A Conversation with Liliana Esposito, Chief Corporate Affairs and Sustainability Officer at Wendy's

In the quickservice restaurant industry, Wendy's is known as the 'Queen of QSR.' But as Wendy's continues to serve up tasty burgers and yummy Frostys, the company is also working to be the Queen of ESG. Guiding the company's efforts on that front is Chief Corporate Affairs and Sustainability Officer Liliana Esposito. Esposito joins the show (21:41) to outline the details of 'Good Done Right' - which is the name Wendy's has given to its ESG strategy. Esposito also offers insights from Wendy's 2022 Corporate Responsibility Report, shares her experience establishing the company's Science-Based Target goals and details numerous other sustainability efforts Wendy's has embraced.

Show Segments

Sustainable or Suspicious - (1:45)
Should whales be monetized as carbon offsets?

Top Headlines from SmartBrief on Sustainability - (8:11)
The 'Cardboard washing'  of consumer products
Creating bioplastic pellets from seaweed
Is 'Sustainable Fashion' just a trend?

Here and There  - (15:28)
Copenhagen leads the way on sustainable fashion shows

Highlights from Liliana Esposito

The origins of 'Good Done Right' - (22:10)
Highlights from 2022 Corporate Responsibility report - (23:20)
Responsible food sourcing - (27:47)
Sustainability as a factor in food safety - (29:10)
How sustainability shapes menu innovation - (30:44)
Responsible packaging - (31:52)
Science-Based Targets - (34:55)
Wendy's environmental footprint - (38:43)
New 'Global Next Gen' restaurant design - (40:12)
Partnering with Duke Energy Florida on community solar power - (42:09)
Tying executive compensation to ESG performance - (43:22)
Liliana's bold predictions - (47:27)

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Transcript

(Note: This transcript was created using artificial intelligence. It has not been edited verbatim.)

Sean McMahon  00:08

Hello everyone, and welcome back to the sustainability smart pod. My name is Sean McMahon, and I'm joined today by Evan Milberg, Karen Kantor and Jaan vanValkenburgh. It's always great to have the whole sustainability gang together. So how are y'all doing?

Jaan van Valkenburgh  00:24

I'm good.

Evan Milberg

00:25

Ready to talk about some whales.

Karen Kantor  00:27

This sounds fun.

Sean McMahon  00:29

Well, we've got a great show today. The four of us will obviously do our roundtable discussion and hit all the categories. And in a few minutes, we'll hear from Liliana Esposito. Liliana is the Chief Corporate Affairs and Sustainability Officer at Wendy's. We're excited to welcome Liliana to the show because she is going to talk all things sustainability, and the quick service restaurant business. She's also going to share the details of good dunrite which is the name that Wendy's has given to its ESG strategy, a strategy that includes three key pillars, food, people and footprint. And the timing of our conversation couldn't be more perfect, because Wendy's just released its annual corporate responsibility report. So Liliana will dive into that as well. 

Joining Liliana and I for our chat will be my colleague Amy Sung, Amy is Smartbrief’s Director of Content for Food and Travel, so she's going to lend her expertise to that conversation. 

Looking ahead, for our next episode, we're going to try something new. The entire episode is going to focus on one important topic, a theme, if you will, we're going to do this from time to time, and the themes will change. But first up is recycling. Recycling plays a big role in sustainability. So all the segments of our next show will focus in some way on recycling. 

That should be fun. But right now it's time to dive into today's sustainable or suspicious segment, I use the phrase dive into because we're going to be talking about whales. There's an organization out there called the whale carbon plus project. And this organization's goal is to try and get whales included as part of a factor when we're talking about capturing and sequestering carbon. You may not know this, but whales throughout their lifetime can capture and sequester up to 33 tons of carbon dioxide. And they're also crucial in the creation of phytoplankton. The nutrients in whale poo, helps phytoplankton grow. And phytoplankton produces half of the world's oxygen and removes as much carbon dioxide out of the atmosphere as for Amazon rainforest. So the theory here is that whales are pretty important, and we want to protect them. And one of the ways that people like to protect things in nature is to financialized it and put a price tag on it. And so what the wheel carbon plus project is trying to achieve is creating a marketplace where just like you heard about offsets of people buying timberland like we talked about last episode, or you know, other projects like that they want whales to be involved in that. But as you might imagine, this is a little tricky. Because whales like to move around and swim around all places all around the world. So lots of hurdles in the way of getting this done. What is the team think of this idea?

Jaan van Valkenburgh  03:19

Well, I think you could just you could adopt a whale WWF has a program where you can adopt a whale. But this sounds better, because I think it's going to raise more money. And I think it would be great for publicity. And I think it's probably going to be more successful. There are only 400 North Atlantic right whales still existing. And then other species you have, you know, 10,000 to 90,000. But protecting them is still important. So I love it.

Karen Kantor  03:55

I would like to know if calves would be considered dividends. And you know, who gets that? Do you decide? Well, this calf is worth, you know, a million and as it grows, it gets bigger and you can get more mean a quarterly payment for your whales production. Maybe? I don't know, I I can see some value into it. But I find it suspicious. I don't think it's really ready for primetime. And I also I mean, monetizing things is a good way to protect them. There's no doubt. But I think that you know, actually handling the back end of all, this would be an awful lot for any company to handle.

Evan Milberg  04:38

Yeah, Kara, I'm very much with you on the suspicious side of things. So there's this article in Bloomberg last year that cited a study on this exact topic and the researchers cast some doubt on the viability of the idea. They argued that there's a significant knowledge gap just about how much carbon sucking phytoplankton And Sean, you're talking about the phytoplankton, that they could actually produce to have a real impact in personally, I just want to know, what are we doing to protect the whales long enough to even make bio credit, something we can even explore as a possibility? I mean, there, there's real concerns about offshore wind development and how that can affect whale populations. But obviously, we need offshore wind for the global energy transition. So how are we going to strike that balance?

Sean McMahon  05:31

Yeah, I think the the issue is how do you track the whales? Right, like

Jaan van Valkenburgh  05:35

satellite WWF? Does it by satellite, they should partner with this. I realize it's difficult, but I think it could make. I love an answer that makes sense to people in suits.

Sean McMahon  05:51

Yeah, if anything, I've learned a lot about whales. By just talking about this. I didn't know that, you know, whales captured and sequestered so much carbon. I also didn't know that when a whale dies, it just sinks to the bottom of the ocean, and stays there forever. So the carbon that it captures, is considered removed. Pretty much for eternity. I just kind of always assumed that when a whale died, other animals kind of had a feast. But apparently that's not the case. So yeah, so what's the verdict on sustainable or suspicious? Karen, I think you've checked in with a suspicious, is that right?

Karen Kantor  06:24

Mostly suspicious, but willing to be convinced? Yawn.

Jaan van Valkenburgh  06:29

I say thumbs up, just because I love the idea. And I like whales. And

Evan Milberg  06:37

it's sustainable. If we can answer the questions, how are we going to protect them long enough so that we can actually leverage them as carbon sinks? And then how, how are we going to definitively say that we have enough information to say that they're an effective enough carbon sink to be scaled into an actual bio credit solution. So it could be sustainable, but until then, it's suspicious.

Sean McMahon  07:08

Yeah, I'm with the suspicious crowd. I think it could lead to some really fascinating court cases that would be entertaining to watch in terms of, you know, yawn if the satellites are tracking this pod of whales, and some tanker hits one and let's just say, you know, that whale sinks to the bottom of the ocean. But that pod was quote, purchased by some big multinational. Are they going to sue the shipping company for damages?

Jaan van Valkenburgh  07:39

Or insurance?

Sean McMahon  07:41

Oh, that would be a whale of a case. Where? Alrighty, so the we'll move on from that, but I think we're coming in with two suspicious votes. One suspicious but willing to be convinced and one loving it yawns love it.

Jaan van Valkenburgh  07:59

I'm loving it. I think there's a way around it. And I think you can put some language with it. That will raise a lot of money to save whales, and then we won't be having this conversation.

Sean McMahon  08:11

Okay, the next segment of this show is when Karen, who is the editor of the smartbrief on sustainability newsletter, she shares three stories with us that are interesting stories from the last few weeks of that newsletter. Karen, what do you have for us?

Karen Kantor  08:23

Well, from the Harvard Business Review, we have a story about unnecessary paper packaging, which some companies are using as an easy way to look more sustainable. But the authors of the article say that it's just appearances for a few reasons, including this one. 6 million tons of paper packaging end up in US landfills every year. And in many cases, that paper isn't replacing plastic is just wrapping over existing plastic packaging, a type of greenwashing you could call cardboard washing. Examples of excess packaging include bottled lotion tucked into an outer cardboard box and also toothpaste tubes. Both products are also sold without the extra packaging. So it's all about perception. Studies have shown consumers see products as greener if they wrap their plastic packaging and paper compared to identical plastic packaging without the paper.

Evan Milberg  09:22

So since we've launched this podcast, I think my favorite thing that we talk about consistently is how you communicate sustainability. And this overpackaging issue is a perfect example. I mean, you just slap some paper on a plastic product and boom, sustainable. I mean, it's an interesting foil to that IBM study we talked about recently that noted one in five consumers inherently distrust outward proclamations of corporate sustainability. So this idea that you can influence consumer sentiment in a more subtle way, I think is a marketer's dream. Except eventually people are gonna get hip to it. You're really doing,

Jaan van Valkenburgh  10:01

I think that people want to do the right thing, but they don't want to have to think about it. That's why wrapping something in paper that, you know, looks recycled, is actually giving the impression that it that it's doing the right thing.

Sean McMahon  10:16

I have two thoughts on this. One of the interesting nuggets from the study was that they also looked at who was falling for this, like which consumers were honestly getting hoodwinked, but most apt to go for these products. And it was people who are most aligned with caring about sustainability and things like that. The other thing about this piece is, it absolutely changes the grocery store experience for me. Like, I knew we were gonna be talking about the show, and I was at the store last night. And every aisle, I'm just looking at stuff, right, I just kind of had a little chuckle when I saw it. Karen, what's the next story you have for us?

Karen Kantor  10:52

From the fish site, we have a story about a startup in Australia called Kelty, which has come up with a process to make bio plastic pellets out of seaweed, making them 100% renewable. And what really caught my eye in this story is that these pellets will work with current standard injection molding equipment, so companies could just replace those oil based nurdles with this green alternative. The seaweed pellets can be used to make all kinds of plastic film rigid containers, bottles, and even consumer goods like sunglasses.

Evan Milberg  11:27

Yeah, I'm kind of torn on this one. I mean, I'm naturally skeptical when startups technology is touted as hyper scalable, especially when it's so clearly in the art phase of r&d. And this article mentions nothing about the specific chemicals, Kelpies using to make the seaweed product plastic Lake. But then on the other hand, the fact that the system purportedly could work with seaweed from any region, and that manufacturers wouldn't have to retrofit their equipment I think makes it really appealing.

Jaan van Valkenburgh  11:59

So they should come to the coast of Florida, where you have the huge bloom of seaweed fouling the beaches.

Sean McMahon  12:08

Yeah, that's definitely ruining some vacations and damaging their economy down there in the Sunshine State. All right, Karen, what's the third story for us?

Karen Kantor  12:16

Okay, our third story comes from Newsweek. Newsweek tells us that sustainability is the next big thing in fashion. The definitive trend is green as in trying to curb waste water pollution, greenhouse gas emissions. One interesting example is reality series called upcycle. Nation unfuse, where artists who gained fame on social media platforms turn common items into high fashion.

Evan Milberg  12:44

Yeah, I have a silly and potentially unsophisticated question. But is this really a trend? Or is it a true transformation of the industry? Because trends, by definition are fleeting. So what happens when the fad fades, no one wants sustainable clothes anymore. But if sustainability is actually more than a fad, than what wholesale changes are happening across the industry to drive a real transformation. This is again is where semantics matter. The title of this Newsweek article is fashions hottest trend sustainability. So even if manufacturers see this as something more than trendy, they're not really effectively communicating that

Jaan van Valkenburgh  13:28

there may be some greenwashing here, for sure. But the fashion shows, for example, this idea of experimentation is good for the larger mainstream, to get them started thinking about this. And so I think that's a good thing. how long it'll last I don't know. But I hope that it lasts a while and they come up with some some wearable fashions. Because our last trend was fast fashion, which has made thrifting a little less fun these days. There are lots of articles right now about how to go into thrift stores and getting your clothing secondhand, is really big right now. And I can tell you it is it's more acceptable now than it ever has been. The problem I see is number one, it's gotten expensive. And number two, it's mostly at this point, fast fashion, which never meant to last very long at all. So we do need an answer. It's just going to have to come from a lot of different areas.

Sean McMahon  14:37

Well, I think I gotta chime in there as someone who has long been the opposite of fast fashion. I'm one of the least fashionable people out there. You could almost say that I captured and sequester whatever carbon was was released, producing the jeans I'm wearing. It's captured for like 10 or 15 years because that's how long I keep the same jeans around. The same shirts and the same suits and things like that. So I don't know if that makes me like dorky dad or what but yeah, I'm a whale when it comes to capturing fashion carbon emissions.

Evan Milberg  15:11

That friends is called a callback.

Karen Kantor  15:14

And also, those of us from the grunge generation have been doing this for a very long time. I still have one of my dad's flannel shirts from, I don't know, 20 years ago as a farmer.

Jaan van Valkenburgh  15:25

Now, that's great. They're good memories.

Sean McMahon  15:28

All righty. Well, hey, Karen, thank you very much for that roundup of news. Now it's time for our segment, we call here and there were a yawn takes us to somewhere or to someone somewhere around the world who's doing something unique when it comes to sustainability. So yeah, what do you have for us?

Jaan van Valkenburgh  15:43

So I'd like to stay on the same theme of fashion. Like I said before, fashion shows are just a way to experiment. And that's what's really fantastic. There are four main shows, if you follow fashion shows, you got Paris, Milan, New York, London. But since 2020, you also have the Copenhagen show. And it's been called the fifth week of fashion. Now, it's hard to compete with Paris and Milan, New York, London, but they're trying and what they've done, they have asked their participants to consider sustainability, they have some different guidelines that they'd like their people to follow. This year, though, they went the next step of saying these are no longer guidelines. These are requirements. Now, this is self reported. So are people being honest? Do they actually know how much carbon is in what they're doing? Are they recycling as much as they say they are? We don't know. However, the show is getting a lot of buzz. It is basically the most sustainable fashion week on Earth. And other shows are actually trying to incorporate some of these, the Copenhagen show now has 18 minimum requirements, sustainability requirements. And they also asked 58 questions that have to be answered, talking about things like what's their supply chain? What have they done for greenhouse gas emissions, and they're asking all of the right questions. All of these shows these five big shows have formed last year in the European fashion alliance to promote a more accessible fashion and inclusive fashion, and sustainable. When you look at the shows that happened this year, for example, all of them had a little bit of what Copenhagen has, because fashion shows in and of themselves, they're not sustainable. They do have a lot of waste. And so instead of getting rid of them, using them as a think tank and trying to move this forward. So Milan, New York, London all had aspects of sustainability for Paris, I could find none. And Paris is number one. So we'll see if they ever crossed the line into sustainability.

Sean McMahon  18:34

Well, I love the sustainability piece here. But since I've already established my lack of fashion credentials, I think I'm gonna let Karen and Evan chime in on this one.

Karen Kantor  18:44

Yeah, I would ask what you think about all of these companies that are encouraging people to send their fashion back in and recycling, and in some case, reworking?

Jaan van Valkenburgh  18:55

That's great. It's actually better than sometimes giving it to the charity shops, because one of the reasons why it's been determined that charity shops are getting more expensive, and they are, it isn't just my imagination. It's because they are being given so much stuff, and it takes money to to have all of that stuff. And they're sending it overseas and to dumps anyway. So it's a good alternative.

Evan Milberg  19:26

So I used to work for a trade association representing fiber reinforced polymers. And occasionally, in my work, I would stumble across a fashion article. And we'll know what do fiber reinforced polymers have anything to do with fashion you might ask is that they can be 3d printed. And the idea of sustainable 3d printing and fashion I think, is something that could be really interesting in the sense of these things. New Wave fashion designers trying to out innovate each other. Right? And, in general, that's that's kind of the impression I get from sustainable fashion. Is that? Yes, it's it's an attempt to be more eco conscious. But it's also an expression of showmanship like, look, look what I can do with these unconventional materials. Those of you who watch Project Runway might be familiar with the unconventional materials challenge.

Sean McMahon  20:29

Again, Evan, we've been over this. I'm not watching that show.

Jaan van Valkenburgh  20:37

There's a lot of drama on that show. It's forgive me if I'm not familiar

Evan Milberg  20:41

with that. So forgive me, Sean. But my wife listens to this podcast too. And she watches project one race so there's at least one listener.

Sean McMahon  20:50

Okay, everybody, Hey, this was fun. It's always a laugh hanging out with the three of you. So thanks for catching up. Okay, now it's time to turn to the interview portion of our show. Coming up as a conversation with Liliana Esposito. Liliana is the chief corporate affairs and Sustainability Officer at Wendy's. And as I mentioned at the top of the show, Liliana and I will be joined by Amy Sung, AMI is smartbrief, director of content for food and travel. So she and Liliana were able to chat all things restaurant is at a high level, while I did my best to just try and keep up. And I must confess my mind, and my stomach got a little distracted when they started talking about strawberry Frosties. We had a great conversation. So I hope you enjoy it Hello, everyone and welcome back to the show. We're gonna be talking a lot about sustainability in the restaurant sector right now. So I'm going to be joined by one of my colleagues, Amy Sung, she is smart briefs, director of content for food and travel. Amy, thanks for joining us.

Amy Sung  21:55

Thanks for having me.

Sean McMahon  21:57

All righty, and now it's time to bring in today's guests. Liliana Esposito. Liliana is the chief corporate affairs and Sustainability Officer at Wendy's. Liliana, how're you doing this morning?

Liliana Esposito  22:07

Hey, doing great, great to be with you today.

Sean McMahon  22:10

Yeah, we're excited to have you on obviously, an organization like Wendy's. There's a lot of sustainability considerations from all your operations and all your locations. So I know you all just recently released your corporate responsibility report. And we're gonna get to that. But first, I want to talk about good done right, which is the name when he says given to its ESG strategy, can you give us some background on when you gave it that name? And when that got started?

Liliana Esposito  22:35

Happy to do it. And first, I would say certainly the Wendy's company has been around for more than 50 years. And certainly we have been operating responsibly for all of those years. But several years ago, back in 2019, we really took the step of formalizing our corporate responsibility or ESG strategy. And that was really about focusing on what were those issues and topics that were most material to the company and to our restaurant system, but also that we could most materially impact in the environmental, social and governance areas. And so we've branded that as good done right under the three pillars of food, people and footprint. So that really guides the focus of our ESG efforts, and also the public goals and commitments that we've made around food people and footprint.

Amy Sung  23:20

Great. Well, it's clear that Wendy's has established a clear framework for approaching the way it does business. And you know, what Corporate Responsibility means for the company? What would you say are some highlights of your 2022 Corporate Responsibility report.

Liliana Esposito  23:34

So as you mentioned, we've just published our 2022 Corporate Responsibility report under the good dunrite banner. And and we have outlined four goals across our three pillars of food people and footprint. So first in the food area to responsibly source our top 10 Food and Beverage categories by the year 2030 In the people area to increase the representation of communities that have been historically underrepresented across our management and leadership, as well as in our franchise community. And then in the footprint area two goals one to sustainably sourced 100% of our customer facing packaging by 2026. And second to set a science based target for our scope, one, two, and three greenhouse gas emissions. And so we made an we're able to record some really nice progress across all four of those areas in 2022. So in the food area, responsible sourcing, one of the items that that we're most proud of is really getting our arms around what are those top 10 food categories? Who are the suppliers that provide those foods and beverages to us, and then getting all of those suppliers invited into a technology platform so that we can start to gather information about their environmental and their social programs. And so we got about half of our suppliers into that platform last year, and then we'll continue to advance that going forward. In the footprint area. We actually did set our science based target last year and we had made a commitment To have that target set and validated actually at the end of this year by the end of 2023. And so we're able to get that kind of out in the world and validated with the science based targets initiative earlier the year, so in February, so nearly a year ahead of schedule. So now the real work comes, and I'm sure we'll talk about that in terms of actually reporting reductions against our scope, one, two, and three greenhouse gas emissions targets. And then in the sustainable packaging area, we passed the halfway point. So we've got a commitment to source 100% of our packaging in a way that is either compostable, recyclable or reusable. And so we pass a halfway point more than 50% of our packaging, is now at that goal status. So that was a nice to report. And what you'll see in our report is, is really where we are, and we introduced a new beverage Cup last year, which was a big part of that progress, that cup is now more recyclable than our previous cup, and then in the people area, some really fantastic progress. No, it's hard to quantify how important people are to your overall success as a business and, and certainly within the corporate responsibility area, that that's true as well. And so we've set a goal to increase the representation of populations that have historically been underrepresented across our management and leadership, as well as in our franchise community. And so for us that, you know, predominantly is women and people of color. And so one of the initiatives that we launched last year and will continue to lean into which is called Own Your opportunity is, is really about opening the door wider to franchise opportunities within Wendy's and, and so we've lowered some of the financial hurdles that are necessary to essentially qualify as a franchise candidate, keeping our standards very high and very competitive. But also, you know, really making a concerted effort to essentially market Wendy's as a great place to be an entrepreneur and to get into the the franchise business. And so we've been really pleased with the the candidates that have already come through, and we're going to continue to focus on that. The other area that I think all businesses recognize over the past several years is the weather the pandemic, or the kind of aftermath of that, that it's taken a toll on people. And so we've long had a series of employee resource groups at the company. In the last year, we actually launched a new one, focus specifically on caregivers recognizing that those who give care to others, and actually, that's what our group is called as give care, whether that's caring for children caring for parents caring for other family members, they've had a, I think, a special burden on them. And so you know, we've put a lot of focus on making sure that they have a support network and resources available to them, so that they can really kind of be their best selves at work as well.

Amy Sung  27:39

That's amazing. Let's see you guys have a lot going on.

Liliana Esposito  27:43

It was a busy year. Yeah.

Amy Sung  27:47

As far as the responsible sourcing efforts go, will there be any consumer education, whether it be on the menu or via marketing about that?

Liliana Esposito  27:55

Yeah, it's interesting. I do think that consumers increasingly are redefining what they expect of the companies and the brands that they interact with, and particularly in the food space. That means knowing not just what am I eating? And where did it come from? But how is it produced? How is it sourced. And so we do see an opportunity to really educate consumers about that and make them feel good about the practices that we have in place. And so in the responsible sourcing area, in particular, as I mentioned, we're really getting our arms around not to say that there that responsibility isn't being practiced today, but we haven't certified it. And so really defining what does environmental responsibility look like for these 10 product categories that we've outlined? So it's all of our proteins, you know, beef, dairy, pork, chicken, and eggs, and then buns, our beverages our produce our fresh produce, as well, as you know, potatoes, we obviously print fries are a big part of our menu. And so really defining what are the responsibility criteria so that we then can communicate with with consumers? In some cases, that might be a certification of a particular product category? In other cases, it might be communicating, what are the attributes of that responsible sourcing that a consumer can really feel good about?

Amy Sung  29:10

Great. I know in the report, you guys mentioned a little bit about food safety and your your food safety efforts and how you're expanding food safety, education and training. Can you tell us more about how sustainability factors into Wendy's food safety efforts? If it does?

Liliana Esposito  29:27

It absolutely does. And really, when we started this journey of really formalizing our corporate responsibility work under the good dunrite platform. We went through, as I mentioned, a materiality assessment and determining what are those most important topics and really in the in the kind of top right quadrant of that materiality matrix, you know, the most important to our stakeholders as well as most important to the company and that the company could have the biggest impact on is food safety and food quality. And really, that's table stakes. Certainly a consumer expects that the food that they're consuming from Wendy's is going to be sourced in a way that's very high quality and safe and then also prepared and served that way in the restaurant. And so one of the things that we highlight in our corporate responsibility report is that we've really kind of doubled down on our in restaurant food safety efforts. And so we've partnered with eco shore, to do food safety assessments and all of our restaurants. Our restaurant teams are fantastic partners in this, they operate in a in a safe and healthy way every day. But it's always great to just kind of reinforce those behaviors and have an outside partner to be able to help us really provide coaching and guidance when we have new people coming into the system as we have changes in restaurant teams just to make sure the culture of food safety really is top of mind every single day.

Amy Sung  30:44

Going back to menus, I know that Wendy's has offered some limited time offerings last year, notably the strawberry frosty in the summertime, or any of Wendy's responsible sourcing and sustainability goals affecting menu innovation.

Liliana Esposito  30:57

Yeah, great question, Amy. And really, our menu is a combination of core menu items that are fan favorites all year round. And then periodically limited time offers, as you mentioned, the strawberry frosty last year was a great example of that. And I do think that sustainability influences menu innovation because of what consumer expectations are around that in particular, I think freshness, we see a great success in the summertime with our salad line, bringing in a summer salad that usually has fresh berries, and you know, obviously fresh produce on that. And so I do think that you're seeing consumers increasingly look at they might not define it as sustainability, they might just define it as great food quality. But we certainly see that that's something that consumers are really looking for.

Sean McMahon  31:43

Okay, Liliana. Well, my stomach looks forward to the return of the strawberry frosty this summer. I missed it last year. So I gotta make sure I snag one this year. I want to go back to the point you made about responsible packaging. I think you mentioned that you're 50% of the way towards the goal you've set? How difficult has it been to even make that kind of progress? And is there any lessons you could maybe share? Obviously, packaging is something that all companies not just in the restaurant issue, but tons of companies have to have some kind of product with their packaging. So what were some of the lessons you learned on on that journey to at least getting halfway there and hopefully getting there 100% of the way pretty soon.

Liliana Esposito  32:19

I will tell you, Sean, it really is a journey. And there's really a number of components to it. One piece of it is what is your packaging made of and it does that meet when our case our definition of sustainably sourced being that it is either compostable, recyclable or reusable. And in many cases, that's a challenge just to make sure that you can provide that type of attribute. But also do it in a way that the products still functional, you know that you don't have a straw that disintegrates in your beverage, or that your coffee cup doesn't peel apart at the seams. And you know, you end up with with hot coffee in your lap. That's not a great great win and might be sustainable, but it's probably not consumer preferred. And so that's one piece of it. The second piece, and it's really where I think the biggest challenge to sustainable packaging is is just in the infrastructure for recycling and composting. And so in many cases, you may have a product that for instance, our beverage cups today are more recyclable than our previous cups were. But that that still doesn't mean that that curbside recycling is available everywhere in everywhere in the country, or everywhere that our consumers are taking that cup. And so that's something that we're really partnering with other organizations to both focus on what our packaging is made of and how its source. But also what is the infrastructure that's necessary. For us as a quick serve restaurant, about 80% of our business is done through the drive thru. And so most of our packaging leaves our restaurant. So what the consumer ultimately does with it, do they have the ability to recycle that or compost that or reuse that? And then do they know that that's what they're supposed to do with it. And so we're also you know, you'll notice on our beverage cups, for instance, we've joined with the how to recycle program to make sure that we're also educating about hey, look for facilities in your area, assuming that those are available, this cup, this cup should be recycled. We're also right now doing a pilot and in restaurant recycling pilot in Chicago, we've got several of our company on restaurants in Chicago that actually right now have to stream receptacle. So with trash and with recycling. And what we've done is we've done a kind of a video pilot pre this program starting to look at our trash both front of house and back of house, then we've kind of put in the receptacles provided some education to consumers as well as to the restaurant teams on what should go in which bin and importantly, which things can be diverted from landfill into recycling instead. And then once we're done, we'll look at it again, do that same video technology and see how did we do? And so we think it will provide us some good learnings on what type of consumer education is helpful and what really affects behavior in terms of recycling in particular.

Sean McMahon  34:55

I want to talk a little bit now to you mentioned earlier the science based targets that at Wendy's has established and had verified, what was the most challenging aspect of first benchmarking, and then tracking and reducing your scope one, scope two scope three greenhouse gas emissions.

Liliana Esposito  35:12

So really the process of setting the science based target, it's pretty involved. And so I wouldn't say that it was, it was something that we were particularly challenged by it, we just had to go through the process, you know, you really do have to put a lot of rigor around, you know, for scope one and two, which of course, those for us, that's our company on restaurants and assets. And then for scope three, there's really two main components for us. One is our franchised restaurant, so which look generally like a company owned restaurant, but we don't directly control them. And so we don't have as much access to that information as we do for a company on restaurant. And then the other part of our scope three is our supply chain. And so that's a big area of focus. And for us, it's the largest by far part of our total footprint. And so in terms of setting the target, it was just it was a matter of getting our arms around, what does the footprint look like? And then going through the process of determining, okay, so then what level of emissions reductions would be necessary to essentially do our fair share? That's really what a science based target is about is determining what what level of impact are you having today on climate, and then what level of reduction would be necessary to kind of bring that back to a more manageable level, but now is when the real work begins. One of the things that I'm proud of, you can see in our corporate responsibility report that we just put out our baseline year and our science based target is 2019. And so we actually have already started reporting against our scope, one, two, and three emissions reductions, and particularly in scope one and two, which again, our company, you know, operated restaurants were reporting some some pretty, I think, meaningful reductions already 2022 versus 2019, a little less so in our franchised restaurants and and in our supply chain, but certainly on on that path, and moving forward

Sean McMahon  37:00

with any lessons learned from going through that process of setting up the science based targets, because I talked to a lot of companies were just kind of doing that navel gazing, if you will, revealed things they could improve about their own operations. Yeah, absolutely.

Liliana Esposito  37:12

And a couple of of learnings, one on the scope, one and two side, really recognizing that we were already seeing reductions based on the energy efficiency work that we've been doing. And so we expected that that would be true, but I don't know that we anticipated the level that that would be. And what I love about that is that that saves your restaurant money. The reason that we've we've gone down this path of looking at energy efficiency, and over the past several years, and many of our franchisees are doing this as well alongside us is because it's really good for the for the restaurant economic model. But it's also as you're reducing your energy use, it's also reducing, of course, your emissions. But what we recognize is that efficiency alone is not going to get you there. And so we are now getting into renewable energy, we actually launched with Duke Energy in Florida last year, we now have about 10 of our company restaurants that are being solar powered with it with a community solar project. And that absolutely is going to be necessary, more more focused on renewables is going to be necessary to get to the level of emissions reductions that that our our ambitions are aiming for. But I also think some of the learnings around our purchase goods and services and our supply chain was just how large of a contribution that is to our total footprint, and in particular, the area of proteins for US beef, chicken, pork, and dairy that represents the lion's share of our total footprint. I certainly

Sean McMahon  38:39

want to come back to the renewable energy partnership you have at Duke Energy, Florida. But first, you mentioned how the biggest piece of your greenhouse gas emissions footprint, right? I was gonna ask you what it was. But you already answered that in terms of its food supply. How big are we talking like, percentage wise, how does that compare to the footprint of your restaurants, energy, things like that?

Liliana Esposito  38:59

Yes, orders magnitude are franchised restaurants are about 10% of our total scope three footprint and purchase goods and services is the rest of it. It really is. And in terms of the total footprint, scope one and two is really a couple of percent. So it really is when I say the lion's share. It's really as the lion's share.

Sean McMahon  39:19

Are you able to interact with some of the suppliers and help nudge them towards adopting more sustainable practices?

Liliana Esposito  39:25

We absolutely are and what what's really encouraging is that many of those suppliers have already set science based targets for themselves or are in the process of doing that. And so that certainly encourages us that as they move towards their targets that's going to help us move towards ours. And really our goal around setting and ultimately achieving a science based target really goes hand in hand with our responsible sourcing goal as well because not surprisingly, there was top 10 food categories that we have a commitment to responsibly sourced by 2030. Not coincidentally 2030 is also the the target year of our science based target in May Any case is the environmental component of that responsible sourcing of that responsible sourcing goal will include, they're kind of doing their fair share in terms of greenhouse gas reductions.

Sean McMahon  40:12

Okay, now you already kind of touched on the benefits you've seen from energy efficiency. And so I want to kind of dig into a program Wendy's has for your restaurant locations, it's called the Global next gen restaurant design, where you're actually designing these those facilities with energy efficiency and other benefits in mind. What are some of the key elements of that? And how did that come about?

Liliana Esposito  40:32

Yeah, so we're constantly innovating with our restaurant designs, and really looking to make them more customer friendly, and a better place to work for our for our restaurant teams, but also really to look at how we can make them less expensive. Because we want our franchisees in the company to be able to build these restaurants in more locations, we've increasingly made them smaller so that they sit on a smaller footprint, and they can get into more areas of real estate. But the global next gen is our most recent restaurant design. And so now going forward, that's our global design for all Wendy's restaurants that are that are coming from from here forward. And the global next gen design really features a couple of interesting attributes, I think, one is that it's really digital first. And so we've really designed it to recognize the growth in delivery and digital business in our you know, in our total business. And so rather than have the delivery drivers go through the regular drive thru with everybody else, there's a specific kind of pull up window where the drivers can go and get their Wendy's for their customers, which are our customers. And the in the kitchen in the restaurant is set up that way too, so that the crew can provide those orders in a way that's really, really efficient. But also the way that the restaurant has been designed, we estimate it's about 10% more energy efficient on an ongoing basis than our already most efficient restaurant. And so as these restaurants come into operation is that they'll be less expensive to operate, they'll get some energy efficiency. And then of course, that has the benefit of producing less greenhouse gas emissions. So it helps us with our science based target as well.

Sean McMahon  42:09

Okay, now I want to circle back to that renewable energy piece. You mentioned, you're interacting with Duke Energy, Florida's clean energy connection program. So what are the basics of that? And what does that experience been like for you, I guess, on the customer side of that deal?

Liliana Esposito  42:22

Sure. So this is a community solar program, as you mentioned, through Duke Energy, and so we signed up for this several years ago. So it's taken some time, really just for the for the facility to come online and for the capacity to be there. And so we participate in it as a as an energy customer, just like others in the community might, we ended last year with seven of our company restaurants in Central Florida being powered through this community solar program, we're now at 10. And we estimate that by the end of 2025, we'll have about 35 of our restaurants, which is a huge, huge part of our commitment to meet our science based target is going to need to include renewable energy. And so this is a great program. I will say from the customer perspective, us as the customer, it's been great. And so certainly the restaurant doesn't notice anything different. They turn on their equipment and turn on their lights, and it works just like regular electricity, but we're just looking to find more of these programs throughout the country.

Sean McMahon  43:22

Okay, so stepping back now, and just looking at all these pieces, we've discussed all the aspects of your good dunrite ESG strategy, I noticed in the report that you've expanded the tiers of employees who receive executive compensation for reaching these goals. As someone who has a background in finance, I think it's pretty magical. What can happen when you financially incentivize managers and people like that. So what was the response been like that within your workforce?

Liliana Esposito  43:48

Yeah, so just a little bit of background on that. So last year, for the first time, our board of directors determined it that our existing incentive compensation for our executives, and so what we defined as our vice presidents and above in the company, that out of that bonus pool, essentially 10% of it would be dependent on achievement of our ESG goals. And so really, those four good dunrite goals that that I shared with you, you know, we've put together annual KPIs against those on our board determine, essentially how we were doing and tied a portion of initially our executives compensation to that, we actually overperformed on that and determine that there really is a much larger pool of individuals in the company that are affecting these ESG programs and goals. And it's going to take the entire company to be able to achieve these targets. And so the board made the decision that we would actually expand that to the entire company. And so really everybody that's eligible for a bonus at Wendy's, and that's essentially all of our corporate and field support roles. 10% of their existing bonus now is dependent on ESG performance. And as you mentioned, it gets people pretty interested I'll tell you I've had I've had, you know, since we announced that I've had a lot more people say tell me a little more about our ESG goals, and what can I do to help us get there. So it absolutely has had the effect that that we intended. But I think in a really positive way, I think that that it also really delivers the message to our employees that this, this idea of being a responsible corporate citizen and doing the right thing and our values of giving something back and operating with high integrity, it's something that we really, you know, it's important. And it's not just something that we talk about, it's something that we're actually tying our business success to, in the same way that we say that sales and EBIT DA is important to our success. Those are the other components of our bonus metric. And I think it's had a really positive impact so far.

Sean McMahon  45:40

I gotta say, that's fantastic to hear for sure.

Amy Sung  45:43

So I want to ask a little bit about lead time for a program like this, or goals, establishing goals around corporate responsibility. For those who are looking to get started, or just kind of interested in how long something like this might take. What would your insights be on that? When did Wendy's start thinking about all of this? And how long did it take to get to where you are right now?

Liliana Esposito  46:06

I think it's a great question, Amy. And certainly, it's not something that happens overnight. But it also doesn't take forever, I think, is what I would say. And for us, when I'm sure other businesses are in the same place. It wasn't as if we were starting from a kind of a cold start, there were programs in place, there were some initiatives in place, but we really started the process of really formalizing our ESG portfolio, and specifically looking at the materiality assessment. And then from that, setting our goals, we started that in 2019, so just giving you a kind of order of magnitude. So it really took us 2019 and 2020, working with an outside partner to go through that process of materiality assessment, but then also identifying Okay, based on that materiality assessment, where are there areas where we think we need to set some goals, because we essentially have a gap between where we think we need to be and where we are today. And so that was really kind of in the 2019 2020 time period. And then I would say, the past couple of years have really been foundational for us. So you know, setting those goals, getting the systems and processes in place to be able to kind of track your progress against those goals. And then really, this past year 2022, I would say would be when we we really transitioned from kind of setting the foundation to actually focusing on kind of the substance and the progress that that we needed to make. So a couple of years, I would say. So

Sean McMahon  47:27

one of the things we like to do on this show is ask our guests for bold predictions. And you're sitting in a place where you can kind of see a lot of moving parts at Wendy's. And some things might look like, they look really challenging to others, but you're like, hey, we're gonna get that we're gonna achieve that goal. So when you look out at your operations and say, five or 10 years, what are your bold predictions about how Wendy's will be performing against all these goals? You've set?

Liliana Esposito  47:52

Yeah, I'm really optimistic. And and I think for for Wendy's, overall, one, I think you look out 510 years, I think you're gonna see a lot more Wendy's around. And we're really were growing and developing as a brand around the US around the world. I think that global next gen design, you're going to see more of those in your neighborhoods, I think we'll see a tremendous growth in technology enabled business, whether that's people using mobile ordering, whether it's voice AI, different types of digital programs, as well as more personalized interaction with the brand as a result of that technology. So I think those are two things that we'll see certainly more of more Wendy's to more people more often is definitely the goal. And I think that I think we'll see that and I think as it relates to the the food people and footprint goals that we've set that go along with that, I think you'll see progress there as well. And certainly we are not going this alone. You know, in the case of responsibly sourcing our products, as I mentioned, our suppliers are all in with us. So they have their own goals, and they have their own programs. So we expect that you'll see progress there because we expect that we'll be in that together. I certainly hope that we will see progress against our science based target and reduction of greenhouse gas emissions because I think it's it's absolutely a climate imperative for all of us to make some headway there.

Sean McMahon  49:14

Okay, well, I guess I don't have to hold you to it because you've already got those goals out there. So we'll check in and see how things go in the next few years. Really on any of the ground Do you want to cover? I think that

Liliana Esposito  49:24

you should come into a Wendy's near you very soon. We've got a fantastic strawberry frosty coming back, as you mentioned, Sean, and we've got some other great products as well. So we'd love to see it when he's very soon.

Sean McMahon  49:37

I promise I will definitely be enjoying one of those strawberry frosty this summer. I'll be thinking about this conversation when I do so. Thank you for your time today. This has been great and we appreciate your insights.

Liliana Esposito  49:47

Alright, thanks so much for having me.

Sean McMahon  49:56

All right, everyone. Well, that's our show for today. Thank you all for listening. And if you haven't already, please subscribe or follow this show on Apple, Spotify, Google or wherever you listen to your podcasts. And as always, please be sure to share it with your friends and colleagues. Have a great day.