PepsiCo’s Derek Yach Delivers Business and Society Conference Keynote

With targeted policy reforms, says Yach, corporate social responsibility trade-offs could fade away.

Since leaving the World Health Organization and becoming PepsiCo’s senior vice president of global health and agriculture, Derek Yach has learned a lot about the business challenges that crop up along a corporation’s path to a more sustainable future.

Take, for example, Pepsi’s Performance with Purpose initiative, which aims to reduce the amounts of salt, sugar, and saturated fat in its products while increasing its portfolio of healthy, whole foods and reducing its environmental footprint. Using more fruits and vegetables means learning the intricacies of new supply chains; more dairies could mean more methane emissions; and new crops raise questions about water use and labor conditions. All of these things have the potential to send the finance and operations divisions into heated debates.

Yet they also pose new opportunities for profit and cost savings. “Increasingly our teams understand how shifts in the nutrient profile of foods and beverages create new business opportunities,” Yach said during his keynote address at the 10th annual Business and Society Conference, Feb. 9-10, sponsored by the Allwin Initiative for Corporate Citizenship. “We were well placed to take advantage of our food formulation work over years in Mexico when a new law requiring stricter standards on school meals came into force. And many of our advances in reducing fossil fuel use in our large truck fleet; in approaching zero waste; avoiding national electrical grid use; and attaining positive water balance in our Frito Lay California plant are actively sought after by other companies.”

The lesson—that corporate sustainability is complicated but can spur profits—fit in well with the conference theme, “Trading Off: Impactful Business Strategies in Uncertain Times.” In addition to Yach’s speech, the two-day event featured sessions on social impact as strategy, investing for impact, driving change in the energy sector, and trading profit for health care.

Dean Paul Danos launched the conference with some thoughts on the tension between a tepid economy and the growing concern with the effect of business on society and the environment. In recent years, companies have invested money and manpower in broadening their social responsibility profile, “but just as all that momentum comes, we’ve had a downturn,” he said, “and then companies have to compete for internal resources. That’s what this conference is all about: How do you walk that tightrope between the imperatives of cost and profits and regulatory settings and yet really make deep progress on sustainability?”

Yach, a South African epidemiologist who specialized in non-communicable diseases, made remarkable progress on a different kind of sustainability—human life—when he helped the WHO design and implement the Framework Convention on Tobacco Control in 2003. The framework set strong limits on how tobacco companies could sell their products around the world. It was a big win for global health, but one he could not repeat in the fight against obesity-related diseases. In that forum, Yach tried to insert recommendations on salt and sugar intake into the WHO’s new dietary guidelines. The food industry, however, flexed its lobbying muscles and killed the proposal. A few years later, PepsiCo CEO Indra Nooyi asked Yach if he could do for Pepsi what he tried to do for the WHO. Departing from the usual career track of a public health professional, Yach agreed to join Pepsi. By helping the company, which serves 3 billion people per year, reduce the sugar and salt in its products by 25 percent by 2015, he will arguably have more impact there than he would have at any state agency or non-governmental organization.

Addressing the audience in the Georgiopoulos Classroom in Raether Hall, Yach used two high-profile reports to illustrate the difficulties and opportunities inherent in the move toward sustainable development. A 2012 report by the United Nations’ Panel on Global Sustainability, which is chaired by the presidents of Finland and South Africa, stated that “efforts to reach social and economic targets are hampered by both the inability to agree on decisive and coordinated action…and by unmet commitments for financial support.” A McKinsey report was a little more optimistic, detailing $2.9 trillion in savings that companies could capture by improving resource productivity.

“The contrast between the U.N. report and the McKinsey one highlights a fundamental difference in how the U.N. and the private sector frame issues,” Yach said. “The U.N. report is one of deep gloom that will only be overcome by tens of government actions. McKinsey spelled out opportunities for investment where business and society would benefit.”

Based on his experience at PepsiCo, Yach tends to align closer with the McKinsey report. But he was careful to explain that businesses, acting alone, won’t move quickly enough toward sustainable operations. Through financial incentives and disincentives, governments can help make the right choices the easy choices. “For the food industry,” he said, “this approach would help if it could lead to…public investments in health research that correct the imbalance in favor of pharmaceutical solutions to nutrition and related health problems, and toward research aimed at developing sustainable food and agricultural solutions.”

This line of reasoning could also extend to fiscal reporting. Yach said he agreed with the likes of Al Gore and Harvard Business School professor Michael Porter that the Securities and Exchange Commission should abandon quarterly earnings statements—they make companies too focused on short-term profits—and implement uniform sustainability metrics in annual reports.

“These norms will codify what business has known for decades: their license to operate is granted in perpetuity not for the short term,” he said. “Corporate survival and growth over the long term requires that they share stewardship over the environment and the promotion of health with government and communities.”