Water management is crucial to the food and beverage sector. As much as 70% of global fresh water is used for irrigation. Engagement specialist Peter van der Werf conducted an active dialogue with Mondelēz International and saw the US snack business evolve from a company with little awareness to an enterprise with a water management strategy firmly embedded in its operations.
Food companies are vulnerable to water scarcity
In the first quarter of 2009, we commissioned research on the impact of water on companies in the food, beverage and tobacco industry. The survey was carried out by the World Resources Institute (WRI) and focused on the availability, use and management of water resources. Companies in this industry tend to be vulnerable to water scarcity and water management costs; not only through their own activities, but more so through their suppliers’ operations. Food producers are ultimately exposed to the water management risks in their supply chain. Such risks include water availability risks that might affect the companies’ production as well as their reputation as large users of local water resources, which could negatively impact other water users surrounding the production sites. One of the companies with which we conducted an intensive engagement on the water theme was Mondelēz International. When we first began our dialogue, the company was still Kraft Foods. However, in 2012, the company spun-off its North American grocery business with the name Kraft Foods Group, resulting in the global snacks company known as Mondelēz International today.
A range of engagement topics
We identified several items for our engagement with Mondelēz. We wanted the company to publicly disclose how much it relied on water resources and to discuss water management issues at the management board level. We urged the company to develop a blueprint of its water costs for the entire business, including its suppliers. We then asked Mondelēz to analyze its financial and reputational risk exposures based on this blueprint. By mapping its water-related financial and reputational risks to its operations, we expected the company to develop a water management policy to manage these risks. Finally, we encouraged the company to be more transparent on how it deals with water management.
Mondelēz: little awareness at first
At the beginning of the engagement, Mondelēz International (then Kraft Foods) did not examine how its future water needs – and those of its suppliers – compared to the total (future) demand for and availability of water in the regions in which it operated. Kraft Foods did not disclose or analyze its water consumption – or that of its suppliers – and the associated financial risks. As a result, stakeholders were likely to assume that the company did not recognize the importance of managing its water-related financial and reputational risks.
"Food producers are ultimately exposed to the water management risks in their supply chain."
Impressive three-year progress
Shareholders also require adequate insight into the financial and reputational risks that water-related issues represent for the company. Our dialogue started in May 2010 with a conference call with the Head of Global Sustainability at Kraft Foods about the company’s water management strategy. The company indicated that it focused on sustainable land management, of which water management was considered an important element.
In the following year in 2011, Mondelēz highlighted water management as one of its six focus areas. Mondelēz had completed a water footprint analysis in line with one of our engagement targets. We asked the company to provide more transparency by disclosing more information about its water management efforts through the CDP Water Disclosure Project. As it turns out, we found that Mondelēz has been far more active in the area of integrated water management, for instance, by linking water management to energy usage and land management, than it had been disclosing publicly. The company actually works closely with several academic institutions and reputable NGOs such as the World Wildlife Fund to develop its water management strategy. It has also analyzed its ecological footprint, using lifecycle analysis for its key commodities and later in 2012 published the results on its website Disclosure would provide more transparency to stakeholders, which would in turn have a positive reputational impact. The company indicated that its approach was to first carry out the work first, and once successful, disclose later. Still, in 2013 the company’s Head of Sustainability indicated that, at the urging of investors such as Robeco, Mondelēz had decided to participate in the CDP water questionnaire. We were pleased with this substantial improvement in the company’s transparency as this was one of our engagement objectives for the company.
"Shareholders require adequate insight into the financial and reputational risks that water-related issues represent for the company."
The next level: well-being and consumption reduction targets
Since we first initiated our dialogue with Mondelēz, it has made considerable efforts to analyze the environmental footprint of its key commodity inputs, coffee and cacao, for which it is the world’s largest purchaser. It has also begun to make progress on reducing the risks related to its key commodity suppliers. Its efforts include educating farmers, promoting sustainable agricultural practices including efficient irrigation methods and processing methodologies. The company now has a comprehensive environmental policy, which includes targets to continuously decrease its water footprint: it aims to reduce its water usage by 15% by 2015, compared to a 2010 baseline. Mondelēz also provides greater insight into its water management practices through its CDP water disclosure and its upgraded website, which includes the Well-Being concept, an initiative to create a global dialogue centered on the well-being of the world. Mondelēz addresses its environmental footprint through a lifecycle analysis and an environmental policy, of which water is an essential element. Starting with the 2012 spin-off of Kraft Foods Group, Mondelēz has undergone major changes, but it has confirmed that it will be releasing a sustainability report by the end of this year. We are impressed with the progress and have closed the engagement successfully.