Siobhan Richards
Andreas Märtl
Diana Denke
Business Sustainability Thinking
Blog Post 1: Kraft Heinz
1. IMPACT
With some of the highest carbon emissions in the food and beverage sector, Kraft Heinz has never played a key role in its industry’s climate change activism. Yet despite emissions projected at nearly 1 million tons of CO2, Heinz’s latest SEC filing confirms its awareness of the increasingly imminent business impact of climate change including crop shortage and pest infestation concerns. Such references are limited in mention however, suggesting the company is hesitant to tie corporate social responsibility to its key financials[1].
The reality of climate change however, particularly when coupled with Kraft Heinz’s significant reliance on agricultural inputs, all effectively ensure the business will be significantly impacted by the consequences of greenhouse gas emission. Rising temperatures extend the length of agricultural growing seasons and crop yields in the short term, translating to an increased demand for water and an increase in pest and weed issues; all variables that in the long term point to decreased crop yields[2]. Many crops including tomato, a critical input to the Heinz signature ketchup business, face a future of notably decreased yields and as such significant price increases[3].
2. ACTIONS
Despite a reluctance to disclose the business reality of climate change among investors, Kraft Heinz takes an entirely different approach when communicating with consumers. On its corporate website for example, Kraft Heinz shares many environmental sustainability goals including greenhouse gas emission, solid waste and energy consumption reductions. Heinz has already achieved some of these goals boasting a ~23.8% reduction in greenhouse gas emissions and a ~51.2% reduction in solid waste sent to landfills. And with the use of hybrid tomato seeds Heinz has also succeeded in reducing water consumption[4].
The 2016 Kraft Foods and H.J. Heinz Company merger backed by Warren Buffett and private equity firm 3G capital has the potential to improve Kraft Heinz sustainability efforts further through shared learnings and practices. The merger also however has the potential to put the progress Kraft Heinz has made so far at risk. Known for an authoritarian approach to cost cutting via zero-based budgeting, 3G Capital’s effectiveness in improving margins is met with concerns regarding impact to Kraft Heinz social responsibility efforts[5].
3. ADDITIONAL OPPORTUNITIES:
Heinz has not yet communicated plans to consolidate SKUs but doing so can bring both financial and environmental benefits via packaging reductions and increased production run volumes following consolidation. Furthermore, Heinz would benefit from optimizations to its distribution logistics. For example, Heinz could consider restructuring its transportation logistics in order to optimize truck space and as a result benefit from fewer runs. Heinz Netherlands for example has benefited from increased ship transportations which reduced truck runs and as a result lowered carbon dioxide emissions[4].
A controversial ingredient Kraft Heinz admits to using in small amounts across its global operations, palm oil has significant environment and human rights implications. Though Kraft Heinz claims to share the food industry’s concerns surrounding palm oil and has even pledged to source the ingredient in an “ethical, transparent and sustainable” matter, palm oil’s ongoing environmental degradation highlight the amount of progress yet to be made[6]. So while the step is in the right direction, Kraft Heinz could position themselves as the sustainability leader of the food and beverage industry by committing itself to eliminate all use of palm oil. With the effects of climate change posing serious threats to all players of the food and beverage industry, Kraft Heinz has the opportunity to define and set a standard that will ensure the industry’s continued longevity.
Lastly, additional opportunities exist as it relates to the credibility and transparency of Kraft Heinz’s sustainability efforts. While the Kraft Heinz Corporate website shares its environmental impact reduction targets for 2020, its dedicated sustainability website, http://www.kraftfoodsbetterworld.com seems to have gone without updates, instead touting outdated 2010 progress metrics. While it is unclear whether Kraft Heinz intentionally abandoned this website in order to consolidate and share progress on the corporate website, failure to take down the duplicate site that today lists dated metrics does not support the notion that Kraft Heinz is truly committed to environmental sustainability. This sloppy approach instead suggests Kraft Heinz’s recent initiatives may be less than genuine and consumer focused in intent. Adding to this notion is the recent move by Kraft Heinz against a shareholder proposal that would require the business to assess and publicly report on its impact on human rights and deforestation. Urging shareholders to vote against both this and two other sustainability focused proposals, Kraft Heinz only reinforces suspicions that data points relating to the company’s environmental progress are perhaps cherry picked. With mounting pressure for increased transparency, Kraft Heinz should above all consider implementing sustainability practices that the company would be eager to share in their entirety rather than hide. With its longevity at risk, Kraft Heinz cannot cut corners and bet on the rest of industry to manage climate change, it must fully commit[7].
[1] https://climatesmartbusiness.com/wp-content/uploads/2014/06/CS-Food-and-Beverage-Sector-Industry-Brief-digital.pdf
[2] ,” http://calclimateag.org/wp-content/uploads/2011/09/Impacts-fact-sheet.pdf
[3] https://www.greenbiz.com/article/what-does-kraft-heinz-merger-mean-sustainability
[4] https://rctom.hbs.org/submission/how-climate-change-is-impacting-an-american-icon-heinz-ketchup/#_edn1
[5] . http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/893661721?accountid=11311
[6] http://www.triplepundit.com/2017/03/kraft-heinzs-palm-oil-skepticism
Who are the main competitors in the industry and how do they address the same issue?
Wouldn’t the scarcity of food supplies in the future perhaps increase their market share? I wonder if that is a reason why they are not too keen on their sustainability agenda.
Kraft Heinz might ultimately benefit if climate change were to decrease crop yields. They have a strong market power and some methods to mitigate the negative impacts on their inputs.
It is interesting to read about Kraft Heinz’s effort in sustainability, and more interestingly your comment that their 2020 Goals displayed on the website has gone without updates. Coming from PepsiCo myself, I see our company and many other food and agriculture giants share the vision to incorporate sustainability as a key value to communicate. For example, PepsiCo’s slogan ‘Performance with Purpose’ indicates corporate ultimate mission in environmental sustainability. Despite the effort the company in supply chain for energy preservation, reduce food waste, and reduce industrial waste emission, I found it quite disappointing for these CPG company’s lack of effort in waste management and recycling, especially when majority of the packaging material used right now are compound material that is not possible to recycle. What is your opinion on that?
Reference: http://www.pepsico.co.uk/what-we-believe/Planet
I wonder if they tried making lower end ketchup out of dried grinded tomatos or concentrate to decrease distribution emissions and profitability.
Interesting read as many of us head into the recruiting season next period. Is this an issue you would be willing to tackle with Kraft Heinz as your employer?
As a listed company, KH shall start suffering pressure from shareholders about the relative lack of voluntary disclosure of environmental information. What may delay such pressure is the fact that such disclosures are rather voluntary than mandatory as per securities laws in US.
In your opinion, do you think that listed companies shall be obliged to disclose environmental information? Or, alternatively, do you think that self-regulation of self-imposed disclosure would be better?
Isn’t this a plea for GMOs? If we had better seeds that required less inputs from other sources, then we’d be all set. Add this to a vertical farm, and we’ve got so much less to worry about.
If only all those liberal hacks would stop fabricating research against GMOs…