Amid the flood of impact and sustainability reports timed for release during Earth Month was a shower of updates about corporate-issued green and sustainabilty bonds that reflect how that money is being spent.

Apple, for example, disclosed it has so far "disbursed" $3.2 billion of the $4.7 billion amount it has raised in multiple bonds. What has that money helped support? The vast majority was allocated to clean energy projects, including a massive utility-scale battery in Monterey, California, that can store up to 240 megawatt-hours of electricity. The criteria about which projects will receive investment are reviewed annually by the company’s environment, policy and social initiatives team, and the decisions about where that money goes are ultimately made by that team’s lead, Lisa Jackson. 

Meanwhile, Mars completed a $2.5 billion total issue with $500 million in sustainability notes that will contribute to financing renewable energy, energy efficiency, wastewater management, green buildings, natural ecosystem management, circular economy initiatives and carbon sequestration, among other things.

At another big green bond issuer, PepsiCo, the process of making decisions about where to allocate green bond proceeds has been increasingly integrated into the company’s broader investment decision-making framework over the past five years. But it doesn’t stop there. Climate risk factors and other environmental considerations and criteria have been embedded across the company’s financial governance policies, including potential mergers or acquisitions, said Anna Palazij, vice president of ESG reporting and strategic investment at PepsiCo.

"Are the operations in high-risk areas? Does the strategy align with key PepsiCo Positive principles? Does it fully support the transition scenario?" Palazij said, pointing to a few of the questions that would guide M&A decisions.

PepsiCo Positive, adopted publicly in September 2021, encompasses the Purchase, New York-based food and beverage company’s strategic agenda and includes a goal to achieve net-zero emissions by 2040, a commitment to becoming net water positive by 2030 and a target to cut non-renewable virgin plastic per serving by 50 percent for beverages and "convenient foods" by the end of this decade.

We need to reflect the true externalities.

As I reported in February 2021, the company realized that if it hopes to realize those ambitions, environmental and social considerations needed to become part of day-to-day decisions from the beginning, not just as an afterthought. PepsiCo’s chief sustainability officer, Jim Andrew, is a key stakeholder and signatory on capital requests. Palazij and her team are responsible for translating ESG metrics into "the language of finance" and for determining, among other things, whether certain decisions align with the science-based targets that PepsiCo has set for itself and, increasingly, for its suppliers.

"We know where the pendulum will land, our long-term success depends on this," said Palazij, during a Sustainability Week panel last month in London.

PepsiCo has so far issued two green bonds, raising a total of $2.25 billion since 2019 to fund projects aligned with United Nations Sustainable Development Goals: regenerative agriculture (SDGs related to hunger and decent work); decarbonization and climate reliances (SDGs centered on affordable clean energy and sustainable communities or cities); circular economy and virgin plastic reduction (SDGs covering responsible consumption and innovation); and becoming net water positive (SDGs for clean water and sanitation, among others). The entire framework can be found here.

Follow the money

As of its latest green bond report published last October, PepsiCo has spent almost $1 billion of that amount, allocating $484 million toward decarbonization, $437 million to reduce packaging waste and $73 million to improve water sustainability. (PepsiCo added the regenerative agriculture focus when it issued its second green bond, for $1.25 billion, in July.)

Here’s a snapshot of how PepsiCo chooses and manages projects linked to the bonds:

• The sustainability team assesses and selects eligible projects and makes recommendations to the finance department.
• The finance group is responsible for tracking the allocation of proceeds; the funds are invested elsewhere for the short term while awaiting allocation.
• The company has tapped a second party opinion (PepsiCo has been using Sustainalytics) to confirm its alignment with the Green Bond Principles.
• PepsiCo reports on the use of proceeds on an annual basis, including information about the impact metrics of each project.
• The company obtains an assurance analysis for its annual green bond report from a firm registered with the Public Company Accounting Oversight Board (in the case of its latest report, that was KPMG).

When I spoke with Palazij last month, it became clear to me that some of PepsiCo’s most impactful investments so far have been focused on water efficiency and replenishment. As of its most recent green bond report, the company has funded projects to replenish about 1.3 billion liters of water in high water-risk watersheds. What’s more, operational efficiency investments of about $70 million so far have helped it avoid the use of more than 5.5 billion liters of water, according to the report.

PepsiCo’s rainwater collection project in Funza, Colombia, is one example of the importance of funding local innovation. The on-site team there began cutting water consumption for snack chips and cookies plant in 2021, by more closely tracking usage and fine tuning processes to reduce waste. But its project to capture and purify rainwater there — in the rainiest country in the world — had an unexpected impact: As of late March, the facility has gone at least 260 days without drawing on the freshwater supply, but using that treated rainwater. The investments included new piping to divert water already being collected from the metal roof back into the treatment plant. 

The approach has been replicated with beneficial results in three other locations: Vallejo and Ciudad Obregon, Mexico; and Itu, Brazil.

Another approach that PepsiCo hopes to scale started at its food manufacturing plant in Kolkata, India, which is using condensing and purifying the steam evaporated by its potato fryers. A proof-of-concept implementation suggested that the technology could help save 60 million liters of water in the facility annually. PepsiCo plans to install the system, which also reduces thermal energy needs, at approximately 30 potato chip manufacturing plants in high water-risk regions over the next seven years.

PepsiCo is also making a big bet on its partnership with N-Drip, an Israeli company working on an alternative to the flood and trench irrigation systems used on about 85 percent of all irrigated fields on a global basis (about 600 million acres). N-Drips provides drip irrigation systems that it says cut the water needed for irrigation in half, while also reducing fertilizer usage. N-Drip was introduced to the company via PepsiCo Labs, its corporate venture arm. Terms weren’t disclosed, but the technology has already been deployed at farms in water-scarce regions in Greece, India, Vietnam and the U.S.

Palazij told me her team is continuously refining the tools and metrics that PepsiCo uses to evaluate and justify investments of this nature — including a cost-of-carbon calculator and resources that help it understand the "real cost of water," including the electricity used for treatment or the costs and emissions associated with hauling wastewater away. "We need to reflect the true externalities," she said.