Special Report

PepsiCo and Human Rights Focus on Israel-Palestine

February 3, 2015

By Sara E. Murphy

Copyright 2015, Si2

Highlights

Company Description Links to Israel and the Occupied Territories

2013 Revenue 2013 Net Income Regional Employees Regional Sales

$66,415 million $6,740 million ND ND

Employees 2013 Diluted EPS Regional Exports Locations

274,000 $4.52 ND Sderot

PepsiCo is a global food and beverage company. Its six mostly geographically-defined business segments offer differing mixes of snack foods—such as potato chips, tortilla chips, snacks, dips and corn chips; cereals and related snacks and side dishes; and beverage products that include concentrates and fountain syrups as well as ready-to-drink tea, coffee and dairy items.

PepsiCo serves wholesale distributors; foodservice cus-tomers; grocery, drug, convenience, membership and discount stores; mass merchandisers; and independent bottlers. Company brands are Lay’s, Ruffles, Doritos, Tostitos, Cheetos, Fritos, Santitas, Quaker, Aunt Jemi-ma, Cap’n Crunch, Life, Rice-A-Roni, Marias Gamesa, Emperador, Saladitas, Sabritas, Elma Chips, Rosquinhas Mabel, Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, 7UP, Diet Mountain Dew, Sierra Mist and Mirinda, Walkers, Pepsi Max, Tropicana, Domik v Derevne, Chudo, Agusha, Chipsy, Kurkure and Smith’s.

PepsiCo did not enter the Israeli market until 1992. The company says that this was because the Israeli market was too small to be viable, and that the Is-raeli government did not welcome the company’s presence. Some activists have suggested that Pepsi-Co was complying with the Arab League boycott of companies doing business in Israel. The company opened its Israeli business line through a local part-ner, Strauss Group, which produces salty snacks and dips for both Israeli and American markets. Strauss Group employs roughly 6,500 people, but it is un-clear what proportion of its workforce is exclusive to PepsiCo; Strauss has other partners as well.

Human Rights Policy Description Key Risks

UN Global Compact Ruggie Principles PepsiCo’s partner in Israel, Strauss Group, expresses support, both political and material, for elements of Israel’s defense forces that have been accused of human rights abuses. Some activists are promoting boycotts of some of the company’s products for this reason. While Strauss has a stated policy to encour-age hiring and advancement in its workforce of spe-cific Israeli minority groups, the company does not publish data on its workforce composition.

Yes Yes

UN Universal Declaration of Human Rights

Yes

PepsiCo has been an active participant in the UN Global Compact since 2008. The company’s Human Rights Workplace Policy is guided by the UN Universal Decla-ration of Human Rights and the Ruggie Principles, and is disseminated as part of its code of conduct training.

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Contents

I. Executive Summary ............................................................................................................ 3

II. PepsiCo’s Human Rights Policy ........................................................................................... 4

III. PepsiCo’s Business Links to Israel and the Occupied Territories ......................................... 9

IV. Key Risks for PepsiCo and Its Shareholders ..................................................................... 12

About This Report

The Holy Land Principles, a Washington, D.C.-based non-profit organization that takes its inspiration from the MacBride Principles and other previous corporate conduct codes, commissioned the Sustaina-ble Investments Institute (Si2) to produce this report. The Holy Land Principles, from which the organi-zation takes its name, is a set of fair employment principles for doing business in Israel-Palestine. The organization is promoting them to U.S. companies doing business in the region. (For more information on the Holy Land Principles, see http://www.holylandprinciples.org. Background materials on fair em-ployment in Israel-Palestine also are available on the website, along with additional company reports.) While the Holy Land Principles commissioned this report, Si2 retains editorial control and takes respon-sibility for its content. Si2 is a non-profit research organization supported primarily by subscriptions from the largest U.S. college and university endowments, leading North American pension funds and other institutional investors, which use its impartial research on sustainability issues raised in share-holder resolutions at leading U.S. companies. Si2 also conducts research on contentious and emerging corporate responsibility subjects.

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I. Executive Summary

PepsiCo has been an active participant in the United Nations Global Compact since 2008. The company’s Human Rights Workplace Policy is guided by the UN Universal Declaration of Human Rights and the UN Guiding Principles on Business and Human Rights, known as the Ruggie Principles, and is disseminated as part of its Code of Conduct training. The company recently integrated country-specific assessments into its risk analysis processes, though it does not currently publish the results of its analysis. Credible exter-nal groups have recognized PepsiCo for its leadership on diversity and inclusion, and on operationalizing its environmental, social and governance commitments.

PepsiCo’s partner in Israel, Strauss Group, details its origins in the Zionist movement. The company’s senior executives express support—both political and material—for elements of Israel’s defense forces that have been accused of human rights abuses. Some activists are promoting boycotts of some of the company’s products on the basis of what they see as Strauss Group’s “support for the war on Palestine.” While Strauss Group has a stated policy to encourage hiring and advancement in its workforce of specif-ic Israeli minority groups—specifically Arabs, Orthodox Jews and Israelis of Ethiopian origin—the com-pany does not publish data on its workforce composition, so investors cannot assess the success of the company’s efforts in this regard.

PepsiCo entered the Israeli market in 1992. Before this, the company said that the Israeli market was too small to be viable, and that the Israeli government did not welcome its presence. Some activists believe that PepsiCo was silently complying with the Arab League boycott of companies doing business in Israel. The company opened its Israeli business line through a local partner, Strauss Group, which produces salty snacks and dips for both Israeli and American markets. Strauss Group employs roughly 6,500 peo-ple, but it is unclear what proportion of its workforce is exclusive to PepsiCo; Strauss has other partners as well. PepsiCo and its shareholders are exposed to potential risks related to the company’s operations:

Almost certain challenges with workforce diversity.

Boycotts and activist campaigns.

Related reputational risks.

The following sections cover PepsiCo’s human rights policies, its operations in Israel-Palestine and an analysis of the risks for its operations and its shareholders.

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II. PepsiCo’s Human Rights Policy

PepsiCo has been an active participant in the United Nations Global Compact (UNGC) since 2008, and provides annual communication on its progress to the UNGC. The company says that it structured its Code of Conduct and its Human Rights Workplace Policy to align with the UN Universal Declaration of Human Rights and the UN Guiding Principles on Business and Human Rights, known as the Ruggie Prin-ciples. PepsiCo formed its Human Rights Operating Council (HROC) in 2012, aiming to ensure that Pepsi-Co meets the “highest expectations” of the Ruggie Principles and the other protocols listed above. Ac-cording to PepsiCo’s Global Reporting Initiative (GRI) report in April 2013, the company retained a third-party reviewer to conduct a pilot human rights audit. Using what it learned from that process, PepsiCo says it plans to develop and roll out a plan for human rights audits of its global operations.

In 2012, PepsiCo’s HROC partnered with the company’s Enterprise Risk Team to incorporate human rights due diligence questions into its Global Risk Tool to be distributed and answered at the country level. The company says that it will continue this process annually to raise awareness of human rights and to better determine where additional policies, training or mitigation efforts are needed. PepsiCo does not offer country-specific details.

PepsiCo’s Human Rights Workplace Policy, last updated in 2009, applies to all PepsiCo associates. It is available in 44 languages, including Hebrew and Arabic. The policy includes a non-discrimination clause that affirms equal opportunity with respect to race, religion, national origin and veteran status, among other characteristics. The company affirms its associates’ freedom of association, commits to a safe workplace free from harassment of any kind and prohibits discrimination. The policy says that PepsiCo “encourages” its vendors, suppliers and partners to adhere to these tenets, and that the company places “substantial value on working with others who share our commitment to human rights.”

PepsiCo’s Code of Conduct is available on its website in multiple languages, including Arabic but exclud-ing Hebrew. It includes provisions for anonymous reporting and a non-retaliation clause. The code in-cludes the following sections:

Diversity and inclusion: PepsiCo requires all of its employees to respect one another’s diversity of ethnicity, race, religion, national origin and veteran status, among other characteristics, and says it actively pursues a workforce that is reflective of the markets it serves.

Human rights: The company reaffirms its commitment to operating in keeping with the interna-tional conventions described above, as well as the International Labor Organization’s Funda-mental Principles and Labor Standards. This section includes protections for wage equity, free-dom of association and a workplace free of harassment.

Anti-discrimination: The code prohibits any form of discrimination on the basis of ethnicity, race, religion, national origin and veteran status, among other characteristics, and says that no employment decisions may be made on the basis of these factors.

PepsiCo is a member of Ceres, an advocate for corporate sustainability leadership. Ceres coordinates the company’s external stakeholder panel, which includes human rights experts. On a scale of 1 to 4, with 1 being the top mark, Ceres gives PepsiCo a 2 – “making progress – for its human rights performance. Pep-siCo also is a member of the Business for Social Responsibility (BSR) Working Group on Human Rights, which focuses on corporate governance structures, stakeholder engagement, due diligence, grievance mechanisms, training and disclosure. PepsiCo says this partnership is helping the company to more ef-fectively integrate human rights into everyday business processes.

In its GRI report, PepsiCo says it conducts annual training to promote compliance with its policies and applicable law. The company reports that in 2012, more than 64,000 salaried employees completed

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online training and approximately 150,000 hourly employees worldwide received in-person Code of Conduct training, including the elements that relate to human rights and fair employment.

Diversity and inclusion: PepsiCo has a Global Diversity and Inclusion Governance Council that comprises internal and external “thought leaders,” co-chaired by the company’s Chairman and CEO and its Chief Diversity Officer. PepsiCo has also established Diversity and Talent Sustainability Inclusion Councils on all four continents of the company’s international business, which concentrate on “locally relevant diversity and inclusion strategies and plans,” with a particular focus on women. PepsiCo says that it has a pro-gram in place in its Middle East operations to advance women’s access and opportunities for advance-ment within the company. It also has systems in place for supporting minority advancement, both in its own operations and among its suppliers.

A 2013 study by Cornell University students identified PepsiCo as a diversity leader, noting that it was among the first companies to recognize the importance of people of color in its workforce. The company started equal opportunity initiatives in the 1940s, which evolved into diversity initiatives. The study says that PepsiCo made particular progress in the 2000s. First, PepsiCo built the internal business case for diversity. Then the company sought to change its internal culture, becoming more inviting and engaging for every employee. PepsiCo assigned every executive sponsorship of a minority group. Their perfor-mance metrics were revised to weight “business results” and “people results” equally. The company regularly receives awards and accolades from external bodies, including Black Enterprise and Hispanic Business, for its diversity performance.

Suppliers: PepsiCo is a founding member of an industry-wide initiative called AIM-PROGRESS— PRO-Gram for RESponsible Sourcing. As part of the program, the company collaborates with peers to develop and implement common methods for evaluating supplier corporate social responsibility (CSR) perfor-mance, to improve the effectiveness and efficiency of the evaluation process and raise the general level of CSR performance within its supply base.

PepsiCo publishes a Supplier Code of Conduct—as well as an accompanying online training module—in multiple languages, including Arabic but excluding Hebrew. The code includes an anti-discrimination and anti-harassment clause:

PepsiCo suppliers shall create a work environment in which employees and business partners feel valued and respected for their contributions. Harassment, including unwelcome verbal, visual, physical, or other conduct of any kind that creates an intimidating, offensive or hostile work environment will not be toler-ated. Employment decisions must be based on qualifications, skills, performance, and experience.

The supplier code also includes a requirement to respect employees’ freedom of association. The only explicit mention of human rights is contained in the provision that PepsiCo suppliers “shall maintain and promote fundamental human rights.”

PepsiCo says that in early 2013, it enhanced its Supplier Code of Conduct to include more details on company’s expectations related to human rights and labor issues, among other matters. PepsiCo is using its updated Supplier Code to inform a series of in-depth training sessions on human rights issues with its key suppliers. PepsiCo intends to expand this training program significantly going forward.

External recognition: PepsiCo has been included in the Dow Jones Sustainability Index (DJSI) for the last eight consecutive years. In 2011, the company’s competitor, Coca-Cola, was excluded from the DJSI. A blog post by Sustainalytics—a responsible investment research firm—reflects similar views expressed by sustainable business experts at the time. Sustainalytics noted that while both companies had strong Envi-ronmental, Social and Governance (ESG) policies and procedures in place, PepsiCo had gone much further toward operationalizing these initiatives. Sustainalytics also observed that PepsiCo had distinguished itself by bringing labor relations, among other topics, to the forefront of its corporate philosophy.

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Controversies: PepsiCo recently was the target of a significant activist campaign, spearheaded by Oxfam, relating to human rights concerns in the company’s supply chain. Reports alleged that some of its sugar suppliers were grabbing land from small farmers in such countries as Cambodia and Brazil, evicting them with neither consent nor compensation. Oxfam filed a shareholder resolution in 2014 at PepsiCo on this topic, which it subsequently withdrew after PepsiCo developed a zero-tolerance policy for land grabs in its supply chain. The company says it will not allow any land displacements of legiti-mate landowners.

Earlier, in July 2013, various left-leaning sources, including the International Union of Foodworkers (IUF), published similar versions of a story accusing PepsiCo of labor rights violations in India. They said that 162 out of 170 Pepsico workers in West Bengal had been fired after joining a labor union. The IUF al-leged that management threatened the employees with dismissal after they submitted their union regis-tration documents, and said the firm hired some “local union-busting thugs” to assault the workers. The IUF said its police complaint went unaddressed, and that PepsiCo did not pay employees fair wages. PepsiCo responded on July 13, 2013, asserting its zero tolerance of human rights violations:

The workers in this instance were employed by Weaving Manpower Solutions, a sub-contractor retained by Radhakrishna Foodland Private Ltd (RKFL) to run the warehouse operations for PepsiCo. PepsiCo takes human rights issues very seriously and immediately conducted a thorough investigation upon learning of the allegations. Our investigation has found no evidence of human rights violations. The local Assistant Labour Commissioner’s office also conducted its own independent investigation and found that the RKFL facility was in compliance with all applicable labour laws. It is our understanding that RKFL is having pro-ductive and substantive talks with the local union, INTUC, in the hopes of reaching an appropriate resolu-tion to any outstanding issues.

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Application in the Holy Land: PepsiCo’s code of conduct and human rights workplace policy address many of the human rights issues arising from doing business in Israel-Palestine. Its non-discrimination policy, for example, prohibits discrimination based on national origin, veteran status, race and religion, covers all aspects of recruitment and employment and bars harassment for any reason. PepsiCo also has robust training programs for its employees and senior management, aimed at broadening and opera-tionalizing diversity awareness. The company further provides training support for its minority suppliers. PepsiCo does not specifically identify its operations in Israel-Palestine as a significant human rights risk, although it has recently introduced a country-specific human rights risk assessment. The company has not publicly disclosed the outcome of that assessment.

Some of PepsiCo’s policies are aligned with the Holy Land Principles, as illustrated in the table above, which also highlights some of the differences. While PepsiCo has not signed the Holy Land Principles, the company is a signatory to the MacBride Principles.

Holy Land Principles UPS’ Policies

1

Adhere to equal and fair employment practices in hir-ing, compensation, training, professional education, advancement and governance without discrimination based on national, racial, ethnic or religious identity.

PepsiCo’s code of conduct includes specific prohibition of discrimination on the basis of national origin, race and religion, among other protected classes.

2

Identify underrepresented employee groups and initi-ate active recruitment efforts to increase the number of underrepresented employees.

PepsiCo has a diversity and inclusion program that has been externally recognized for its quality. While its minority inclusion efforts apply largely to its U.S. oper-ations, the company has extended its efforts globally, particularly as relates to women’s advancement. Pep-siCo does not disclose whether it pinpoints un-derrepresented groups in Israel-Palestine.

3

Develop training programs that will prepare substan-tial numbers of current minority employees for skilled jobs, including the expansion of existing programs and the creation of new programs to train, upgrade, and improve the skills of minority employees.

PepsiCo has training and education programs in place to advance minority access and advancement, both within its own operations and throughout its supply chain. The company has been recognized as a leader in diversity promotion.

4 Maintain a work environment that is respectful of all national, racial, ethnic and religious groups.

PepsiCo’s non-discrimination policy prohibits harass-ment for any reason, and includes a commitment to a safe workplace free from intimidation.

5 Ensure that layoff, recall and termination procedures do not favor a particular national, racial, ethnic or reli-gious group.

PepsiCo’s non-discrimination policy prohibits employ-ment decisions on the basis of national origin, race and religion, among other classifications.

6

Not make military service a precondition or qualifica-tion for employment for any position, other than those positions that specifically require such experience, for the fulfillment of an employee’s particular responsibili-ties.

PepsiCo’s non-discrimination policy in its code of con-duct specifies that hiring decisions should be made without regard to veteran status. The code applies to the company’s global operations.

7

Not accept subsidies, tax incentives or other benefits that lead to the direct advantage of one national, ra-cial, ethnic or religious group over another.

While the Israeli government provides attractive incen-tives to foreign companies investing in Israel, Si2 found no specific evidence that PepsiCo has received such benefits.

8 Appoint staff to monitor, oversee, set timetables, and publicly report on their progress in implementing the Holy Land Principles.

PepsiCo has not adopted the Holy Land Principles, alt-hough it has staff overseeing the implementation of its own code of business conduct.

Source: Holy Land Principles and Si2

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Key risks—In its most recent annual Form 10-K report to the Securities and Exchange Commis-sion, PepsiCo acknowledges geopolitical risk that is particularly valid in some areas, including “Middle East regions.” It says:

Our financial performance could be adversely affected if we are unable to grow our business in emerging and developing markets or as a result of unstable political conditions, civil unrest or other developments and risks in the markets where our products are sold… [D]isruption in these markets due to political in-stability or civil unrest could result in a decline in consumer purchasing power, thereby reducing demand for our products.

The company also acknowledges that its reputation can suffer from “adverse publicity (whether or not valid) relating [to] the failure to maintain high ethical, social and environmental practices for all of our operations and activities.”

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III. PepsiCo’s Business Links to Israel and the Occupied Territories

PepsiCo entered the Israeli market in 1992. The company had a controversial history in the Middle East before then, although there are few sources of impartial information on the subject. Many sources refer to the “So-da Wars,” describing the different strategies that PepsiCo and Coca-Cola pursued in the region. Quite a few observers believe that PepsiCo avoided the Israeli market for years because the company did not want to com-promise its position in Arab markets by run-ning afoul of the Arab League boycott of companies doing business in Israel. A blog-ger on the subject summed up the prevailing view in 2012: “The Jews had Coke and the Arabs had Pepsi.” PepsiCo always denied those allegations, saying instead that Israel constituted too small a mar-ket to support a franchise, and that the State of Israel did not want Pepsi sold there. Nevertheless, the company had a presence in even smaller markets at the time. A 1983 article in JTA—which bills itself as “The Global Jewish News Source”—says that Meir Dayan, Israel’s economics consul in Philadelphia, sent a letter to PepsiCo on July 1, 1982, indicating that Israel “would welcome your coming into Israel, build-ing a plant based on a Pepsi-Cola franchise, and offering your product to the Israeli market.”

PepsiCo operates in Israel through its local partner, Strauss Group. Strauss is Israel’s second-largest food and beverage company, and is an international corporation with approximately 13,000 global employees operating 19 production sites in 20 countries. The first location the partnership opened was a salty snack production site in Sderot, located just a mile from the Gaza strip in the western Negev desert. Each company owns 50 percent of Strauss Frito Lay, and of two dips and spreads ventures. Some of the prod-ucts from the dips and spreads ventures, including Sabra branded hummus, is produced for export to U.S. markets. Strauss has several other major partners, including Danone. Strauss employs approximate-ly 6,500 people in Israel, but it is not clear what proportion of its workforce is connected to its partner-ship with PepsiCo.

Strauss has a corporate responsibility section on its website that includes general commitments to hu-man rights, fair employment and diversity and inclusion. The company also offers the following details regarding the specific challenges of the Israeli market:

Increase in the number of diverse candidates in Strauss Israel: Strauss Israel advances strategic collabo-ration with non-profit organizations which assist in identifying diverse candidates from diverse back-grounds: Ethiopian, Arab and Orthodox. During the recruitment process for management candidates, Strauss Israel invests special efforts to identify candidates with an academic background from the Arab population, Ethiopian immigrants and women for roles in management.

Ensuring appropriate assessment skills for recruiters: Strauss creates different assessment programs which are tailored for the diverse groups of candidates applying for roles at Strauss and has created a new pilot program in this field. For example, we have all our recruiters have undergone [sic] training delivered by professionals and supported by non-profit associations who have expertise in working with diverse people. Sessions are held for sharing the learning from the recruitment experiences on a regular basis.

Improvement in the preparedness of managers to recruit diverse candidates: The Human Resources function works on an individual basis with managers in the organization and operates with professional

Key Data Employees Worldwide 424,000

Sales Worldwide $55,438 million

Net Income Worldwide $4,372 million

Diluted Earnings Per Share $4.02

Employees in Israel/Occupied Territories ND

Percentage of Worldwide Employment ND

Sales in the Region ND

Percentage of Worldwide Sales ND

Exports from the Region ND

Major Locations Sderot

Source: PepsiCo

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non-profit associations to remove barriers to diverse recruitment and enable effective induction of more diverse employees…

Personal and professional support for new hires, and also for their managers, which focuses on under-standing cultural gaps.

Strauss does not publish data regarding its employee breakdown by ethnicity, national origin or religion.

Activist allegations and boycotts: Strauss says that it was “born of a Zionist vision, love of the country and giving… As a company whose roots are embedded in the history of the State of Israel, our products and brands have a strong connection with the consumer public, accompany Israelis in their everyday lives and are a familiar staple in every home.”

Activists have criticized Strauss for its support for the Golani Brigade, part of the Israeli Defense Force (IDF) that Palestinian sympathizers and media observers say are responsible for multiple human rights abuses. A 2010 article in The New York Times features a link to the page on Strauss’ website that had once featured the company’s support of the Golani Brigade. Many activists also allege that, in addition to political support, Strauss supplies the Golani Brigade and the IDF with free food. The link on Strauss’ website is now dead, and The Jerusalem Post reported at the time that while Strauss had removed the page from its English-language site, it remained on the company’s Hebrew site for a longer period of time. Activist group Adalah-NY: The New York Campaign for the Boycott of Israel publishes what it says is a screen shot of the original site. The relevant excerpt reads as follows:

Our connection with soldiers goes as far back as the country, and even further. We see a mission and need to continue to provide our soldiers with support, to enhance their quality of life and service condi-tions, and sweeten their special moments. We have adopted the Golani reconnaissance platoon for over 30 years and provide them with an ongoing variety of food products for their training or missions, and provide personal care packages for each soldier that completes the path.

Some U.S. university branches of the Boycott Divestment Sanctions movement promote boycotts of Sa-bra-branded hummus, of which Strauss and PepsiCo are joint owners. The Huffington Post quoted Sabra CEO Ronen Zohar in June 2013 as dismissing the company’s critics as irrelevant. “The protesters make noise, but they make noise to themselves. It doesn’t have any influence on our business.”

A 2010 Forbes article says that Strauss Group

readily concedes that it provides food for soldiers during training and on missions. “For us, Israeli soldiers are not army; Israeli soldiers are our kids,” says [company chairwoman Ofra] Strauss. “And when children of this country are in need, we will be there.” She adds, “Any boycott on our product is [a vote] against all the good things that we do.” Among them: promoting workforce diversity (Muslims and Druze, along with Jews and Christians) and economic redevelopment in the northern city of Acre.

In summer 2014, Muslim activists in India and Turkey started promoting a boycott of Pepsi and Coke products on the basis of their “financing the war against Palestine,” according to a July 2014 article in Ha’aretz.

Proximity to Gaza: Sderot, as noted above, is where Strauss Group produces products with PepsiCo. The town’s location about a mile from the Gaza strip means it has been targeted repeatedly by rockets fired from Palestinian groups in Gaza. A local group, the Sderot Heritage Center, says it represents “close to one million people living in southern Israel under the threat of Gaza rockets,” and is dedicated to explaining the impact of the conflict on the area. The center documents attacks that have killed and injured local residents, damaged property and made the town the subject of many psychological studies about the negative impact of living in an area under long-term attack. The town was founded in the 1950s by mainly Moroccan, Kurdish and Persian Jewish immigrants to Israel, out of what was initially a transit camp, as noted in a 2007 article in Ha’aretz.

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Israeli government funding for PepsiCo: Si2 found no explicit evidence that PepsiCo receives subsidies or benefits from the Israeli government. However, at an agricultural investment conference in Tel Aviv in December 2013, the chief scientist at Israel’s Ministry of Agriculture discussed the formal funding struc-ture the government gives to agritech start-ups. A PepsiCo representative said that this formal support enables Israel entrepreneurs to be innovative in addressing multiple challenges, acknowledging this as one reason why large corporations pursue collaborations and acquisitions in Israel.

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IV. Key Risks for PepsiCo and its Shareholders

Form 10-K: PepsiCo’s 2013 Form 10-K lists material risks, as outlined in Section II of this report, that ap-ply to its global operations, particularly such emerging markets as “Middle East regions.” This can be read to relate to Israel. The company puts particular emphasis on reputational risk, and how its brand perception can suffer from allegations of wrongdoing.

Boycott campaign and pushback: PepsiCo’s partner in Israel, Strauss Group, describes itself as having its origins in the Zionist movement. Strauss’ senior executives acknowledge company support of ele-ments of the IDF, a major sticking point for activists. PepsiCo therefore is one of several companies tar-geted in concerted boycott campaigns. Media reports and images from the conflict in Gaza have prompted criticism of companies seen to be aligned with the Israeli government, which is particularly true for firms that openly express support for the Israeli military. But this may be tempered by reports from other stakeholders in the conflict who have particular sympathies for the residents of Sderot, where Strauss Group operates, given the town’s history of being targeted for many years by rocket at-tacks from Gaza that have killed some of its residents and damaged property.

Fair employment: As with other corporate codes of conduct, including the Mac Bride Principles, inves-tors may be concerned about individual cases of discrimination and also with the systematic structure of segregation and discrimination. Cisco Systems has disclosed, for example, that non-Jews represent 20 percent of the population from which it draws workers in Israel-Palestine, but only 0.4 percent of its technology workforce. Similar significant employment disparities may occur at other firms in the region, including PepsiCo’s Israeli partner, Strauss Group. While the company states that it has policies in place to increase the proportion of Israeli minority groups (i.e. Arabs, Orthodox Jews and Israelis of Ethiopian descent) in its workforce, it does not disclose its workforce breakdown along these lines. It is thus not possible for investors to assess the extent of any potential imbalance.