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Performance with Purpose

PepsiCo Corporate Citizenship Report 2008

Creating a Better Tomorrow for Future Generations

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As one of the world’s largest food and beverage companies, we recognize our responsibility to help make a positive contribution in a world that continues to experience unprecedented economic, environmental, and social challenges.

In this overview, we share our progress in addressing these challenges, identify where we believe we can have the most impact, and acknowledge our opportunities for continued improvement. We will continue to develop, improve, and report metrics to measureour global performance. While this process will take time, we believe that it will help us both embed sustainability goals more fully into our operations and achieve demonstrable progress.

Our approach to sustainability remains grounded in our Performance with Purpose mission: a balance of achieving continued fi nancial success while leaving a positive imprint on society. Specifi cally, we have defi ned three areas of infl uence: human, environmental, and talent sustainability.

This report provides a review of all three areas and offers a more in-depth look at our company’s efforts with respect to water, climate change and agriculture.

We believe that the power of our global workforce, coupled with our operational capabilities and international reach, provide our company with a unique opportunity to have a positive impact on society. Our employees are committed to living PepsiCo’s sustainability vision, which is to continuously improve the world in which we operate, creating a better tomorrow for this generation, as well as future generations.

This report covers the 2008 fi scal year.

Cover image: A member of our agriculture team practices water conservation techniques on the ZhanJiang potato farm in the Guangxi region of China. Today, agriculture accounts for more than 70% of water consumed globally, and this can be as high as 90% in developing countries. In China, our team grows potatoes in desert conditions through the installation of pivot and drip irrigation systems. These systems have reduced our agricultural water consumption by up to 50% in China.

Our agronomists also have taught more than 5,000 local farmers and university students advanced techniques of sustainable agriculture to yield better crops, protect the environment and help support the economic development of local farming communities.

Additional expanded content for each area of sustainability can be found online at www.pepsico.com/sustainabilityreport.

Human SustainabilityNourishing our consumers through the products we offer — from treats to healthy eats — and through our efforts to encourage more active lifestyles.

Environmental SustainabilityProtecting our natural resources and operating in a way that minimizes our environmental footprint.

Talent SustainabilityInvolving and empowering people, helping them to realize their potential, renew themselves and achieve success.

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Dear Fellow Stakeholders,

Every day, PepsiCo earns its license to operate in the thousands of communities we serve.

As one of the world’s largest food and beverage companies, we have some distinct responsibilities. We have a responsibility to support economic development, to improve our environ-mental footprint and to help work toward solutions to issues such as obesity and undernourishment. This report, called Performance with Purpose: Creating a Better Tomorrow for Future Generations, captures the progress we have made thus far, and provides a map of where we intend to go.

Performance with Purpose is fundamental to our overall success. There’s no question that these are challenging times. Like many companies, we’re facing headwinds such as rising costs, an uncertain economic outlook and shifting currency exchange rates. While we can’t control macroeco-nomic trends, we must adapt to the near-term challenges to deliver on our long-term growth plans.

But this cannot be an excuse to reduce our commitment to responsible business. Indeed, financial performance can and must go hand in hand with sustainability. Our performance and our purpose are not separate — each is knitted inextricably with the other. That relationship can be seen in the three areas that together comprise Performance with Purpose: Human, Environmental and Talent sustainability. These focus areas will guide the way we do business. They will continue to be shaped in dialogue with key stakeholders. In this way, we intend to maintain our long-term commitment to the overall sustainability of our company.

Human Sustainability

The world today faces many public health challenges and, as a responsible company, we recognize our part in helping to improve the well-being of populations in both developed and developing countries.

Our aim is to nourish consumers by developing products that satisfy the consumer’s changing preferences and that deliver exceptional taste and convenience. Increasingly, our product portfolio makes it more enjoyable to lead a healthy life. We’re changing because our consumer is changing and because the health of the world’s growing population demands it.

To meet this demand, we’ve appointed new leaders to our global R&D team, including world-renowned clinical scientists. We have increased our R&D investment and dramatically expanded our capabilities. We have accelerated our innovation pipeline, acquired companies to extend our offerings of more nutritious products and actively cultivated partnerships to guide our work. We will use our influence to drive positive change in the food industry.

Environmental Sustainability

As a responsible company, we seek to continually drive environmental sustainability by abiding by applicable laws and regulations and, in certain instances where we believe the requirements may not be sufficiently advanced, we apply higher standards.

Recently, Bureau Veritas issued independent verification of our environmental data. We will continue to audit our per-formance, share our progress and actively lead and engage in private-public partnerships to spur action and solutions to address the world’s environmental issues.

But we want to go further than that. We have focused our environmental sustainability efforts on the areas where, because of our expertise, we can have the most impact: water, climate change, agriculture and packaging. We are working hard to minimize our water footprint and improve public access to clean water through alliances with nonprofit groups such as The Earth Institute and Water.org. We are intent on mitigating climate change and continuing our

efforts to reduce greenhouse gas emissions. After more than a decade of action, we continue to form partnerships with key stakeholders such as the Carbon Trust to provide us with additional insights, expertise and knowledge.

Talent Sustainability

By valuing our employees, we are ensuring that PepsiCo is the kind of company where talented people of all back-grounds want to work.

We recognize our responsibility to take care of our employees and their families, especially during this global economic downturn. We remain committed to providing opportunities for our associates to acquire new skills, grow professionally and share in our company’s success. Our dedication to workplace safety is unwavering, and we offer health care benefits and wellness programs that enable our employees to live healthier lives.

We foster an inclusive workplace by increasing female and minority representation in management ranks, creating rewarding opportunities for people with disabilities and recognizing our employees for their contributions.

We are extending our human rights standards throughout our operations and encourage our suppliers and agricultural partners to uphold our commitment to sustainable development.

Conclusion

I believe our Performance with Purpose mission defines our roles and responsibilities very clearly. It motivates our 198,000 employees to be leaders in social responsibility and helps each of us create a better tomorrow for future generations. We look forward to sharing our progress and I look forward to your feedback. I encourage you to share your comments on our corporate citizenship report at [email protected].

Indra K. Nooyi Chairman and Chief Executive Officer

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Tough economic times raise tough questions. And sustainability features among these questions as never before. Should sustainability take a back seat while we sort out the global economy? Isn’t it just a luxury for the good times?

Management time and capital are in short supply. But forward thinking companies recognise the importance of taking action now, in the midst of a downturn. In the short term, effi ciency savings help the bottom line whilst factoring sustainability into the development of products and services builds longer-term strategic advantage.

At the Carbon Trust we have been working with PepsiCo since 2003 on its response to climate change. This started with energy effi ciency projects across its sites but more recently led to groundbreaking work on product carbon footprinting and labelling. The Walkers brand was the fi rst to carry our Carbon Reduction Label in the UK and Ireland. Quaker Oats now carries the Label and Tropicana was the fi rst US brand to disclose its certifi ed footprint in March 2009.

PepsiCo has seen a range of benefi ts from this work including a better understanding of the business risks of climate change, energy cost reductions across the supply chain and enhanced relationships with staff, suppliers and

customers. This all makes business sense, as well as making a valuable contribution to their sustainability goals.

But maintaining global leadership on climate change mitigation is not easy. Global companies have to deal with increasingly complex supply chains, differing regulatory regimes in each market and varying levels of customer engagement around the world.

The companies that will succeed in this environment are those which bind their business objectives and sustainability goals into a single vision. It takes leadership from the top but also buy-in right across the organization.

And for leading brands, this means more than managing direct impacts — engaging and prompting action with suppliers and customers is where the real advances will be made in the future.

I welcome this update from PepsiCo on their activities and look forward to helping them work towards their future goals.

Tom Delay Chief Executive, The Carbon Trust

PepsiCo is a proud partner with the Carbon Trust, a U.K.-based, independent, not-for-profi t company that helps businesses address climate change.

future goals.

Tom Delay

2 PepsiCo Corporate Citizenship Report 2008

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Promote Gender Equality and Empower Women

In 2008, PepsiCo launched the Female Talent Development program in our Middle East and Africa region to focus on workplace equality and increased recruitment of women. In addition, PepsiCo has a Global Diversity and Inclusion Governance Council comprised of internal and external thought leaders and co-chaired by our Chairman and global Chief Diversity Officer. Diversity and Inclusion Councils have been established in each of the regions in which we operate to develop and execute locally relevant diversity and inclusion strategies with a particular focus on women.

Reduce Child Mortality

The PepsiCo Foundation has committed a three-year, $5 million grant to Save the Children to support work to decrease child mortality and malnutrition in rural India and Bangladesh.

Improve Maternal Health

PepsiCo is participating in initiatives in developing countries to promote sanitation, hygiene and health education, all of which will help to improve maternal health. Among these initiatives is our partnership with The Energy and Resources Institute (TERI), an organization dedicated to improving clean water access, sanitation and hygiene, as well as health care facilities.

Combat HIV/AIDS, Malaria and Other Diseases

We have a global HIV/AIDS policy and are committed to addressing HIV/AIDS through an integrated approach that includes awareness, education and prevention; testing and treatment; and community and partner outreach. We have HIV/AIDS workplace programs in South Africa, China, Thailand, India, Russia and the United States.

Ensure Environmental Sustainability

We established a Sustainable Agriculture Council to ensure that environmental impacts are considered in our agricultural research, development and management decision making. In our own operations, we conserved more than 750,000 megawatt hours of energy and more than 7.5 billion liters of water as a result of gains in energy and water efficiency from the 2006 baseline. We have also committed to cutting company-wide water use by 20%, electricity by 20% and fuel by 25% by 2015, compared to 2006 usage levels. In addition, The Earth Institute at Columbia University and the PepsiCo Foundation entered into a $6 million, three-year partnership. The program includes a series of community-based activities to address water, agriculture and climate issues.

Develop a Global Partnership for Development

Our leaders actively participate in global health and develop-ment initiatives where we partner with groups including the Global Alliance for Improved Nutrition (GAIN), Synergos, the World Health Organization, the Pan American Health Organization and Un Kilo au Yuda, among others.

U.N. Millennium Development Goals: Our Contribution

Established in 2000, the United Nation’s Millennium Development Goals focus on eight global issues ranging from eradicating hunger to ensuring environmental sustain-ability. As governments, businesses, nongovernmental organizations and civil society join together in this mission, we are collectively committed to helping achieve the Goals by 2015.

As a global company that delivers strong financial performance, operates in over 200 countries and contrib-utes to economic growth, we can play an important role in supporting solutions. The most important contributions that we make address hunger, health and environmental sustainability.

Following are just a few examples of the actions we are taking to support the Goals.

Eradicate Extreme Poverty and Hunger

PepsiCo is working toward developing nutrition-based solu-tions to reduce hunger and malnutrition in select developing countries, particularly South Africa, India and in time, Nigeria. We will leverage our core competencies including R&D, product development, marketing, sales and distribution to launch a product with the necessary public and private part-nerships to reach the target population and sustain its use.

Achieve Universal Primary School Education

In China, PepsiCo supports literacy and education programs in communities near our operations. We’ve built libraries where our employees donate their time and skills to provide education to children. In Kashira, Russia, PepsiCo helps schools purchase computers and lab equipment.

For a complete list of our partnerships and more on our progress against the MDGs, visit: www.pepsico.com/sustainabilityreport.

PepsiCo Corporate Citizenship Report 2008 3

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HUMAn SUSTAInAbIlITy

We Recognize Our Responsibility to Provide Balanced Nutrition

MEHMOOD KHAn, MD, Chief Scientific Officer

As one of the world’s largest food and beverage companies, we believe it is our responsibility to understand the diet and nutrition needs of populations around the globe.

More than ever, consumers want products that are safe, affordable, great-tasting and healthy. They are increasingly looking closely at the nutritional content of the products they consume and purchase for their families, such as salt content and saturated fat, because they want to eat well and improve their overall health. They want options that offer nutritional benefits to meet the differing needs of various life stages, from childhood through late adulthood. Consumers are also managing specific health conditions, such as diabetes and high cholesterol, and expect on-pack health claims to be grounded in credible science. Understanding these health needs and attitudes is vital to our business, but the global market is even more dynamic and complex.

Today, more than one billion adults are overweight or obese while at the same time, more than one billion adults and children are undernourished — in both developing and developed countries. Often these overweight and under-nourished individuals live side by side in the same cities and communities, a paradox that has never been observed to this scale in the history of mankind. The projected rise of global obesity and global hunger presents a tremendous challenge to the health and viability of individuals and communities.

We’re mindful of the way the world is changing. How we choose to respond to these societal challenges is critical to the future of our business and to our planet. This is why we are changing the way we innovate at PepsiCo.

In 2008, we expanded our global research and develop-ment capability to address these challenges. Our network of senior leaders includes world-renowned clinical scien-tists and experts in science, technology, nutrition, food science and safety, public health, epidemiology, product development, behavioral medicine and health policy. These experts give PepsiCo a unique understanding of individual human physiology and the nutrition needs of populations. These global R&D teams are developing products rooted in rigorous, science-based nutrition standards and produced to the highest standards of quality, with the promise of satisfying a diverse global palette.

The hub of this work is eight regional research centers, each focused on leveraging nutrition science and knowledge to develop convenient foods and beverages that can improve overall diets and positively impact health. Three centers are located in the United States: Valhalla, N.Y.; Plano, Tex.; and Barrington, Ill. Other centers are in Leicester, United Kingdom; Monterrey and Mexico City, Mexico; Shanghai, China; and New Delhi, India; with “satellite” centers in Thailand, Brazil and Australia. In addition, we’re broadening our open innovation efforts through new research part-nerships with leading institutions, including: Yale University, Dresden University, Westfälische Wilhelms-Universität Münster, and several universities in India.


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We’re introducing products with more whole grains, fiber, fruits and vegetables, and are reformulating some of our existing products by reducing trans fats to negligible levels while also reducing total fat, saturated fat, salt and added sugar. We’re dedicated to ensuring the integrity of our health claims, all of which are reviewed by qualified nutrition and regulatory experts following strict procedures and standards.

Across our global portfolio, we are offering consumers smaller portion sizes. In fact, in the United Kingdom, a greater proportion of our sales come from smaller portion sizes. Over 80% of Walkers Crisps sales are from 25 gram bags purchased in multipacks; 2% of sales are from 50 gram bags. Our goal is to continue to develop products that are affordable and accessible. We do not charge a premium for our zero sugar/zero calorie varieties, for instance.

We’re helping consumers make smart choices more easily by providing easy-to-understand nutrition labeling. We also understand the importance of being a responsible marketer. PepsiCo believes that industry-wide voluntary action continues to be the best way to address our responsibilities. We endorse the International Council of Beverages Associations’ guidelines on marketing to children — a landmark industry initiative which does not permit marketing or advertising of beverages, other than water, fruit juice and dairy-based beverages, to children under 12 years old.

We are committed to helping reduce the terrible burden of hunger everywhere we do business. PepsiCo has efforts under way to help support the United Nations’ Millennium Development Goals, including the goal to eradicate extreme poverty and hunger by 2015. In addition to funding, we are providing experts who offer counsel in many areas—from product development to building distribution networks—in such countries as India, South Africa and Nigeria. In addition, we’ll have the opportunity to leverage any new discoveries to create affordable products for low-income consumers in developed coun-tries around the world.

We know the importance of establishing partnerships with key stakeholders to help make a positive contribution to the world’s nutrition needs. Our leaders contribute to initiatives led by the World Health Organization (WHO), the National Institutes of Health, Global Alliance for Improved Nutrition, the Pan American Health Organization and the Alliance for a Healthier Generation. For example, we are among the nine leading food and beverage com-panies to commit to the goals of the “Global Commitment to Action on the Global Strategy on Diet, Physical Activity and Health” and to report on our progress, annually, at the World Health Assembly. We intend to continue measuring and reporting on our progress so that our consumers and other industry leaders can share in the lessons we’re learning.

At PepsiCo, we’re privileged to use the lessons gained from our global vantage point not only to improve our business, but to contribute to our common goal of finding solutions to some of the world’s most persistent social challenges.

Every serving of SunBites contains more than one-third of the

suggested daily amount of whole grains.

Members of the Walkers R&D team focus on science-based nutrition standards as they develop food and beverage products at the state-of-the-art Beaumont Park research and development facility in Leicester, U.K.

We’ve acquired a stake in

JSC Lebedyansky, the world’s

sixth largest juice manufacturer.


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Transforming Our Portfolio

At PepsiCo, our aim is to continually develop products that satisfy consumers’ changing preferences, deliver exceptional taste and offer greater nutritional benefits. Increasingly, our portfolio of foods and beverages are part of a diet that is more enjoyable and supports a healthy lifestyle. We’re changing because consumers are changing and because the health of the world’s growing population demands it. Healthier eating is good for the well-being of our consumers and is good for business.

Innovating new Products

As a leading innovator in the food and beverage sector, our pipeline of products offers a diverse array of locally relevant tastes and enhanced nutritional benefits. Here are some examples:

• In Mexico, our Gamesa-Quaker business expanded its line of portion-controlled, oat-based cookies and snacks.

• In India, we’re making snacks with an ingredient very familiar to the local diet — lentils.

• In Brazil, we expanded our offerings of baked snacks; and we’ve introduced low-fat bread snacks in Chile, Puerto Rico, Spain, Turkey, Saudi Arabia and Russia.

• PepsiCo and the Whole Earth Sweetener Company introduced a zero-calorie, all-natural sweetener derived from the stevia plant. It’s called PureVia and it was introduced in Peru in a new, nutritionally enhanced PepsiCo beverage called “SoBe Life.”

Enabling a Healthy Diet

Our commitment to improving our portfolio’s role in a diet includes reinforcing the basic rules of a healthy diet. This requires making changes that improve the nutrition content of each product. As a result, we continue to make every calorie count by reformulating some of our existing products

We Are Committed to Making Products that Help Consumers Live Active, Healthy Lives

• In India, our Get Active program reaches 70,000 students in 120 schools and promotes an active lifestyle through an energy balance curriculum.

• In the U.S., we continue to work with the YMCA, the largest provider of fitness programs, to support Activate America, a public health initiative that helps make healthy living a reality for millions of Americans.

Helping Consumers Make better Choices with nutrition labeling

We care about the health of consumers. We want them to enjoy our products and we want to help make healthful food choices the easier choice.

A key way we do this is through our own nutrition labeling. In the U.S., we were the first in the industry to introduce a symbol that makes it easier for consumers to identify which of our products contribute to a healthier lifestyle. Our Smart Spot symbol — the symbol of Smart Choices Made Easy — is a simple labeling system that explains why each product is a smart choice.

PepsiCo is also a founding member of the U.S. Keystone Food and Nutrition Roundtable, a multi-stakeholder group that seeks to drive improvements in the American diet.

The Keystone Roundtable is a consensus forum of industry, academia, the public health community and government, working collaboratively to create an easy-to-understand and uniform front-of-pack nutrition labeling program to help consumers make healthier choices among all packaged food and beverages products in the U.S.

In Europe, we introduced front-of-pack nutritional labeling across our brands in partnership with other food and beverage companies. The labels help consumers understand the percentage of the “Guideline Daily Amount” (GDA) of calories, sugars, saturates, fat and salt contained in a portion of food or drink.

by reducing trans fats to negligible levels, adding whole grains, and reducing added sugars. For example:

• In India, we’re using rice bran oil instead of palm oil, reducing saturated fats by 40%.

• In the United States, Tropicana Pure Premium Orange Juice has two servings of fruit in every 8-ounce serving and offers a juice variety with added calcium and Vitamin D.

• In the United Kingdom and Europe, we’ve introduced Walkers Baked and Baked Lay’s with 70% less total fat than regular crisps.

• In 2008, PepsiCo was the largest seller of nuts and seeds outside the United States.

Expanding through Strategic Acquisitions

As our business grows globally, key acquisitions have helped us expand our offering of products with improved nutritional profiles. The focus on more nutritious offerings started with the acquisition of Tropicana in 1998 and the 2001 merger with Quaker Oats, including Gatorade. More recently, PepsiCo has acquired or purchased a major stake in: JSC Lebedyansky, Russia’s leading branded juice company and the world’s sixth-largest juice manufacturer; Sandora, a leading juice company in Ukraine; Naked Juice, a premium juice company in the United States; Spritz International Inc., the leading maker of sunflower and pumpkin seeds in Canada; and V Water in the United Kingdom.

Promoting Active, Healthy lifestyles

We support programs that use simple steps to encourage people to get active:

• In Latin America, Vive Saludable Escuelas is a proven initiative that teaches children how to add physical activity to their daily lives. A physical education routine, designed by Mexico’s Sports Commission, is being used by teachers in participating schools. To date, the program has touched more than one million children in 4,000 schools.

HUMAn SUSTAInAbIlITy


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Engaging in Responsible Marketing and Advertising

We understand the importance of being a responsible marketer. We believe that industry-wide voluntary action continues to be the best way to address our responsibilities.

We announced our full support of the International Council of Beverages Associations’ guidelines on marketing to children — a landmark initiative supported by industry. The guidelines permit no marketing or advertising of beverages, other than water, fruit juice and dairy-based beverages, to children under 12 years old. These guidelines were fully implemented on a global basis by January 2009. We were a founding member of a voluntary U.S. food and beverage industry initiative that redefined how the industry markets products to children under 12. Today, 100% of our advertising to children is devoted exclusively to products that meet defined nutrition criteria or provide a functional benefit. We have committed to similar guidelines in Canada, the European Union, Mexico, Thailand, South Africa, Australia and New Zealand.

Partnering for Change

We proactively lead and engage in private-public partner-ships with key external experts and stakeholders in the global health policy and science/nutrition communities to help improve diets and deliver substantial improvements in our products. Our leaders actively participate in global health policy initiatives including those led by the World Health Organization, the National Institutes of Health, Wellcome Trust, the Pan American Health Organization and the Alliance for a Healthier Generation, among others.

We are among nine leading food and beverage companies to sign the “Global Commitment to Action on the Global Strategy on Diet, Physical Activity and Health,” a commit-ment addressed to the World Health Organization. We agreed to five key global commitments to action that will take place over the next five years. We will report our prog-ress in delivering these goals at the annual World Health Assembly meeting.

We’ve introduced Baked Walkers and

Baked Lay’s with

70%less total fat than regular

crisps, in the United Kingdom and Europe.

In the United States, Tropicana orange juice varieties include added calcium and vitamin D.

We’ve introduced low-fat bread snacks in Chile, Puerto Rico, Spain, Turkey, Saudi Arabia and Russia.

We’ve introduced a line of more healthful snacks

in Mexico including Stila bars, made with

oats and real fruit.

Sabra hummus provides a healthier snack with zero

trans fat and zero cholesterol per serving.

Old Fashioned Quaker Oats is made with

100%natural whole grain

oats and can help reduce cholesterol.


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EnVIROnMEnTAl SUSTAInAbIlITy

We Recognize Our Responsibility to Minimize Our Environmental Footprint

lESlIE STARR KEATInG, Senior Vice President, Frito-Lay Operations

Every day, we rely on the earth’s natural resources to run our businesses. Water is essential for all foods and our ability to enjoy them — from growing and washing to processing and cooking. It is the primary ingredient in our beverages. Fuels, electricity and, increasingly, other forms of energy are indispensable to making, moving and selling our products.

As a company that is expanding across many developed and emerging markets, we are committed to minimizing the impact our business has on the environment with methods that are socially responsible, scientifi cally based and economically sound.

Our environmental sustainability efforts are primarily focused on water, climate change, agriculture and packaging — areas that are critical to our business and where we can make the biggest impact. We continuously improve our environmental programs and explore inventive solutions to the world’s challenges, in particular water scarcity and climate change. We look for ways to bring to scale the good ideas being imple-mented across our global business and to share this experience with our peers and supply chain. The following pages spotlight initiatives taking place around the world — in Mexico, India, the U.K. and the U.S. — and illustrate how we approach our commitment to sustainability.

Our ability to improve the effectiveness of our environmental sustainability initiatives has been strengthened by the creation of common, enterprise-wide metrics. This is helping us to better understand and track our comprehensive environmental footprint and to be more transparent in our reporting.

Our goal is to reduce water consumption by 20%, electricity consumption by 20%, and fuel consumption by 25% per unit of production by 2015 as compared to our 2006 consumption. We’ve made notable progress in all three areas. For the fi rst time ever, Bureau Veritas issued a verifi cation of our environmental data and we are reporting our results on the total business, rather than by operating division as in the past.

We are also keen to address other areas of opportunities, including gathering consolidated bottler data and continuing to embed our global sustainability strategies and goals within all our businesses for greater consistency.

PepsiCo’s sustainability efforts are guided by a dedicated Environmental Sustainability Leadership Team supported by an Environmental Council. Sustainability teams at our manufacturing facilities around the globe are at the front line of our efforts. Employee volunteer “Green Teams” operate at many U.S.-based businesses, including Quaker, Tropicana, Gatorade and Frito-Lay. An Environmental Management System framework, an Environmental Policy and external

Reduce water consumption by

20%

Reduce fuel consumption by

25%Reduce electricity consumption by

20%


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audits support our efforts, ensuring that we are continually reaching for more ambitious goals.

20072008 13.6

9.20

8.20

3.90

WATER EFFICIENCY IMPROVEMENTin %

as compared to 2006 base year

Beverages Foods

20072008 3.80

3.70

2.70

1.00

ELECTRIC EFFICIENCY IMPROVEMENTin %


Beverages Foods

20072008 13.6

10.4

5.20

2.80

FUEL EFFICIENCY IMPROVEMENTin %


Beverages Foods

In addition to our own efforts, we consistently rely on partnerships that help us address the world’s environmental challenges. These relationships with a range of external stakeholders provide us with additional insights, expertise and knowledge on multiple aspects of sustainability. We will continue to actively lead and engage in key private-public partnerships to spur collaborative action and solutions that address the urgency of these issues.

Water: At PepsiCo, we are committed to minimizing our water use through greater efficiency across our operations and to ensuring that we source our water in ways that do not cause damage to local communities and ecosystems. Working closely with our suppliers, we are finding new ways to further reduce their water usage and to help avoid water conflict with local communities.

PepsiCo also collaborates with corporate peers to ensure that we are doing more, collectively, to reduce our impact on the environment. In 2008, Indra Nooyi, our chairman and chief executive officer, joined select global leaders as a signatory

to the United Nations CEO Water Mandate and we are actively involved in supporting all elements of the mandate.

Through the work of The PepsiCo Foundation, we continue to invest in sustainable water resource management methods, which positively impact both quantity and quality of water supply. Since 2005, the Foundation and PepsiCo Corporate Contributions have committed more than $15 million to organizations working to bring safe water to developing countries.

Climate Change: We are working hard to reduce our use of energy and transform our businesses by replacing our existing use of oil, gas and fossil fuels in manufacturing with renewable energy sources.

We are actively moving towards having all our new facilities meet the U.S. Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (LEED) standards — one of the world’s most rigorous standards for green building. In an industry-leading move, we introduced our Sustainable Engineering Guidelines (SEG) based on LEED standards. These guidelines ensure our buildings are constructed to environmentally sustainable standards and apply to all new construction as well as major remodels of existing buildings globally, where practical.

By consistently making our manufacturing operations more environmentally responsible, we are also making them more economically efficient through our water and energy conservation processes and teams. For example, the Frito-Lay plant in Modesto, Calif., installed a solar energy generating system that powers the daily production of thousands of bags of SunChips multigrain snacks. In Casa Grande, Ariz., our teams are working toward the goal of taking the Frito-Lay plant there off the power grid, or nearly so, and running it almost entirely on renewable fuels and recycled water.

Agriculture: Guided by our Global Sustainable Agriculture Policy, PepsiCo is working across the agricultural supply chain to ensure our practices are efficient and sustainable. Continuous benchmarking against our industry peers ensures we are adopting best practices — including water savings techniques, waste reuse, soil protection and chemical use — throughout the diverse aspects of our business.

One of the most exciting developments in our environmental sustainability efforts has been on the packaging front. In 2008, we introduced a new half-liter bottle for our Aquafina flavored waters, Lipton Iced Teas, and Tropicana juice drinks. The new bottle contains 20% less plastic than the previous bottle and its label is 10% smaller than before. These innova-tions are taking nearly 6 million kilograms of packaging out of the system each year and reducing greenhouse gas emissions by 18,000 metric tons annually. That’s equivalent to taking 3,350 cars off the road annually.

Our goal is to design and develop packaging systems that are environmentally responsible throughout their entire life cycle. We want to inspire consumers who are seeking ways to live more environmentally sustainable lives by promoting recycling. In addition, we want to partner with leading organizations to promote sustainable packaging and recycling practices. Most recently, we have launched a global sustainable packaging policy and formed a Sustainable Packaging Council to further our efforts in this area.

PepsiCo’s commitment to environmental sustainability — a key plank of our Performance with Purpose mission — is part of how we do business every day. The steps we’ve taken to minimize our impact and institute more robust, enterprise-wide processes to better track, manage and understand our environmental footprint are helping us to do better each day. With the expert knowledge, world-class skills and breakthrough technology that empower our environmental teams across the globe, I’m confident that this will lead to continuous progress.


60270_VSA_u6.indd 9 9/30/09 3:02 PM


PepsiCo workers in Punjab, India, tend to rice fi elds that were planted using the direct seeding method, a unique and highly water-effi cient approach to rice cultivation.

Rice is India’s largest grain crop, and uses the

bulk of fresh water used in Indian agriculture.

In 2008, direct seeding was

extended to more than

1,000 acresin fi ve states and

saved close to

1 billionliters of water

Water use in manufacturing was

reduced by over

55%and in the last three years

we saved more than

2.5billion liters of water


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Water Pioneering Initiatives to Achieve Positive Water Balance

Water is required to make our products so that we maintain the highest of quality standards for consumers — and water is required to ensure a clean and safe work-place for our employees and our suppliers. In turn, efficient use of water across our operations is nothing short of imperative. We are committed to minimizing our global water use through greater efficiency, innovative processes and new technologies.

In 2008, we conserved more than 7.5 billion liters of water as a result of gains in water efficiency from the 2006 baseline. And while using water responsibly is a top priority, we also believe in our ability to help address the broader challenge of water scarcity and to help avoid water conflicts in local communities.

In India, all industry accounts for about 6% of total water use. Within that 6%, the soft drinks and bottled water industry accounts for about four-hundredths of 1%. In comparison, agriculture accounts for over 80% of total fresh water use in the country. To have significant impact on total water conservation, farming must use water more efficiently. We believe we can play an important role in providing solutions.

In 2003, our India team embarked on an ambitious journey to achieve positive water balance — giving back as much as we take. Through a comprehensive program to conserve and optimize water usage, we have pioneered major initiatives by partnering with farmers, working with numerous rural communities and establishing private-public partnerships with Punjab Agriculture University and The Energy Resources Institute (TERI). We have carried out a variety of innovative reuse and recycling initiatives within our own operations; raised farm

productivity, which increased farmers’ incomes; and improved the quality of life in many communities. These initiatives, among others, will help us make significant progress toward positive water balance in 2009.

In the last five years, our India manufacturing team has reduced water use by more than 55% and in the last three years, we have saved more than 2.5 billion liters of water through conservation efforts. We have also pre-vented depletion of groundwater aquifers by constructing rainwater harvesting systems in most of our plants.

One of the most effective initiatives is our work with farmers to reduce water intensity in rice cultivation through a method called direct seeding. Our India team has become a leading proponent of direct seeding of rice (versus transplanting seedlings from nurseries to paddies that are then flooded). While direct seeding of rice is done in some countries, it is not widely practiced in India.

In India, PepsiCo has been experimenting with direct seeding for four years — testing methods to improve yield and reduce weed growth and even developing a tractor-mounted direct seeding machine, adjustable for seed variety, planting depth and plant-to-plant spacing.

After carrying out initial direct seeding trials at our own model farms, pilot tests have been run in farmers’ fields to confirm the results. In 2008, direct seeding was extended to more than 1,000 acres in five states and the initiative saved close to 1 billion liters of water. In addition to saving water, it also reduced costs by 1,400 rupees per acre for farmers.

Direct seeding will go a long way in enabling our India team to achieve positive water balance for our beverage business by 2009. More important, it has the potential to dramatically reduce water usage in a country where water is an increasingly precious commodity.

This single initiative is an example of both climate change mitigation and adaptation. We are mitigating our impact on climate change by using significantly less resources, and helping our farm communities adapt to the changing environment.

In India, PepsiCo has been experimenting with direct seeding, one of the most effective ways to reduce water use in rice cultivation. Shown here is a direct seeding machine, adjustable for seed variety, planting depth and plant-to-plant spacing.


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Tropicana is calculating the amount of greenhouse gases produced during the manufacturing and use of its Tropicana Pure Premium orange juice.


Including processing and packaging, the carbon

footprint for a 64-ounce carton of Tropicana Pure

Premium Orange Juice

1.7kgof CO₂e

Use and Disposal

0.05kg

Agriculture

0.62kg

Distribution

0.37kg


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Climate Change Understanding Our Brands’ Carbon Footprint

Climate change may adversely affect the raw materials and other supplies we use to make our products, including water and various crops from potato, oats and corn to oranges and apples.

Throughout our business, an important part of our greenhouse gas (GHG) emissions results from the energy used in our manufacturing and related processes. We are reducing our emissions through more effi cient use of non-renewable fuels and increased use of renewable energy. We also partner with nongovernmental organizations to examine how our business impacts climate change and how we can change the way we work to further reduce our footprint.

3.71

3.76

3.56200620072008

Total PepsiCo

2.93

2.92

2.84

Foods

GHG EMISSIONS*in million metric tons

0.77

0.84

0.72

Beverages

20072008 3.00

5.50

4.50

2.10

GHG EFFICIENCY IMPROVEMENT*in %


Beverages Foods

* The 2008 GHG data presented in the charts above has gone through third-party verifi cation and represents nearly 85% of total Scope 1 emissions for PepsiCo. This data is comparable to the 2006 and 2007 data reported for trending. Scope 1 emissions include the following for company-owned operations:• Fuel combusted during manufacturing, calculated by standard

emissions factors according to each fuel• Fuel combusted for building heat• Emissions from fl eet vehicles, based on vehicle type, fuel type

and volume of fuel used• Fugitive emissions from refrigeration units at manufacturing

sites based on leak rates and refrigerant purchases

In 2003, we began working with the Carbon Trust, an independent, not-for-profi t company set up by the U.K. government to help businesses address the growing threat of global climate change and to pioneer carbon foot-printing methodology and standards. The Carbon Trust believes that in order to effectively reduce a company’s carbon footprint, they must fi rst know how to accurately measure it.

We began the work with our leading crisp brand in the U.K., Walkers Crisps. Following months of intense research, Walkers became the fi rst consumer brand to pilot the original method for assessing product carbon footprints and the fi rst major food brand to display a carbon footprint/reduction label on its packs. Since 2000, Walkers has reduced its energy use per pack by one-third and its water use by 42%, and it is committed to reducing the carbon footprint of its products even further.

The collaborative work continued and most recently, Tropicana Pure Premium Orange Juice became the fi rst consumer brand in North America to be independently certifi ed by the Carbon Trust. The process included working with an academic research partner, the Earth Institute at Columbia University, to determine the mapping process.

The Carbon Trust then conducted a review of scientifi c life cycle data and certifi ed the carbon footprint of a standard 64-ounce carton by:

• Mapping the product life cycle — from growing and squeezing oranges and getting the container on the shelves, to fi nally disposing or recycling the packaging.

• Looking at the energy consumption directly involved in each of these life cycle stages and converting this into equivalent carbon dioxide emissions (CO₂e).

• Adding the equivalent carbon dioxide emissions (CO₂e) from each stage to estimate the total product green-house gas footprint of the product.

Using this process, the estimated carbon footprint for a 64-ounce carton was determined to be 1.7 kilograms. The Carbon Trust has certifi ed the footprint, giving PepsiCo a verifi able benchmark against which the company can measure GHG reduction progress going forward.

In coming years, additional products, including Pepsi, Diet Pepsi, Aquafi na and Gatorade, will be assessed. Today, more than 10 products that represent a true market basket of our consumer offerings are currently being evaluated for a carbon footprint.

This science-based information is helping our businesses target operational improvements and achieve their energy effi ciency goals, while striving for even more ambitious, yet realistic, targets.

Uncovering information about where and why carbon is generated in the manufacturing, distribution and disposal of products will also help drive collaboration with partners and suppliers on carbon reduction initiatives and elevate consumer awareness.

Since 2000, Walkers has reduced its

energy use per pack by one-third and

reduced water use by

42%


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Sabritas, our snack business in Mexico, is contributing to the overall development of low-income farming communities by providing technical and business training to farmers, transferring relevant technology to the communities and initiating farming contracts.

Sabritas’ participation in the Educampo program has helped drive:

300% increase in income

80% improvement in land productivity

37,000 hours of education


Sabritas’ participation to date has helped more than

300 low-income corn producers

receive funding, technical support and training

resulting in an estimated

9,300 tons of corn production across

2,000 hectares


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Agriculture Supporting the Long-Term Success of Our Farmers

As a food and beverage company, agriculture is perhaps the largest element of our eco-footprint, so we work hard to continually improve our agricultural processes.

This year, we developed and published our Global Sustainable Agriculture Policy, which demonstrates our approach to sustainable development across our entire agriculture supply chain, including water savings, waste reuse, soil protection and chemical use.

Our Policy addresses six broad objectives within the agriculture supply chain:

•Water Management

•Soil Conservation and Preservation

•Agrochemical Management

•Energy Management

•Farm Economics and Land Management

•Social and Community Improvement

In Mexico, our snack food business Sabritas actively participates in a program that contributes to the overall development of low-income farming families in corn-producing communities. In partnership with the Mexican Foundation for Rural Development (FUNDAR), Sabritas contributes to technical and business training for farmers, transfers relevant technology to the communities and initiates farming contracts. Sabritas and FUNDAR intend to incrementally bring about cultural change in these communities that will lead to the creation of small, sustainable agribusinesses.

At the onset, the program began in the state of Jalisco, located near Sabritas’ facility in Guadalajara, and now spans six municipalities in Mexico. Sabritas pledged 9.1 million pesos to fund several initiatives, including:

• The organization of corn producers to use their collective bargaining power to better negotiate competitive contract prices for corn crops

• The launch of a social education program focused on training farmers

• The purchase of contracts with corn producers

• The increased use of technology to produce higher yields

Sabritas’ participation to date has helped more than 300 low-income corn producers receive funding, technical support and training, which has resulted in an estimated 9,300 tons of corn production across 2,000 hectares. The three-year program is expected to provide farmers with resources for a 300% increase in income, an 80% improvement in land productivity, and 37,000 hours of education.

Throughout the program, Sabritas works toward an improved understanding of the farmers’ needs to become independent business partners. The program also benefits our business. Strengthening the capabilities of our suppliers located near our manufacturing facilities means saving warehouse and transportation costs as well. We know that engagement with rural farming communi-ties and private-public partners is integral to delivering the positive social, environmental and economic impacts of this program.

By contributing to the overall development of low-income farming communities, Sabritas is helping reduce poverty while improving productivity, profitability and sustainability of small-scale farming.

PepsiCo invests in innovative farming practices and education to improve the welfare of the communities that support our agricultural supply chain.

Sabritas works toward an improved understanding of its farmers’ needs to become independent business partners.


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TAlEnT SUSTAInAbIlITy

We Recognize Our Responsibility to Take Care of Our Employees

lESlIE TEICHGRAEbER, Vice President, PepsiCo University

Now more than ever, we are sharpening our focus on the development of our employees. To build on our current marketplace success, we are committed to providing comprehensive learning opportunities to develop all employees to their fullest potential. Not only do we want to provide learning experiences, coaching and training, we also want to ensure that PepsiCo is among the top destinations for the world’s best talent.

With a long-standing history of delivering leadership excellence supported by our proven development tools, we took additional steps to drive the transfer of best practices, skills, knowledge and technology across the businesses.

In 2008, we launched PepsiCo University, which offers a blended approach to learning through both classroom activities and online tools. Designed for employees at all levels of our organization, the expansive coursework helps them develop the knowledge and skills needed to drive innovation and growth for the future. PepsiCo University is available in the U.S., U.K., Mexico, Brazil, Russia, and European Union countries, among others.

Through a close working relationship with PepsiCo’s operating groups, attention is given to leveraging best practice curriculums residing in the business units and scaling these programs enterprise-wide. We also offer e-learning performance support tools addressing a wide range of functional topics along with business and

management skill building. The overall curriculum is centered on building people skills, managerial skills and general business skills. One of the most successful courses is the leadership advancement transition program that prepares employees for the three key leadership mile-stones: the move from individual contributor to manager, from manager to leader, and from leader to senior leader. PepsiCo University will be launched in China, India and the Middle East by late 2009.

In an industry-leading move that demonstrates our com-mitment to our values and manager quality, we shifted to an equal weighting of 50% Business and 50% People results in our annual performance review system. This system includes mid-year and year-end career discussions between employees and their managers. Individual “people performance” objectives include measures relating to the Performance with Purpose sustainability planks (Human, Environmental, Talent) as well as improved oper-ating efficiencies, customer and employee satisfaction,

To demonstrate our commitment to values and manager quality,

we shifted our annual performance review system to equally balance

business and people results.

50%people results

50%business results


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acknowledged these concerns and there is strict rigor in protecting the confidentiality of employees’ personal data.

HealthRoads, PepsiCo’s employee wellness program, motivates and enables employees to lead active, healthy lives.

and the management and development of people. There are specific courses offered through PepsiCo University that provide tools for people development. This change has had a significant impact on employee perceptions of PepsiCo as an organization focused on People results.

To attract and retain the world’s best talent, we must continue to build on the legacy of our learning culture to prepare and develop our diverse workforce for the future.

GREG HEASlIP, Vice President, Global Benefits

Our employee wellness program, called HealthRoads, recognizes that good health and well-being is a journey, not a destination. HealthRoads successfully motivates and enables employees to lead healthy lives by seeking preventive care, making behavioral changes to reduce health risks, and working one-on-one with a health coach to manage an existing condition.

HealthRoads is comprehensive in scope. Its primary focus is diet, exercise and nutrition. However, it enables employees around the globe to address a wide variety of potential health risks, including stress, tobacco use, sleep deprivation, diabetes, asthma, high cholesterol and high blood pressure. In addition, HealthRoads uses multiple modes (online resources, print materials, one-on-one coaching) to maximize its accessibility, reach and effec-tiveness with our employees.

HealthRoads is currently available in 21 countries, including the U.S., Australia and Canada. Moving forward, we’re rolling out the program in additional countries, including Mexico, the European Union and the Middle East, by 2012. One of our primary challenges is engaging employees from diverse cultures, in which attitudes differ widely with respect to weight, diet and one-on-one health coaching. We’re working on alternative approaches to engage our diverse population. The confidentiality and privacy of personal health information are also global concerns for our employees. Senior management has

Now in the fifth year of our HealthRoads journey, we have accomplished key milestones to ensure sustainability and support of this initiative:

• Senior management support: Our leadership team champions employee wellness around the globe. Their continuing support sets the stage for grassroots acceptance and engagement.

• Worksite wellness: A key to sustaining a wellness culture is to make it relevant at the local level. HealthRoads is tailored to meet each participating site’s needs by involving local employees in the design and execution of ongoing wellness activities in that particular location, within a consistent framework.

• Strong incentive program: Although good health is its own reward, incentives motivate and engage employees in the right behaviors.

• Tracking and measurement: We understand the value of data. For the past four years, we’ve been measuring the reduction or elimination of health risks among our

employees and the financial return on our wellness investment. Data and results are reported on an aggregate basis, not an individual basis.

HealthRoads is slowing the rate of increase in PepsiCo’s medical costs and is positively impacting the health of our employees and their families. In the U.S., about two-thirds of our employees and their spouses/partners have regis-tered for HealthRoads and 93% of them have completed the personal health assessment. More than 80% of indi-viduals who completed a health assessment also agreed to participate in a wellness coaching program. More than 31,000 participants reduced or eliminated a health risk as a result of engaging in a wellness program. Since 2006, we have identified a return on investment of $3.4:1 to $5.0:1, depending on whether incentives are included.

HealthRoads is a catalyst for changing behaviors. It pro-vides the resources, tools and incentives that enable our employees to lead healthier lives. We believe HealthRoads fosters a culture of well-being that can contribute toward a sustainable business.

In the U.S., about two-thirds of our associates and their

spouses/partners have registered for HealthRoads and 93% of

them have completed the personal health assessment. More than 80% of those individuals also

agreed to participate in a wellness coaching program.

93%completed

health assessment

80%participating in programs


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About PepsiCoPepsiCo offers the world’s largest portfolio of billion-dollar food and beverage brands, including 18 different product lines that each generate more than $1 billion in annual retail sales. Our main businesses — Frito-Lay, Quaker, Pepsi-Cola, Tropicana and Gatorade — also make hundreds of other nourishing, tasty foods and drinks that bring joy to our consumers in over 200 countries. With more than $43 billion in 2008 revenues, PepsiCo employs 198,000 people who

are united by our unique commitment to sustainable growth, called Performance with Purpose. By dedicating ourselves to offering a broad array of choices for healthy, convenient and fun nourishment, reducing our environmental impact, and fostering a diverse and inclusive workplace culture, PepsiCo balances strong financial returns with giving back to our communities worldwide.

This report is printed on Mohawk Options 100% post-consumer content. Mohawk Fine Papers purchases enough Green-e certified renewable energy certificates (RECs) to match 100% of the electricity used in their operations. The paper is certified by Green Seal and by SmartWood for FSC standards that promote environmentally appropriate, socially beneficial and economically viable management of the world’s forests.

WORLD HEADQUARTERSPurchase, New York, USA

BUSINESS UNIT HEADQUARTERS PEPSICO AMERICAS FOODS (PAF)

Frito-Lay North America (FLNA) — Plano, Texas, USAQuaker Foods North America (QFNA) — Chicago, Illinois, USASouth America Foods (SAF) — São Paulo, BrazilSabritas — Mexico City, MexicoGamesa — Monterrey, Mexico

PEPSICO AMERICAS BEvERAGE (PAB)Pepsi-Cola North America Beverages (PCNAB) — Purchase, New York, USAGatorade — Chicago, Illinois, USATropicana — Chicago, Illinois, USA

PEPSICO INTERNATIONAL (PI)Europe — Geneva, SwitzerlandAsia, Middle East and Africa (AMEA) — Dubai, United Arab Emirates

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