars�for�business�use.�

Data�on�greenhouse�gas�(GHG)�emissions�from�energy�use�are�reported�as�carbon�dioxide�equivalents�(CO

2e)�and�calculated�in�line�with�The�Greenhouse�Gas�Protocol�Corporate�Accounting�and�Reporting�Standard�(World�Resources�Institute�&�World�Business�Council�forSustainable�Development,�2004).�GHG�emissions�from�electricity�consumption�use�UK�conversion�factors�were�provided�by�DEFRA.��A�five-year�average�(2002-07)�has�been�used�for�2006�and�2007�data.DEFRA�conversion�factors�used�for�converting�car�litres�/�mileage��into�CO2e.

EN16,�EN17

4���Energy�use�per�kg�of�production�(Walkers�Crisps�and�snacks)†

Total�(indirect�and�direct)�energy�use�used�to�make��1�kg�of�Walkers�product

kWh�per�kg

2.69 PIUK�Walkers�Crisps�and�snacks�manufacturing�sites

Indirect�/�direct�energy�data�collected�as�above.Production�volumes�collected�by�Central�Finance�team�via�automatic,�end�of�line�(bar�code�readers),�production�recording�system.

Production�volumes�converted�automatically�from�cases�to�kg�in�financial�system,�and�verified�by�Central�Finance�team.�Volumes�and�energy�use�then�aggregated�in�Central�Sustainability�spreadsheet�and�value�calculated�automatically��to�achieve�stated�values.

EN5,�EN6

5���Energy�use�per�kg�of�production�(Walkers�Crisps)

Total�(indirect�and�direct)�energy�use�used�to�make�1�kg�of�Walkers�potato�crisps

kWh�per�kg

3.11 PIUK�Walkers�Crisps�manufacturing�sites

As�per�number�4��(see�above)

As�per�number�4��(see�above)

EN5,�EN6

Key�data�table

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Indicator�title�(measure)

Definition UOM 2007�Value Geographical�Scope

How�collected Basis�of�calculation GRI�Indicator

6���Total�waste�recycled†

Total�amount�of�solid�waste�recycled

tonnes 30,060 PIUK�sites,�Rotterdam,�Zeebrugge.�Excluding�Skelmersdale.

All�streams�weighed�as�they�are�despatched�from�site.�Weights�recorded,�cross-checked�with�invoices�raised�for�receiving�company,�and�entered�in�spreadsheet.�The�aggregation�is�then�is�reported�12�times�p.a.�

All�site�data�are�aggregated�in�central�spreadsheet.�

EN22

7���Total�waste�to�landfill†

Total�amount�of�solid�waste�sent�to�landfill

tonnes 3,476 PIUK�sites,�Rotterdam,�Zeebrugge.�Excluding�Skelmersdale.

Weight�assumption�for�each�load�leaving�site�made�by�visible�inspection.�Recorded�in�spreadsheet,�aggregated�12�times�p.a.

All�site�data�are�aggregated�in�central�spreadsheet.

EN22

8���Total�water�use†

Total�amount�of��water�used

litres 1,564,001,980 PIUK�sites,�Rotterdam,�Zeebrugge.�Excluding�Thurmaston.

Site�water�meter�readings�taken�at�least�weekly,�recorded�and�aggregated�in�spreadsheets.

All�site�data�are�aggregated�in�central�spreadsheet.

9���Water�use��per�kg�of�production�(Walkers�Crisps�and�snacks)†

Water�used�to��create�1�kg�of��Walkers�product

litres�per�kg

6.52 PIUK�Walkers�Crisps�and�snacks�manufacturing�sites

Site�water�meter�readings�taken�weekly,�recorded�and�aggregated�in�spreadsheets.

Production�volumes�collected�by�Central�Finance�team�via�automatic,�end�of�line�(bar�code�readers),�production�recording�system.

Production�volumes�converted�automatically�from�cases�to�kg�in�financial�system,�and�verified�by�Central�Finance�team.�

Volumes�and�water�use�then�aggregated�in�Central�Sustainability�spreadsheet�and�value�calculated�automatically�to�achieve�stated�values.

10���Water�use�per�kg�of�production�(Walkers�Crisps)

Water�used�to�create�1�kg�of�Walkers�potato�crisps

litres�per�kg

7.61 PIUK�Walkers�Crisps��manufacturing�sites

As�per�number�9�(see�above)

As�per�number�9�(see�above)

† Indicates performance data reviewed by Deloitte as part of their environmental sustainability assurance work. See pages 36-37 for the assurance statement from Deloitte.

Our key products and brands

Manufactured by PepsiCo: Manufactured by Britvic:

35

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Assurance statement from Deloitte

Independent�assurance�report�to�PepsiCo�International�Limited�on�the�PepsiCo�UK�and�Ireland�Environmental�Sustainability�Report�2007�(the�Report).

Scope of assurance work

• We have been engaged by the Board of Directors of PepsiCo International Limited to perform limited assurance* procedures on PepsiCo UK and Ireland’s (“PIUK”) Group level compilation of its 2007 selected environmental performance indicators as indicated on page 34 – 35.

Basis of our assurance work and our assurance procedures

• We carried out limited assurance in accordance with the International Standards on Assurance Engagements 3000 (ISAE 3000). To achieve limited assurance the ISAE 3000 requires that we review the processes and systems used to compile the areas on which we provide assurance. It does not include detailed testing of source data or the operating effectiveness of processes and internal controls. This provides less assurance and is substantially less in scope than a reasonable assurance* engagement.

• The evaluation criteria used for our assurance are PIUK’s definitions and basis of reporting of the indicators as described on page 32 - 35 of the Report.

• Considering the risk of material error, a multi-disciplinary team of corporate responsibility and assurance specialists planned and performed our work to obtain all the information and explanations we considered necessary to provide sufficient evidence to support our assurance conclusion. Our work was planned to mirror PIUK’s own Group level compilation processes, tracing how data for each indicator within our assurance scope was collected, collated and validated by PIUK head office and included in the Report.

• Our work was based at PIUK Group level only and did not include visiting and reviewing data collection, collation and validation of other PepsiCo International Limited operations.

* The levels of assurance engagement are defined in ISAE 3000. A reasonable level of assurance is similar to the audit of financial statements; a limited level of assurance is similar to the review of a six-monthly interim financial report.

36

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Our assurance conclusion

• Based on the assurance work performed, nothing has come to our attention causing us to believe that the 2007 selected environmental performance indicators as indicated on page 34-35 are not in all material respects compiled at PIUK Group level as described on page 32 - 35 regarding PIUK’s definitions and basis of reporting of the indicators.

Responsibilities of Directors and independent assurance provider

• The Directors are responsible for the preparation of the Environmental Sustainability Report and statement contained within it. They are responsible for determining PIUK’s objectives in respect of environmental performance and for establishing and maintaining appropriate performance management and internal control systems from which the reported information is derived.

• Our responsibility is to independently express conclusions on reliability of management’s assertions on the selected subject matters as defined within the scope of work above.

• We performed the engagement in accordance with Deloitte’s independence policies, which cover all of the requirements of the International Federation of Accountants (IFAC) Code of Ethics and in some areas are more restrictive. We confirm to PepsiCo International Limited that we have maintained our independence and objectivity throughout the year, including the fact that there were no events or prohibited services provided which could impair that independence and objectivity in the provision of this engagement.

• This report is made solely to PepsiCo International Limited in accordance with our letter of engagement for the purpose of the Directors’ governance and stewardship. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than PepsiCo International Limited for our work, for this report, or for the conclusions we have formed.

Deloitte & Touche LLP

London, 3rd June 2008

37

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Future challenges

Their�priorities�for�action�

National�Farmers’�Union�“For every link in the PepsiCo supply chain to build economic and environmental sustainability concurrently, the best research and development will be vital. PepsiCo will need to work hard with its grower base to develop appropriate research which finds better ways to use water, reduces waste, increases yield and reduces the environmental footprint of its dedicated agricultural production within a profitable framework. This will deliver a rare three way win for its farmers, its consumers and the environment.”

Carbon�Trust��

“With its Walkers brand, PepsiCo has led the way in the development of product carbon footprinting and labelling with the Carbon Trust. Two key challenges remain. Firstly, to build stronger collaborations with suppliers to drive down emissions across the value chain. Secondly, to use the Carbon Reduction Label to help consumers make better informed purchasing decisions to reduce their own carbon footprint. The Carbon Trust is excited to be a key partner in these important efforts.”

Forum�for�the�Future��

“The global food market is currently in turmoil. The impacts of climate change and increasing stress on resources will only make the challenges far less predictable and far more pressing. The key challenge for the food industry will be to develop a business model that is far more resilient to an increasingly uncertain world. This will require nothing short of transformation to an industry driven by sustainable consumption of the world’s resources.”

Carbon�Disclosure�Project“CDP challenges PepsiCo to include environmental disclosure in its vendor rating for its entire supply chain to further encourage learning and behaviour change. CDP hopes PepsiCo will extend understanding of climate change risks and opportunities within the supply chain to accelerate innovation. CDP would like to see PepsiCo sharing stories of radical product and service developments that go beyond incrementalism.”

Some�of�our�stakeholders

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Have your sayStakeholder feedback shaped and strengthened this report (see page 30), and the strategy it outlines. The report, however, is only a starting point for the dialogue we need to have with each other, our partners and our stakeholders. A true dialogue requires an exchange of ideas from all sides, and we’re determined to keep up our side of the conversation by providing more frequent updates about our activities. We hope that you have read our report, or at least the sections that are relevant to you. We would appreciate it if you would let us know what you think – about this report, the pledges we make, and the activities it describes – by filling out this survey. It will only take a few minutes, but your feedback will have a lasting impact.

1.� �What�was�your�overall�impression��of�this�report?

� Not at all useful Very Useful �

P P P P P 1 2 3 4 5 ______________________________________________

______________________________________________

______________________________________________

� � � Poor��� � � � � � �Excellent�

Completeness P P P P P Substance P P P P P Readability P P P P P Transparency P P P P P Appearance P P P P P 1 2 3 4 5

2.���What�is�your�overall�impression��of�PepsiCo�UK�&�Ireland?

Before reading report

Not�responsible�company� � � �Environmental�Leader�

P P P P P 1 2 3 4 5

After reading report

Not�responsible�company� � � �Environmental�Leader�

P P P P P 1 2 3 4 5

3.�����What�should�PepsiCo�UK�&�Ireland�do�next�on�Environmental�Sustainability?�

This could be a proposed solution to an existing environmental problem, an organisational model you admire, or a challenge to our current way of doing business.

______________________________________________

______________________________________________

______________________________________________

4.��How�would�you�like�to�hear�from�us�in�future?�

P �One unified PIUK CSR report (covering all social, economic and environmental issues)

P �Dedicated PIUK reports on Environment, Health and Talent/People

P �Quarterly/Half-yearly PIUK CSR updates

P �Face to face meetings or workshops

P �Web/email updates

P �From PIUK as part of a PepsiCo Inc communication

For our privacy policy please see www.pepsico.co.uk/privacypolicy

S4977_env_report.indd 39 12/6/08 11:12:20

Future�Challenges�–�have�your�say

PIUK�Environmental�Sustainability�Report�Team

Freepost�LE4918

Leicester

LE4�5ZY

Title Name

Organisation

Email

Please tell us what you do

P Academic / researcher P PepsiCo employee

P PepsiCo supplier P Retailer

P Government / public official P NGO / civil society

P Journalist P Investor

P Consultant / auditor P I’m just me!

www.pepsico.comwww.pepsico.co.uk/environment

Publ

ishe

d in

June

200

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