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S2_EP5 Putting Sustainability, ESG and DEI on the Menu with Caitlin Leibert of Chipotle

Transcript

Participants:

Michael Young | Founder | CEO of Actual Agency | Partner, Millwright Holdings

Caitlin Leibert | Head of Sustainability at Chipotle Mexican Grill

Michael Young:

Welcome to the Purpose, Inc., the podcast where we discuss corporate purpose and stakeholder capitalism. I'm your host, Michael Young.

Safe to say that much of corporate America has been setting goals and out making promises about everything from climate change and net zero, social justice, pay equity, and better governance. And this is all a good thing. But the central issue within corporate sustainability and ESG broadly centers around not only the goals but the measurement of those goals and progress toward those goals. And then from there, progress is underpinned with a combination of transparency and accountability and ultimately incentives. Capitalism is nothing if not a system of measurements and incentives. But how do you get alignment from the top down and the bottom up within the business? How do you hold leadership and management accountable for achieving diversity, equity, and inclusion goals, not just promises and PowerPoints but actual racial and gender equity and parity across the business? And how do you ensure transparency and accountability within reporting? And what role does sustainability play not just to investor and shareholder interests and audiences but how does the brand show up for the consumer in a sustainable way? And how does that come through to the end consumer? And what role does sustainability play in driving corporate innovation and the future of the business?

Here to talk about these topics in specific, vast, and inspiring detail is Caitlin Leibert, the Director of Sustainability for Chipotle. And Caitlin takes us on a journey across every aspect of Chipotle's sustainability and ESG mission and practice which they frame around food and animals, people, and the environment. And it's the journey from the company's founding and Chipotle has had sustainability and authenticity at its core from day one. And she takes us from the farm to the boardroom to the kitchen to the customer experience. We talk about DEI and pay equity. We talk about farming sustainably in innovation. Caitlin takes us through Chipotle's waste reduction and diversion strategies where they measure every fork and plate and scrap of lettuce. Hashtag dumpster diving. Turns out you've got to get your hands dirty if you want to get real about waste reduction. That was a super fun part of the conversation. So this is a very interesting, compelling story from a brand which I love, truly love and adore and eat very often. What's great about this the story is this is a company that really connects what they say in sustainability and ESG and DEI with what they actually do. So without further ado, my conversation with Caitlin Leibert of Chipotle. Caitlin, thank you so much for coming on the podcast.

Caitlin Leibert:

Oh, it's a pleasure to be here. Thank you for having me.

Michael Young:

Excellent. Well, I am looking to a fantastic and delicious conversation about Chipotle's sustainability practices. And maybe for our listeners who may be unaware of how Chipotle thinks about sustainability, maybe you could kind of give us the big picture of the thinking and the approach there, how you frame it. And we'll go from there.

Caitlin Leibert:

Yeah, absolutely. So sustainability is a very broad topic as you know. And at Chipotle, we look at it in three key material areas. So that's food and animals, people, and the environment. So those are the three buckets if you will that we look at sustainability and ESG. Within those, of course, there are hundreds of different individual topics that we approach. But those are the three ways that we really organize sustainability or ESG at Chipotle.

Michael Young:

And maybe if you could for us, that's sort of your lens on the triple bottom line there, right? So talk first about food and animals and what goes into that and what are you measuring, what do you look at, what goals do you have there? And then just let's get into people and environment.

Caitlin Leibert:

Yeah, absolutely. So Chipotle as a restaurant company has had this really storied supply chain. I think it's really what differentiates us. This concept of food with integrity has been with our brand from almost the beginning with our founder Steve Ells really holding in early on, on the difference that sustainably raised pork made to the experience for the customer, the flavor, the quality. And from there, from that experience with Paul Willis and the team at Niman Ranch, the concept of food with integrity was born. And here we are flash forward from 1993 all the way here today and the way that we look at food and animals remains industry-leading. We have an award-winning animal welfare program, super proud of that program. And we purchase more organic and local ingredients than really anyone else in the space. Certainly unique for a restaurant company of our size to be able to purchase so much food locally. We purchased over 31 million pounds of local produce last year. That's an investment of over $23.3 million into local food systems. So this is really tangible, meaningful support of local and organic and transitional ingredients. And all of that is in the framework that we really need to emphasize the next generation of farmers and ensure that we have a next generation of farmers. So a lot of the work that we're doing around food and animals is contextualized around the support that we're giving to young farmers. We've committed $5 million over the next five years. And for those of you who may be sort of scratching your head as to why Chipotle is trying to invest in young farmers, this is a real challenge we have in America right now. The average age of the farmer is over 60 years old. Farmers are aging out of the career at a more rapid pace than going into it. Farming as it stands today is on average not profitable at all and that's a problem. We really are working to support the system in which our food and animals program works. We like to say that if you eat, you should be worried about this challenge. So for us, our goals and our metrics are important but also the context in which they sit is equally as important. So you'll see commitments and goals not just around organic, local, animal welfare metrics but also around the system in which all that operates.

Michael Young:

That's a really good point about the ultimate system which is farming that enables us all to eat every day. I'd like to hear a little bit about people, racial and gender pay equity in particular. That's an area of some interest. And maybe as you talk about that, talk about the goals, what are the baselines, where are you coming from, and what are you aligning with both internally and externally and whether you've looked at any of the external frameworks as BGRI, things like that? But I did note in all of your ESG and sustainability, you have tied executive compensation to that. So if you could hit on DEI and let's talk about how you think about that. But I really want to jump then to executive comp and how that works. Yeah.

Caitlin Leibert:

Absolutely. So Chipotle has four key values that we look at. And one of them is authenticity lives here. And that has been a major part of our culture. DE&I is a huge component. We want people to show up as they are, feel comfortable as they are. We have almost 100,000 employees across the world now, mainly in the United States. And that is a very diverse group of individuals. And it's really important that starting with our employees, we foster a culture that is inclusive and diverse. We also know that diverse and inclusive and equitable cultures perform better. So it's a business advantage in addition to fundamentally being the right thing to do. So it's ultimately a no-brainer. It's the right thing to invest in. We have really stepped it up in the last over a year, a year and a half since the incidences with George Floyd, really committed. We pledged a million dollars to fight systemic racism in the U.S. Our CEO is very passionate about this topic. We've had a variety of town halls. We try and make sure that every employee feels welcomed as they are and we have systems in place to make sure that if for some reason that isn't happening, we are aware of it and working to mitigate that immediately. So we've come a long way I think as a society and a culture. Still a long way to go. We're committed to fighting systemic racism both within our organization and outside of it and thrilled to see it get its spotlight I think that it really needs and deserves. Thrilled to see it across the industry, many companies are stepping up. We're proud that it's been in our culture and we'll continue to receive that highlight which actually transitions nicely to the second part of your question which is that's all great and very important.

But how are we holding ourselves accountable for that? And that second piece is super important. It's not just important in DE&I. It's important with anything that we say is important to us, right? So if we're out there preaching as a company that says it has a mission to cultivate a better world, accountability is really important and transparency is a super important component of any sustainability or ESG program worth its salt. Any sort of mission-based or purpose-based company ought to have some sort of link to executive compensation that ties these metrics and goals. And so that's just what we did. Earlier this year, we announced a link to these three material areas: food and animals, people, and environment. And specifically in DE&I, we linked gender and racial pay equity which is super meaningful and important. Not one. Not the other. We have gender and racial pay equity. We also have metrics in as I mentioned food and animals and environment. So I think what's unique about ours is it's not just in one area. It's in these three most material areas to our business. And a note on the gender and racial pay equity in particular is that we hire a third party. We hired a third party I should say over a year ago now to check in on us, to tell us are we equitable in gender and racial pay. And it turns out that we were which is great. So that goal is to maintain it. We feel like we were already in a really good spot. That's not good enough. We can't just say we've achieved it. Just like culture, it has to be intentional. So really proud of linking our executive compensation. That's 10% of our officers’ bonus to things like our climate goals, racial and gender pay equity and maintaining that, as I mentioned, and then licking organic, local, and regenerative agriculture, increasing the pounds that we purchase year over year. Those are the areas that we've linked to executive compensation. And if you couldn't tell from the tone of my voice, I could not be more thrilled about that.

Michael Young:

Yeah, yeah. I can tell. I can tell. And that's really great. And just the reading I do, from what I understand, 10% or 11% of companies only have taken that step. So that is really, really industry-leading and bold and it's great to hear you talk about that. And maybe just kind of deepen that a little bit and if you could, talk about the board and how the board has acted in a role of leadership and oversight for management there and connecting goals and metrics and transparency and accountability.

Caitlin Leibert:

Yeah, definitely. So Chipotle, again, this idea of sustainability, food with integrity, a purpose-based organization, this is part of Chipotle's DNA and it's pretty unique for a publicly traded company to have such trust from its stakeholders and shareholders in the sense that what we're doing is working. And so we have had major support from our board and shareholders to continue down this path of purpose-based business. I think that that is an incredibly lucky but also intentional and something we've worked hard at. So to the extent that the board formally oversees ESG, they do now which is great and every quarter providing updates on progress. But regardless of the formality of it which was put into place in the last year, we've always given updates. It's always something that the board has been really interested in. That being said, without that link on paper, I think it's hard to see from an outsider that there was board oversight. I think it can sound like just talk. If we say yes, of course, the board has oversight as it trusted. So we did take the steps to formalize that in Q4 of last year. And again, very happy with that. These are sort of important oversight steps that you can take to ensure that you have an industry-leading ESG and sustainability program. So between executive compensation and board oversight, we've really set ourselves up to put our money where our mouths are, to put the accountability and the governance where our mouths are. We have that framework of accountability, transparency, and compensation and/or incentives in the right place to ensure you don't just have to take our word for it. These actions show that it's really ingrained in our culture and we would be in trouble if we didn't continue down that path. And I think that that's a very important distinction.

Michael Young:

Yeah, that's great. And then maybe to pivot to another audience, another stakeholder group, unpack for us how you've connected sustainability to the consumer brand experience. And I think I as the consumer of your product, an avid consumer I might add, I can see it. So I've heard you talk about building systems within your organization that give us the consumer the ability to make better choices and something I heard you say that don't allow the consumer to fail in making good better best choices around impact and waste reduction. And so talk about that whole dimension to sustainability at Chipotle.

Caitlin Leibert:

Yeah. It's an important distinction and I'm thrilled that you picked up on it. It's something we work very hard on. We do it through a thousand nuances and also very directly and everything in between. We believe in accountability. And again, what we had talked about previously, board oversight, executive compensation, hopefully, it's clear we believe in accountability. But we wanted to go one step further and I think our real food print tool which if you're not familiar with, when you order online or any digital order, you'll get kick-backed five sustainability impact metrics that compare the ingredients in your order, your specific order to industry average and/or conventional ingredients. And the reason why that's important is again, we're showing the accountability. If we believe there's a better way to source food, if we're marketing how our sourcing is different, then we need to be showing you with every individual order ingredient specific transparency into how much better each of those ingredients are. And this is really the first time something like this has ever been done. I certainly encourage any listeners to give it a try if you haven't already, if you're not aware. These are metrics like water saved, carbon sequestered, antibiotics avoided for those of you who are ordering meat. These are important metrics that show how the choices that we make as a company matter and ultimately, the choices that you make as a consumer matter as well.

And this gets to that second point which is how do you allow your customer not to fail. And I think this is really important. We see this a lot with the carbon discussion and there's a reason why we went with this concept of real food print beyond simply a carbon number. If you're interested in the carbon impact of your food, I applaud you. We all should be. And we transparently show you what that is. We have it published in our sustainability report per ingredient. We want you to have the tools that you want. But I think stopping there is not enough. I think simply showing that certain ingredients have more carbon than others is not an effective tool. In fact, it just puts that responsibility on the consumer to make the right choice. What accountability do we have as a company before we even get to the point of you ordering? What if simply by the way that we source, simply by you walking into a Chipotle, you're making a more sustainable choice because of the choices that we've made as a company? And I think that that's a really important distinction. It's not simply enough to hope a customer makes a better choice by giving them information. It has to be paired with actions and accountability from the organization to set that customer up for success. So for us, that's how we think about these things differently. We believe in companies having accountability and the proof is really in your order. When you order, you can see exactly how much better we're doing as compared to average. And the reason why that's important is as the industry we hope continues to improve, this score that you see, these metrics that you see are tracking against that average. So it means we need to in turn as the average improves, we need to improve too. And if we aren't sourcing better than average or conventional, then we're in trouble. Because each one of those metrics would read zero, right? And so that for us is a huge accountability tool. Yes, it's marketing. It's exciting for people to look at and see. But really know that that's also a massive industry first accountability tool that is showing people that what Chipotle is doing, that is better than average, that just by ordering at Chipotle, there is proof in every individual order that we are holding ourselves to a higher standard.

Michael Young:

Yeah. And I love the systems approach that you take to all of this, right? That it’s really a holistic system-wide view of how the organization shows up for the consumer ahead of time which is really cool. And maybe just touch on waste reduction and diversion and how that's working and your approach there because obviously that's a part of sustainability.

Caitlin Leibert:

Yeah, definitely. It's a big part of sustainability and it's an often missed part of sustainability oddly enough. And I think it's probably trash doesn't sound like a super sexy component of sustainability when you have fun things like climate and sustainable agriculture and regenerative ag that tend to get a little bit more of the glossy cover. But let me tell you waste is a huge part of any sustainability program for a restaurant company or it ought to be I should say. It's a very material issue, not just in terms of landfill waste which we'll get into but landfills are a driver of greenhouse gas emissions and that's often missed. So there's a link not just in reducing landfill waste but also to how that landfill waste impacts our climate. So waste is a climate issue and that is not always clear to the average consumer. Chipotle in 2015, we set one of our first long-term goals as a company and it was by the end of 2020, diverting half of all the waste that we produce from the landfills. So what does diversion mean? What does a 50% diversion goal mean? That means keeping half of all the waste that we produce out of the landfills and into more sustainable disposable methods such as compost, recycling, waste to energy, food donation, equipment donation, these types of programs.

So it was a massive undertaking. I think our baseline was 38%. So it wasn't a given. We already were industry leading at roughly 38% and I think that that's an important distinction for us. We try and not rely on status quo. I think that there are a lot of inherent boundaries to the waste system in the U.S. and we had to get really creative. And one of the first things we did was okay, look, let's not trust what people are telling us can and can't be done. Let's learn for ourselves and just like any other sustainability program or frankly any program in general, you want it rooted in data, right? You want to make sure that what you're doing is tied back to tangible data so that you can be sure that what you're working on is material and strategic. So that meant literally getting into a dumpster much to my team's dismay, although they don't ever complain about it much to their credit. So at least once a year, we get into the dumpster. We sort the waste at our restaurants, at a handful of restaurants. And what that has allowed us to do over the years is build something called a waste matrix. So we're literally hand sorting down to the individual utensil, straw, cup lid, lettuce scrap into these very meticulous piles. It takes a couple of hours. And believe it or not, we do have a good time. And we then weigh and measure that. We compare that to the restaurant’s average daily transactions or sales and we're able to build down to the fork the projected waste of that restaurant.

And the reason why this works for us is we have a very consistent menu. Because we're 100% corporately owned, we don't have specials in certain restaurants and not in others. We have all the same packaging. These are things that really matter, that consistency. And so that has allowed us to really dial in and predict down to the fork how much waste a restaurant should have which in turn allowed us to evaluate the effectiveness of every waste program. Do they have the appropriate service levels? Is something fishy going on? We found many stores, I mean I'm talking about probably 100 stores where for years, we had been paying for another restaurant or another company in the same mall to dispose of their waste as well just because we didn't know the data, right? We weren't aware. And let me tell you this happens all the time, right? So these are the things that really helped us hone in. We root it in data. We found easy wins, right? We saw that cardboard made up roughly half of our waste. So that tells us that recycling needs to be a major strategic initiative for us. We need to make sure we have cardboard recycling everywhere because that alone can help us achieve our goals. We also found something interesting and this is an eye towards innovation which I'm sure we'll get into because I know that you know we use innovation a lot. We noticed that film plastic, gloves, bags, that type of material made up roughly 9% of our waste. And this is something that wasn't accepted in the common recycling stream. We were told it just has to go to the landfill. Period. End of conversation. By every hauler that we spoke with. And the reason why is our recycling facilities in the U.S. are built to capture plastic bottles and film plastic clogs up those machines. And so it's just not accepted. It's seen as a contaminant and it's sent to the landfill.

And that didn't sit well with us, right? We thought, okay, but that's almost 10% of our waste. There has to be a better way. And that's where we took a nod from the circular economy and we invented this program called Gloves to Bags which is pretty self-explanatory. We found that we, listen, we use a lot of plastic gloves. Food safety is a top priority and there was no place for those gloves to go but the landfill. And so for us, in fact, 95% of all plastic gloves end up in the landfill. So we looked at the material that our gloves were made off of. We found that our waste bags were made of the same material. We approached the company that creates those waste bags for us and said, hey, if we could get you this material back, could you recycle it, re-pelletize it, and put it in the bags? And sure enough, they were open to that. So that was two and a half years ago. We've expanded the pilot to four markets and a really innovative program that has shrunk that film plastic from 9% down to 4% at our last audit. So we're thrilled with the progress there. It takes a combination of big like common things like recycling cardboard down to more innovative things once you've cleared out those low-hanging fruits like cardboard recycling. You got to get creative and you have to navigate around the barriers that exist.

Michael Young:

I love it. And you have to get hands on and like amazing story of dumpster diving. It's incredible. It's so awesome to hear you talk about that. Yeah. Well, and just maybe because we're coming up on time. So in the last five minutes here, kind of dig into some other aspects of innovation, whether that's agricultural, whether that's product innovation, technology. I love the food print app by the way. That to me is innovation. What other things are in the Chipotle sustainability innovation portfolio that our listeners may or may not know about?

Caitlin Leibert:

Yeah. I'll hit on a couple things. The first thing is menu innovation. Chipotle has a really, really unique supply chain. You heard me talk about that a little bit earlier, the fact that we could be a multi-billion dollar publicly traded company and still support small local farmers is pretty unique and do so with industry-leading food safety. There's also this side of our supply chain that maybe people don't know which is that we only have 54 ingredients in our entire supply chain. Let me break that down for you. That is unheard of in many places in an individual menu item. Like a hamburger or a salad elsewhere could have 54 ingredients in it alone. So the fact that our entire supply chain is 54 ingredients is pretty unique and that is intentional. It allows us to really deep dive into each ingredient and make sure that each one of those 54 ingredients is as sustainable as possible. Because what is most sustainable for cilantro grown in Salinas, California or Yuma, Arizona is not what's most sustainable for hogs in Iowa, grown by a Niman, raised by Niman Ranch, right? So the meaning organic might be the right approach for cilantro. Naturally raised, free range might be the right approach for those hogs in Iowa, right? So there is not a one-size-fits-all. So that's great. What is challenging is when it comes to menu innovation. We get a lot of questions about plant-based protein and whether or not we will continue to expand it or have it. And I like to say, hey, we were actually one of the first to have a plant-based protein with sofritas. I believe it was in 2013, we launched nationally this incredible organic braised tofu called sofritas which has a cult following at Chipotle and I can understand why. It's delicious. So yes, we are well ahead of the plant-based game. We introduced cauliflower rice this year. We're continuing to innovate on that front.

But we also if you maybe saw or didn't see announced that we are going to pilot another plant-based protein this year. And why have we not just come out with one of the common brand-name plant-based proteins that you see slapped on almost every menu? Well, simply put, they don't meet our high-quality standards. They're incredibly processed. They just aren't aligning with our food with integrity standards. And so we're having to innovate from scratch what plant-based proteins look like at Chipotle. What does a meat alternative look like for Chipotle who has a very limited supply chain by design? We don't want to introduce 15 new ingredients that are made in a lab somewhere. We want this grown and raised to our standards. So we're using a lot of innovation. We have an incredible culinary team, an incredible menu development team on our brand marketing side. They're working hand-in-hand with us and our team to develop this incredible next thing, right? So we use innovation everywhere, not just in waste which we talked about, not just on our menu, not just for consumers with food print.

And then finally, I'll note, I hit on it a little bit with the farmer component of this, but there's a system that is broken and that is the farming system in the U.S. And we have got to get creative with how we approach that. So three years ago, we launched something called the Aluminaries Project which is a fresh take from our cultivate foundation on philanthropy. We've really pivoted from a check cutting model where it's a dollar for dollar giving and we're looking to use our money more like a springboard in terms of philanthropy. How can a dollar invested result in many dollars of impact? And that's where we created this Aluminaries Project. It's an eight-month accelerator program with a different theme every year. Last year, we looked at how we can remove the key barriers for young farmers. This year we're looking at how can we build back a more sustainable, equitable, and efficient supply chain. I think COVID really peeled back the layers and opened up some of the fractures in our supply chain, in our food system. And this is about America as a whole, right? This isn't about Chipotle specific. This is a purely philanthropic program which is really unique and cool. And again, we want to improve the context in which we all are operating in. So that's one way we also look for innovation. I'm really excited. We just announced that. Actually, Jason Mraz, this is a fun fact about Chipotle, Jason Mraz is actually one of our avocado suppliers. He has a wonderful farm in Oceanside, California and he's coming out as a mentor for the program. I'm thrilled to announce in a couple of weeks, we'll be announcing who the eight ventures are that we are supporting. There's going to be some really great ag tech and innovation that we look at there. So another way in which Chipotle looks to innovation to help drive results.

Michael Young:

That's fantastic. Caitlin, I cannot thank you enough for an inspiring, thought-provoking, and deliciously explained survey of Chipotle's sustainability efforts which are vast and really industry-leading. So thank you so much for coming on the podcast.

Caitlin Leibert:

Yeah, it's been a pleasure. Thank you so much for having me.

Conclusion:

The Purpose, Inc. Podcast is a production of Actual Agency, helping innovators communicate in a changing world. More at www.Actual.Agency.