Pepsico 2008 Sustainability Report

1 PepsiCo Corporate Citizenship Report 2008

Performance with Purpose

PepsiCo Corporate Citizenship Report 2008

Creating a Better Tomorrow for Future Generations


Global Reporting Initiative IndexThe Global Reporting Initiative (GRI) is a system of reporting on financial, social and environmental programs and progress.

Strategy and Analysis

GRI Indicator PepsiCo Location

1.1 Statement from the most senior decision maker of the organization (e.g., CEO, chair, or equivalent senior position) about the relevance of sustainability to the organization and its strategy.

> Letter from Indra Nooyi

1.2 Description of key impacts, risks, and opportunities. > Risk Management

> Corporate Governance

> Human Sustainability - Our Management

> Environmental Sustainability - Our Management

> Employee Learning and Development

> Expanding Opportunities through Diversity and Inclusion

Organizational Profile


2.1 Name of the organization. > PepsiCo, Inc.

2.2 Primary brands, products, and/or services. > Our Business

> Our Economic Impacts

2.3 Operational structure of the organization, including main divisions, operating companies, subsidiaries, and joint ventures.

> Our Business

2.4 Location of organization?s headquarters. > Purchase, New York, United States


2.5 Number of countries where the organization operates, and names of countries with either major operations or that are specifically relevant to the sustainability issues covered in the report.

> Our Operations

2.6 Nature of ownership and legal form. > Form 10-K

2.7 Markets served (including geographic breakdown, sectors served, and types of customers/beneficiaries).

> Our Operations

> Our Business

2.8 Scale of the reporting organization, including:

Number of employees

Net sales (for private sector organizations) or net revenues (for public sector organizations)

Total capitalization broken down in terms of debt and equity (for private sector organizations)

Quantity of products or services provided.

> Our Business

> Our Operations

> 2008 Annual Report

> Form 10-K

2.9 Significant changes during the reporting period regarding size, structure, or ownership including:

The location of, or changes in operations, including facility openings, closings, and expansions; and

Changes in the share capital structure and other capital formation, maintenance, and alteration operations (for private sector organizations).

> Our Business

> Our Operations

2.10 Awards received in the reporting period. > Awards and Recognitions – Select Listing

3.1 Reporting period (e.g., fiscal/calendar year) for information provided. > Fiscal year 2008

3.2 Date of most recent previous report. > 2007/2008

3.3 Reporting cycle (annual, biennial, etc.). > Annual

3.4 Contact point for questions regarding the report or its contents. > [email protected]


Report Scope and Boundary


3.5 Process for defining report content. > Overview

3.6 Boundary of the report. > Overview

3.7 State any specific limitations. > Overview

3.8 Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/or between organizations.

> Overview

3.9 Data measurement techniques and the bases of calculations, including assumptions and techniques underlying estimations applied to the compilation of the Indicators and other information in the report.

> Overview

3.10 Explanation of the effect of any re-statements of information provided in earlier reports, and the reasons for such restatements (e.g., mergers/ acquisitions, change of base years/periods, nature of business, measurement methods).

> Overview

3.11 Significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in the report.

> Overview

GRI Content Index


3.12 Table identifying the location of the Standard Disclosures in the report. > G3 Indicators


3.13 Policy and current practice with regard to seeking external assurance for the report. If not included in the assurance report accompanying the sustainability report, explain the scope and basis of any external assurance provided. Also explain the relationship between the reporting organization and the assurance provider(s).

> Environmental Sustainability – Statement from Bureau Veritas

Governance


4.1 Governance structure of the organization, including committees under the highest governance body responsible for specific tasks, such as setting strategy or organizational oversight.


4.2 Indicate whether the Chair of the highest governance body is also an executive officer (and, if so, their function within the organization’s management and the reasons for this arrangement).


4.3 For organizations that have a unitary board structure, state the number of members of the highest governance body that are independent and/or non-executive members.


4.4 Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body.

> Corporate Governance – Communications with the Board of Directors

4.5 Linkage between compensation for members of the highest governance body, senior managers, and executives (including departure arrangements), and the organization’s performance (including social and environmental performance).

> Corporate Governance – Board and Executive Compensation

4.6 Processes in place for the highest governance body to ensure conflicts of interest are avoided.

> Corporate Governance – Board and Executive Compensation, Conflicts of Interest

4.7 Process for determining the qualifications and expertise of the members of the highest governance body for guiding the organization’s strategy on economic, environmental, and social topics.

> Corporate Governance – Board and Executive Compensation


4.8 Internally developed statements of mission or values, codes of conduct, and principles relevant to economic, environmental, and social performance and the status of their implementation.

> Mission, Values, and Guiding Principles

> Code of Conduct – Code and our Policies

> Human Sustainability – Introduction

> Environmental Sustainability – Introduction

> Talent Sustainability – Introduction

4.9 Procedures of the highest governance body for overseeing the organization’s identification and management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct, and principles.

> Risk Management


4.10 Processes for evaluating the highest governance body’s own performance, particularly with respect to economic, environmental, and social performance.

> Corporate Governance – Annual Performance

> Evaluation of the Board

4.11 Explanation of whether and how the precautionary approach or principle is addressed by the organization.

> Human Sustainability

> Climate Change

> Risk Management

4.12 Externally developed economic, environmental, and social charters, principles, or other initiatives to which the organization subscribes or endorses.

> Memberships and Partnerships

4.13 Memberships in associations (such as industry associations) and/or national/international advocacy organizations in which the organization:

Has positions in governance bodies;

Participates in projects or committees;

Provides substantive funding beyond routine membership dues; or

Views membership as strategic.


4.14 List of stakeholder groups engaged by the organization. > Our Stakeholders

4.15 Basis for identification and selection of stakeholders with whom to engage. > Our Stakeholders

4.16 Approaches to stakeholder engagement, including frequency of engagement by type and by stakeholder group.

> Our Stakeholders


4.17 Key topics and concerns that have been raised through stakeholder engagement, and how the organization has responded to those key topics and concerns, including through its reporting.

> Our Stakeholders

> Carbon Trust Letter

Economic Performance Indicators


EC1 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments.

> Our Economic Contributions

EC2 Financial implications and other risks and opportunities for the organization’s activities due to climate change.

> Risk Management

> Climate Change

EC3 Coverage of the organization’s defined benefit plan obligations. > Employee Benefit Programs

EC4 Significant financial assistance received from government. Our Economic Contributions > Our Economic Contributions

EC6 Policy, practices, and proportion of spending on locally based suppliers at significant locations of operation.

> Our Economic Contributions

> Agriculture

EC7 Procedures for local hiring and proportion of senior management hired from the local community at locations of significant operation.

> Talent Sustainability – Expanding Opportunities through Diversity and Inclusion

EC8 Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in kind, or pro bono engagement.

> The PepsiCo Foundation

> Human Sustainability – Leaving a Positive Footprint on Society

> Environmental Sustainability – Leaving a Positive Footprint on Society

> Talent Sustainability – Leaving a Positive Footprint on Society

EC9 Understanding and describing significant indirect economic impacts, including the extent of impacts.

> Our Economic Impacts

> Our Stakeholders


Environmental Performance Indicators


EN1 Materials used by weight or volume. > Packaging and Solid Waste – Global Packaging by Weight

EN2 Percentage of materials used that are recycled input materials. > Packaging and Solid Waste

EN3 Direct energy consumption by primary energy source. > Environmental Sustainability – Introduction

EN4 Indirect energy consumption by primary source. > Environmental Sustainability – Introduction

EN5 Energy saved due to conservation and efficiency improvements. > Environmental Sustainability – Introduction

EN7 Initiatives to reduce indirect energy consumption and reductions achieved. > Climate Change

EN12 Description of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas.

> Climate Change - Green Building and Design

EN14 Strategies, current actions, and future plans for managing impacts on biodiversity. > Agriculture – Biodiversity

EN16 Total direct and indirect greenhouse gas emissions by weight. > Climate Change

EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved. > Climate Change

EN 26 Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation.

> Environmental Sustainability

EN29 Significant environmental impacts of transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce.

> Climate Change – Fleet, Beverage Coolers and Vending Machines


Social Performance Indicators


LA1 Total workforce by employment type, employment contract, and region. > Our Business

> Our Operations

LA3 Benefits provided to full-time employees that are not provided to temporary or part-time employees, by major operations.

> Employee Benefit Programs

LA8 Education, training, counseling, prevention, and risk-control programs in place to assist workforce members, their families, or community members regarding serious diseases.

> Talent Sustainability —Introduction by Greg Heaslip

> HIV/AIDS

> Health and Safety

LA10 Average hours of training per year per employee by employee category. > Employee Learning and Development

LA11 Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings.


LA12 Percentage of employees receiving regular performance and career development reviews.

> Talent Sustainability — Introduction by Leslie Teichgraeber


LA13 Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity.

> Expanding Opportunities through Diversity and Inclusion

HR1 Percentage and total number of significant investment agreements that include human rights clauses or that have undergone human rights screening.

> Human Rights

> Responsible and Sustainable Sourcing – Supplier Code of Conduct

HR3 Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained.

> Human Rights

> Code of Conduct


Society Performance Indicators


SO3 Percentage of employees trained in organization’s anti-corruption policies and procedures.

> Code of Conduct

SO4 Actions taken in response to incidents of corruption. > Code of Conduct

SO5 Public policy positions and participation in public policy development and lobbying. Memberships and Partnerships.


SO6 Total value of financial and in-kind contributions to political parties, politicians, and related institutions by country.

> Our Economic Contributions and Contributions and Community

Product Responsibility Performance Indicators


PR1 Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures.

> Human Sustainability

> Responsible and Sustainable Sourcing

> Environmental Sustainability – Monitoring

PR3 Type of product and service information required by procedures, and percentage of significant products and services subject to such information requirements.

> Helping Consumers Make Better Choices with Nutrition Labeling

PR5 Practices related to customer satisfaction, including results of surveys measuring customer satisfaction.

> Consumer and Customer Relations

PR6 Programs for adherence to laws, standards, and voluntary codes related to marketing communications, including advertising, promotion, and sponsorship.

> Engaging in Responsible Marketing and Advertising


OverviewPepsiCo 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. 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 measure our 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 financial success while leaving a positive imprint on society. Specifically, we have defined three areas of influence: 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, agriculture, packaging and waste.

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 fiscal year.

We have followed the G3 Guidelines of the Global Reporting Initiative. Our report includes PepsiCo operations that we own and operate. In the United States and in some other countries, independent franchise bottlers manufacture and distribute our beverage products. Our three largest bottlers in the U.S. are The Pepsi Bottling Group (PBG), PepsiAmericas, Inc., and Pepsi Bottling Ventures LLC. Our ownership of each of these bottlers is less than 50 percent, and because we do not control these bottlers, we do not consolidate their results or include their information in this report except as noted in the text.

Data is prepared following PepsiCo-established metrics and protocols, which often follow external methods. Comments on this Corporate Citizenship Report can be submitted to [email protected].

Human Sustainability

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

Environmental Sustainability

Protecting our natural resources and operating in a way that minimizes our environmental footprint

Talent Sustainability

Involving and empowering people, helping them to realize their potential, renew themselves, and achieve success


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 environmental 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 macroeconomic 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.


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.


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 performance, 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.


By valuing our employees, we are ensuring that PepsiCo is the kind of company where talented people of all backgrounds 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


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, efficiency 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 efficiency projects across its sites but more recently led to groundbreaking work on product carbon footprinting and labelling. The Walkers brand was the first to carry our Carbon Reduction Label in the UK and Ireland. Quaker Oats now carries the Label and Tropicana was the first US brand to disclose its certified footprint in March 2009.

PepsiCo has seen a range of benefits 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.

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.

Tom Delay Chief Executive, The Carbon Trust

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


The most important contributions that we make address hunger, health and environmental sustainability. These are just a few examples of the actions we are taking to support the Millennium Development Goals

U.N. Millennium Development Goals: Our ContributionEstablished in 2000, the United Nation’s Millennium Development Goals focus on eight global issues ranging from eradicating hunger to ensuring environmental sustainability. 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 and contributes 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 solutions 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 partnerships 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.

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 development 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.



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


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.

HUMAN SUSTAINABILITY


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.



Our Management

PepsiCo continues to evolve its approach to systematically obtaining policy and scientific advice. An intensive review of PepsiCo’s external health and wellness advisory structure was completed in late 2008 by the University of Toronto’s McLaughlin-Rotman Centre for Global Health and Director of Ethics and Policy. Based on its recommendation, PepsiCo is refining its approach to policy, science and bioethics as follows:

The PepsiCo Blue Ribbon Advisory Board (BRAB) will be reshaped in 2009 to become the PepsiCo Policy Advisory Committee. Reporting to and appointed by the CEO, it provides high-level policy advice that is global in scope and addresses the diversity of health and environmental issues that impinge on PepsiCo’s work. Complementary policy advisory committees now exist in all regions and in most major markets and focus on issues of direct relevance to their regions. The regional committees report to the president of the regional and/or national business and will be represented in an annual global meeting to assure coherence of approaches.

In addition to our Human Sustainability Leadership Team, led by our CSO and leaders from R&D, Global Nutrition, Public Policy, Legal, Communications and Marketing, the Board of Directors, PepsiCo’s chairman and senior executive leaders are informed on health and wellness initiatives and issues on a quarterly basis.

Divisions of PepsiCo also leverage experts to help promote science-based understanding of food and beverage choices and their impact on health. For example: the Quaker/Tropicana Breakfast Research Institute (BRI) established in late 2006 is now a web-based institute devoted to promoting a science-based understanding of the role of breakfast in the diet and the health implications of its consumption as part of a healthy lifestyle. The BRI is comprised of scientists prominent in their fields, and is led by renowned cardiologist Dr. James Rippe.

> More information about the BRI

Internationally, advisory boards in China, the U.K., Mexico, Brazil and India help to guide our efforts in health and wellness, food safety, regulatory compliance and innovation.

The development of the Global R&D structure and appointment of our first CSO has led to an upgrading of our relationships with leading academic and research-based organizations on a global basis.

In addition to these experts, PepsiCo has created the International Food Safety and Nutrition Network (IFSAN). This is a global network of PepsiCo R&D and food science professionals. They have established specific priorities and codes of practice for PepsiCo regarding such things as food safety policy and promotional insert policies. They also work with outside opinion leaders and agencies to provide advice and the PepsiCo perspective as needed.

Focus on Emerging Markets

PepsiCo focuses on keeping its brands strong and locally relevant in all of its markets. In emerging markets, PepsiCo has built innovation and R&D processes that have both local relevance and a global foundation. For example, PepsiCo has R&D centers in all the key regions of the world—Mexico, the U.K., China, Thailand and two “satellite” centers in Brazil and Australia, as well as the flagship R&D centers in the U.S. In markets around the world, our R&D teams support our growth by turning our global brands into local favorites. We work closely with local master chefs who understand the preferred tastes and consumption patterns of people in specific regions and cultures. These insights then inspire us to extend our existing brands and invent new categories and flavors.

In Asia, we learned that people strongly prefer beverages that contain natural ingredients. We responded by introducing Pepsi Raw with pure sugar cane. We also experimented with local flavor combinations to create Tropicana Guo Bin Fen, a new category of exotic mixed juices. This non-carbonated beverage, available in Honey Melon & Jasmine and Orange & Honeysuckle, became PepsiCo International’s largest and most successful new product in 2008, and helped us grow

our market share in China’s major cities. The business dynamic is similar in other Asian markets as well, where we have reshaped our product portfolios significantly to address local tastes and needs.

In Latin America, we are adding capacity to our R&D centers in Mexico and Brazil, allowing for 70% to 80% more innovation utilization. We also launched new locally specific brands and flavors in 2008, including Passion Fruit H2Oh! in Brazil and watermelon flavored Be-Light (flavored water) in Mexico. For our fountain beverages found in select restaurant chains, we will execute consumer trials for three new beverage flavors, Tamarind, Hibiscus and Lime. We are also increasing acquisitions in the region to add some locally relevant brands to our portfolio.

In Europe, we use local flavors like paprika, shashlik and red caviar. We have also developed local products; for example, Hrusteam is a bread-like product exclusive to Russia (Russian brand, Russian packaging, Russian flavor).



We’re making products that help our consumers live active, healthy lives.

Transformin g 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 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.

> View a list of PepsiCo products that qualify under the school beverage guidelines

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.

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.

In Poland, we have collaborated with several multi-national food corporations and the Polish Government on a “Keep Fit” program for teens.

In Canada, we’re working with the Canadian Association for Health, Physical Education, Recreation, and Dance to support a national initiative to educate children on simple ways to be more active and eat more healthfully.

In South Africa, our Simba business supports physical activity and energy balance for a healthy lifestyle for children through its Ready, Steady, Go program at schools.

In China, PepsiCo introduced a Sports and Music promotion to encourage people to participate in sports, and the U.S.-based Gatorade Sport Science Institute established a branch in China to help Chinese athletes improve performance



through scientific research.

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.

!"#$%&' ()*+(,-.PepsiCo is committed to providing safe, wholesome products and to protecting equity in our brands, trademarks and goodwill. Our business divisions have implemented policies related to food safety, labeling, product integrity and quality.

PepsiCo complies with all legally required nutrition labeling. Our policies cover food safety, sanitation, recalls and allergens, and require that our products are coded, labeled, identifiable, and traceable. PepsiCo is in full compliance with required nutrition labeling and has voluntarily led the industry in “full container labeling” on products where consumers may be reasonably expected to eat or drink the full container on one occasion.

Our compliance systems include website training, monitoring, preventative measures and readiness for corrective action. We have regular management reviews of our procedures and activities regarding our products.

On a global basis, we label all ingredient information on the back of the product package and provide any other relevant nutrition information in compliance with local country guidelines. PepsiCo is committed to providing clear and useful nutrition labeling that helps consumers make nutritionally informed choices.

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 year-end 2008, 100 percent of our snacks, foods, and beverages carried the GDA labeling on pack in the EU.

Daily Intake Guide (percent DI labeling) has been voluntarily introduced for our carbonated beverages, multi-pack snacks and larger “sharing” packs as part of the industry-wide food labeling changes in Australia and New Zealand. This labeling gives information on the calories and content of a range of key nutrients per serving to assist consumers in making informed food and beverage choices. It was rolled out across the entire product range in Australia and New Zealand.

One of the five Vive Saludable strategic pillars is the responsible selling and marketing of our products and the promotion of healthy lifestyles among consumers. This includes the clear and responsible labeling of ingredients and health benefits, the creation of an icon system to communicate and educate consumers on nutrition benefits, ensuring responsible communication and publicity of the health/ nutrition benefits of our products, and promoting active lifestyles and healthy eating among schools and consumers. The following countries currently have products with the Vive Saludable logo: Mexico, Guatemala, El Salvador, Honduras, Nicaragua, Panama, Chile, Argentina, Ecuador, and Peru.

On a global basis, we label all ingredient information on the back of the product package and provide any other relevant nutrition information in compliance with local country guidelines.

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.

PepsiCo recognizes that, as a multinational food and beverage company with global brands that touch millions of consumers every day, our communications carry a special responsibility. We are committed to responsible marketing practices, including changing the balance of foods and beverages advertised to children. We are also committed to ensuring that healthy choices are offered in schools. We believe this will help children, parents, and schools make their dietary choices that support a healthy lifestyle.

PepsiCo has already made several global, national, and sector-driven commitments regarding responsible marketing to children and product placement in schools.

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. The 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.

Our global marketing policy is just the beginning of an ongoing effort to expand the commitment toward responsible marketing globally. PepsiCo has joined the food and beverage industry in adopting Pledges in Australia, Canada, the EU, South Africa, Thailand and the U.S., and work is under way to introduce similar pledge programs and/or self-regulatory initiatives in other countries and regions, including Brazil, Russia, Turkey, the Middle East, China, South Africa, the



Philippines, and Latin America.

PepsiCo has a long-standing policy on the kinds of television programs that can carry our advertising messages. We’re committed to high standards in all our advertising, including the environment in which our advertising appears. We avoid advertising during excessively violent programs, programs that may be distasteful as judged by contemporary society, and those that may be offensive to large groups of people. We also attempt to avoid programs containing material inconsistent with or adverse to our products. We seek to avoid programs featuring exceptionally controversial or potentially inflammatory discussions. Children are a special audience, and we take particular care in developing marketing practices and evaluating programs that carry messages to children.

We joined with the Alliance for a Healthier Generation and other leaders in the U.S. food and beverage industries to adopt voluntary guidelines for the products we offer to grade schools in the U.S. As part of the commitment, we agreed to remove full-calorie soft drinks from K-12 schools over three years. Since 2004, we have seen a nearly 60% drop in the calories of beverages shipped to these schools. We are the only food and beverage company to have signed both a beverage and snacks agreement for U.S. schools.

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.



Partnering for Change

We proactively lead and engage in private-public partnerships 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 commitment 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 progress in delivering these goals at the annual World Health Assembly meeting.

We also support the Global Alliance for Improved Nutrition (GAIN), a Swiss foundation that seeks to fight malnutrition by mobilizing partners to deliver improved nutrition to vulnerable populations.

In the U.S., we’re working with the American Dietetic Association, the nation’s largest organization of food and nutrition professionals, to develop educational programs and engage in frequent dialogues that will make a positive difference in public health through improved product choices and adoption of active lifestyles.

PepsiCo also calls upon the strategic and practical insights of our health and wellness advisory boards comprised of top science, nutrition and policy experts in the U.K., U.S., and Brazil, among other countries.

Leaving a Positive Footprint on Society

The PepsiCo Foundation’s investment strategy in the global health portfolio is to protect and make available proper, nutritious food,; improve complete health,; and increase health-promoting behaviors through proper nutrition and energy balance.

/)0+ '1+ &1,($"+-Save the Children became one of PepsiCo Foundation’s newest grantees within the global health portfolio in November 2008 with a $5 million grant for a program aimed at decreasing newborn and child mortality and malnutrition in India and Bangladesh. Save the Children proposes to work with community health educators to provide thousands of families among these countries’ poorest with important information about health, nutrition, water, sanitation, and hygiene. The combined global resources of PepsiCo Foundation and Save the Children will help make a profound difference in the lives of 650,000 children under the age of five, along with mothers and pregnant and lactating women in these two countries.

#23#"$ 1+)('1 )((,)-&+

The Oxford Health Alliance is a global organization that works to reduce the burden of chronic diseases in the United Kingdom, Mexico, China and India. Working with the PepsiCo Foundation, the Community Interventions for Health program was implemented to reduce chronic disease by targeting three risk factors: diet, physical activity level and tobacco use.

3)4,(5 1+)('1 /+(3-+4!#6+"4+-' !"#7+&'The University of Florida and its Family Health Self-Empowerment Project is a multiyear research and intervention program that investigates approaches to reduce the incidence of obesity in low-income and ethnic families.

6#"($ 3##$ !"#.")44+ (63!)Working with the PepsiCo Foundation Service Corps, this project will enhance the humanitarian aid capabilities of WFP and leverage the core competencies of PepsiCo in line with Performance with Purpose. The program will work to identify where PepsiCo?s performance culture and supply chain expertise can be applied to WFP logistical operations and will provide enhanced tools, metrics and training to facilitate this. As a result, WFP will be able to provide better and more efficient assistance to those at greatest risk of hunger and hunger-related diseases due to extreme poverty and natural and man-made disasters around the world.

Healthy Food, Healthy Moves: Chicago Communities in Schools and the Consortium to Lower Obesity in Chicago Children (CLOCC) are collaborating on the Healthy Food, Healthy Moves: Inform Chicago initiative to test and deliver a health promotion program in six Chicago schools. The three-year pilot project has mobilized a broad network of community organizations, government officials, educators, public health professionals and families in a citywide effort to raise awareness of how to achieve healthy lifestyles.



Food Safety, Genetically Modified Ingredients and Organic Foods

3##$ /)3+'5PepsiCo, like many consumer product goods companies, sources ingredients from around the globe to ensure that we use the freshest, best tasting, and highest quality ingredients available for our products. Food safety is at the top of our priority list as we select these materials, and we have an excellent record in providing safe, wholesome and nutritious products to our consumers. To ensure that PepsiCo provides safe products with the highest quality, we only use foods, ingredients, and packaging materials that have been deemed safe by scientific consensus and regulatory review. The health and safety of our consumers is of the highest importance to us.

PepsiCo shares and actively supports its customers’ interests in food safety, and believes customers have a right to relevant information about the food they buy so that they can make informed purchasing decisions. PepsiCo, however, believes that the U.S. Food and Drug Administration, and other national and international regulatory authorities who are charged with protecting the health and safety of the public and the environment, are the proper entities, rather than a manufacturer like PepsiCo, to evaluate and make judgments about the labeling and sale of genetically engineered products. PepsiCo takes its lead from national and international food-safety and regulatory authorities, and supports their efforts to take whatever steps are necessary, based on sound scientific principles, to ensure that any new food technology is safe for consumers and the environment. While maintaining our own high internal food safety standards, PepsiCo complies with all government food labeling regulations.

.+-+',&)((5 4#$,3,+$ ,-."+$,+-'/PepsiCo is dedicated to producing the highest quality, greatest tasting food and beverage products in every part of the world. PepsiCo ensures all products meet or exceed stringent safety and quality standards and uses only ingredients that are safe and approved by applicable government and regulatory authorities. Approval of genetically modified foods differs from country to country regarding both use and labeling. For this

reason, PepsiCo adheres to all relevant regulatory requirements regarding the use of genetically modified food crops and food ingredients within the countries in which it operates. Where legally approved, individual business units may choose to use or not use genetically modified ingredients based on regional preferences.

#".)-,& 3##$/In North America, PepsiCo currently offers certified organic products from Quaker. Two varieties of Quaker Instant Oatmeal are certified organic. Organic Quaker Instant Oatmeal is made with at least 95% organically produced ingredients. Every ingredient in the Maple & Brown Sugar Quaker Organic Instant Oatmeal is natural, and is designated “100% Natural.” Certification follows the USDA certification program known as the National Organics Program (NOP) and follows the National Organics Standards (NOS), established in October 2002. All PepsiCo certified organic products are certified by the USDA-accredited certifier Oregon Tilth.

Consumer and Customer Relations

PepsiCo serves the needs of two important groups:

The consumers who purchase and consume our products

The retailer and bottler customers who purchase and resell these items

PepsiCo has several methods in place for measuring and improving consumer and customer relations.

&#-/%4+"/Consumers are a key stakeholder for our business. All PepsiCo divisions conduct regular qualitative and quantitative research to understand our consumers’ needs. Our North America divisions conduct over 100 custom and standard studies per year. These studies range from small focus groups (to learn from individual consumers), to telephone or online surveys (to gain statistically significant insights). Consumer insights are translated into product improvements, new product ideas, and communication tactics.

In the U.S., our packages carry a toll-free number and web address to allow consumers easy access to PepsiCo if they have

questions or comments regarding the company or one of its products. Each business has a Consumer Relations Department that serves as the first point of contact for all communications and correspondence received from our consumers. Should consumers need to contact us after hours, they can dial our toll-free number and a message will be activated offering them an emergency line number. A special team of Consumer Relations professionals are available 24 hours a day, 7 days a week; and they can be contacted through our emergency line and will immediately return a call to a consumer or one of our field representatives.

In 2008, PepsiCo call centers measured consumer satisfaction and service levels across all of their North America businesses. The tools used covered a range of key consumer metrics including response rate, representative knowledge/professionalism, satisfaction with resolution, service level, and willingness to recommend products to family/friend.

For example, our Pepsi-Cola Company call center operates at an over 99% service level. This indicates that the center answers and handles calls to the toll-free number without hold time for over 99% of calls, well above industry standard. When the consumer provides feedback or input via the call center, this input is funneled to the correct business owner and addressed as appropriate.

&%/'#4+"/PepsiCo’s key customers are retailers and bottlers. PepsiCo commissions retail customer surveys that measure customer satisfaction, including such things as target setting and strategic planning. Dedicated PepsiCo customer teams work across our divisions to provide the highest level of service to our major customers. These individuals work closely to assure that all customer feedback is understood and addressed as quickly as possible.

In addition to the day-to-day management of customer feedback, PepsiCo has established forums to solicit feedback. One such forum is PepsiCo’s Innovation Summits, which are held annually with our major customers. These summits take place in the early spring to late summer and preview innovation for the following year and beyond. Customers are shown PepsiCo’s proposed new products and are



asked to provide verbal and written feedback. This feedback is forwarded to the R&D and commercialization teams, often resulting in changes to final product. In addition to Innovation Summits, PepsiCo will also be conducting Supply Chain Summits with our top customers to build a strategic agenda around in-store conditions, cost removal and sustainability.

PepsiCo has created Centers of Excellence (COEs) to ensure a high quality of customer service. One of our most active COEs is focused on customer insights, helping to quantify and provide innovative solutions for our customer’s most challenging issues, including consumer shopping habits, macro consumption trends, and retailer competitive dynamics.

Additionally, PepsiCo has a COE dedicated to Customer Supply Chain and Logistics, and focused on go-to-market capabilities. It addresses customer supply issues and enables rapid resolution of situations as they occur. Ultimately, the COE enables a more flexible and adaptive supply chain for our individual retail customers. PepsiCo has also instituted a regular Supply Chain scorecard process. The scorecard sets targets and measures results on metrics such as on-time delivery and consistent service.

*#''(+" +-.).+4+-'In the U.S., our Pepsi-Cola businesses work closely with our independent bottlers to assure the seamless production and delivery of our products. There are several formal processes for soliciting bottler feedback. Strategic planning is conducted in collaboration with our largest bottlers, as well as an annual bottler meeting which communicates Pepsi’s Annual Operating Plan to the entire bottling system.

&#-/%4+" !",0)&5 Consumer privacy is important to PepsiCo, and we make every effort to ensure that consumers understand our policies. Each division maintains its own marketing website and these are accessible by consumers. Brand-specific websites and promotion-specific microsites are also maintained, where consumers can voluntarily provide personal information to participate in online programs and promotions. On each website, a privacy policy is conspicuously posted that outlines the types of information collected by each division on that site and how the information is used and protected. We comply with applicable laws, rules and regulations. Also, personal information received through the Consumer Relations toll-free number is kept confidential.




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


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, scientifically 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 first time ever, Bureau Veritas issued a verification 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%


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.

Our Environmental Policy

PepsiCo’s Environmental Policy applies to all our operations. PepsiCo monitors company-owned operations and joint ventures where we hold a majority share. We encourage our suppliers, service providers, bottlers and other partners to adhere to the policy.

> View PepsiCo’s Environmental Policy

PepsiCo’s Corporate Environmental Policy is a statement of the company’s commitment to being an environmentally responsible corporate citizen in all aspects of our business. The policy expresses principles that form the foundation of our commitment to environmental stewardship at all levels within PepsiCo. This includes the commitment to implement and maintain an Environmental Management System, identification and management of environmental risk, and application of formal governance and auditing processes to our environmental programs and systems to ascertain compliance with regulations and company standards.

The policy also expresses our commitment: to implement resource conservation, environmental best practices, and use of technology and innovation to minimize the potential environmental impacts of our business; to set goals and establish metrics to monitor continuous improvement in environmental performance; to work with stakeholders up and down our supply chain to reduce environmental impacts of our products throughout their life cycle; and to review our performance in implementing our policy.

Our Management

Environmental performance leadership is the responsibility of PepsiCo’s executive supply-chain heads of our operations: Frito-Lay North America, Quaker, Tropicana, Gatorade, Pepsi-Cola North America (including working with our bottlers) and PepsiCo International. These leaders head our Environmental Sustainability Leadership Team (ESLT), formed in 2007. The ESLT includes senior executives from all functions to make sure that environmental impacts are considered in all areas of the business.

The ESLT charter includes the following:

Create and maintain PepsiCo’s environmental sustainability strategy.

Develop, administer and maintain PepsiCo-wide policies on matters of environmental sustainability.

Develop goals and timelines for PepsiCo environmental performance.

Assess the gaps and strengths of performance relative to our aspirations and external benchmarks.

Provide support to divisions in improving PepsiCo’s long-term environmental sustainability performance.

Advise and inform the Chairman and CEO, the PepsiCo Executive Committee and the Board of Directors on matters of environmental sustainability.

The ESLT is supported by the Environmental Council (EC). The EC is made up of environmental experts from all areas of our business, including resource conservation program managers and environmental compliance managers.

The EC’s mission is to provide subject matter expertise within and across the divisions, and it supports the ESLT to ensure that we have a strategic environmental sustainability vision for PepsiCo; uniform system-wide metrics, standards, and practices;, sensible environmental goals; and accurate reporting to internal and external stakeholders. In addition to driving greater efficiencies in our use of natural resources and identifying ways to address water scarcity issues, the EC is focused on the implementation of a global Environmental Management Information System (EMIS) to standardize and consolidate our existing environmental management software into a single, enterprise-wide solution to provide common tools and processes for environmental data capture and reporting, and to ensure that key compliance and environmental performance metrics and parameters are effectively measured and managed within our Environmental Management System (EMS).

To leverage best practices across Environment and Health and Safety, the PepsiCo Health and Safety Leadership Council (HSLC) and the Environmental Council both report to the PepsiCo senior vice presidents of Supply Chain.

In addition, Pepsi Beverage North America has a Bottler Sustainability Team. Their mission is to advance environmental sustainability in Pepsi Cola’s bottling operations through:

Defined and consistent measures: data collection, benchmarking and reporting with PepsiCo

Setting and achieving goals

Driving continuous improvement

Sharing best practices

Each division is held responsible for implementing environmental programs, training associates and tracking, monitoring, correcting and improving environmental aspects of its business.



4#-,'#",-.In 2005, the PepsiCo Environmental Management System (EMS) framework was first developed with the help of an independent third party. Since this time, we have reviewed our performance and strategy, and in 2008 we expanded the framework to encompass the environment, health, and safety. We call this 12-element framework the PepsiCo Environmental, Health & Safety Management System (EHSMS).

Key features of the PepsiCo EHSMS framework include:

A risk-based management approach

Documented systems that capture and maintain institutional knowledge

Objectives and targets for continuous improvement

Integration of environmental, health and safety considerations into core business processes

Routine performance monitoring and internal management reporting

The EHSMS framework is built along the lines of ISO 14001 and OHSAS 18001. Twenty-one PepsiCo International facilities are ISO 14001 certified, including nine in the United Kingdom.

Company-owned facilities or joint ventures with PepsiCo management control implement the PepsiCo EHSMS, which aligns with ISO 14001 and OHSAS 18001. We have a total of 39 facilities that have been externally accredited to ISO 14001. We estimate that more than 90% of PepsiCo International manufacturing facilities receive environmental management system audits by internal or external auditors.

&)!,')( +2!+-$,'%"+ 3,('+"PepsiCo incorporates sustainability criteria into our Capital Expenditure Filter (CapEx Filter), and we are using it on all capital expenditure requests over $5 million. Each request must include a review of the sustainability issues and opportunities surrounding the request. The goal is to incorporate sustainability aspects into projects right from the start and track sustainability-related capital spending across PepsiCo. This process is expected to help drive continued improvement.

+$%&)',#- )-$ )6)"+-+//—+-.).,-. +4!(#5++/We are committed to educating our associates on the importance of environmental sustainability. In addition to regular training of environmental personnel, we conduct special events at which new ideas are shared.

In May 2008, PepsiCo introduced the Sustainable Engineering Guidelines, which are meant to support overall implementation of our environmental sustainability design principles throughout the engineering process, and to improve efficiency in the use of natural resources. The Sustainable Engineering Guidelines can be accessed through a website available to all PepsiCo employees and key partners worldwide. We also offer workshops on ReCon, our global eco-efficiency strategy for resource conservation within our operations, to our engineers, facility operations teams, bottlers and co-packers around the world.

Environmental sustainability is shared with all our associates through special activities to mark events such as Earth Day and World Water Week. Environmental information is also included in our daily e-newsletter. Our PepsiCo Americas Beverages businesses have quarterly employee e-newsletters dedicated to sharing environmental sustainability initiatives and projects in the region as well as showcasing best practices.

In 2008, U.S. employees were offered Chronos, an e-learning tutorial designed to help associates understand the landscape of sustainability and the business case for sustainable development. It was created through a partnership with the World Business Council on Sustainable Development (WBCSD) and the University of Cambridge, U.K..

."++- '+)4/Frito-Lay North America maintains a dedicated team of experts across our manufacturing facilities focused on reducing consumption of electricity, fuels, and water. Through “GreenTeams” made up of groups of volunteer employees, more than 12,000 manufacturing associates have been trained to improve their environmental awareness and to understand how they can do their jobs without adversely impacting the environment.

Quaker, Tropicana, and Gatorade have established PepsiCo Green Chicago,” an overarching environmental sustainability initiative to raise employee awareness and create actionable tactics to improve the business and each associate’s personal environmental footprint. The focus is to raise awareness, incite action and institutionalize sustainability improvement efforts across PepsiCo. In September 2008, our headquarters building in Chicago opened a company-first Sustainability Center, dedicated to Performance with Purpose. The Center, designed to Platinum LEED Commercial Interior standards, is used to educate and inform employees about PepsiCo sustainability initiatives, business progress and personal actions they can take at home to reduce their footprint.


30 PepsiCo Corporate Citizenship Report 2008PepsiCo workers in Punjab, India, tend to rice fields that were planted using the direct seeding method, a unique and highly water-efficient 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 acres in five states and

saved close to

1 billion liters 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



WaterPioneering Initiatives to Achieve Positive Water Balance

Water is required to make our products, so that we maintain the highest quality standards for consumers—and water is required to ensure a clean and safe workplace 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 prevented depletion of ground water 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 impacts 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.

Conserving Water in Our Operations

One of the most important elements of sustainable water conservation is in-plant water conservation. To formalize this in our manufacturing facilities and embed conservation practices into the day-to-day operations of the plant, we have developed the water component of our successful Energy Resource Conservation (ReCon) tool. Like the energy tool, the water tool includes a PC- or web-based diagnostic, with audit guidance and solution sets. With this tool, the manufacturing facility can conduct a self-audit of its water management practices. To complement the Water ReCon tool, we have developed a Water Profiler, which will map and quantify all major water uses within the facility, identify relative local costs of these applications, and identify a “hot list” of water conservation measures that can be implemented both short and long term. We estimate that, in general, application of the Water ReCon Tool in a plant will result in a 10- to 20% reduction in water use. The tool is now being expanded to our franchise bottler network and our co-packer partners.

We’ve instituted a number of other technological improvements in our global manufacturing operations to save water:



In the U.K., our total water use across all our foods and snacks operations was 1.4 billion liters in 2008. Between 2001 and 2008, we reduced the water used to manufacture Walkers Crisps by nearly 60%, from 13 L/KG of production to 5.4 L/KG. The Walkers team developed engineering solutions to reduce equipment water use and created sources for recycled water.

Frito-Lay, the U.S. snack division of PepsiCo, continued to improve its water efficiency by conserving over 380 million gallons (1 billion liters) of water in 2008 as compared to 2006; through its continued water conservation efforts known as the “Gallon per Pound Challenge,” Frito-Lay won recognition from the Environmental Protection Agency as a Water Efficiency Leader in 2007.

In 2008, our Latin American operations participated in the Inter-American Water Day, an awareness campaign aimed at raising awareness of the growing scarcity of potable water in the region and the importance of water conservation. The program also had a volunteering component where PepsiCo employees visited schools to teach children about water conservation.

In addition, in 2008, Latin American Beverages manufacturing operations saved 28 million liters of water, both in company-owned and franchise business. As part of the same initiative, we also saved 31,415 MWhr of electricity in our Latin America Beverage manufacturing operations.

In 2008, PepsiCo reinforced its commitment to science and the environment through water conservation by using waterless rinsing technology at Gatorade’s U.S. plants. Using air rinsing on all of our Gatorade and Propel lines, the water savings are more than 5 million liters of water per year.

Pepsi-Cola franchise bottlers in North America are also doing their part. Pepsi Bottling Group has installed reverse osmosis recovery systems or incorporated high recovery designs into their new manufacturing lines that cumulatively save more than 1 billion liters of water annually as compared to traditional designs.

How We Source Water

Across PepsiCo, we have a variety of standardized processes and procedures to assure the safety of our consumers, integrity of our products and respect for the environment and community around us. For new sites, each of our businesses applies the elements of an environmental site assessment, similar to the American Society for Testing and Materials (ASTM) Standards for Environmental Site Assessments.

With specific regard to water sources, we utilize a mixture of municipal supplies, which may be from surface or groundwater sources and private wells. In addition, water resource selection at new sites is included in a PepsiCo-wide, web-based tool called the PepsiCo Sustainable Engineering Guidelines. This pan-enterprise effort captures all critical areas of new facility construction and provides solution sets for the user who encounters water-related or other risks. In addition, the tTool provides a “fast-track” path to LEED certification.

PepsiCo was a full supporter and advisory board member in the development of a Water Resource Assessment Tool by the World Business Council for Sustainable Development (WBCSD) in conjunction with a globally recognized environmental consulting firm. This tool was launched to global acclaim in Stockholm in 2007 and updated in 2009. This risk mapping and management tool provides an assessment of relative water availability (abundance, stress, scarcity) for any physical location coordinates entered, in addition to a wealth of other water-related information.

To the best of our knowledge, this was the first comprehensive tool of its kind that was entered into the public domain completely free of charge—for use by any and all business sectors, governments, NGOs, and other stakeholders. We are currently mapping all PepsiCo facilities across the world, and both current and projected risk of water stress are being identified and evaluated by a doctoral level, dedicated senior manager of water stewardship. In addition, this high-level assessment will be cascaded to our field operations for the next level of watershed risk assessment at the local level.

Water Quality

Our U.S. facilities are primarily supplied by municipal water sources. As such, these sources comply with all applicable water quality requirements and provide Consumer Confidence Reports (CCR), which detail the water quality being provided to the consumer as it compares to compliance with EPA quality requirements. The water quality data is available from the municipal water purveyors whether the purchaser is PepsiCo, one of our franchise partners, or a home consumer.

Similarly, outside the United States many of our plants are supplied by water from municipal sources, and the same approach would apply. In areas of the world where we develop our own water sources (for example, extraction from commercial wells), we do so in full compliance with applicable regulations concerning use of local resources. In these cases, we work with the local authorities to assure that the quantity of water needed to run our business, and thereby help support the local community and economy, is consistent with regulations and safe for the natural resource.

Where we develop our own wells to supply water from groundwater sources, every source is tested by an approved, external laboratory that is capable of reporting drinking water testing results. The test protocol is based on the most current revision of the World Health Organization Guidelines for Drinking Water Quality, and also includes testing required by local authorities.

Worldwide, every water source used for our beverages must first be analytically qualified, which includes using government-accredited, recognized laboratories to test for a harmonized list of over 100 parameters, covering many classes of raw water chemical/physical constituents. In addition, the microbial quality of the source is evaluated to help confirm that our products will be safe. We also believe that protection of water at the source is important; accordingly, a formal training program is provided to all of our key beverage plant personnel, which covers areas such as water source selection, well construction and source protection. At every plant, the incoming water is then further purified, using a variety of treatments depending on the raw water characterization, to meet the high standards of quality to be used in our products



— whether these products are bottled water, carbonated beverages or non-carbonated drinks.

In addition to source qualification, our plants monitor the raw, in-process and treated water for a core list of parameters and at frequencies ranging from hourly to daily to weekly (depending on the specific parameter and application). We have also established internal laboratories in the United States and Europe which routinely monitor raw, treated, and bottled water quality worldwide.

Once the water source is adequately identified for capacity and tested for quality, conserving the amount of water used in our plants becomes a critical component of stewardship. We seek to minimize our impact through traditional efforts to protect what we use. We follow the U.S. EPA guidelines (common to other governments as well) to reduce, reuse and recycle water whenever possible.

)' $,/&1)".+PepsiCo recognizes that regulations vary considerably across the globe and that some may not be adequate from the perspective of responsible water stewardship. Consequently, we have developed and implemented the PepsiCo-wide Responsible Standards for Effluent, which ensure environmentally safe, responsible treatment and discharge of our process water waste streams across the world. In addition to including and complying with local regulations, these internal PepsiCo standards are also included in the twelve-element system-wide Environmental, Health & Safety Management System Framework (EHSMS). This combined EHSMS framework is compatible with ISO 14001 for Environmental Management Systems, and OHSAS 18001 for Occupational Health and Safety Management Systems. More than 30 PepsiCo facilities have achieved formal ISO 14001 certification, and five have received formal certification to OHSAS 18001.


Water is unique in that it sits squarely at the nexus of climate change, food security, gender empowerment/education and global health. Consequently, PepsiCo believes that we have an obligation to positively impact the water crisis — in its many

elements — on several levels. The in-plant and supply chain efforts of our global businesses must be complemented by high-level policy advocacy, and broad-scale social investment through “smart philanthropy” partnerships.

%-,'+$ -)',#-/PepsiCo Chairman and CEO Indra Nooyi publicly demonstrated PepsiCo’s commitment to helping address the global water crisis by joining other partners as a signatory to the United Nations CEO Water Mandate. By signing the CEO Water Mandate, PepsiCo has committed to adhering to a holistic approach to water management in six areas: direct operations, supply chain and watershed management, collective action, public policy, community engagement and transparency.

&+-'+" 3#" /'")'+.,& ,-'+"-)',#-)( /'%$,+/Through the Center for Strategic International Studies, PepsiCo’s Chairman and CEO, Indra Nooyi, endorsed the Declaration on U.S. Policy and the Global Challenge of Water. This critical document urges U.S. policy makers to publicly recognize the role that the U.S. plays in helping to mitigate the worldwide water crises.

6#"($ +&#-#4,& 3#"%4 (6+3) 6)'+" )$0,/#"5 ."#%!The WEF’s Annual Meeting in Davos, Switzerland, is consistently a venue of global focus and represents a formidable backdrop against which awareness can be raised and influential audiences can be educated. Toward the end of 2007, PepsiCo engaged in the WEF Water Advisory Group to develop a technical white paper on the topic of water use in agriculture, industry and global health. The intent was to use this as a vehicle, targeted at the 1,000+-CEO audience, to place the global water crisis squarely at the center of attention and debate.

6#"($ *%/,-+// &#%-&,( 3#" /%/'),-)*(+ $+0+(#!4+-' (6*&/$)PepsiCo plays an active role in the WBCSD’s Water Core Working Group, which developed the WBCSD Water Resource Risk Tool and which was launched at World Water Week in Stockholm in August of 2007, and re-launched with a more

robust watershed database in 2009. PepsiCo subject matter experts played a significant role in the development of the white paper “Agricultural Ecosystems: Facts and Trends,” which highlights the myriad environmental issues where agriculture is connected.

*+0+").+ ,-$%/'"5 +-0,"#-4+-')( "#%-$')*(+ (*,+")Acknowledging that conservation and stewardship efforts within our facilities are foundational to engagement in the environmental sustainability space, leading companies like PepsiCo have an obligation to help inform and positively influence broader industry efforts as well. BIER is an example of this broader leadership. BIER was formed in 2006 with the mission of defining — both qualitatively and quantitatively — what “environmental stewardship” entails. BIER consists of peer and competitor companies across soft drink, bottled water, brewery and distilled spirits sectors of the industry that have aligned specific tangible deliverables to help advance the collective industry.

6#"($ 6)'+" $)5In 2008, as in previous years, we were active supporters of World Water Day. Our most visible activity was with Ethos Water, which is a part of the PepsiCo water family. Ethos Water has a unique business model, which includes helping to raise awareness of the severity of the world water crisis. PepsiCo is helping to increase the distribution of Ethos Water. For each bottle of Ethos Water sold in the U.S. Starbucks makes a $0.05 donation, and for each bottle sold in Canada a C$0.10 donation, to water projects, with the goal of contributing $10 million by the end of 2010 to help children and their communities around the world get clean drinking water.

'1+ +-+".5 )-$ "+/#%"&+/ ,-/','%'+ ('+",)In India, we have a partnership with TERI for research and implementation to ensure long-term availability of water resources through interventions aimed at eco- restoration through surface water treatment measures, artificial groundwater recharge and demand management measures, and improvement in the quality of life of the community by undertaking interventions in areas of water supply,



sanitation, hygiene, health, and education through community involvement.

Leaving a Positive Footprint on Society

Millions of people around the globe face a growing water crisis. In order to help minimize the impact of this crisis, the PepsiCo Foundation supports programs that protect water sources and create better use for existing water. In the environment portfolio, the strategic focus is on water security, sustainable agriculture and adaptive approaches to our changing climate. Since 2005, The PepsiCo Foundation and PepsiCo Corporate Contributions have committed more than $15 million to organizations working to bring safe water to developing countries.

The Earth Institute: In 2008, The Earth Institute at Columbia University, one of the world’s premier institutions dedicated to global sustainable development, and the PepsiCo Foundation entered into a $6 million, three-year partnership. The program includes a series of high-impact, community-based activities and practical solutions across water, agriculture and climate.

Water.org: In 2008, the PepsiCo Foundation made a $4.1 million grant to WaterPartners to provide safe drinking water and sanitation to communities of the greatest need in India. This grant was the biggest single contribution to Water.org’s WaterCredit Initiative, an innovative program that uses microfinance to increase access to safe water and improve sanitation for local communities in India. The project will directly impact a minimum of 120,000 lives. Approximately 60,000 people will be served through traditional grants, while an additional 60,000 people will be served through WaterCredit. Women and children comprise an estimated 68 % of this total. It is anticipated that there will be a natural “multiplier effect” that will widen the impact of this commitment to a larger number of beneficiaries throughout the recipient communities.

Safe Water Network: Through a three-year partnership with Safe Water Network, the PepsiCo Foundation pledged $3.5 million to implement safe water initiatives for village water systems in Ghana, India and Bangladesh, as well as rainwater harvesting systems in India.


35 PepsiCo Corporate Citizenship Report 2008Tropicana 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 CO8e

Use and Disposal

0.05kg

Agriculture

0.62kg

Distribution

0.37kg



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 efficient use of non-renewable fuels and increased use of renewable energy. We also partner with non-governmental organizations to examine how our business impacts climate change and how we can change the way we work to further reduce our footprint.

*The 2008 GHG data presented in the chart above has gone through 3rd party verification and represents nearly 85% of total Scope 1 and Scope 2 emissions for PepsiCo. This data is comparable to the 2006 and 2007 data reported for trending. Scope 1 and Scope 2 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 fleet 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.

Purchased Electricity for Manufacturing, Distribution Centers and Offices

Purchased Steam for Manufacturing Operations

The data shown above excludes additional greenhouse gas data that has been estimated for the first time in 2008, including:

Company-owned International Fleet and Fugitive Operations; 490,600,000 metric tons CO2e

Company-owned Coolers and Vending Machines**; 761,000,000 metric tons CO2e

**Note: PepsiCo has reported emissions from these company-owned coolers and vending machines as Scope 3 to be consistent with how these types of emissions sources have historically been reported by the beverage sector. However,

based on careful review of the World Resources Institute Greenhouse Gas Protocol, in our opinion it is not clear that Scope 3 is the most appropriate designation. In 2009, PepsiCo will work with relevant third-party experts and stakeholders in the beverage sector to develop formal guidance for designation of these source types.

> Statement from Bureau Veritas

In 2003, we began working with the Carbon Trust, an independent, not-for-profit company set up by the U.K. government to help businesses address the growing threat of global climate change and to pioneer carbon footprinting methodology and standards. The Carbon Trust believes that in order to effectively reduce a company’s carbon footprint, they must first 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 first consumer brand to pilot the original method for assessing product carbon footprints and the first 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 first consumer brand in North America to be independently certified 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 scientific life cycle data and certified 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 finally 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 greenhouse 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 certified the footprint, giving PepsiCo a verifiable benchmark against which the company can measure GHG reduction progress going forward.

In coming years, additional products, including Pepsi, Diet Pepsi, Aquafina, 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 efficiency goals, while striving for even more ambitious,

Since 2000, Walkers has reduced its

energy use per pack by one-third and

reduced water use by

42%



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.

Reducing Our Energy Use

Each division of PepsiCo is committed to achieving the 2015 reduction targets and has developed customized tactics to ensure their achievement: continued energy efficiency improvements to minimize energy intensity of our products, development of additional renewable energy generation at our own facilities, support for renewable energy generation outside our facilities through the purchase of Renewable Energy Certificates, and working cooperatively with our supply chain partners to share best practices in energy efficiency and sustainability improvement.

Large reductions in the use of non-renewable energy in the future will require innovative technologies. Hastening the development and application of these technologies will take bold steps, such as the one Frito-Lay has begun in an attempt to transform their Casa Grande, Ariz., facility to a “net zero” manufacturing facility. The goal of this project is to dramatically reduce the use of nonrenewable energy and water at an existing plant through implementation of transformational technology. The first stage will involve installation of a water recovery and reuse process that is expected to reduce water consumption by over 80 %. This project is under way, with planned start-up in 2010. The water recovery system allows for a section of the existing wastewater land-application area to be repurposed for use in a future solar and biomass system that will reduce the use of nonrenewable energy at the plant by 80% to 90%.

A 4.6 megawattcombined heat and power (CHP) plant was constructed at the Frito-Lay facility in Killingly, Conn. The CHP plant generates enough electricity to offset the total electrical demand of the plant at an efficiency exceeding twice that of electricity currently pulled from the grid. As part of the project, an upgrade to the existing steam system at the plant was completed, and we expect to prevent the loss of approximately

10,000 MMBTU per year of flash steam and save the plant $100,000 per year in energy costs.

PepsiCo India Beverages made the decision to focus on renewable energy sources to provide cleaner energy for its manufacturing sites across the country. The switch took place quickly, and the changes have already delivered significant cost savings and emissions reductions.

In 2007 and 2008, 17 oil-fired boilers were converted to use biomass briquettes at plants owned by PepsiCo India. PepsiCo India also launched our first remote wind turbine, harnessing one of the most efficient, clean and renewable sources of energy. This turbine is connected to the public electricity grid with sufficient power to meet more than two-thirds of the electricity needs of the company’s local Mamandur plant, and it directly offset up to 5% of our company-owned bottling operations’ power requirements for 2008. In 2008, this initiative also reduced carbon emissions by about 3,000 tons, with the potential to offset more than $200,000 per year. India is also converting company-owned manufacturing sites to biomass boiler capability. With our wind energy program and investments in solar lighting and biomass boilers, more than 16% of the energy PepsiCo India used in company-owned plants during 2008 was derived from renewable sources.

Our business in the U.K. is working to radically transform its business model and has committed to increase total share of electricity from renewable sources from 8% to 14% within three years. All energy used in manufacturing and distribution is to be from renewable sources within 15 years. In 2008, PepsiCo U.K. reduced its energy use by 11.8% and doubled its renewable electricity use from 8% to 16%.

> More information about PepsiCo UK’s environmental commitments and progress

At our snacks operation in Turkey, projects varying from small to very large scale have been implemented, such as Solar Tube Lighting, Stack Heat Recovery, Boiler Management, Heat Exchanger Bundle Replacement, and Online Energy & Water Consumption Monitoring Database. At our facility in Tarsus, the installation of the first industrial-scaled solar power system at PepsiCo International was completed in 2008. This pioneering

project is not only a milestone for environmental sustainability, but also a global model for all companies.

At the Gatorade distribution facility in Tolleson, Ariz., the facility installed the largest rooftop solar array in the state, a 500-kilowatt system that will supply 40% of its annual energy needs—enough electricity to power 50 Arizona houses for a year. The system is capable of producing more than 760,000 kilowatt hours per year. A solar thermal energy system was also installed on the roof top of the Tolleson Gatorade manufacturing plant, located across the street from the warehouse. The solar thermal system is capable of generating 5.2 billion BTUs per year and is one of the largest rooftop solar thermal concentrators in the United States.

At our Sabritas facility in Toluca, Mexico, we installed an anaerobic wastewater treatment plant that produces biogas with 60% methane content. The gas will be used to produce electricity through a microturbine with the intention to reduce fuel consumption at the plant.

With the help of these projects, 10.000 MWh of fossil fuel energy has been saved; these savings helped to reduce 13,000 tons of CO2 emission, which is equal to the amount of carbon dioxide absorbed by 40,000 trees.

."++- *%,($,-. )-$ $+/,.-PepsiCo’s commitment to saving energy through green building worldwide continued in 2008. Our newly constructed facilities were designed to meet the U.S. Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (LEED) standards—one of the most rigorous standards for green building in the world.

PepsiCo Americas Beverages (PAB) has implemented a policy whereby all new construction will be certified through the USGBC LEED program. During 2008, PepsiCo Chicago continued its green building construction initiatives by certifying two additional facilities under the USGBC LEED program. In April 2008, the new Gatorade manufacturing plant in Pryor, Okla., achieved LEED Gold certification, and in October 2008 the Chicago headquarters building was awarded LEED Silver certification as an existing building.



The Pryor Gatorade manufacturing plant, now the largest LEED-Gold-certified food and beverage manufacturing facility in the world, achieved its certification in part by reducing energy intensity by approximately 40% and water use intensity by 50% when compared to an average facility. To achieve LEED-Silver certification, the Chicago Plaza reduced energy use by 10% in less than a year, cut water to 37% below the Energy Policy Act performance standards, and eliminated almost 226 metric tons of greenhouse gas emissions through energy-saving programs. The Chicago headquarters building also installed combined solar and wind generation systems to provide a portion of the electrical power needs for the recently constructed Sustainability Center. The wind power generating system at the Plaza is the first functioning wind-to- electricity generating system in the downtown Chicago area.

The Sustainable Engineering Guidelines support a transformation of the company infrastructure through green design.

In May 2008, PepsiCo introduced the Sustainable Engineering Guidelines based on LEED standards. The guidelines support our environmental sustainability commitments throughout our engineering process, and apply to all new construction as well as major remodels of existing buildings globally. The Sustainable Engineering Guidelines can be accessed through a website available to all PepsiCo engineers and key partners worldwide.

This website provides guidelines for:

Site selection

Construction activity management

Water use reduction

Building materials

Building systems

Plant process management

Indoor air quality

Site stewardship

Lighting systems

In addition to evaluating the feasibility of LEED certification for new buildings, we apply PepsiCo’s Sustainable Engineering Guidelines to ensure that every project manager in the world

has a common set of guidelines and approved solution sets to ensure that they design and build in an environmentally responsible way.

The Resource Conservation (ReCon) tool was developed to facilitate the rapid transfer of best practices around the world. The tool includes Energy and Water User Profilers and a customizable online site audit or diagnostic. ReCon is now in its third year of deployment and is rapidly spreading to PepsiCo operations around the globe.

*+0+").+ &##(+"/ )-$ 0+-$,-. 4)&1,-+/Marketing equipment (coolers/vending machines) affects the environment through the use of electricity and refrigerants. PepsiCo is committed to reducing the impact of our marketing equipment through design and process changes developed to reduce greenhouse gas (GHG) emissions.

PepsiCo has a long track record of improving the energy efficiency of its vending machines and coolers. On average, 2008 model vending machines, which all meet EPA Energy Star requirements, use 51 percent % less energy than 2003 models, and 2008 coolers consume 44 percent% less energy than their 2004 counterparts. In addition, PepsiCo was also the first in the industry to mandate that the foam used to insulate its vending machines and coolers be free of HFCs. Through these improvements, PepsiCo has reduced GHG emissions from its refrigeration equipment by 598,000 metric tons, an average of 282,000 metric tons per year —the equivalent of removing 52,000 cars from the road or planting 125,000 trees annually.

PepsiCo is testing thousands of machines around the world that rely on other green refrigerants—specifically isobutane and propane—that also have a lower climate impact than current HFC refrigerants.

3(++'Sabritas, our snack food business in Mexico, has 13,000 distribution vehicles, about 6,000 of which were converted over the past 10 years to burn liquid propane gas. This reduces carbon and nitrogen emissions and generates fuel savings of between 15% and 22% (depending on geographic conditions and fuel costs).

In the U.S., both Frito-Lay and our bottlers use advanced routing technologies and have a “no-idle” policy to reduce miles and cut fuel consumption on delivery routes. Pepsi Bottling Group (PBG), our largest bottler, has verified the electronic settings on vehicles with electronic controls to ensure that idling reduction and speed parameters are set efficiently.

PepsiCo and Frito- Lay have joined SmartWay, a voluntary partnership between various freight industry sectors and the Environmental Protection Agency (EPA) that establishes incentives for fuel efficiency and GHG emissions reductions. By 2012, this initiative is expected to save up to 25 billion liters of fuel per year (equivalent to 150 million barrels of oil).

The Frito-Lay Fleet Team is also hard at work to reduce its carbon intensity. Through active partnership with the EPA SmartWay program, the Fleet Team is investigating ways to improve miles per gallon (MPG) and reduce the environmental footprint of our delivery fleet. In 2009, 1,200 high-MPG sprinter delivery trucks were ordered and placed into service. These sprinter vehicles almost double the fuel efficiency of our current vehicles, taking MPG from the 8-10 range up to 18. Other fuel savings initiatives such as GPS Route Optimization, Idle Shut-Downs, Tractor and Trailer Aerodynamics, and improved fleet maintenance practices have also been executed to further improve fuel efficiency and reduce the fleet’s environmental footprint.

In 2008, our U.K. operation was able to reduce food miles and associated CO2 emissions for two major products. For Walkers Crisps, we continued to transition from a blend of U.K.- and European-sourced potatoes to focus on sourcing 100% raw British potatoes. Local potato production has reduced potato miles into U.K. plants. In 2008, total raw potato into Walkers plants was 385,000 metric tons. By sourcing from local British farmers, a savings of 800 metric tons of CO2 was achieved through mileage reduction vs. 2007. Additionally, a further savings on these deliveries of 340.03 metric tons of CO2 was achieved through bio-diesel vs. 2007.




We continue to develop external partnerships focused on strategies to reduce greenhouse gas emissions.

In 2008 PepsiCo strengthened its partnership with the U.S. EPA’s Climate Leaders program. Frito-Lay joined Climate Leaders in 2002 and PepsiCo joined in 2007, setting a goal to reduce greenhouse emissions in the United States 25% by 2015 from a baseline year of 2006. In announcing the goal last Fall, PepsiCo stressed the critical role energy conservation will play in achieving the target.

PepsiCo participates actively in various organizations that provide thought leadership to governments and regulators throughout the world. These organizations include U.S. CAP in the U.S., the WBCSD, the WRI, the Carbon Trust, and others. PepsiCo believes that its active participation in these respected organizations allows us to be competitively positioned relative to other companies to adapt to changes in the climate change regulatory environment.

By working with the Carbon Trust and the Earth Institute at Columbia, PepsiCo has gained unique insight into the carbon footprint of our product portfolio. This insight enables us to communicate more effectively with customers, consumers and regulatory organizations about our carbon footprint and the best strategies to reduce it.

PepsiCo has joined with other multinational corporations and Greenpeace in a global initiative called “Refrigerants Naturally!” Its goal is to address climate change and ozone layer depletion caused by Hydrofluorocarbons (HFCs) in refrigeration equipment. We are working together to eliminate use of HFCs in refrigerated point-of-sale equipment. We are also experimenting and testing natural refrigerants, which may be required in the future.

In 2008, PepsiCo gained significant insight into the risks and opportunities it has relative to climate change, first through a comprehensive study of future risks and secondly through an aggressive and broad-based effort to understand the full carbon footprint of our products. Specifically in 2008, PepsiCo joined with the U.K. not-for-profit organization Forum for the Future in a project called Global Scenarios and Strategies for 2030. In this effort, PepsiCo and Forum for the Future combined to analyze critical risks and opportunities associated with climate change and other environmental and social factors.



Packaging

Reducing our packaging footprint

We distribute our products in a variety of packages, each carefully designed to deliver convenience and appeal to our consumers while protecting the integrity of our products. Our team of engineers and packaging suppliers are dedicated to finding preferable designs and are working continuously toward improving our packaging performance while reducing our packaging environmental footprint.

Our goals are to design and develop packaging systems that are environmentally responsible throughout their entire life cycle and to partner with leading organizations to promote sustainable packaging and recycling practices.

We have launched a global sustainable packaging policy and formed a Sustainable Packaging Council (SPC) to develop a road map that will guide us toward this goal. This multidisciplinary team includes leaders from our R&D, Innovation, Procurement, Sales & Marketing, and Public Policy groups. The objectives of this team are to develop sustainable packaging strategies, goals, targets and alternative material technologies and to support responsible disposal practices. The SPC reports to the Executive Sustainability Leadership Team (ESLT).

> Download our Global Sustainable Packaging Policy

PepsiCo supports the principles of developing programs that aim to reduce, recycle, use renewable sources, remove environmentally sensitive materials, and promote reuse of packaging in the entire process of packaging selection, design, specification, and procurement. Through our ongoing engagement with our packaging suppliers, we are working to move to a position where all our operations use the most environmentally suitable packaging available in their given country of operation.

Reduce: Packaging Reduction & Resource Conservation

Across the world, we continue to deliver innovative new designs, reducing the amount of packaging material used.

Since 2003, our packaging team’s efforts in the U.S. have eliminated more than 36 million kilograms of plastic, reducing greenhouse gas emissions by some 150,000 metric tons.

North America Beverages:

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 innovations 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 for a year.

In 2008 we also trimmed the amount of plastic used in the bottles, caps, and labels of our most popular Aquafina bottle, the half-liter (16.9-oz) bottle. This initiative saves more than 27 million kilograms of plastic a year and reduces greenhouse emissions by 78,000 metric tons annually. That’s equivalent to taking 14,000 cars off the road for a year.

Our Tropicana team reduced corrugate use by 4%, cutting greenhouse gas emissions by 4,000 metric tons.

European Beverage: Gatorade Europe reduced their 500ml bottles by 12%

India Beverages: Carbonated soft drink crown lining was converted to a PVC-free compound, removing resin and cost.

Reuse: Recovery and Take-back Systems

Globally: Returnable case programs have been implemented in areas of the world where appropriate infrastructure exists, notably Greece, Spain, Turkey and South Africa.

North America Snacks: Optimized the collection of manufacturing waste involving corrugated materials to promote the recovery of nearly 30 billion kilograms of material across Frito-Lay plant operations.

Recycle: Designing Packaging for Recycling and Developing Biodegradable and Compostable

Packaging Solutions

PepsiCo beverage and food packaging has significant recycling potential throughout the world, especially with bottles, cans, paperboard and corrugated materials. While dependent upon the local infrastructure to facilitate recycling, a significant amount of our packaging is eligible for recycling. Over 95 % of our packaging can be recycled or is used in a returnable bottle system. The remaining percentage is being addressed by our “renewable-sourced packaging” objectives.

North America Beverages: PET recycled content of 10% has been achieved for carbonated soft drink bottles in 2008 as well as in the past two years.

In 2008, Tropicana teamed up with Waste Management, the largest residential recycler in the U.S., to launch a national initiative that will increase the number of juice and milk cartons for recycling. The initiative kicked off the long-term goal of increasing beverage carton recycling to every community across the nation, and will be promoted through the Carton Council. Waste Management is accepting juice and milk beverage cartons at all of its recycling processing facilities across the country.

To continue our efforts to use more recycled material, we are leveraging next-generation recycling technologies to ramp up usage of post-consumer recycled material in our packages. Our Naked Juice division in the U.S. will be launching packages made from 100% post-consumer recycled (PCR) content in 2009; in the U.K., we will be producing our Copella juice brand with 100% PCR packaging. We are also launching packages in other markets such as Mexico, Brazil and Germany with postconsumer recycled PET content ranging from 15% to 50% by weight.

Brazil Snacks: Salty Snacks bags are transformed into plastic vases, pencil cases, CD and DVD cases saving more than 200,000 kilograms of plastic per year.

Australia Snacks: In Australia, we are able to use 100% recycled paper board in the manufacture of corrugated packaging cartons.

Globally: Our aluminum beverage cans typically contain



about 40-50% post consumer recycled content.

Renew: Increasing Use of Renewable Material Resources

PepsiCo focuses its innovation teams to develop and discover creative packaging solutions, which include the investigation of cutting-edge technologies that promote environmentally responsible packaging and the potential use of plant-based packaging. This will allow our packaging to have a biodegradable end-of-life scenario.

North America Beverages: We strive to source fiber for paperboard and corrugated from suppliers who have certification from either Sustainable Forestry Initiatives (SFI) or Forest Stewardship Council (FSC). The aim is to ensure sourcing from suppliers who use responsible forestry management practices. Many of our packages, such as Tropicana’s cartons, are SFI certified.

North America Snacks & Beverages: PepsiCo has increased selection of suppliers certified in credible resource conservation initiatives (e.g., Sustainable Forestry Initiatives and Energy Star). This results in significant amounts of recycled materials within our paperboard and corrugated materials and drives continuous improvement.

Remove: Eliminate Environmentally Sensitive Materials and Processes from Our Packaging

PepsiCo is implementing programs globally to address the removal of heavy metals (lead and cadmium) from all applied ceramic labeling (ACL) ink formulations on decorated glass bottles.

North America: Quaker Foods replaced PVC tamper bands with PLA/biodegradable shrink tamper bands for Quaker tubes. Naked Juice eliminated PVC shrink labels, removing over 100,000 kilograms of PVC from the supply chain. Tropicana eliminated white colorant on 10 oz. PET bottles, eliminating over 13,000 kilograms of colorant and significantly improving the recyclability of nearly 500,000 kilograms of PET.

Americas: In Brazil, we eliminated PVC in all products and promotional items.

Having a strong understanding of our packaging footprint allows PepsiCo to evaluate and drive sustainable packaging improvements, such as increasing the use of recyclable materials. Over 95% of our packaging can be recycled. However, PepsiCo recognizes the need to support increased recycling rates and works with consumers and other organizations to help get these materials back into a viable recycling stream.

The data provided is global and represents packaging where PepsiCo is directly involved in acquisition of materials, whether for company-owned operations or strategic bottlers.

Solid Waste

In the United States, Frito-Lay sends nearly 7 million kilograms of potato and corn solids (potato pulp and peelings, cracked corn, and corn husks) to America’s livestock and dairy farms, where it is used for feed. Chips that do not meet Frito-Lay’s strict quality control standards and chips not sold in stores by the guaranteed fresh date can be used by livestock feeders and pet food manufacturers as a feed supplement. This process diverts over 6 million kilograms of unusable snacks that otherwise might have been sent to landfill.

Tropicana minimizes landfill waste by using virtually every part of the orange, as well as its by-products after the juice is extracted. The by-products become scent extracts and animal feed. Quaker optimizes the use of all oat hull by-products. Quaker delivers oat hulls to local animal feed markets and a nearby university that utilizes oat hulls for the generation of power.

PepsiCo India continues to strengthen its solid waste management initiatives in partnership with Exnora, an environmental NGO. This award-winning, income-generating partnership currently impacts more than 100,000 people in Tamil Nadu, Andhra Pradesh, and Haryana and reached out to more than 200,000 people in 2008. In partnership with the government, NGOs and community members, PepsiCo India continues to implement waste management projects in various districts in the country. The program has been recognized as a model project by UNICEF.


PepsiCo teams with leading organizations to advance our understanding of environmental issues and to work together to promote sustainable packaging and recycling practices.

PepsiCo has taken an industry leadership position in packaging. Significant programs include:

Sustainable Packaging Coalition: PepsiCo is a member of the executive committee for this industry-leading organization that provides life-cycle analysis and design guidelines for sustainable packaging.

Grocery Manufacturers Association/Food Products Association (GMA/FPA): PepsiCo plays a leadership role in the industry development of common reporting protocols and procedures for reporting packaging improvements. These procedures aim to create an industry-wide public reporting process for consumers, investors, and other stakeholders to understand packaging and environmental improvements in a consistent and transparent manner.



The European Organization for Packaging and the Environment (EUROPEN): PepsiCo U.K./Europe is a key member of EUROPEN, a packaging supply chain body that champions packaging and the environment, with representation at board level.

Our Australian business unit has been a signatory member to the National Packaging Covenant, whose charter is to focus on reduction of waste to landfill through reuse, recycling, or reduction through product redesign. These efforts have been formally monitored and reported since 2001.

In early 2008, YHS Singapore, a Pepsi-Cola bottler, was a signatory with Singapore’s National Environment Agency Agreement on packaging to reduce, recycle and reuse on packaging.

)4+",&)- *+0+").+ )//#&,)',#-PepsiCo and the American Beverage Association are founding members of the National Recycling Partnership, a national nonprofit organization dedicated to the advancement and improvement of recycling. Its more than 4,000 members include consumer product companies, manufacturers that use recycled content in their products, recycling processors, government regulators, and recycling advocates.

9++! )4+",&) *+)%',3%(PepsiCo has also supported Keep America Beautiful’s (KAB) Great American Cleanup, the nation’s largest annual community improvement program. In 2008, Aquafina teamed up with Sam’s Club to encourage recycling with the Return the Warmth program. Return the Warmth challenged local communities and schools to recycle 80 million plastic (PET) bottles during the 2008 Great American Cleanup, which took place nationwide from March 1 through May 31. The actual results, 189 million recycled bottles, far exceeded that goal. A total of 25,000 fleece jackets made from recycled plastic bottle material were distributed to the 100 schools that collected the most bottles.

> More information about our recycling efforts in North America

&,%$)$ /)(%$)*(+ )-$ '1+ 4%(',()'+")( ,-0+/'4+-' 3%-$ Ciudad Saludable and the Multilateral Investment Fund (MIF), with the support of PepsiCo Beverages Latin America and the Asociación Atocongo of Cementos Lima, announced a partnership program: Developing the Market for Comprehensive Recycling Management.

The program is aimed at supporting 300 professional recyclers in four Peruvian districts: Villa El Salvador, San Juan de Miraflores, Villa María del Triunfo, and Callao. The primary objective is to improve economic opportunities and quality of work for the recyclers. The program will provide stability to local recyclers and strengthen their professional organizations, as well as improve the capabilities of micro and small enterprises that provide recycling services for large corporations and municipalities. PepsiCo Beverages Latin America’s contribution will help to train recyclers, strengthen recyclers’ professional organizations, and provide micro-credits that will be awarded to recycling micro enterprises.



Responsible Sourcing

Extending Performance with Purpose to our supplier community

Supplier CSR Assurance Program

We communicate, educate, and work with our suppliers to improve corporate social responsibility performance across the supply chain.

PepsiCo has developed a Supplier Code of Conduct to clarify our global expectations in the areas of labor practices, employee health and safety, environmental management and business integrity. It has been translated into 18 languages, has been proactively communicated, and is mandatory in all procurement contracts. Our Supplier Code is based on the International Labor Organization, United Global Compact and other benchmark standards.

We use our Supplier Code of Conduct to articulate these priorities, and our Supplier Corporate Social Responsibility (CSR) Risk Evaluation and Management Program to educate, validate compliance and facilitate continuous improvements.

In 2007, PepsiCo joined the Supplier Ethical Data Exchange (Sedex) to further demonstrate our commitment to sustainability in the supply chain. Sedex provides a web-based system that allows companies to maintain and share data on practices in the areas of labor practices, employee health and safety, environmental management and business integrity at their production sites. Sedex members are committed to continuous improvement of the responsible performance of their supply chains.

We were also a founding member of an industry-wide initiative called AIM-PROGRESS along with other CPG manufacturers to work together to develop and implement common methods of evaluating CSR performance within the supply chain. PepsiCo continues to lead expansion of AIM-PROGRESS across the industry.

Working with our supplier community on specific initiatives, PepsiCo is able to grow and extend our effective resource conservation programs. We’re also focused on setting quantifiable goals for energy, greenhouse gases (GHG), water, agriculture, and forestry resource conservation within the extended supply chain.

Some examples of our environmental supplier outreach programs in action include:

Our U.K. and Ireland business is one of 12 charter members of the Carbon Disclosure Project’s Supply Chain Leadership Collaboration (SCLC). This group aims to dramatically increase to the thousands the number of its member-suppliers reporting on climate change mitigation efforts and adaptation strategies. Our membership demonstrates to our suppliers how important we feel climate change is to business decision making, along with our desire to work collaboratively.

We’ve joined 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 by working with our suppliers to improve the environmental performance of our coolers and marketing equipment. More than 99 percent of our new purchases of refrigerated point-of-sale equipment in the United States use HFC-free insulation.

In 2008, PepsiCo implemented a supplier sustainability outreach program designed to share resources, tools, and expertise in energy conservation, waste minimization, and other areas with key suppliers. PepsiCo has involved more than 200 of its largest suppliers across the globe in this program since 2007, addressing nearly $10 billion in annual purchases. These suppliers represent packaging and processed ingredients that directly impact our finished product and account for a high proportion of our environmental footprint.

We also work with suppliers to use more renewable energy sources in the production of materials. In North America, PepsiCo has increased the selection of suppliers certified in credible resource conservation initiatives. Examples include the Forest Stewardship Council and Energy Star.

> More information about our responsible and sustainable sourcing efforts

> Download our Supplier Code of Conduct



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



AgricultureSupporting 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

To support the implementation of the Policy, we established a PepsiCo-wide governance structure called the Sustainable Agriculture Council (SAg Council). This council is staffed by agro-scientists, engineers and sustainability professionals from across all of our PepsiCo businesses. The purpose of the SAg Council is to provide leadership and subject matter expertise within and across PepsiCo’s Global Operations to assure:

A strategic global sustainable agriculture vision for PepsiCo

Uniform, accurate, and system-wide metrics, standards, and practices in accordance with PepsiCo’s SAg policy

Development of long- and short-term global SAg goals

Accurate messaging to internal and external stakeholders

Development and maintenance of strategic partnerships with suppliers, advisory board members and external SAg organizations

A reduction in the environmental and social impacts of agricultural operations that support our business

In addition to the agriculture policies, the PepsiCo Worldwide Code of Conduct and Supplier Code of Conduct include standards highlighting how we expect our people and our suppliers to conduct business aligned with our environmental sustainability values.

> Download our Sustainable Agriculture Policy

PepsiCo has implemented numerous strategies at the regional and brand levels to support and drive our agricultural and environmental policies; several more are highlighted below as they relate to each of the six objectives:

1. WATER MANAGEMENT: PepsiCo aims to optimize the applied water footprint to crops and to reduce water waste during irrigation, as well as responsibly manage runoff risks of pollution or contamination of ground or surface water with pesticides, nutrients or soil.

In China, PepsiCo invested in a potato farm in the inner Mongolian desert. We installed the necessary infrastructure (roads, electric supply), water-conserving pivot irrigators, and soil-conserving crops (sea willows, trees) to protect from erosion due to sandstorms. By partnering with the local farmers, we established a rotation of commercially viable crops (winter wheat, potato, sorghum, and corn) with an initial water savings of 50% by moving from traditional flood irrigation to pivot. We are continuing this evolution from pivot to drip irrigation with the aim of conserving 70% of the water needed over traditional farming methods—the equivalent of avoiding additional water consumption of nearly 0.25 billion liters per year for the operation. A critical component of the community engagement portion of this project—besides the farmer interest—is the installation of local libraries to promote literacy and education in the communities.

2. SOIL CONSERVATION AND PRESERVATION: PepsiCo aims to preserve and improve soil fertility and nutrients, minimize soil loss through erosion, and avoid soil damage due to disease and contamination.

Frito-Lay North America has developed and implemented protocols to wash potatoes at the farm to reduce/eliminate the residual soil shipped to our plants, thereby allowing this soil to be redistributed at the farm rather than disposed of through the plants’ waste water discharge, and also reducing diesel fuel requirements.

In China, through various collaborations, our foods team is successfully growing potatoes under desert conditions. PepsiCo installed the infrastructure needed for transportation, planted erosion-protective crops, and replaced the traditional practice of flood irrigation with water-sparing pivots. By utilizing in-plant conservation approaches, coupled with the installation of pivot irrigation systems, in 2006 our China team saved over a billion liters of water compared to the prior year. The China team is also evolving further from pivot to drip irrigation in 2008, with the aim of reaching 70 % water conservation for these systems. As part of this collaborative effort with the communities, our local business is also building libraries for local children to improve their education and literacy.

In Brazil, a soil conservation initiative for potatoes has been ongoing and involves minimal soil preparation to reduce soil degradation, along with a fuel consumption analysis to decrease fuel use by reducing tractor use and machinery size. Sustainability benefits: reduced soil erosion, water use, and diesel consumption, along with reduced potato losses due to soilborne diseases, resulting in a 5% water reduction and 20% savings on irrigation costs.

3. AGROCHEMICAL MANAGEMENT: PepsiCo aims to reduce the use of pesticides, nutrients, and other agrochemicals by optimizing agricultural operations. PepsiCo supports sustainable practices that substitute natural controls for agrochemicals, foster ecosystem balance, reduce direct and indirect greenhouse gas emissions, and reduce crop losses.

Frito-Lay North America initiated an organic line of snacks including Tostitos Organic Blue Corn Tortilla Chips, Cheetos Natural White Cheddar Puffs, and Lay’s Natural Country BBQ Potato Chips. The company will follow the U.S. Department of Agriculture’s standards in labeling organic products.



Frito-Lay has also developed potato varieties that store longer and are resistant to disease and better adapted to adverse climatic conditions, allowing Frito-Lay North America to grow its potatoes in the most efficient agronomic areas in the U.S. This results in higher production per acre, which minimizes the use of all farm inputs, including energy, water, fertilizer, pesticides and herbicides.

In Saudi Arabia and Egypt, climate and soil moisture measurement and recording systems were implemented to potato crop fields to forecast blight disease, with a view toward more optimized use of chemicals. This has resulted in fewer chemicals being used and greater disease control. These systems are now also installed in Pakistan.

4. ENERGY MANAGEMENT: PepsiCo aims to optimize the use of energy in crop production and management of agricultural waste to improve economics for the farm and reduce both direct and indirect greenhouse gas emissions.

Quaker supplies over 200 million pounds of oat hulls as raw material ingredients and as a renewable source of fuel for the generation of steam at the University of Iowa. One hundred percent of the oat hulls are utilized as either a raw material or fuel source, reducing dependence on less renewable sources of fuel. Generation of steam through use of oat hulls as fuel source reduces dependence and use of non-renewable fuel sources.

5. FARM ECONOMICS AND LAND MANAGEMENT: PepsiCo supports sustainable agriculture practices that enable farmers to improve product value by maximizing the desired outputs of an agricultural system while minimizing the required inputs and avoiding any negative impacts to the farm and surrounding environment. PepsiCo works with farmers who develop long-term economic plans of efficient and responsible farm production.

Frito-Lay North America practices optimal crop rotation policies that result in improved soil fertility. Frito-Lay continuously develops new growing areas closer to their manufacturing plants, reducing the diesel fuel used to transport inbound potatoes. They also share agricultural best practices with all of their corn and potato growers.

The practices include crop rotation, low- and no-till soil preparation, cover crops, and irrigation using efficient pivots.

Quaker has been a leader for decades in the oat industry, developing new oat varieties that deliver increased field yields and improved disease resistance. Improving field performance through new oat varieties reduces producer inputs of fertilizers, fungicides, and herbicides. Quaker encourages the use of low-till practices on oats that conserve both water and fuel.

Tropicana utilizes virtually every part of the orange, including the peels, which are sold as cattle feed. Before the peel is dried into cattle feed, Tropicana extracts valuable oils, essences, and biodegradable solvents.

SOCIAL AND COMMUNITY IMPROVEMENT: PepsiCo invests in new knowledge and innovation in farming practices, which can improve both social and human capital of the local economies. Sustainable agriculture practices can help to make the best use of local and available resources to improve the welfare of communities supporting our agriculture supply chain.

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 profound 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 communities and private-public partners is integral to delivering the positive social, environmental and economic impacts of this program.

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



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.

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

Sustainable Palm Oil

PepsiCo currently uses palm oil in some of our products around the world. We are making efforts in a number of regions to convert to oils that are lower in saturated fat. These are steps in the right direction to continue to make our product offerings healthier. However, in some parts of the world, supply is largely limited to palm oil, which is the world’s predominant cooking oil. When we purchase palm oil, we seek supply partners who operate responsibly and in a sustainable manner. PepsiCo is joining the Roundtable for Sustainable Palm Oil (RSPO) to help bring about a greater supply of sustainable palm oil.

Cargill, our largest supplier of palm oil, is a founding member of the RSPO, and has recently announced that one of their plantations has been certified by the RSPO.

In the U.K., our Walkers business switched from palm oil to 100% high oleic sunflower oil (Sunseed) to make their famous crisps.

Frito-Lay North America moved out of palm oils as its primary cooking oil in the 1980s. As of 2005, Frito-Lay North America primarily uses corn and sunflower oils, as they are among oils lower in saturated fat, and do not contain trans fats.

We are working every day within the PepsiCo system to operate in a more sustainable fashion. In particular, we are focusing on reducing our environmental footprint—including energy, water, and packaging. As a customer, we seek supply partners who will take responsible actions to address these issues. The production of palm oil involves a wide variety of constituents, ranging from small independent growers to large multinational suppliers; thus, it will take the efforts of consumers, NGOs, governments and groups like tThe RSPO to effect meaningful changes.

Biodiversity

Agriculture is one of the leading causes of biodiversity loss, and it is in our interest to make sure that our supply chains are environmentally sustainable. As the climate changes, food and water supplies will be increasingly vulnerable and prone to disruption. We can minimize these risks by helping to promote healthy ecosystems and sustainable agriculture at the origins of our supply chains.

PepsiCo believes that protecting and enhancing biodiversity is vital to the sustainability of our planet and ecosystems, and we have begun to explore improvements we can make with pilot projects in key places like India and China. In the coming years, we have an opportunity to take a leadership position in our industry by scaling up this work and becoming a force for biodiversity conservation across all of the regions where we operate. We will accomplish this by:

Investing directly in the conservation of key landscapes and marine areas.

Continuing the development of clearer environmental standards, metrics, and scorecards in our supply chains.

Engaging our consumers and employees by helping them to understand the nature of the biodiversity problem and how they can make a difference by consuming responsibly and supporting conservation themselves.

In addition to these initiatives, PepsiCo developed enterprise-wide responsible standards for effluent to protect ecosystems into which we discharge effluent from our manufacturing locations.




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


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

TALENT SUSTAINABILITY


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



Our Employees

We recognize our responsibility to take care of our employees

Employee Learning and Development

Increasing the skills of our employees is crucial for business success in a competitive global economy.

Outside of the leadership area, PepsiCo has traditionally approached the functional organizational learning and knowledge management aspects of development from a primarily decentralized perspective. Each division handles its functional organizational learning and knowledge management locally. As a result, each division has developed its own set of functional competency models. To foster consistency where appropriate, we have developed cross-divisional functional competency models for Sales, Marketing, Finance and Human Resources. These models are used as the basis for building career frameworks that described certain job roles and responsibilities. These tools are available on our internal learning management and career development websites.

PepsiCo also offers associates specific job training as required, including attending professional conferences to enhance their skills, and we have a robust program for helping associates manage their careers. Elements include a guide for career growth tailored to PepsiCo, as well as guides focused on specific functions. Our yearlong proprietary career process includes objective setting, performance and development reviews, development action plans, mid-year reviews, and 360-degree evaluations, all supported by training and materials. Executive leadership training focuses on helping high-potential managers learn to be more effective leaders and to gain a broader perspective of our business. All employees are included in some form of performance management process across PepsiCo.

As a guide for associates in all functions and at all levels of our organization, we have the PepsiCo Leadership and Individual Effectiveness Model. The model details the key competencies

and associated behaviors that are required-individually and collectively-to assure that we reach our performance goals. Regardless of current role, level, or career aspiration, every associate can use the model to understand which behaviors they should strive for today and what will contribute to their own personal success, as well as success for PepsiCo.

360 Degree Feedback at PepsiCo is an annual process for executives and people managers across all divisions of PepsiCo. While we have always had a robust 360 program, in 2008 the process was enhanced to be even more focused on building self-awareness of the participants by linking results to a best-in-class personality assessment inventory (the Hogan Assessment Suite). The process now requires mandatory follow-up feedback meetings with certified professionals (based on a custom-designed three-day certification program) in the 360 program and personality tools to ensure a high-quality and rigorous feedback and development planning discussion. Evaluation results from the program in 2008 were extremely positive, with 86% of respondents indicating that the integration of the 360 feedback with the Hogan Assessment Suite helped them gain valuable leadership insights into ways they can maximize their effectiveness.

Beginning in 2008, we aligned our 360 degree feedback process with the PepsiCo Leadership and Individual Effectiveness Model to make it more robust and to ensure that leaders know and understand what’s expected of them. As a new and significantly valuable addition, we will combine the 360-degree process with other feedback tools to further build self-awareness and provide participants with rich, one-on-one developmental feedback from trained and certified facilitators.

For our entire executive and professional population (all salaried employees at all levels), we have a formal performance evaluation system with separate Business and People objectives that our employees are evaluated on each year. As part of the performance appraisal process, our entire executive and professional population is required to have a mid-year review with their manager, and employees provide input on their results against their objectives. All individuals receive a formal written feedback form that follows a standard process, including summary highlights and developmental

opportunities. Formal written feedback is signed by the employee, the employee’s manager, the next level manager, and Human Resources leadership. Individual performance objectives include measures relating to the company’s Performance with Purpose agenda in each of our three sustainability planks (Environmental, Human and Talent) as well as improved operating efficiencies, customer and employee satisfaction, and for all people managers, their performance as it relates to the management and development of people.

Front-line employees in certain operating divisions and in certain functions (primarily sales and manufacturing operations) receive feedback directly from their managers/supervisors on an ongoing basis in real time and do not require the same type of objectives-based process.

We also ask associates to respond to an Organizational Health survey biannually. The Organizational Health survey provides developmental feedback to people managers throughout the organization. The survey is a global process with a consistent set of core items. All employees are surveyed in every country in the world for their feedback, resulting in survey translations into over 35 languages. Topics include benefits, working conditions, compensation, career development, diversity and inclusion initiatives, community activities and many others. The results of the survey are shared with associates and used at multiple levels (e.g., front-line supervisors, middle managers, functional VPs, division and business unit CEOs, the PepsiCo CEO, External Advisory Boards, etc.) to drive action plans and improvements throughout the corporation. Results are also leveraged for summaries and action planning of employee issues across various populations, including African-Americans, women of color, Latinos, Asians, white males, women, and GLBT employees.

Award Programs

PepsiCo offers a variety of award programs to recognize associates. Common to all businesses are gift awards for length of service. All associates are also eligible to receive stock option grants as recipients of The Chairman’s Award, a program that recognizes outstanding accomplishments above and beyond an individual’s basic job accountabilities and that delivers a sustainable business impact in support of the



company’s Performance with Purpose vision. The Chairman’s Award is the highest honor at PepsiCo.

To honor those who have helped PepsiCo advance its commitment to world-class performance in diversity and inclusion, we have created a unique Chairman’s Award called the Harvey C. Russell Inclusion Award. Harvey C. Russell was chosen as the namesake for this prestigious award because his leadership, perseverance, and commitment to “raising the bar” are the foundation upon which PepsiCo’s diversity initiative is built.

The Steve Reinemund Diversity & Inclusion Leadership Legacy Award is a PepsiCo leadership award given to senior leaders who champion diversity and inclusion over time, and move PepsiCo to new levels of diversity and inclusion accomplishments and behaviors through their words and actions.

Front-line associates are those who make, sell, and distribute our brands. These associates, as well as the front-line employees of our bottlers, are eligible for the President’s Ring of Honor. This annual award inducts high achievers into a permanent role of honor. We have a variety of other award programs within our divisions.

Employee Benefit Programs

We are continually looking for ways to make PepsiCo a great place to work. One way we do this is by offering comprehensive benefits packages designed to address the health care and financial needs of our employees, both now and into retirement.

In the U.S., we offer a full range of health care, savings and retirement benefits. Our health and welfare benefits include medical, dental, vision, prescription drugs, mental health, life and accident insurance, disability, and flexible spending accounts. We also offer commuter reimbursements, adoption assistance, employee assistance program, child and elder care referral and resources, smoking cessation programs, care and lifestyle management programs, and family and medical leaves. Domestic partners who meet certain eligibility requirements may be covered under PepsiCo benefits. Eligible part-time employees receive medical, dental, vision, life

insurance and disability benefits.

Financial benefits in the U.S. include company-funded pension plans, a 401(k) plan with a company match, the PepsiCo Stock Purchase Program, and SharePower, a broad-based stock option program. SharePower was introduced in 1989 and is a global program that offers eligible employees stock options that may be exercised after a vesting period. We believe SharePower clearly reflects a culture that places a high priority on ownership. Currently, over 90,000 PepsiCo employees receive the grant annually.

Outside the U.S., benefits are provided through a combination of company-sponsored programs and state programs funded by payroll or other taxes. PepsiCo has adopted global standards designed to ensure that all employees receive at least basic medical, disability, life insurance and retirement benefits, regardless of location. The company has an ongoing process in place to review and, if necessary, adjust practices in mature markets, and shape practices in emerging markets against these standards.

Expanding Opportunities Through Diversity and Inclusion

PepsiCo approaches diversity and inclusion as a fundamental business priority. Our continued innovation and growth requires employees who can understand the needs of international and diverse markets. We intend to continually evolve our culture so our associates are recognized for their contributions and valued for the unique differences they bring to the workplace.

We are committed to hiring and retaining the best talent to fill each and every job in the corporation. And we are equally committed to fostering an atmosphere of caring, open communication and candor among our employees, where we treat each other with respect. These fundamental policies are reflected in our PepsiCo Values Statement.

That commitment to diversity continues today. We place a great deal of emphasis on personal integrity and believe long-term results, from real accomplishments, are the only fair way to judge performance. We respect individual differences

in culture, ethnicity and gender. PepsiCo is committed to equal opportunity for all employees and applicants. We are committed to providing a workplace free from all forms of discrimination. We respect the right of individuals to achieve professional and personal balance in their lives.

Although PepsiCo is a global corporation, the way it operates is more local in character. In markets outside the United States, PepsiCo businesses rely primarily on hiring local managers and employees.

In the United States, our Diversity and Inclusion Networks promote a culture where everyone feels they have an equal opportunity to contribute and succeed. The groups include African Americans, Latinos/Hispanics, Asians, Native Americans, Women, Gay/Lesbian/Bisexual/Transgender, and EnAble, for individuals with disabilities. In addition to our core employee resource groups, we have the Women of Color Multicultural Alliance and the White Male Inclusion Advisory Group.

PepsiCo has a Global Diversity and Inclusion Governance Council that is composed of internal and external thought leaders and is co-chaired by our Chairman and Chief Diversity Officer. The Council is focused on raising the bar on diversity and inclusion capabilities and creating a sustainable and differentiated competitive advantage for PepsiCo. Diversity and Inclusion Councils have been successfully established in all four continents of our PepsiCo International business, focusing on locally relevant diversity and inclusion strategies and plans, with a particular focus on women. PepsiCo’s External Diversity Advisory Boards consist of educators, politicians, practitioners, and customers to advise PepsiCo senior management on a



variety of issues relating to diversity and inclusion.

All employees participate in inclusion training sessions. Our Diversity and Inclusion Governance Council, formed in 2005, is a cross-divisional, cross-functional group composed of internal and external thought leaders. Our Ethnic Advisory Boards provide counsel and advice on a broad range of social, cultural and business needs, including marketing, hiring, supplier development and diversity. In the U.S., we have African-American and Latino/Hispanic Ethnic Advisory Boards. In Canada, we have an Asian Advisory Council.

Providing a Safe and Healthy Work Environment

The safety, health and well-being of our employees around the world are of utmost importance. PepsiCo is proud to live by our Sustainability Vision, and we believe that protecting the health and safety of our people is a core value.

#&&%!)',#-)( 1+)('1 )-$ /)3+'5PepsiCo believes that a safe and healthy workplace is a basic human right, and protecting the health and safety of our people is among our core values. We have communicated our beliefs and commitment to them in our company’s Occupational Health and Safety Policy, and have adopted an integrated framework for managing environmental, health and safety risks (the PepsiCo Environmental Health and Safety Management System (EHSMS) framework). The PepsiCo EHSMS framework combines our environmental, health and safety expectations for all of our business units and aligns with the international Occupational Health and Safety Assessment Series management standard OHSAS 18001:2007 and international specification for Environmental Management Systems ISO 14001:2007.

PepsiCo’s commitment to occupational health and safety is described in the PepsiCo Occupational Health and Safety Policy. The policy is posted on the PepsiCo website and intranet, and is referenced in the PepsiCo Code of Conduct training. The PepsiCo Occupational Health and Safety Policy was developed in consultation with more than 500 PepsiCo employees and was approved by the PepsiCo Public Policy Coordinating Group. The policy has been translated into 20 languages.

> Download our Occupational Health and Safety Policy

Health and safety performance is governed by the PepsiCo Health and Safety Leadership Council (HSLC). The council comprises members from across PepsiCo, including representation from Frito-Lay North America, PepsiCo Canada, SACC Sabritas in Mexico, PepsiCo International, PepsiCo Americas Beverage, Quaker Food & Snacks, Global Research & Development, Risk Management and Legal. The HSLC is sponsored by PepsiCo’s CEO, SVP of Human Resources and SVP of Operations.

The HSLC operates under three platforms: governance, leverage and connectivity. The HSLC reports on health and safety performance using globally-agreed-upon metrics and implementation of the PepsiCo EHSMS framework. The HSLC meets every two months and is responsible for:

Defining the PepsiCo Occupational Health and Safety policy and strategic framework and monitoring its compliance across all divisions.

Assessing performance, systemic strengths, and gaps relative to our own aspirations and external benchmarks.

Developing goals and timelines for PepsiCo health and safety performance.

Prioritizing and directing activities to continually improve performance.

Partnering with efforts in Human and Environmental Sustainability to assure comprehensive and complementary strategies for PepsiCo’s Performance with Purpose.

Advising and informing PepsiCo senior management on matters of worker health and safety.

Many of our facilities have been externally accredited for their health and safety management systems and performance. In the United States, 28 Frito-Lay North America plants, one Quaker Foods North America and four North American Beverage plants have been recognized under the Occupational Safety and Health Administration (OSHA) Voluntary Protection Programs (VPP) Star program. Additionally, our Quaker, Tropicana and Gatorade plants in North America have been invited by OSHA to participate in Phase 2 of the VPP Corporate Pilot. Globally, five of our international plants have achieved

OHSAS 18001 certification. Our remaining plants continue to implement the PepsiCo EHSMS framework.

PepsiCo International also published more than 20 environment, health and safety (EHS) standards that describe minimum requirements for EHS management systems and risks, including EHS risk management, permit-to-work, EHS Competence and training.

PepsiCo Chicago has a dedicated professional staff comprised of approximately 13 EHS professionals who are responsible for both occupational safety and health programs and environmental programs. PepsiCo Chicago’s manufacturing sites have one or more dedicated EHS professionals who assist their sites in meeting PepsiCo Chicago’s standards and risk management expectations. All site EHS leaders are members of their site leadership teams, and report to both their plant managers and division EHS staff. PepsiCo Chicago’s EHS efforts are delivered through management systems called Organizational Practices that apply to both employee safety and health and environmental considerations. These Organizational Practices include Leadership and Commitment, Employee Ownership, Risk Management, Training and Learning, Information Management, and Continuous Improvement. EHS risk prevention and regulatory compliance is achieved through the Risk Management Organizational Practice. Risk Management includes identification of EHS risks, evaluation and prioritization, and execution of feasible and effective controls (both interim and long-term).

In 2008, PepsiCo Chicago received several internal and external awards, including OSHA VPP Star certification at Columbia, Mo., Quaker and OSHA VPP Star recertification at Ft. Pierce, Fla., Tropicana.

Frito-Lay continued its involvement in OSHA VPP. During 2008, the manufacturing sites in Kirkwood, N.Y., and Modesto, Calif., were approved at the Star level, the highest honor bestowed under the program. Frito-Lay now has 30 VPP Star sites—the most in the food industry.

Frito-Lay continues to build on its strong safety culture in both the Operations and Sales functions. Frito-Lay continues to provide ongoing injury and vehicle collision prevention training



for all associates and is leveraging the power of employee engagement to create the positive safety culture needed for long-term success. The organization embraces the safety vision—”Zero Injuries and Zero Collisions”—and believes that all injuries can be prevented.

Human Rights

PepsiCo Values include a commitment to respect others, inside and outside the company, which is consistent with our value of treating people with dignity. PepsiCo’s Human Rights Workplace Policy ensures a work environment that is free from all forms of discrimination where people feel comfortable and respected. In 2008, we translated this policy into 30 languages and broadly communicated it as part of our annual Code of Conduct Training, a leading-edge process that ensures that our businesses are operating in the most ethical way possible.

Human rights policy violations can be reported to HR, the PepsiCo Law Department, or through the Speak Up hotline. We encourage employees to report issues such as discrimination, harassment and mistreatment of employees when they occur. In addition, in the United States, PepsiCo is providing inclusion training to associates, including all managers. During the training, we explore the human rights intrinsic to all and the importance of sustaining an inclusive culture.

PepsiCo’s Code of Conduct requires all employees to follow local employment laws and regulations, including child labor laws and treatment of employees. We have set 15 as the minimum age that anyone can work for PepsiCo.

!+!/,&# 1%4)- ",.1'/ 6#"9!()&+ !#(,&5PepsiCo respects the dignity of our workers in the workplace, and we work to ensure our associates’ rights to personal security; a safe, clean and healthful workplace; and freedom from harassment or abuse of any kind.

We deal fairly and honestly with our associates regarding wages, benefits and other conditions of employment, and recognize our associates’ right to freedom of association. We do not use compulsory or child labor.

We do not tolerate discrimination, and work to ensure equal opportunity for all associates.

We comply with all applicable laws, regulations and other employment standards wherever we operate or work.

We encourage our partners, suppliers, contractors and vendors to support these policies, and we place substantial value on working with others who share our commitment to human rights.

As a signatory to the United Nations Global Compact, PepsiCo is visibly committed to all of its 10 principles, including those for Human Rights and Labor Standards. We collaborate with our contractors, licensed bottlers, suppliers, customers and local communities to reduce the health and safety impacts of our daily operations and technology as it applies to them.

> Download our Human Rights Policy

Speak Up

To promote high ethical standards and open communication across a global organization, we ensure that employees have clear lines of communication to report potential issues. We have a telephone hotline called “Speak Up” for this purpose. It is accessible from around the world at no charge to employees. To further ensure an environment that fosters open communications, employees may remain anonymous.

PepsiCo expects and encourages all of its employees, as well as its contractors, subcontractors, agents and their employees, to promptly report on a confidential and/or anonymous basis any conduct or situation that he/she believes could conflict with PepsiCo’s Code of Conduct, Values, and policies or violates state local or federal law. Speak Up is a 24-hour, toll-free, anonymous hotline available to report any suspected misconduct or business abuse. Speak Up calls are received by a third-party vendor—not a PepsiCo employee—to ensure anonymity. The Speak Up hotline is available in 48 countries and 33 languages through dedicated country-specific toll free phone lines, and available elsewhere via collect call. Any Speak Up calls received from suppliers, vendors and customers are handled in the same manner as calls received from employees.

Explanations of Speak Up are provided on this website, on posters and in PepsiCo’s Worldwide Code of Conduct, which is available on PepsiCo’s website in 33 languages.

The availability of the Speak Up hotline is communicated across PepsiCo. Types of incidents that may be reported through the Speak Up hotline include, but are not limited to:

Employee mistreatment

Discrimination, including sexual harassment

Product tampering

Substance abuse

Falsifying company records

Accounting irregularities

Questionable business practices

Fraud or theft

Criminal conduct

Impermissible gifts

Safety hazards

PepsiCo continues to add additional lines and languages as the company acquires new businesses and expands into new countries. In the past year, three new country-specific lines were installed in Pakistan, New Zealand and Croatia, and an additional five lines went live in June 2009. In addition, PepsiCo continually improves the service offered by the hotline. In the fall of 2008, a new enhanced web-based reporting tool was launched, enabling complaints to be made over the Internet to a secure website maintained by a third-party vendor. As a result of the new web-based reporting tool, the number of complaints received over the web has increased three-fold over the first six months since the tool went live.

HIV/AIDS

Across PepsiCo we recognize HIV/AIDS as a uniquely challenging global health issue that poses a significant threat to the sustainability of our business operations worldwide. We are committed to making a significant contribution to the fight against this devastating pandemic and to assisting employees and family members affected by it. PepsiCo has established



an internal task force on HIV/AIDS to address the issue in our businesses. In addition to the United States and South Africa, the task force identified priority countries where there is a high or rising prevalence and we have major businesses: India, China and Russia.

We made have made great progress in developing and implementing workplace programs in South Africa, India, Russia and China. Thailand and Mexico have recently joined in the effort.

In South Africa, we are continuing the direct AIDS intervention program, which includes full treatment coverage for all employees and spouses. The program provides community outreach through peer education and providing assistance to affected families. PepsiCo’s South Africa business has also implemented quarterly Health and Wellness weeks that provide employees with free testing for conditions such as HIV, diabetes and high blood pressure, and free counseling on matters such as nutrition and cancer. South Africa ICAS E-Care Employee Wellness Programme helps employees take ownership of total well-being (physical, psychological and social).

In India, we have provided education, treatment and community outreach programs, including peer education. In China, we have provided education, engaged in programs with outside groups, and have a dedicated wellness doctor who visits our business unit facilities to provide information on health and wellness issues, with an emphasis on HIV/AIDS. An information hotline was established to answer questions about HIV/AIDS and other health issues, as well as to provide referrals to treatment facilities and case management where appropriate. In Russia, in addition to employee education and awareness, PepsiCo is participating in community educational programs.

The Thailand business has been a part of a number of activities, including a National Children’s Day’s activity book on AIDS prevention for children and how to live with AIDS-infected children. The business has a certificate of gold level from the AIDS Response Standard Organization (ASO Thailand) for outstanding HIV/AIDS work.

In the United States, PepsiCo has an active program that includes information on the HealthRoads website, a review of benefit plans to ensure coverage of HIV/AIDS. In addition, associates participated in HIV/AIDS awareness marches across the United States, raising funds to fight this disease.

> More information about our HIV/AIDS policy


3,.1',-. 1,0/),$/Since 2002 PepsiCo has been a member of the Global Business Coalition on HIV/AIDS, Tuberculosis and Malaria (GBC), a not-for-profit group dedicated to fighting HIV/AIDS and related diseases.

$+0+(#!,-. 3%'%"+ (+)$+"/PepsiCo participated in Fair and Independent Courts: A Conference on the State of the Judiciary, at the request of Supreme Court Justice Sandra Day O’Connor. The conference goal was to advance the independence and fairness of the judiciary, which is important to the business environment. Separately, the PepsiCo Foundation made a $100,000 grant to the Georgetown University Law Center. Our contribution will help to implement the projects like the production of an online tool for high school students to learn about the independent courts.

!)-$+4,& !"+!)")',#-PepsiCo recognizes the dangers pandemics could pose to our employees and business, and has established a task force that is addressing this and other potential pandemics. In the United States, this includes education, awareness and steps to take regarding work-related issues.

Leaving a Positive Imprint on Society

The PepsiCo Foundation has a long history of funding diversity programs in education and workforce development with community-based organizations in the United States. The Foundation’s objective is to foster economic achievement and mobility for the underserved and minority populations.

Johns Hopkins University was awarded a $5 million grant in support of the Diplomas Now program, a collaborative initiative between Johns Hopkins, City Year, and Communities

in Schools. The goal is to transform the high-poverty secondary schools in the 10 U.S. cities that produce most of the nation’s dropouts. The program seeks to substantially increase the graduation rate among these schools by helping students stay on track, graduate from high school and prepare for adult success.

The PepsiCo Foundation continued to support National Council of LaRaza and the Escalera project in 2008. Together with National Council of LaRaza in 2001, PepsiCo Foundation created the NCLR Escalera Project: Taking Steps to Success to stem the tide and close the gap of Latino high school dropouts, encouraging them to graduate from high school, prepare for college and explore career opportunities through internships.

The Diamond Scholars program was supported by the PepsiCo Foundation again in 2008 and has been implemented in Dallas, Detroit, Miami, San Jose, and Los Angeles. Annually, it offers renewable scholarship aid to urban youth who have demonstrated an ability to overcome adversity and plan to pursue post-secondary education.

The Foundation’s commitment extends beyond grants by encouraging employees to engage in their communities through volunteer activities and by offering a Matching Gifts program, United Way Campaigns, and Community Service Day. In 2008, more than $6 million in matching funds was distributed globally in support of employees’ financial contributions.

&#44%-,'5 +-.).+4+-'PepsiCo encourages and supports its employees in their efforts to volunteer with community organizations and projects. We sponsor and participate in a wide variety of local and national activities through employee involvement. During PepsiCo’s 2008 Global Week of Community Service, more than 1,800 employees around the world spent time serving their local communities and service organizations and served 9,273 volunteer hours.



Our Business

PepsiCo offers the world’s largest portfolio of billion-dollar food and beverage brands, including 18 different product lines that each generate morethan $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.

PepsiCo is organized in three business units, as follows:

PepsiCo Americas Foods (PAF), which includes Frito-Lay North America, Quaker Foods North America and all of our Latin American food and snack businesses (LAF), including our Sabritas and Gamesa businesses in Mexico.

PepsiCo Americas Beverages (PAB), which includes PepsiCo Beverages North America and all of our Latin America beverage businesses.

PepsiCo International (PI), which includes all PepsiCo businesses in the United Kingdom, Europe, Asia, the Middle East and Africa.

In 2008, our three business units were comprised of six reportable segments, as follows:

Frito-Lay North America (FLNA)

Quaker Foods North America (QFNA)

Latin Americas Foods (LAF)

PepsiCo Americas Beverages (PAB)

United Kingdom & Europe (UKEU)

Middle East, Africa & Asia (MEAA)

Beginning in 2009, we realigned certain countries within PI to be consistent with changes in geographic responsibility. As a result, our businesses in Turkey and certain Central Asia markets will become part of United Kingdom & Europe, which was renamed the Europe division. These countries

were formerly part of Middle East, Africa & Asia, which was renamed the Asia, Middle East & Africa division.

Our Operations

Outside of the United States, our largest markets are Mexico, the United Kingdom and Canada.

In addition to our various headquarters, our major properties include:

Frito-Lay North America (FLNA) FLNA’s most significant properties include its headquarters building and a research facility in Plano, Tex., both of which are owned. FLNA also owns or leases approximately 40 food manufacturing and processing plants and approximately 1,750 warehouses, distribution centers and offices. In addition, FLNA also utilizes approximately 55 plants and production processing facilities that are owned or leased by our contract manufacturers or co-packers.

Quaker Foods North America (QFNA) QFNA owns a plant in Cedar Rapids, Iowa, which is its most significant property. QFNA also owns or leases five plants and production processing facilities in North America. In addition, QFNA utilizes approximately 25 manufacturing plants, production processing facilities and distribution centers that are owned or leased by our contract manufacturers or co-packers.

Latin America Foods (LAF) LAF’s most significant properties include a food plant in Celaya, Mexico, and three snacks plants in the Mexican cities of Vallejo and Veracruz and the Brazilian city of Itu, all of which are owned. LAF also owns or leases approximately 50 food manufacturing and processing plants and approximately 660 warehouses, distribution centers and offices. LAF also utilizes one plant facility that is owned by a contract manufacturer.

PepsiCo Americas Beverages (PAB) PAB’s most significant properties include the headquarters building it shares with QFNA in downtown Chicago, Ill., which is leased, and its Tropicana facility in Bradenton, Fla., its concentrate plant in Ireland, and its research and development facility in Valhalla, N.Y., all of which are owned. PAB also owns or leases approximately 40 plants and production processing facilities and approximately 50 warehouses, distribution centers, and offices. In addition, authorized bottlers in which we have an ownership interest own or lease approximately 65 bottling plants. PAB also utilizes approximately 70 plants and production processing

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facilities and approximately 60 warehouses and distribution centers that are owned or leased by our contract manufacturers or co-packers.

Europe Europe’s most significant properties are its snack manufacturing and processing plants located in Leicester, U.K., and Coventry, U.K., each of which are owned. Europe also owns or leases approximately 35 plants and approximately 320 warehouses, distribution centers and offices. In addition, authorized bottlers in which we have an ownership interest own or lease seven plants and approximately 30 distribution centers. Europe also utilizes approximately one plant and production processing facility and approximately two distribution centers that are owned or leased by our contract manufacturers.

Asia, Middle East & Africa (AMEA) AMEA’s most significant properties are its beverage plant located in Shenzhen, China, and its snack manufacturing and processing plant located in Tingalpa, Australia, each of which are owned. AMEA also owns or leases approximately 100 plants and approximately 1,100 warehouses, distribution centers and offices. In addition, authorized bottlers in which we have an ownership interest own or lease approximately 25 plants and 120 distribution centers. AMEA also utilizes two plants and production processing facilities that are owned or leased by our contract manufacturers.

Shared Properties QFNA shares five production facilities and five warehouses and distribution centers with FLNA, 10 warehouses and distribution centers with both FLNA and PAB, and 10 offices with PAB and FLNA, including a research and development laboratory in Barrington, Ill. PAB, Europe and AMEA share production facilities at two concentrate plants in Cork, Ireland. PAB and AMEA share a concentrate plant in Colonia, Uruguay.

Mission, Values, and Guiding Principles

Mission

We aspire to make PepsiCo the world’s premier consumer products company, focused on convenient foods and beverages. We seek to produce healthy financial rewards for investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive to act with honesty, openness, fairness and integrity.

Values

Our commitment is to deliver sustained growth through empowered people acting with responsibility and building trust. We define these values as follows:

Sustained Growth is fundamental to motivating and measuring our success. Our quest for sustained growth stimulates innovation, places a value on results and helps us understand whether actions today will contribute to our future. This value is about the growth of our employees and the company’s performance. It prioritizes making a difference and getting things done.

Empowered People means we have the freedom to act and think in ways that we feel will get the job done, while being consistent with the processes that ensure proper governance and being mindful of the rest of the company’s needs.

Responsibility and Trust form the foundation for healthy growth. It’s about earning the confidence that other people place in us as individuals and as a company. Our responsibility means we take personal and corporate ownership for all we do, to be good stewards of the resources entrusted to us. We build trust between ourselves and others by being committed to succeeding together.

Guiding Principles

We must always strive to:

Care for customers, consumers, and the world we live in

Sell only products we can be proud of

Speak with truth and candor

Balance short term and long term

Win with diversity and inclusion

Respect others and succeed together

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Code of ConductAlong with our Values, the PepsiCo Code of Conduct is at the center of everything we do. The Code applies to all employees, officers and directors, to all divisions and subsidiaries, and to every business transaction we make. It unites all PepsiCo employees through shared values and common goals, and is a declaration of our commitment to the highest standards of ethics and integrity.

Since 1976, PepsiCo has had a Code of Conduct that is regularly updated and communicated to all our employees annually. The Code includes provisions relating to ethical business dealings, bribery, business gifts and entertainment, discrimination, harassment, confidentiality of information, insider trading, accounting and record-keeping, health and safety, human rights, the environment, political activities, protection of company assets, and whistle-blowing.

Code of Conduct Awareness

The PepsiCo Compliance and Business Practices department works to educate employees on business ethics and Code of Conduct compliance to ensure that employees know the principles embodied in the Code as the first fundamental step towards operating ethically.

Each year, PepsiCo requires over 24,000 employees worldwide to train and certify compliance to the Code of Conduct. In May and June of 2008, over 24,000 managers and employees completed a 45 minute web-based Code of Conduct training course, which was available in 18 languages. The online training course provided a detailed overview of the Code of Conduct and featured key policies, such as the Human Rights Workplace Policy and the International Anti-Bribery Policy. Each year, a new customized Code of Conduct training course is developed by the Compliance department, and in 2009 up to 40,000 employees will train in 23 languages.

In addition to the annual online Code training, PepsiCo designates one month each year as Code of Conduct Month to increase awareness of the Code across the entire employee population. During Code of Conduct Month, copies of the

Code are distributed to all PepsiCo employees, including those in plants, producing facilities and warehouses. The Code is also promoted through newsletter articles, e-mail messages from division presidents and senior managers, mentions at town hall meetings and work-site posters. During Code of Conduct Month, all employees are encouraged to review the Code and recommit to what we stand for: doing the right thing consistently and without compromise.

In an effort to expand the compliance training initiatives beyond the annual Code of Conduct Month activities, a year-round compliance training curriculum was developed in 2008. Online training on key risk areas, such as Antitrust, Trade Spend Compliance and Anti-Bribery, was commenced in 2009. New topics will be added every year to the compliance training portfolio. This supplemental training is designed to instill an effective values-based compliance and ethics culture throughout the company.

Code and Our Policies

At PepsiCo, operating ethically and with integrity means compliance with the laws and regulations that impact our business worldwide, our Values, our Code of Conduct, and the corporate and division policies that support the principles embodied in the Code. Such policies include but are not limited to the International Anti-Bribery Compliance Policy, Anti-Harassment/Discrimination Policy, Equal Employment Opportunity Policy, Human Rights Workplace Policy, Customer Trade Agreement Policy, Disclosure Policy, Environmental Policy, Food Safety Policy, Information Security Policy, Travel & Entertainment Policy, Workplace Violence Policy, Security Communications Protocol, and Occupational Health and Safety Policy. These policies apply to all of our employees worldwide and are posted on company intranets for downloading by employees.

Making the Code Count

PepsiCo’s Chief Compliance Officer has overall responsibility for overseeing PepsiCo’s implementation of its Code of Conduct, supported by other functional groups including

Control, Corporate Communications, Human Resources and Corporate Audit. Within each operating division, the Law Department, Controller and Human Resources Department are primarily responsible for their business unit’s implementation of the standards and procedures established by the Code. Division lawyers work closely with members of the Compliance function. In 2009, Compliance established a cross-functional network of division-based Control Environment Councils consisting of Controllers, Personnel Officers and Legal representatives to improve local control and maintain efficiencies in reporting, investigating and escalating significant matters.

All employees are required to comply with the Code of Conduct. Actions that uphold the Code of Conduct have been recognized with the Chairman’s Award, which is given to employees who show outstanding commitment to PepsiCo’s Values and the Code. The Award includes a special stock grant in recognition of the recipient’s contributions.

Failure to comply with the Code may result in a variety of corrective actions, including counseling, written warnings, reduction in annual compensation or annual bonus, failure to receive long-term compensation, cancellation of stock options, and termination, depending on the type and seriousness of the matter.

Compliance Review and Reporting

PepsiCo’s compliance programs are periodically independently reviewed by a third party to determine key compliance risks. PepsiCo has in effect a Code of Conduct Escalation Policy requiring management attorneys to report any violations of the securities laws, breach of fiduciary duty or similar violations.

PepsiCo’s outside auditor receives reports regarding potentially significant violations that relate to fraud, accounting, auditing and internal control matters. The Audit Committee also receives regular reports regarding compliance with the Code of Conduct.

Information on violations of the Code of Conduct is reported internally on a need-to-know basis to monitor trends, foster consistency of discipline, and ensure that appropriate corrective action and in-person training is taken. Efforts are

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made to share learnings and increase awareness of the risks attendant to Code of Conduct violations internally within the organization without compromising confidentiality or anonymity of any specific violation(s). As an example, our customized Code of Conduct online training course includes interactive activities and work-related scenarios that are generally based on actual Code violations that have occurred within the company.

PepsiCo also maintains its Speak Up reporting hotline, which is a toll-free, anonymous hotline for any employee to report potential violations of the Code of Conduct. This hotline is operated by an independent vendor and is available to employees, vendors and customers worldwide and 24 hours a day. In addition to receiving reports of misconduct and Code violations, the Speak Up hotline also receives general inquiries and questions on the company’s policies and on Code of Conduct compliance. Employees are also encouraged to raise questions on business ethics and Code compliance to the Chief Compliance Officer, the General Counsel or the General Auditor. In addition, the Compliance department maintains and monitors a special projects e-mail mailbox that accepts inquiries from employees on Code-related issues and training.

> Download Our Code of Conduct

Risk Management

PepsiCo is subject to risks in the normal course of business with respect to several areas, including those relating to sustainability. These risks include: product demand; our reputation; information technology; supply chain; retail consolidation; the loss of major customers and failure to maintain good relationships with our bottling partners; global, economic, environmental, and political conditions; the legal and regulatory environment; workforce retention and outsourcing; raw materials and other supplies; and market risks.

In 2008, we continued to focus our risk mitigation efforts to further reduce PepsiCo’s exposure to risks, and integrated

those efforts in our businesses’ operating plans and budgets where accountability is assigned and performance is measured.

Risk Management Process

PepsiCo’s Chief Risk Officer is responsible for heading the company’s risk management function, reporting directly to the CEO. Our risk management process is intended to ensure that risks are taken knowingly and purposefully. PepsiCo leverages an integrated risk management framework at the corporate level as well as across divisions to identify, assess, prioritize, manage, monitor and communicate risks across the company. The infrastructure underlying PepsiCo’s risk management framework supports a top-down, bottom-up viewpoint of the financial, operational, strategic and compliance risks facing PepsiCo at various levels of the Company. This framework includes:

The PepsiCo Risk Committee (PRC) is a cross-functional, senior leadership team which identifies, assesses, prioritizes and addresses strategic, reputational and emerging risks, and is chaired by PepsiCo’s Chairman and CEO. The PRC is charged with owning the development of mitigation activities and communicating to PepsiCo’s Board of Directors, Audit and/or Compensation Committee. Meetings are held quarterly, and from a communications standpoint each risk is owned by a PRC member, who is responsible for owning and reporting out one of PepsiCo’s top risks.

The PepsiCo Executive Committee (PEC), comprised of a cross-functional, geographically diverse, senior management group that meets regularly to identify, assess, prioritize and address strategic and reputational risks

Division Risk Committees (DRCs), comprised of cross-functional senior management teams that meet regularly each year to identify, assess, prioritize and address division-specific operating risks

PepsiCo’s Risk Management Office (RMO), which manages the overall risk management process, provides ongoing guidance, tools, and analytical support to the PEC and the DRCs, identifies and assesses potential risks, and facilitates ongoing communication between the parties as well as to

PepsiCo’s Audit Committee and Board of Directors

PepsiCo Corporate Audit, which evaluates the ongoing effectiveness of our key internal controls through periodic audit and review procedures

PepsiCo’s Compliance Office, which leads and coordinates our compliance policies and practices

As a subset of our many risk mitigation capabilities, PepsiCo has dedicated crisis management resources at corporate and division locations responsible for the crisis management capabilities of the company. Crises include disaster recovery, product recall, etc. The company has crisis management protocols and procedures for each division and at corporate headquarters that define when the protocols should be activated and that also identify key individuals. The crisis management program includes a risk assessment methodology by geographic location and business disruption tabletop testing exercises that ensure the readiness and effectiveness of the program.

Many work processes across PepsiCo incorporate risk management principles, including PepsiCo’s compliance program; SOX 302, 307, and 404 compliance programs; internal audit protocols; financial policies; pre- and post-close reviews; operating policies and procedures; strategic planning; annual operating plans; business and joint venture reviews; advertising guidelines and reviews; product safety and security programs; crisis management; disaster recovery plans; and people planning and development processes; as well as Corporate, Divisional, Sector, and Business Operating committees.

Assessment and prioritization of risks are based on calculation of likelihood and impact, taking vulnerability into account. Velocity is also measured to assess strategic risks at a corporate level. Emerging risks, which are considered slow to materialize but high impact, are also addressed within the risk management process.

In addition to the embedded risk management activities that take place each and every day within our normal business processes, PepsiCo uses an integrated risk management framework to explicitly identify, assess, prioritize, manage,

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monitor and communicate risks across the company. Utilizing the enterprise risk management framework, the process is intended to deliver risk transparency, and to provide clear understanding of the level of resiliency of our most critical risks and alignment between management and our Board of Directors regarding the company’s risk tolerance. These deliverables are achieved through the following efforts:

Risk Identification—This takes place annually from a top-down and bottom-up viewpoint. Our risk identification efforts seek to evaluate both external sources of risks as well as risk associated with our internal capabilities in the context of achieving our long-term vision (e.g., being the premier consumer product goods company focused on the convenient food and beverage category). Risks are identified on an inherent basis.

Risk Assessment —After identifying our most significant inherent risks, each assessing party (PRC, DRCs, RMO) assesses the most significant risks from a probability, impact and vulnerability perspective. This assessment requires that we fully understand the existing capabilities, controls, programs, insurance coverage and other mitigating factors that enable an accuracy assessment of the residual risk assessment.

Risk Prioritization—After assessment, all risks that exceed a predetermined threshold are prioritized by both the assessment itself as well as the ability to influence/mitigate. In addition, the RMO aggregates the risk assessment information to look for risk interdependencies and common mitigation solutions.

Risk Response—Following prioritization, the PRC and DRCs are required to explicitly determine the response to each significant risk. The responses include accepting, avoiding, mitigating and transferring (via third-party insurance). The DRCs also identify which risks need monitoring on an ongoing basis and what measurement index will be used. Having selected the risk response, management identifies control activities necessary to help ensure that the risk responses are carried out effectively.

Risk maps are submitted to the RMO by DRCs on a semiannual basis and are used to document specific information about

identified risks, including the assessment of the likelihood and impact of the risk, as well as the risk response and urgency for action. Risk maps are also used to monitor and track the progress against the mitigation strategies.

In addition, PepsiCo’s corporate risk owners are required to submit annual updates of our top strategic risks to RMO on a periodic basis. Similar to the DRC risk maps, these documents capture and prioritize each risk and list mitigation strategies and progress made throughout the year, as well as a targeted end state for PepsiCo’s position with regard to each risk.

Communication

Each DRC is required to summarize its risk management efforts by providing semiannual DRC meeting minutes, as well as semiannual submission of the division risk map. For risks disclosed in our annual report, PepsiCo has assigned Executive Risk Owners responsible for understanding the risk across the company and providing annual updates to the PRC, as well as to the Audit Committee or full Board of Directors. Lastly, a semiannual risk management update is provided to the PepsiCo Audit Committee to discuss our risk profile, risk mitigation efforts and risk management process.

> More information about our business risks

Corporate Governance

Our governance includes the following:

Board of Directors and Standing Committees

Disclosure Committee

PepsiCo Executive Committee

Public Policy Coordinating Group

Board of Directors and Standing Committees

PepsiCo’s business strategy and affairs are overseen by our Board of Directors. Our Board of Directors has three Standing Committees:

1. Nominating and Corporate Governance

2. Audit

3. Compensation

As of March 2009, there are 13 board members, including 11 independent outside directors and 2 executive directors. Members of all Board Committees are independent outside directors.

PepsiCo’s independent director standards are defined in the Corporate Governance Guidelines in the section entitled “Director Qualification Standards.” These standards conform to the director independence rules of the New York Stock Exchange.

> View our Corporate Governance Guidelines

The PepsiCo Board, in its strategic oversight capacity, reviews key social responsibility and sustainability issues on an as-needed basis. In addition, the Board Committees periodically review specific issues or initiatives consistent with the scope of each committee’s charter.

See the Investors/Corporate Governance section of PepsiCo.com for Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter and Nominating Committee Charter.

> More information about the election of directors

PepsiCo Executive Committee (PEC)

The PEC is comprised of a cross-functional, geographically diverse senior management group that identifies, assesses, prioritizes and addresses strategic and reputational risk and is chaired by Indra Nooyi, PepsiCo’s Chairman and CEO. This committee meets regularly on all areas of the business.

Public Policy Coordinating Group

In July 2007, PepsiCo established the Public Policy Coordinating Group to address issues of public policy and sustainability. The group is under the direction of PepsiCo’s General Counsel and includes senior functional heads as well as other company leaders who are focused on Human, Environmental and Talent Sustainability:

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Human Sustainability is led by our Chief Scientific Officer (CSO), who is charged with driving our product portfolio transformation through our global R&D organization and businesses. Our CSO reports to our Chairman and CEO and serves on the PEC. In 2008, we expanded our global research and development capability to address public health concerns including obesity. Our network of leaders includes world-renowned clinical scientists and experts in science, nutrition, food safety, epidemiology and health policy.

Environmental Sustainability is led by the Environmental Sustainability Leadership Team (ESLT), which is charged with advising and informing the Chairman and CEO, the PEC and the Board of Directors on matters of environmental sustainability. The ESLT is comprised of the heads of the supply chain at each of our four businesses, as well as senior leaders from Sales, Human Resources, Communications, Government Affairs, Legal, R&D, Purchasing, Finance and Investor Relations. They are supported by the Environmental and Sustainable Packaging Councils, which are comprised of subject matter experts across all divisions and are responsible for recommending and implementing actions.

Talent Sustainability is led by our Chief Personnel Officer (CPO), who is supported by our staffing team, our compensation and benefits team, and our diversity and inclusion team. Our CPO reports to our Chairman and CEO and serves on the PEC. We’re committed to developing our employees, enabling them to build careers and become ambassadors for our company and our brands.

Communications with the Board of Directors

To facilitate communications with our shareholders, we provide various methods to contact the Board of Directors. These may be found under “Contact the Board of Directors/Audit Committee” in the Corporate Governance section of our website. In addition, PepsiCo’s Proxy Statement, which is distributed to all shareholders, details the process for contacting the Board, a committee of the Board or an individual member of the Board.

Shareholder Proposals

Shareholders wishing to submit shareholder proposals may do so in accordance with the instructions in our Proxy Statement.

> View our proxy statement

Board and Executive Compensation

PepsiCo’s Proxy Statement includes a detailed description of our Board of Directors’ compensation program, which is the same for all nonmanagement Board members, with an additional retainer provided to the three Committee Chairs and to the Presiding Director, who does not serve as a Committee Chair.

Compensation for the CEO, CFO and next highest paid officers are disclosed in the annual Proxy Statement. Details include salary, bonus, stock option awards, performance-based restricted stock awards, performance-based long-term cash awards, perquisites, pension and executive income deferral earnings. Information on stock-based compensation values directly tied to shareholder value is also included.

PepsiCo’s Proxy Statement also describes stock ownership guidelines applicable to Senior Officers and the Board of Directors, as well as our exercise and hold policy. Beginning in 2009, executive officers who meet their recently increased ownership level are exempt from this exercise and hold requirement as long as they continue to meet their ownership requirement.

> View our Proxy Statement

Conflicts of Interest

Our Code of Conduct, which applies to all PepsiCo employees and directors, contains clear guidelines regarding conflicts of interest. PepsiCo’s Corporate Governance Guidelines also include director independence standards to address potential director conflicts of interest.

Director Nomination Process

The Nominating and Corporate Governance Committee does not solicit director nominations but will consider recommendations for director nominees if the individuals recommended meet certain minimum Board membership criteria detailed in our Proxy Statement and, if so, if the

candidate’s expertise and particular set of skills and background fit the current needs of the Board. This process is designed to ensure that the Board includes members with diverse backgrounds, skills and experience, including appropriate financial and other expertise relevant to the business of the Company.

Annual Performance Evaluation of the Board

PepsiCo’s Nominating and Corporate Governance Committee conducts an annual review and assessment of Board and Committee performance.

Several independent organizations rate companies on the quality of their corporate governance. PepsiCo received a perfect 10 out of 10 corporate governance rating from Governance Metrics International in 2008/2009.

> More information about our Nominating and Corporate Governance Committee Charter

Capital Expenditure Filter

All requests for capital expenditures over $5 million must include a review of sustainability issues and performance against appropriate benchmarks. Additionally, opportunities for improving the sustainability of the project surrounding the capital request must be highlighted. The goal is to incorporate more sustainability opportunities in projects right from the start.

Memberships and Partnerships

PepsiCo has always prided itself on being a good corporate citizen and taking action or aligning itself with leading experts and organizations focused on emerging social issues. Examples of this include addressing health and wellness initiatives including diet and nutrition concerns, climate change, water resources and HIV/AIDs.

Through our memberships and partnerships, PepsiCo endorses a number of initiatives related to our businesses. In addition to the initiatives noted below, on a global level, we have endorsed the United Nations Millennium Development Goals.

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Professional Trade Groups

We are also members of many trade and professional groups and take an active role in these as suitable. These are sometimes local and specific to the business. Among these are:

American Beverage Association (ABA)

Snack Food Association

International Life Science Institute

International Society of Beverage Technologists

National Safety Council

American Industrial Hygiene Association

American Society of Safety Engineers

Con Mexico

European Association of Industries of Juices & Nectars

International Council of Beverage Associations

CEEREAL European Breakfast Cereals Association

European Food and Drink Federation (CIAA)

Memberships and Partnerships (Selected Listing)

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General

Organization Purpose

World Business Council on Sustainable Development

Member companies are united by a shared commitment to sustainable development.

World Economic Forum Members are committed to improving society and the environment.



World Health Organization (WHO) PepsiCo subscribes to WHO Guidelines on diet, physical activity and health, as well as drinking water quality.

Oxford Health Alliance Oxford Health Alliance and the PepsiCo Foundation implemented Community Interventions for Health,a program to reduce chronic disease by targeting three risk factors: diet, physical activity level and tobacco use.

Save the Children Save the Children became one of PepsiCo Foundation’s newest grantees within the Global Health portfolio in November 2008 with a $5 million grant for a program aimed at decreasing newborn and child mortality and malnutrition in India and Bangladesh.

Alliance for a Healthier Generation This is a joint alliance with the William J. Clinton Foundation and American Heart Association to combat childhood obesity.

American Council on Fitness and Nutrition A group dedicated to helping people improve health. PepsiCo is a founding member.

Children’s Advertising Review Unit (CARU) Members evaluate child-directed advertising and self regulate.

Family Friendly Programming Forum Members support family-friendly programming on TV.

National Council of La Raza PepsiCo is working with this group on health and wellness initiatives, including supporting a research project to equip affiliate organizations with effective community-based healthful lifestyle programs. PepsiCo is working with this group to advance diversity and inclusion.

National Urban League PepsiCo is working with this group on health and wellness initiatives, including providing capacity development support to build organizational expertise in health and quality of life. We also work with this group to advance diversity and inclusion.



Carbon Trust A U.K. organization established to address climate change.

The Earth Institute at Columbia University One of the world’s premier institutions dedicated to global sustainable development.

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Air and Waste Management Association Environmental professionals share information.

Climate Leaders PepsiCo is a member of this U.S. Environmental Protection Agency program focused on voluntary reductions of greenhouse gases.

UN CEO Water Mandate PepsiCo signed this mandate to contribute positively to the emerging water crisis.

Water.org Water.org’s WaterCredit Initiative is an innovative program that uses microfinance to increase access to safe water and improve sanitation for local communities in India.

Energy Star PepsiCo participates in this U.S. Environmental Protection Agency program focused on improving energy performance.

European Organization for Packaging and the Environment (EUROPEN)

Members are dedicated to resolving the environmental challenges facing the packaging chain. PepsiCo is represented at the Board level.

Exnora International PepsiCo is working with this environmental group in India to manage solid waste in an environmentally friendly manner.

Global Beverage Industry Roundtable on Water Stewardship

Members are dedicated to addressing water issues.

Keep America Beautiful This group is dedicated to recycling and community cleanups. Pepsi-Cola is a Great American Cleanup founding partner.

Refrigerants Naturally! We partner with this coalition of business and nongovernmental members, including Greenpeace, who are committed to moving to ozone-friendly point-of-sale refrigeration.

Safe Water Network Members are working to help provide safe water for communities in need.

SmartWay Transport Partnership This is a U.S. Environmental Protection Agency partnership. Members are committed to promoting greater energy efficiency and air quality within the freight transport business. Frito-Lay North America is a member.

Sustainable Packaging Coalition/GreenBlue This industry leading organization provides life-cycle analysis and design guidelines for sustainable packaging. PepsiCo is a member of the Executive Committee.

SUSTENTA Members of this Mexican group are committed to the betterment of solid waste management.

The Energy and Resource Institute (TERI) PepsiCo is working with this group in India to expand the availability of water.

Supplier Ethical Data Exchange (Sedex) PepsiCo joined this group to partner with suppliers to improve performance across the supply chain.

U.S. Climate Action Partnership (USCAP) Member companies are working to encourage climate action to reduce greenhouse gas emissions.


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Cuban-American National Council PepsiCo is working with this group to advance diversity and inclusion, including building leadership capacity.

Ethics Resource Center Members are devoted to the advancement of high ethical standards and practices.

Global Business Coalition Members lead the business fight against HIV/AIDS and related diseases.

Habitat for Humanity This Tropicana and Tostitos partnership with the national organization builds homes for the needy.

MacBride Principles Members subscribe to Northern Ireland diversity principles.

Make-A-Wish Foundation Frito-Lay North America is working with this group to encourage donations.

NAACP PepsiCo is working with this group to advance national leadership and grass-roots activism.

National Minority Supplier Development Council

Members support minority supplier development.

Organization of Chinese Americans PepsiCo is working with this group to advance diversity and inclusion, especially through national leadership and grassroots activism.

OSHA Voluntary Protection Plan This is a government health and safety program. Frito-Lay, Quaker, Tropicana and Gatorade plants have been accepted to participate in OSHA Corporate VPP program.

Susan G. Komen Breast Cancer Foundation Frito-Lay North America has joined with this group to use SunChips multigrain snacks to raise awareness for a cure for breast cancer.

Sullivan Principles Members subscribe to human rights principles.

U.S. Pan Asian Chamber of Commerce PepsiCo is working with this group to advance diversity and inclusion, especially through national leadership and grassroots activism.

Women’s Business Enterprise National Council (WBENC)

Members work to promote women’s enterprise.

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Awards & Recognitions - Select Listing

2008 Milestones

PepsiCo named to the Dow Jones Sustainability World Index and the Dow Jones Sustainability North America Index, (DJSI World and DJSI North America) for the third time

Forbes Names PepsiCo Among Its Best Big Companies

CRO Names PepsiCo to Top 25 100 Best Corporate Citizens 2008

PepsiCo Honored with 2008 Energy Star Partner of the Year Award

PepsiCo International’s China Foods Wins “China’s Top Leaders 2008” Award

Wall Street Journal Article Recognizes PepsiCo for Leadership in Employment of People with Different Abilities

PepsiCo France Recognized as “Great Place To Work” by Institute Survey

PepsiCo UK and Ireland Named Among “Where Women Want to Work”

PepsiCo Wins ‘New Freedom Initiative’ Award

PepsiCo Wins at Out & Equal Workplace National Summit

PepsiCo, Goldman Sachs and William C. Thompson, Jr. Recognized for Leadership on LGBT Workplace Equality

PepsiCo Earns Top Marks in 2009 Corporate Equality Index

PepsiCo Named to DiversityInc Top 50

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Our StakeholdersWe interact with a wide range of individuals, groups and advocates who represent community, environmental and social interests.We touch the lives of many people through our businesses. We welcome honest discussion with individuals, groups and advocates who represent community, environmental and social interests. Issues of concern brought to the attention of PepsiCo will be considered with a view toward our businesses and our sphere of influence. We interact with many stakeholders.

Our Consumers

Through our Human Sustainability initiatives, we offer our consumers a wide range of products that deliver great taste, nutritional value, convenience and affordability. We are committed to playing a responsible role in health and wellness by encouraging consumers to adopt healthy, active lifestyles, beginning with the products we offer. Each year, we invest in innovation to better serve consumer wants and needs through new products and packaging. We continually expand our distribution network to make our products more widely available. And we work relentlessly to improve productivity so we can offer affordable products to a broad range of consumers. We have toll-free telephone numbers that consumers can call with questions or comments. The call numbers are included on our product packaging. We also provide a number of websites where consumers can get information about our brands, including nutritional content and answers to many other questions about our products

Our Communities

We recognize our responsibility to be a contributing member of our communities, on both a global and local level. We operate our businesses responsibly and seek to be a positive force. We support our communities through our businesses by contributing to not-for-profit groups and by working with organizations dedicated to improving the lives of people. We have advisory groups that focus on health and wellness,

African-American, Asian and Latino/Hispanic issues. We also work to be good stewards of the environment. In areas of the world where water scarcity is an issue, we are working to protect the resources we’ve used, and we are partnering with nonprofit groups to promote clean water access.

Our Employees

Our employees are the greatest factor in our success. Their hard work, dedication and resourcefulness enable PepsiCo to compete effectively, serve the needs of customers and deliver the results our investors expect. Our Talent Sustainability principles reflect our commitment to providing a work environment that allows our employees to achieve professional growth and personal fulfillment. We ask our employees to respond to an “Organizational Health” survey generally every other year. Topics include benefits, working conditions, diversity and inclusion initiatives, and career development, among others. The results of the survey are shared with associates, and action plans to address issues are developed and made part of performance goals.

Our Customers

Our retail customers are supermarkets, grocery stores, mass merchandisers, club stores, drugstores, gas stations, convenience stores, restaurants, foodservice outlets, vending machine operations and others who carry our products and make them directly available to consumers. We provide our products as well as marketing support that contributes to their growth, profit and positive cash flow. Retail consolidation and the current economic environment continue to increase the importance of major customers. We have dedicated teams for our customers, partners and suppliers, and interact with them on a regular basis. We have a team dedicated to supplier diversity, including working with our women and minority suppliers to build their capabilities and business with PepsiCo. Our website includes a dedicated site for information on our women and minority supplier diversity program. Pepsi Cola North America has partnered with Sam’s Club over the last three years in a national, school-based recycling program.

Our Investors

We strive to provide investors a reasonable return on their investment, based on consistent financial growth in the marketplace and consistent financial results. We take a long-term view and make appropriate investments to strengthen our brands, develop our capabilities and pursue new opportunities. We seek healthy year-over-year growth and report honest, transparent and timely financial results. We regularly conduct web-based quarterly conference calls to provide updates to analysts and investors, and we broadcast our annual shareholder meeting on our website. Knowing the commitment of many investor groups to sustainability, we apply for admission to the Dow Jones Sustainability Index (DJSI) each year. PepsiCo has been named as a member of the North America Index and named a member of the World Index. The DJSI World Index identifies those companies that exemplify leadership in sustainability among the leading 10 percent of the world’s top 2,500 companies. The DJSI North America Index identifies those companies that exemplify leadership in sustainability among the largest 600 North American companies.

Our Partners

Our bottlers and other business partners manufacture many of our products. We provide certain needed ingredients and supplies as well as quality assurance and technical assistance. We conduct our business to allow both our partners and PepsiCo to earn a reasonable return and grow together. We work with our partners on sustainability initiatives including resource conservation. Pepsi Beverages North America has a Bottler Sustainability Team whose mission is to advance environmental sustainability in Pepsi-Cola’s bottling operations.

Our Suppliers

Our suppliers provide us with the goods and services needed in our business. We buy goods and services at competitive prices, allowing both our suppliers and PepsiCo to make a reasonable profit. We seek efficient suppliers with whom we can work and grow as long-term partners. We especially seek suppliers that are owned by minorities and women. We extend our commitment to sustainability to our suppliers through our Supplier Code of Conduct, Sustainable Packaging

OUR BUSINESS


Policy and sustainable agriculture practices. In 2008, PepsiCo implemented a global Resource Conservation Outreach Program designed to share resources, tools and expertise in the area of energy conservation with key suppliers. The initial phase of this effort involved reaching out to 12 contract manufacturing partners for Frito-Lay North America and Quaker Foods North America to assist them in developing energy management systems and projects. This program has been very successful and has expanded to include additional contract manufacturers and other key suppliers in 2009.

Our Economic Impacts

We market hundreds of brands in approximately 200 countries and territories around the world.The following should be read in conjunction with Management’s Discussion and Analysis and Consolidated Financial Statements included in PepsiCo’s 2008 report on Form 10-K

> View PepsiCo’s 2008 report on Form 10-K

We market hundreds of brands in approximately 200 countries and territories around the world. The consumers who eat and drink our products spent an estimated $107 billion on our brands in 2008.

Summary of Economic Performance 2008

PepsiCo has 18 mega-brands that generate $1 billion or more each in annual retail sales.

In addition to benefiting our own associates, this powerful performance helps support our independent bottler network and distribution operations, and contributes to the sales of retailers throughout the world. Our economic reach is broad and deep and sustainable.

Our Economic Contributions

')2+/In 2008, PepsiCo paid billions of dollars in income taxes, net of refunds, worldwide. In addition to income taxes, PepsiCo paid hundreds of millions of dollars in payroll, property, transaction-based and other miscellaneous taxes worldwide. These tax payments make an important contribution to the countries and communities in which PepsiCo has a presence.

!#(,',&)( &#-'",*%',#-/PepsiCo believes that, both as a company and as individuals, it is important to be engaged in the public policy and political arena. PepsiCo has always disclosed information on how we are spending resources for political purposes as required by law and regulation. In 2005, PepsiCo developed a Political Contributions Policy that provides shareholders with details on the policies, procedures and criteria used in connection with all political contributions. In addition, we are now providing details of PepsiCo political contributions on our website. Shareholders were involved in discussions leading to the development of this policy.

#%" +&#-#4,& &#-'",*%',#-/Shareholders—We provide shareholders with a strong return on their investments. In 2008, we paid $2.5 billion in dividends and provided shareholders with a 12 percent return, which is stock appreciation plus dividends reinvested.

Employees—We directly employ approximately 198,000 employees. Our customers and business partners, such as franchised bottlers and licensees, employ tens of thousands of additional people as they manufacture and distribute our

brands.

Retailers—We create income and profit for our customers, which means jobs and opportunities in millions of retail establishments around the world. Our brands are among the most profitable brands that retailers carry.

Suppliers—We purchase millions of dollars of supplies, services and raw materials that help to support hundreds of thousands of additional jobs in communities around the world.

Governments—Our businesses have a positive impact on the economies of the countries and localities in which we operate by generating billions of dollars of revenue for governments through taxes paid directly by PepsiCo and indirectly by PepsiCo employees, investors, commercial partners and suppliers.

Technology—We share expertise and technologies that provide important benefits to communities and countries. In emerging markets, such as India and China, our agricultural development programs have significantly improved crop yields for local farmers.

Contributions and Community

As a corporate citizen, PepsiCo Inc. and its companies have a long and proud history of supporting communities in which they do business. We give to nonprofit community groups and initiatives through the PepsiCo Foundation, Corporate Contributions, PepsiCo Community Affairs and our various operating divisions. We encourage employees to volunteer. Additionally, we provide gifts-in-kind, support community and nonprofit events, conventions and journals, and sponsor meetings.

In-kind donations include food, beverages, equipment and services and are estimated at cost to PepsiCo.

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OUR BUSINESS


Cash contributions (in millions)

PepsiCo Foundation: $30

Corporate Giving: $3

Division Giving: $9

In-kind giving: Employees volunteering during paid working hours

PepsiCo currently does not place a monetary value on this type of giving

Estimated In-kind giving (in millions)Product or service donations Projects/partnerships or similar

$45 (value at cost of goods)

Total: $87 million

!+!/,&# 3#%-$)',#-As a corporate citizen, PepsiCo and its subsidiaries have a long history of supporting communities in which they do business. We give to nonprofit community groups and initiatives through the PepsiCo Foundation, Corporate Contributions, PepsiCo Community Affairs, and our various operating divisions. Additionally, we provide gifts-in-kind, support community and nonprofit events and conventions, and sponsor meetings.

Each of the PepsiCo entities that participate in philanthropic activities has developed its own processes for evaluating the impact and success of its charitable contributions.

For example, the PepsiCo Foundation focuses its grant making in the following areas:

Global Health

Environment

Global Inclusion

The PepsiCo Foundation also provides assistance for humanitarian aid and recovery efforts following major disasters.

Grant requests must address specific criteria.

> View our Grant Guidelines

To track the progress made and measure the impact of our contributions, the Foundation utilizes the methods detailed below.

PepsiCo Foundation grantees are required to submit semiannual progress and financial reports that include an accounting of the progress against goals over a given time period. The type of data captured is determined by the nature of the grant program and the expected outcomes the grantee described in their proposal plan.

Examples of the Foundation’s efforts can be found throughout this report.

> More information about the PepsiCo Foundation

&#44%-,'5 )33),"/PepsiCo Community Affairs is an integral part of the way we do business. We are currently active in these areas:

Health and Wellness

We participate in conferences, events and volunteer activities to increase awareness of PepsiCo’s commitment to health and wellness in ethnic communities. We also form partnerships with community-based organizations to encourage active lifestyles. We have key partnerships with The National Council of La Raza and the National Urban League.

Diversity and Inclusion

We create awareness of PepsiCo’s goals of recruiting diverse associates by representing PepsiCo at national recruiting conferences, such as the National Black MBA Associations, Inc., and the National Society of Hispanic MBAs.

We provide leadership and support PepsiCo’s commitment to increase procurement from minority-owned and women-owned businesses. We participate in events and conferences where we seek first- and second-tier suppliers. We provide support for events and initiatives of the following groups: U.S. Pan Asian American Chamber of Commerce (USPACC); National Minority Supplier Development Council (NMSDC); U.S. Hispanic Chamber of Commerce (USHCC); and Women’s

Business Enterprise National Council (WBENC). The PepsiCo Foundation continues its seed funding to the National Council of La Raza for a scalable national Latino education and workforce model.

Government and Legislative

In partnership with the Black Caucus and the Hispanic Caucuses, we build community awareness of PepsiCo’s health and wellness commitment and program initiatives. We initiate and participate in panels and workshops with the goal of creating understanding and awareness of our commitment to health and wellness.

In-Kind Donations

PepsiCo provides in-kind donations for many nonprofit organizations. The largest program is America’s Second Harvest and its network of food banks. We also make in-kind donations of products, premiums, equipment, meeting space and other services.

> More information about Corporate and Divisional Donations

OUR BUSINESS

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.

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

Documents

Pepsico 2008 Sustainability Report