Palm Oil Traceability Protocol

Transcription

1 Palm Oil Traceability Prtcl Cntent 1. Intrductin PepsiC - Traceability Requirements Verificatin prtcl... 8 Appendix I: Reprting template Appendix II: Phase I Verificatin dcuments Appendix III: Verificatin Screcard Appendix IV: Recgnised traceability systems and Verificatin bdies Appendix V: Glssary f terms / Definitins Versin:

2 1. Intrductin PepsiC is cmmitted t ding business the right way and t realize zer defrestatin and respect fr human rights in all ur cmpany-wned and -perated activities and glbal supply chains. PepsiC is a member f the RSPO, and is wrking in cllabratin with ur suppliers t supprt sustainable palm il prductin thrughut ur supply chain. PepsiC has a gal t achieve 100% traceability t the mill level fr all ur palm il and palm kernel il, and assess suppliers peratins and landhldings n PepsiC s Frestry Stewardship and Land Use Plicies and the principles f this cmmitment by T achieve this target, PepsiC has develped this traceability prtcl which suppliers f Palm Oil (PO) and Palm Kernel Oil (PKO) shuld use t reprt the Oil Mills which are part f the supply chain Hw t use this Traceability Prtcl The traceability prtcl cnsists f the fllwing sectins: - PepsiC Traceability Requirements - Verificatin Prtcl - Appendixes & Tls In chapter 2 f this dcument the traceability requirements fr suppliers are described. It details the minimum traceability data t be reprted. The apprach t gather and cllect this data shall be defined by the 1 st Tier suppliers themselves and nt be prescribed by PepsiC. This ensures that existing traceability systems that meet the minimum traceability expectatins f this prtcl can be leveraged withut duplicatin f wrk. In rder t assess the accurateness and credibility f the reprted traceability data, 1 st Tier suppliers will be subject t a risk assessment/verificatin t define the risk status related t ptential failures. In chapter 3 guidelines are prvided fr recgnized verificatin bdies, including instructins fr executing a standardized apprach fr the independent verificatin. The risk status f each supplier will be defined based n the supply chain cmplexity, transparency and whether a due diligence system is implemented. It shuld be nted that a high risk level des nt mean the traceability data is incrrect. Suppliers with a cmplex supply chain can still btain a lw risk status when risk mitigating measures have been implemented as part f a due diligence system. The prtcl describes several aspects f a due diligence scheme which shuld nt be cnsidered as bligatry, but culd imprve the risk status f the supplier. 2

3 2. PepsiC - Traceability Requirements In rder t supprt the traceability gals PepsiC has established, suppliers are requested t reprt t PepsiC every quarter n all il mills cnnected t the deliveries f Palm Oil (PO) and Palm Kernel Oil (PKO) and their derivatives. Depending n the supply chain cmplexity, this will require cperatin amngst the supply chain peratrs t btain the desired traceability Traceability definitin The PepsiC reprting requirements aims t align with existing traceability initiatives, in rder t increase efficiency and avid duplicatin f wrk. Therefre the definitin f traceability as used by PepsiC is based n the utcme f the traceability wrking grup f the Sustainable Trade Initiative (IDH, in Dutch Initiatief vr Duurzame Handel ): Traceability is defined as knwing all palm surces within ne s supply chain all the way t plantatin level (incl. smallhlders) and traceability t the il mill is an intermediary step in achieving full traceability. Fr PepsiC s initial 2016 target, traceability t the Oil Mill is required. Different methdlgies are knwn t cmply with the abve traceability definitin. It is the respnsibility f the supplier t define which methdlgy is mst apprpriate fr its supply chain, prvided that the system cmplies with the minimum reprting requirements detailed in this sectin. In additin, useful tls are prvided by PepsiC (e.g. reprting spreadsheet) which can be used by suppliers t implement traceability in their supply chain r imprve their current traceability methd. Fr suppliers that have achieved full traceability and reprt the data t PepsiC, n further measures are required Supply Chain Actrs / Stages T start implementing traceability within the supply chain, the first crucial step is t define the different stages/actrs that are (ptentially) part f the supply chain. Fr this prtcl we define the fllwing stages 1 : - Oil Palm Grwer / Palm Plantatin - Oil Mill - Crushing site (PKO) - Strage lcatin - Primary Refinery - Secndary Refinery - Trader - Manufacturer - 1 st Tier supplier - End user 1 Further clarificatin f the stages are given in Appendix V Definitins and Abbreviatins 3

4 Nte that ne single actr can cver multiples stages. Fr example a prcessing plant can cver bth primary refining and secndary refining, and als have strage lcatins Stepwise traceability The palm il supply chain usually cnsists f thusands f palm grwers/plantatins and mills, a limited number f primary refineries, and thusands f upstream actrs (e.g. secndary refineries, traders, manufacturers). Therefre the primary refineries have the mst cntrl and ability t influence the ultimate rigin f the il mill. Many first refineries are even vertically integrated with particular Oil Mills ensuring full traceability. Sme refineries hwever still struggle t achieve 100% traceability when purchasing il frm traders/aggregatrs wh perate between the il mills and the refinery. The rle f the 1st tier suppliers, wh d nt typically engage directly with palm plantatins and palm il mills, is t cmmunicate the requirements and empwer the upstream actrs up t the First Aggregatrs t cllect and reprt accurate data (see figure 1). The First Aggregatr is an peratinal site (primary refinery r strage lcatin f a trader) which purchases and physically cllects the il frm the Oil Mills and therefre always has full insight t all supplying mills. Once the traceability requirements are cmmunicated t the first aggregatr, the list f Oil Mills linked t the shipment f Palm (Kernel) Oil shuld be reprted by the first aggregatr back thrugh the upstream actrs and the 1 st Tier Supplier, and ultimately t PepsiC. 4

5 - Example Supply Chain 50 Oil Mills First Aggregatr / primary Refinery Secndary Refinery/1st Tier supplier Pepsic Figure 2: Example Supply Chain In the abve example the primary refinery is classified as the First Aggregatr since it directly purchases palm il frm 50 different Oil Mills. The First Aggregatr is required t maintain and cmmunicate the list f supplying il mills t the secndary prcessr. The secndary refinery, which in this example is als the 1 st tier supplier, shuld cllect this infrmatin and reprt t PepsiC every quarter the list f Oil Mills that are part f their supply chain. In case there are unknwn surces in the supply chain it shuld als be reprted the ttal percentage f the il which is traceable t the Oil Mills. In this case stepwise traceability frm the First Aggregatr thrugh t PepsiC is achieved Reprting traceability data In rder t implement stepwise traceability, please find belw the minimum requirements listed First Aggregatrs Fr all entities that are part f the PepsiC Supply Chain and that purchase and physically cllect il directly frm the Oil Mills, the fllwing requirements are applicable per peratinal site 2 : - Maintain a list f all Oil Mills wh have delivered palm il in the past year. Fr each Oil Mill the list shuld include Name Ge-crdinates Parent cmpany (if applicable) Certificatin/verificatin status (if applicable) - The list f Oil Mills shuld be updated every quarter, prvided new Palm Oil Mills are invlved in the supply chain, and reprted t the dwnstream buyer. If n Oil mills have been added the ld list shall remain valid. - The specific vlume supplied by each Oil Mill des nt have t be reprted - The list shuld include all Oil Mills wh have physically delivered t the First Aggregatr. It is nt acceptable t exclude specific Oil Mills frm the list. 2 Operatinal, prcessing r lgistical facility n a gegraphical lcatin with precise bundaries within which prducts can be mixed. 5

6 Dwnstream Supply Chain actrs (if applicable) Fr the dwnstream actrs/stages, wh are buying the il frm the First Aggregatrs, the fllwing requirements are applicable per peratinal site: - Cmmunicate the traceability requirements t the upstream Supplier(s) / First Aggregatr(s) - Implement an administrative system fr each peratinal site t: Cllect and maintain the list f First Aggregatr(s) linked t the incming shipments (incl. up-t-date list f Oil Mills) Track the ttal % f traceable il t Oil Mills fr each quarter (see sectin 2.5) - Reprt every quarter t dwnstream buyers: The ttal % f traceable il t Oil Mills fr each quarter (see sectin 2.5) All First Aggregatrs (incl. list f Oil Mills) that are linked t the traceable vlume. The infrmatin must be reprted accurately and cmpletely. It can be presented n a single dcument r a range f dcuments like delivery/shipping dcuments r specific traceability dcumentatin (see Appendix I fr vluntary reprting template) st Tier Suppliers Fr the 1 st Tier Suppliers t PepsiC the fllwing requirements are applicable per peratinal site: - Cmmunicate the traceability requirements t the upstream Supplier(s) / First Aggregatr(s) - Implement an administrative system fr each peratinal site t: Maintain the list f First Aggregatr(s) linked t the incming shipments (incl. up-tdate list f Oil Mills) Track the ttal % f traceable il t Oil Mills fr each quarter (see sectin 2.5) - Reprt every quarter t PepsiC: The ttal % f traceable il t Oil Mills fr each quarter (see sectin 2.5) All First Aggregatrs (incl. list f Oil Mills) that are linked t the traceable vlume. The infrmatin must be reprted accurately and cmpletely. It can be presented n a single dcument r a range f dcuments like delivery/shipping dcuments r specific traceability dcumentatin (see Appendix I fr vluntary reprting template) - In case any failures are being bserved n data already has been reprted t PepsiC, these shuld be cmmunicated during the next reprting t PepsiC. In this case it shuld be clearly indicated which changes are applicable. 6

7 2.5. Defining percentage f traceable il T define the traceability percentage, all incming traceable palm il within the last quarter are calculated as the percentage f the ttal incming traceable and nn traceable palm il. Within this timeframe, the percentage has t be calculated accrding t the fllwing frmula: Pt (%) = At/(At + An) * 100 Pt: Percentage f traceable palm il At: Amunt f traceable palm il An: Amunt f nn-traceable palm il If there are upstream suppliers reprting different percentages, the average percentage value fr all received vlume has t be calculated accrding the fllwing frmula: Pt avg (%) = (Pt i * VR i ) / TVR Pt avg: Average percentage f traceable palm il Pc i : Percentage f traceable prducts f supplier X i VR i ; Ttal vlume received frm supplier X i TVR: Ttal vlume received (traceable + nn-traceable) Example Trader 1 (63 MT) Prcessr 1 PepsiC First Aggregatr 1 (567 MT) First Aggegartr 2 (960 MT) 630MT -> 90% traceable Prcessr MT -> 100% traceable 1st Tier Supplier 1590 MT -> 96% traceable 1000 MT -> 96% traceable End User MT -> 96% traceable In the abve example the 1 st tier supplier is surcing 1600 MT palm il frm tw prcessrs (Prcessr 1 and Prcessr 2). Prcessr 2 is surcing directly 960MT palm il frm First Aggregatr 2 frm which it has received an up t date list f Oil Mills. Prcessr 1 is surcing 567MT palm il frm First Aggregatr 1 frm which the list f mills being received and anther 64MT frm Trader 1 withut any traceability data received. As part f the percentage methdlgy, Prcessr 1 is allwed t physically mix the untraceable palm il f Trader 1 and the traceable palm il First Aggregatr 1. As a result, the utging deliveries t PepsiC f 1000MT can be claimed by PepsiC with a traceability percentage f 96% prvided the 1 st Tier Supplier reprts t PepsiC the tw First Aggregatrs and all Oil Mills which are supplying these tw First Aggregatrs. Based n the frmula abve the calculatin fr the 1 st Tier Supplier will be as fllws: Pt avg (%) = (Pt i * VR i ) / TVR = ((90% * 640MT)+(100% * 960MT)) / 1600 = 96% 7

8 3. Verificatin prtcl In this chapter the guidelines are described fr the verificatin f the traceability data as reprted by 1 st Tier suppliers, based n the requirements as detailed in chapter 2. The PepsiC Palm Oil Traceability Requirements request suppliers t reprt quarterly all the surces (il mills) cnnected t the deliveries f Palm Oil (PO) and Palm Kernel Oil (PKO) and their derivatives. During a third-party evaluatin, a recgnized verificatin bdy will review the accuracy and credibility f the reprted data. The prtcl is written primarily fr verificatin bdies, which will be hired by the suppliers t assess the risk status and verify the reprted traceability data. Hwever, it might als be used by (upstream) suppliers as reference fr implementing the Traceability Requirements as it might prvide insight in the scpe and methdlgy f verificatin Overview f the Verificatin Prcess In line with the PepsiC Palm Oil Traceability Requirements, the 1st Tier supplier is respnsible fr reprting the Traceability Reprt including the list f palm il mills which are part f their supply chain. Fr thse suppliers wh are applying ne f the PepsiC recgnized traceability systems, prgrams r schemes, the 1st Tier supplier shall autmatically be categrized as lw-risk supplier and n further verificatin shall be required. If a system is nt yet included in the list it can be send t PepsiC fr recgnitin. Please find the mst recent list f recgnized schemes in Appendix IV, which als indicates recgnitin prcess fr new prgrams. Fr all ther suppliers, the fllwing verificatin phases are identified t verify if the reprted traceability data is credible and accurate: Phase 1: Fcus n the 1st Tier supplier and the status f cnfrmance with the PepsiC Palm Oil Traceability Requirements Phase 2: Fcus n the upstream actrs alng the supply chain f the 1st Tier supplier up t the surce (il mill) Fr bth phases, a verificatin reprt template has been prepared by PepsiC and shall be prvided t the recgnized verificatin bdies. 8

9 The verview belw illustrates the cmplete verificatin prcess f Phase I and Phase II: 9

10 3.2. Phase I verificatin apprach Based n the diversity f the suppliers and supply chains, 4 different verificatin categries and subsequent indicatrs have been defined. The definitin f each indicatr is given belw and shall be used during the Phase I verificatin. The final utcme f each indicatr shall be used t define the final risk status f the supplier. The exact scring methdlgy is prvided in Appendix III. Verificatin Categries 1 Supply Chain Cmplexity 2 Due-Diligence System 3 (Public) Supply Chain Transparency 4 Recgnized Traceability Systems Supply Chain Cmplexity Verificatin bdies shuld assess the supply chain cmplexity, limited t the supply chain(s) fr which traceability is claimed t PepsiC. The supply chain cmplexity is the number f entities and facilities alng the supply chain in cmbinatin with the level f variability in suppliers. At a minimum, verificatin bdies shuld cnsider the fllwing: - Number f Legal Entities The number f legal entities shall be determined by the number f cmpanies that have legal wnership f the prduct. Legal entities that have n physical pssessin f the prduct shuld als be included here. In case f utsurced activities (e.g. subcntractrs fr strage, transprt r ther activities) these entities shall be excluded fr the calculatin in case they d nt take legal wnership f the prduct. Fr the scring during Phase I risk assessment it is relevant t include all entities between PepsiC and including the First Aggregatrs. The Oil Mills can be excluded frm the calculatin. - Number f Operatinal Facilities The number f peratinal facilities shall be determined by the number f utsurced and wned facilities that have physical pssessin f the prduct alng the supply chain. It includes bth strage sites and prcessing sites. Fr the scring during Phase I risk assessment it is relevant t include all (utsurced) sites between PepsiC and the First Aggregatrs. The Oil Mills can be excluded frm the calculatin. - Variety in Supplier Base The variety in supplier base is defined n the frequency that new upstream suppliers are becming part f the supply chain. It shuld be analyzed if the 1st Tier supplier has a fixed number f suppliers r if regularly frm new suppliers and / r First Aggregatrs are invlved. 10

11 Due-Diligence System Verificatin bdies shuld assess the existence f a due diligence system. A due diligence system is a set f measures t imprve the credibility f data. An effective due diligence system may cnsist f the fllwing: - Warranty A warranty is a type f guarantee with which the 1st Tier supplier assures the implementatin f the PepsiC Traceability Requirements alng the suppliers in the supply chain. In additin t the audit rights which shuld be transferred in the supply chain, the fllwing additinal measures culd be taken: Terms f Cntract: cmpliance t the PepsiC Reprting Requirements culd be explicitly included in Terms f Cntract as a delivery requirement. The terms shuld als include a reference that the same cnditins shuld be applicable t all upstream supply chain actrs. Self-Declaratin: In additin r instead f the cntract terms, the upstream suppliers culd be requested t sign a self-declaratin where they cmmit t implement the traceability requirements. Within such self-declaratins suppliers can als infrm which mitigating measures they have taken t ensure credibility f the data prvided. Withut any warranty as prvided by the supplier the received traceability data wuld be prcessed n gd faith which results in a higher risk. - Supplier Risk-Assessment A supplier risk-assessment is an analysis in which the 1st Tier supplier assesses the pssibility f failure f implementatin f the Traceability Requirements by suppliers alng the supply chain t the mill level. A successful supplier risk-assessment checks if suppliers alng the supply chain are aware f the difficulties and gaps in fulfilling the PepsiC Traceability Requirements. - Supplier Training A supplier training is a clear actin in which the 1st Tier supplier prvides educatin t their upstream suppliers ensuring that supply chain actrs are familiar with the Traceability Requirements and have skills and knwledge f ways f implementatin. Fr the scring during Phase I assessment a distinctin is made between training direct suppliers and training all invlved supply chain actrs up t the first aggregatrs. - Supply Chain Audits Supply chain audits are valuable t assess the cmpliance with the Traceability Requirements. Three different types f audits can be identified: Internal audit/1st party audits are used t cnfirm r imprve the effectiveness f the management system. They are executed internally by emplyees f the auditee 11

12 and are used t declare that an rganizatin cmplies with a reference standard. First party auditrs shuld be genuinely independent and free f bias. The scpe f the internal party audits is the verificatin f the cmpliance f the traceability data. It is nt bligatry by PepsiC, but in rder t imprve the risk status the internal audits shuld be executed at least nce per year. Secnd party audits are external audits. They re usually dne by custmers r by thers. The scpe f the secnd party audits is the verificatin f the cmpliance f the traceability data. It is nt bligatry by PepsiC, but in rder t imprve the risk status the secnd party audits shuld be executed at least nce per year and shuld include all legal entities including the first aggregatrs. 3rd party audits are external audits. They are perfrmed by independent rganizatins such as verificatin bdies r regulatrs, qualified fr this purpse, as indicated in Appendix IV. The scpe f the 3rd party audits is the verificatin f the cmpliance f the traceability data. It is nt bligatry by PepsiC, but in rder t imprve the risk status the 3rd party audits shuld be executed at least nce per year. In case f multiple supply chains it is allwed t apply a randm sample (based n the square rt), as lng as all invlved legal entities including the first aggregatrs are part f the audit scpe. In case shrtcmings are bserved, the sampling must be dubled. - Implemented Certificatin Prgrams Certain certificatin r verificatin prgrams cntain traceability requirements similar t the PepsiC Traceability Requirements. If any f these schemes are already implemented it shall reduce the risk f failures. Examples f such schemes are: Rundtable n Sustainable Palm Oil (RSPO) Indnesian Sustainable Palm Oil (ISPO) Malaysian Sustainable Palm Oil (MSPO) Renewable Fuel Standard (RFS2) Internatinal Sustainability Carbn Certificatin (ISCC) UTZ Certified Fr the scring during the verificatin a distinctin is made between cmpliance t the Traceability prgram by the direct upstream suppliers and full supply chain cmpliance including the First Aggregatrs. - Quality Cntrl Quality cntrl is a prcedure t check the quality f data prvided by upstream actrs. Even withut upstream audits r warranty a quality assessment n the data received can be perfrmed based n the fllwing indicatrs High quality: Punctual delivery f data, list f Oil Mills clearly delivered withut any cnflicting r cnfusing data Limited quality: Delayed delivery f data, frequent changes/updates f the delivered data, lacking infrmatin, unclear reprting template 12

13 - Management System Management system refers t the way in which the supplier cntrls and handles the infrmatin regarding traceability. In this cntext, the management system is a system t manage infrmatin f suppliers inside the cmpany. Examples f items which culd be part f a management system: Up t date prcedures cvering the implementatin al the PepsiC Reprting Requirements Up t date recrds and reprts that demnstrate cmpliance with the reprting requirements Identificatin f rles and respnsibilities fr the implementatin f the PepsiC Reprting requirements Supply Chain Transparency Verificatin bdies shuld assess the cmmitment f the supplier in terms f prduct traceability. Supply chain transparency indicates the insight and visibility f infrmatin abut surcing lcatins (il mills) in cmbinatin with the readily availability f such infrmatin fr the public. Supply chain transparency includes: - Public Traceability Cmmitment A public traceability cmmitment is an assurance f the 1st Tier supplier t cmply with the PepsiC Traceability Requirements. This cmmitment is penly cmmunicated t the public (e.g. website). - Traceability Publicatins Traceability publicatins are all published dcuments describing the supply chain and/r surces f the prduct (il mills). As a minimum the Traceability Publicatins shuld include the infrmatin f the mills included in the supply chain Verificatin Outcme (Phase I) The utcme f the Phase I verificatin will prvide insight in the accuracy and credibility f the Traceability Reprt prvided by the 1st Tier supplier. Subsequently, based n this utcme, Verificatin Bdies will be able t determine the necessity f cnducting upstream audits (Phase II) in the supply chains f the 1st Tier supplier. During the verificatin each indicatr will btain a certain scre. The exact scring per indicatr is indicated in Appendix III f this prtcl. The sum f the number f pints per indicatr is the ttal scre which will determine the risk classificatin f the 1st Tier supplier. This can be fund in the table belw. Generally, a high scre represents a lw risk f traceability failure; while a lw scre represents a high risk f traceability failure. This scre des nt represent the status f cmpliance by the 1st Tier supplier but nly determines the necessity t cnduct up-stream audits. 13

14 High Scre > 200 Pints = Lw Risk: Nte: A lw risk classificatin can nly be reached when the 1st Tier supplier wrks with a recgnized traceability system (Appendix IV) r when the due-diligence system is fully implemented. The risk f incrrectly reprted traceability data up t the surce is relatively lw, which means: - Verificatin Bdies shall perfrm Phase I assessment t the 1st Tier supplier nce every calendar year t check cmpliance with the PepsiC Palm Oil Traceability Requirements (Except when a recgnised system is implemented). After the first Phase I assessment, the fllwing annual verificatins can be perfrmed remtely when n significant structural changes have ccurred t the supply chain cmplexity r due diligence system. - There is n need t d upstream audits; Average Scre 75<->200 = Medium Risk The risk f incrrectly reprted traceability data is medium, which means: - An apprved verificatin bdy shall perfrm a Phase I assessment t the 1st Tier supplier nce every calendar year t check cmpliance with the PepsiC Palm Oil Traceability Requirements. After the first Phase I assessment, the fllwing annual verificatins can be perfrmed remtely when n significant structural changes have ccurred t the supply chain cmplexity r due diligence system. - An apprved verificatin bdy shall perfrm upstream audits; suppliers alng the supply chain f the 1st Tier supplier (up t the il mill) will be subject t third-party verificatin t check implementatin and traceability f the prduct. Verificatin shuld be cnducted accrding the sampling methdlgy as described in sectin 3.3. Lw Scre <75 Pints = High Risk The risk f incrrectly reprted traceability data is high, which means: - An apprved verificatin bdy shall perfrm a Phase I assessment t the 1st Tier supplier nce every calendar year t check cmpliance with the PepsiC Palm Oil Traceability Requirements. After the first Phase I assessment, the fllwing annual verificatins can be perfrmed remtely when n significant structural changes have ccurred t the supply chain cmplexity r due diligence system. - Verificatin Bdies need t perfrm upstream audits; all suppliers alng the supply chain f the 1st Tier supplier (up t the il mill) will be subject t third-party verificatin, t check implementatin and traceability f the prduct. 14

15 3.3. Phase II Verificatin Based n the utcme f the Phase I, the 1st Tier supplier btains a Risk Status (lw, medium r high) that will determine the next steps n the verificatin prcess. The Phase II verificatin shall fcus n the actual crrectness f the reprted data and includes verificatin n the upstream actrs alng the supply chain f the 1st Tier supplier up t the il mills. - Lw risk status Fr 1 st Tier-suppliers which have btained a Lw risk status it is cnsidered that that they cmply with the traceability requirements and n additinal investigatin r upstream audits are needed until the next risk status assessment is carried ut. Medium risk status When Medium risk status is btained, it is required t verify the crrectness f the reprted traceability data by auditing the upstream suppliers based n a risk based sampling selectin. In this case at minimum the square rt f all legal entities invlved in the Supply Chain f PepsiC shuld be selected fr cmpliance verificatin as part f the Phase II verificatin. The selectin shuld always be perfrmed by the verificatin bdy and cver all invlved supply chain actrs and at minimum ne First Aggregatr. Example: Based n the supply chain as given in sectin 2.5 (page 7), in ttal 4 different legal entities are part f the PepsiC Supply Chain f the 1 st Tier-Supplier: - First aggregatr 1 - First aggregatr 2 - Prcessing plant 1 - Prcessing plant 2 Based n the square rt frmula, at least 2 entities shuld be selected fr verificatin f which ne First aggregatr and ne Prcessing plant. Cnsidering the fact that Prcessing Plant 1 is mre cmplex (due t percentage f traceable il) then Prcessing Plant 2, the verificatin bdy shuld therefre select Prcessing plant 1 and first aggregatr 1 fr verificatin. In case shrtcmings are bserved t the reprted data at any f the selected entities, the sampling size shuld be dubled. This prcess shuld be cntinued until all entities invlved are being audited. - High risk status If the 1 st Tier supplier gets a High risk status, it is required t verify the crrectness f the reprted traceability data by auditing the upstream suppliers. Due t the high risk status, all legal entities as part f the PepsiC Supply Chain must be audited. 15

16 Appendix I: Reprting template (traceability data) A reprting template (Excel) has been develped t deliver the desired traceability data f the PepsiC reprting requirements. In the sectin belw a few screenshts are prvided n the structure f the template. The template prvided shuld be cnsidered as a vluntary tl, since equivalent templates which are already implemented by suppliers prviding the same data are als accepted by PepsiC. - Quarterly traceability verview 16

17 - Traceability data per First Aggregatr 17

18 Appendix II: Phase I Verificatin dcuments Verificatin Indicatrs N. f Operatinal Facilities N. f Legal Entities Variety in Supplier Base Warranty Supplier Risk Assessment Supplier Training Supply Chain Audits Valid Certificates Quality Cntrl Management System Public Traceability cmmitment Traceability publicatins Traceability dcumentatin Purchase rders, cntracts, delivery ntes and/r material specificatin Purchase rders, cntracts, delivery ntes and/r material specificatin Traceability data cnnected t cnsignments Legal cntract, fficial cmmunicatins, agreements, delivery specificatins Risk assessment reprt. Supplier training recrds. Dcumentatin related t audits (1 st /2 nd /3 rd party audits) Dcuments f relevant certificatin prgrams/schemes such as RSPO, RFS-2, ISPO, MSPO, ISCC, FdREG r ther. Prcedures manual/verview f respnsibilities Traceability statement n crprate website r any ther media surce. Dcuments describing in detail the supply chain and/r rigin (il mills). 18

19 Appendix III: Verificatin Screcard Thrugh the evaluatin f the traceability dcumentatin, verificatin indicatrs btain a value that will give the ttal scre f 1st Tier supplier f PepsiC. Verificatin Categries 1 Supply Chain Cmplexity 2 Due-Diligence System 3 (Public) Supply Chain Transparency Verificatin Indicatrs Scring Pints (P) N. f Operatinal Facilities N. f Legal Entities Variety in supplier base Warranty Supplier Risk Assessment Supplier Training Supply Chain Audits Implemented Certificates Quality Cntrl Management System Public cmmitment Traceability publicatins < than r equal t 4 facilities Between 5 and 10 facilities > than r equal t 10 facilities r unknwn amunt 1 entity Between 2 and 4 entities > than r equal t 4 units r unknwn amunt < than r equal t nce per 12 mnths r never (fixed) Between nce per 6 mnths and nce a mnth > than r equal t nce a mnth Included in Terms f Cntract Self-Declaratin Only cmmunicatin (gd-faith) r n warranty Risk-assessment till mill-level N risk-assessment Training f all actrs in supply chain Training t nly direct upstream suppliers N supplier trainings Third-party audit (External) Secnd-party (Sub-internal) First-party (Internal) N Supply Chain Audits Implemented in full supply chain Implemented nly at 1 st tier supplier N certificates btained High Quality Limited Quality Prcedure manual in place N prcedure but traceability part f management system N prcedure r ther frm f system t manage and cntrl traceability data Public accessible N public available Public traceability publicatin available Public traceability publicatin nt available

20 4 Recgnized Traceability Systems Traceability ensured via ne f the apprved systems

21 Appendix IV: Recgnized traceability systems and Verificatin bdies Please find belw an verview f Recgnized Traceability Systems and third party Verificatin bdies t prve cmpliance with PepsiC Reprting Requirements: List f Recgnized Traceability systems N traceability systems are frmally apprved at this mment. Fr qualificatin f a traceability system please send a request t PepsiC. List f apprved verificatin bdies T cnduct 3 rd party verificatin audits, an external bdy shuld be assigned which cmplies with the fllwing cnditins: Recgnized by a natinal public authrity r an accreditatin bdy which is a member f the Internatinal Accreditatin Frum (IAF) Cnduct audits in cnfrmity with standard ISO establishing guidelines fr quality and/r envirnmental management systems auditing The wrkflw f the certificatin prcess cmplies with the requirements f ISO Guide 65 (EN ) Cnduct audit and certificatin accrding t the principles and requirements f ISO 17021: 2006 Appintment f cmpetent emplyees which are als qualified t cnduct RSPO audits T cnduct Phase I and Phase II verificatin audits currently the fllwing verificatin bdies are apprved: Bureau Veritas Cntrl Unin SGS In case a verificatin bdy is nt included in this list, a request can be sent t add the verificatin bdy t the abve list (Please send apprval request t Rb Meyers: Rb.Meyers@pepsic.cm) 21

22 Appendix V: Glssary f terms / Definitins Reprting requirements Palm Oil Traceability ACOP reprt RSPO Delivery Traceability is defined as knwing all palm surces all the way t plantatin level and having the ability t fllw a uniquely identifiable cnsignment thrugh the supply chain. Traceability until the Oil Mill level is an intermediary step in achieving full traceability. Annual Cmmunicatin Of Prgress Rundtable n Sustainable Palm Oil A transfer f wnership frm ne rganizatin t anther Supply Chain Physical Handling Supply chain peratrs Oil Palm Grwers / Palm Plantatin First Aggregatr Crushing plant The series f all prcesses/steps and entities frm the Oil Mill up t PepsiC Receipt, strage and dispatch r a cmbinatin f these where there is a risk f mixing certified and nn-certified prduct Prducer f the Fresh Fruit Bunches that are harvested frm the Palm Tree Operatinal site f an entity which purchases and aggregates the palm prducts directly frm the Oil Mill. Facility fr crushing palm kernels t prduce PKO and PKE Oil Mill Refinery (Primary) Refinery (Secndary refining /prcessing) Trader Strage lcatin 1st Tier Supplier Facility where the FFB's are cllected t be sterilized and stripped. The palm fruit is pressed t separate the il frm the cake (a mixture f kernel and fiber). The il is then purified and clarified. Outputs: CPO, Palm Kernel. Facility where CPO/PKO are refined t remve clr, dr, and flavr. Outputs: RBD PO, PFAD, RDB PKO, PKFAD Fractinatin t separate slid (stearin) and liquid (lein) fractins, Distillatin, Hydrgenatin, Interesterificatin, glycerlysis. Outputs: Olein/Steirin, Emulsifier, Olechemicals,, etc Actr in the supply chain which purchases and sells palm prducts via ne f the fllwing ptins: - Physical trading: Trader btains bth Physical and financial wnership f the gds via wned r rented strage lcatins r prcessing via tlling agreements - Paper trading: Trader btains financial/ecnmic wnership withut having physical pssessin f the prducts. String / aggregating palm prducts pssibly frm multiple rigins. Direct supplier f PepsiC 22

23 Facility Manufacturer Parent cmpany Palm Prducts FFB PO PKO CPO CPKO RBD PO RDBD PKO Palm Stearin Palm Olein Lcatin r cmpany where prduct is stred, transprted, r prcessed. The manufacturer uses il palm prducts fr manufacturing prducts designed and intended fr cnsumptin r end use in any way withut further repackaging r prcessing. Organizatin with has a legal relatinship (wnership) f anther rganizatin. Example: ne parent cmpany can wn multiple Palm Oil Mills. Fresh Fruit Bunches Palm Oil Palm Kernel Oil Crude Palm Oil Crude Palm Kernel Oil Refined Bleached Dedrized Palm Oil Refined Bleached Dedrized Palk Kernel Oil slid fractin f palm il that is prduced by partial crystallizatin at cntrlled temperature liquid fractin f palm il that is prduced by partial crystallizatin at cntrlled temperature Verificatin Prtcl Internal audit/1st party audits First party audits are used t cnfirm r imprve the effectiveness f management systems. They are executed internally by emplyees f the auditee and are used t declare that an rganizatin cmplies with a reference standard. First party auditrs shuld be genuinely independent and free f bias. 2nd party audit Secnd party audits are external audits. They re usually dne by custmers r by thers n their behalf but can als be dne by regulatrs r any ther external party that has a frmal interest in an rganizatin. 3rd party audit Due diligence system 3rd party audits are external audits. They are perfrmed by independent rganizatins such as verificatin bdies. Due diligence is the prcess f systematically researching and verifying the accuracy f a statement. Legal wnership Upstream actrs Upstream audits Ecnmic transactin related t the purchases f the prduct. An entity having legal wnership f a palm prduct wuld have an enfrceable claim r title ver the prduct, and shuld be recgnized as such by law. Upstream suppliers f the 1st Tier Supplier f PepsiC (up t Oil Mills) Evaluatin f cmpliance with the reprting requirements by the upstream actrs 23

24 Cpyright ntice PepsiC 2015 This dcument is prtected by cpyright. N part f this cpyrighted dcument may be changed r amended. The dcument may nt be duplicated r cpied in any frm r by any means fr cmmercial purpse withut permissin f PepsiC. 24