The Procter & Gamble Company (PG) Earnings Call Transcript & Summary

Good morning, and welcome to The Procter & Gamble Company's 2024 ESG Call. I'm Jon Moeller, Chairman of the Board, President and Chief Executive Officer. Joining me this morning are Andre Schulten, Chief Financial Officer; Jack McAneny, Vice President of Sustainability; Sandy Lane, Vice President, Legal Counsel in the Corporate Secretary's Office; and of course, John Chevalier, Senior Vice President, Investor Relations. John will be moderating the Q&A portion of the call following our prepared remarks. You can type your questions into the chat section of the presentation website. The objective of this presentation is to provide a more comprehensive look at the work your company is doing in the environmental, social and governance areas. As we did in those conversation last year, I'll start with a few important points about P&G's strategy and approach to these important topics. This will provide context for the balance of our discussion on the progress we've made, the work we're doing and how we'll attempt to address the challenges and opportunities ahead. Our integrated strategy, portfolio, superiority, productivity, constructive disruption and an agile and accountable organization. We're reinforcing the execution of the strategy with four focus areas: supply chain, environmental sustainability, digital acumen and providing a superior employee value equation. We continue to believe that there's merit and doubling down on this integrated strategy, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners fueled by productivity. Our strategy is aimed at delivering long-term balanced growth and value creation, which requires a combination of sales growth, margin expansion and strong cash generation over time. We see the success in ESG as an opportunity to create competitive advantage that can drive shareholder value. We take an integrated approach to this work. It's not managed centrally or by a separate organization. Each business owns the work and the budgets that will ultimately enable P&G to continue making progress in these areas. Integrating the work into the business and innovation process is the best way to ensure we continue to advance consumer delight with P&G offerings. ESG approached this way integrated into every aspect of our operations with all initiatives around good governance, social responsibility and environmental sustainability, ultimately aimed at supporting sustainable growth, top and bottom line, will enable us to delight all stakeholders, consumers, customers, employees, society and of course, our shareowners. We'll take a look at -- a quick look at each of these ESG areas, starting with Governance. Good Governance starts with a strong Board with the breadth of skills and experience to bring seasoned judgment to the table and the agility to oversee emerging risks and new business challenges. Our Governance and Public Responsibility Committee, which leads our director search efforts is focused on building a board for now and the future with expertise across important areas, including global business and finance, geopolitical issues and sustainability. Eight of our Board members have served or are currently serving as CEOs or CFOs of large public companies. We have a mix of short, medium and longer-term directors to provide an appropriate balance of both historical and fresh perspective. Our Board refreshment is very strong, 7 of our 14 directors have joined the Board in the past 3 years. 43% of our directors are female, and 36% are ethnically diverse. This is critical in enabling our Board to most effectively oversee our business, which serves an increasingly diverse consumer base. Our corporate governance practices are designed to promote accountability, transparency and protection of shareholder interests. We will extremely benchmark and seek input on these practices from our investors. Our Board is highly engaged meeting in person six times each year with additional special meetings scheduled as needed. Agendas are planned to include an appropriate mix of regularly scheduled updates and discussions of current and emerging topics. In addition, I schedule time with each director individually between board meetings and other senior leaders and I provide written updates to the Board between meetings of new issues arise. Consistent communication and quick escalation and awareness as needed. The Board and its committees are actively engaged in discussion and review of our environmental sustainability and social responsibility efforts as part of their governance oversight role. Because these topics are integrated into the company's business and operations, they frequently arise in the context of other reviews. For example, on a recent supply chain review with our Chief Operating Officer and the Chief Product Supply Officer, the Board discussed how that program impacts the company's overall workforce strategy, including efforts to recruit, retain and develop employees as well as the company's plans to make progress towards its climate-related aspirations by reducing transportation inefficiencies and related greenhouse gas emissions. Another example, the Innovation and Technology Committee held an in-depth session which the full Board attended with leaders of the company's family care business to review and discuss their innovation strategy, including raw material and supply chain considerations, responsible forestry practices and related external perspective. Also this year, Sheila Bonini, who joined the Board last year, held focused reviews with each of the company's sector CEOs and the company's COO, to discuss the integration of relevant environmental sustainability priorities into their business strategies and results. Ms. Penini then held a subsequent discussion with the full Board regarding her observations and insights from those meetings. These are just a few examples of how Board engagement on ESG topics goes well beyond just tracking of progress. Responsibility for oversight of ESG is shared across the board and committees with each committee leading in some defined areas and the full board overseeing ESG risks and opportunities at a strategic level. Next, while the "S" in ESG can be very broadly defined, including the many humanitarian relief programs, P&G participates in each year: Hygiene and Oral Health Education programs we run and many others. We're going to keep our discussion this morning focus on equality and inclusion in our workforce. We're committed to an equal diverse and inclusive organization, culture and workplace. We support equality and inclusion efforts with our business partners and in our communities. It's not only the right thing to do, it has everything to do with serving and delighting consumers, which is the foundation of winning in our business. The win in our very competitive industry, we must attract, retain and develop better talent than our competitors, the best talent in the world. We need to deliver a superior employee value proposition for all employees that must include equality. We're increasingly serving a more and more diverse group of consumers. 100% of the growth in North America over the next decade is forecast to come from multicultural consumers. We need to position ourselves from an empathy standpoint, from an understanding standpoint, from an effectiveness standpoint to win with each of them. Last year, we crossed a very important milestone with more than 50% of our manager roles across the world now held by women. This is huge in my mind, not because of the numbers or because we can turn some box on a chart from yellow to green, but because of a disproportionate number of our consumers are women. We're now even better positioned to serve them effectively. Ethnic representation in the U.S. has improved to 30% as of last fiscal year. Great progress in both areas, but still more to do to ensure our highly talented, diverse and fully engaged workforce continues to be a competitive advantage. Now I'm going to hand it over to Andre to lead the discussion on our environmental sustainability efforts.

Thank you, Jon, and good morning, everyone. Our primary focus is on providing superior propositions for consumers, for customers, for share owners that are increasingly sustainable. As we evaluate our innovation pipeline, about 65% of the upstream portfolio now includes some aspect of improved sustainability. That's in the production cycle, product ingredients, packaging, distribution in the use phase or end of life cycle or a combination of those. We look at our sustainability work through three lenses: enabling consumers to reuse their footprint, reducing the footprint of our own supply chain and operations, and innovating to deliver cross-industry solutions for some of our most pressing challenges we can't necessarily address by ourselves. We're confident we have capabilities needed to deliver the combination of superior products and improved sustainability, breadth and depth of consumer insights, innovation capability that enables and breakthroughs of superior performance and improved sustainability without trade-offs and the ability to scale new technologies across multiple product categories and geographies or across industries if that's the best solution, all of which make investment in sustainable innovation, a greater value creation opportunity. We're also leading the development of new tools and data systems to advance our progress. For example, P&G has helped pioneer the Science of Life Cycle Assessment, which helps us better understand where key opportunity areas and importantly, helps us to avoid trade-off across full life cycle of products and packages. We're now deploying this LCA expertise into each business's R&D scientists and engineers to help inform design decisions, further embedding sustainability into the product categories innovation programs. We're also implementing an integrated reporting system across the company to track our aggregate progress towards our goals. One practical example of how LCA is driving decisions is the innovation question of virgin plastic versus post-consumer recycled versus post-industrial recycled content. An LCA for a product package to help assess the trade-offs between the primary impact area, greenhouse gas emissions that impact global warming and other considerations like lands use and find particular formation. In this illustrative example of a packaging LCA, it shows that both post-consumer and post-industrial recycled content would deliver comparable benefits. This is also a good example of how we not only rely on LCA but broader consideration as well. In this case, the additional value PCR brings in supporting demand for post-consumer collection of packaging. Now I'll hand it over to Jack McAneny, P&G's Vice President of Sustainability to talk through the four pillars in this area, which are Climate, Waste, Water and Nature. Over to you, Jack.

Thank you, Andre, and good morning, everybody. So I'm going to briefly highlight the key goals and progress in each of these pillars, along with some examples of innovations that bring this work to life. So if we look at Climate, we know the greatest opportunity we have to drive positive impact is in the consumer use phase of our products. And this is particularly true for laundry detergents, where about 60% of the carbon footprint of laundry comes from the consumer use phase, and that's driven in large part by the heating of water that is used during clothes washing. So if there is one single thing that we can do in Fabric Care to reduce the overall carbon footprint, it is to reduce wash temperatures. And so that is why we've had a sustained focus on innovating to develop detergents that deliver outstanding performance in cold and in parallel with that, helping consumers understand the benefits of washing in cold, which can include saving money on their energy bills and extending garment life. And so this really is a great example of irresistible superiority that is Sustainable that Andre just referenced. It starts with a focus on delivering irresistible superiority, getting clothes clean in cold water and helping drive a positive impact on the environment. And so to simply help illustrate the potential impact of these efforts, our Tide brand currently has a goal to get three out of four loads done in cold versus hot, while our Ariel brand has a goal to lower the average wash temperature in Europe by 5 degrees Celsius. We estimate that achieving these goals is expected to avoid roughly 30 million metric tons of emissions per year. Now we touched on some of these same things last year, but importantly, we keep challenging ourselves to raise the bar and irresistible superiority. In laundry, we have continued to innovate, introducing new enzymes and other formula changes to drive even better cold water cleaning performance. And to support the introduction of this improved version, we've been activating several new programs that encourage consumers to wash in cold. And so we refer to this effort as the collab for cold, collaborating with a number of partners to effectively create an ecosystem across retailers, apparel brands, machine manufacturers and national media partners like the NFL to encourage consumers to wash in cold. So one recent highlight from this program we announced back in March, it was the announcement of our Tide Cold-certified program, which is a partnership with washing machine manufacturers. Initially, it was Electrolux, GE Appliances, and Samsung, but it involved placing a Tide Cold-certified branded queue directly on machines to engage people with a reminder to wash in cold at the point of doing laundry. So where are we in terms of progress with all this? Well, in North America, we've helped increase the number of loads done in cold from 49% in 2020 to 57% in 2023. In Europe, our program has helped decrease washing temperatures by about 2 degrees Celsius. So far, we estimate that the combined impact is about 4 million tons of CO2 emissions avoided to date. Importantly, though, over the past 3 fiscal years, both Tide and Ariel have each grown organic sales by approximately 6% per year, contributing to P&G Global Fabric Care's 200 basis points of share growth since fiscal 2020. Now similar to laundry, much of the carbon footprint from dishwashing is from heating water. Our Fairy brand upgraded their Auto Dish product and educated consumers that they can switch to the short cycle on their automatic dishwasher to save timing. So a convenience for our consumers and save up to 33% on energy versus the normal cycle. Fairy also upgraded their hand dish product and again, educated consumers that the habit of handwashing dishes at the sink with cooler water can reduce the carbon footprint by roughly 60%. And we're seeing impacts. In the U.K., customers have been shifting to short cycles, and the dishwashing category grew behind 21% growth in Fairy auto dish and 30% growth in Fairy hand dish. Our Fabric Care team is also leveraging P&G's unique in-house perfumery and formulation expertise to disrupt the industry by replacing large volumes of bulk ingredients, with materials created to deliver the same impact with less weight. The result is a nearly identical scent experience that also reduces water use and plastic. Again, importantly, the global Downy brand has grown organic sales at a double-digit average rate over the last 3 fiscal years. Now we've also been focused on reducing our supply chain emissions. Over the past 2 years, P&G has been working closely with suppliers to further enable progress on our greenhouse gas emissions reduction. Through that dialogue, we've identified several key challenges and opportunities. The first is focused on data and tracking progress. And so to help enable a trusted and holistic foundation for measurement, P&G is part of the partnership for carbon transparency, which is a collaborative effort hosted by the World Business Council for Sustainable Development. That effort is aimed at harmonizing reporting of emissions in the value chain. And so we are beginning to collect data directly from suppliers to refine our greenhouse gas baseline and also enable progress tracking. And in parallel, we're piloting a digital solution to collect carbon footprints by material. We're also working directly with our suppliers to help them make progress. For example, we've launched our P&G supplier greenhouse gas reduction playbook, which clarifies our expectations of suppliers, but also share some learnings that we've had in reducing emissions from our own operations. And at the beginning of 2023, we also created what we call our P&G Climate Unlock Program, which provides education, resources and training that is powered by Schneider Electric's accelerate renewable electricity program, as we know that increased use of renewable electricity in our supply chain can help drive progress against our goals. The last is all about collaboration and partnering with our suppliers on decarbonization technologies. We're working with leading suppliers in the CPG industry and our upstream value chain on piloting short-term pilots as well as longer lead time decarbonization projects that could be 5-plus years out. And this work is very important to help both P&G and our suppliers meet our mutual decarbonization goals while continuing to provide ingredients and materials for superior products and consumer value. So while we've placed a significant focus on the consumer use space, given the size and -- of the opportunity will impact. You might recall from last year that we have also established an ambition to achieve net zero greenhouse gas emissions across our supply chain and operations by 2040. So when we say net zero, what we mean is we will seek to significantly reduce emissions by 2040. And what we do not eliminate operationally will offset via natural or technical solutions that sequester an equivalent amount of greenhouse gas emissions from this year. The scope of our net zero ambition includes our supply chain emissions, which are our cradle-to-gate emissions for both the ingredients and packaging we use, it includes transportation, in terms of inbound transportation of raw materials and outbound transportation of finished product, and it also includes our manufacturing emissions, which are often referred to as Scope 1 and Scope 2. Now to help these, our progress towards 2040, we established interim targets for 2030, all of which have been validated by the science-based targets initiative, and we're making good progress against these goals. So we had a goal to reduce Scope 1 and 2 emissions by 50%. And as you can see on the slide, we've already achieved 58%. So this year, we increased our ambition and came forward with a new goal to reduce those emissions by 65%, which has also been validated by the science-based targets initiative. We also have a goal to purchase 100% renewable electricity, and we currently stand at 99%. We have a goal to reduce supply chain emissions by 40% per unit of production. Last year, we reported approximately an 8% reduction across our priority categories of Fabric Care, Beauty and Baby Care, where the bulk of our emissions reside, and we feel very good about that result. And we have a goal to reduce our finished product, freight emissions intensity by 50%. Now we did face some headwinds this past year from supply chain challenges that required longer, less favorable lanes and modes of transportation, but we are confident that the interventions we have in place will get this moving in the right direction, but there's also a broad recognition that industry-wide infrastructure improvements will be needed long term for industry to continue to advance progress. If we turn to Waste, P&G has been focused on issues related to packaging and waste for well over a decade. And we know our responsibility starts with the design of our packages, but also recognizes that driving increased circularity of packaging is a systems challenge, and we have a role to play in catalyzing system changes that can unlock greater circularity. Now one example of our design efforts is Head & Shoulders BARE, which delivers superior antidandruff performance with the bare minimum of ingredients. In fact, there's only nine ingredients in the product. And it's now in a bottle, which contains 45% less plastic versus our regular bottle. In fact, it's so likely that you can roll it up like a toothpaste tube to squeeze out that last drop of dandruff protection. And BARE SKUs are already the #1 and #3 top new SKUs in the category in the U.S. Another example comes from our Vicks DayQuil and NyQuil brands. They have launched ultra-concentrated liquid caps that are 25% smaller than the original ones and are now packaged in recyclable bottles. This addresses two main consumer pain points. First, blister packs that were hard to open; and second, large liquid caps that were hard to swallow. So again, another great example of irresistibly superior and more sustainable. And it's innovations like this one that have enabled Vicks to retain its position as the leading OTC health care brand in the world and increased U.S. market share by nearly 200 basis points versus the prior year. Gillette and Venus have also developed and launched cardboard packaging with a noticeably better opening and usage experience for consumers. It's improved the look at the packaging, including better Gillette and Venus branding and transformed the shelf presence at retail and online. The Gillette and Venus brand restages drove category growth and mid-single-digit brand growth in Europe and the U.S. This also resulted in a 67% virgin plastic reduction and improved recyclability, helping contribute to progress against our packaging goals. P&G brands have been the main drivers of global shaving category growth with Venus sales growing double digits and Gillette up mid-singles over the past 3 years. Another great example comes from Lenor, Lenor Unstoppables, replaced the plastic bottle to a recyclable Forest Stewardship Council-certified cardboard pack, delighting consumers with an easy open cap, easy dosing and pouring and allowing them to experience the same, even when the package is close. The package contributed to sales up 40%, driving category growth, reducing costs and helps to avoid the equivalent of about 2,800 metric tons of plastic. The team then took superiority to the next level by combining the introduction of the new package with a now older product upgrade, further driving irresistible superiority and contributing to more sales and reduced costs. Now in addition to innovative product and package designs that are more sustainable, P&G is engaged across industries that essentially every node to advance the circular economy of plastics. One example is our leadership in the formation of The Alliance to End Plastic Waste, where Jon currently serves on the Alliances Board. We're also investors in Circulate Capital, which is funding pilot programs across Asia to find scalable collection, sorting and recycling models that can be expanded in clinical markets. Other examples include breakthrough innovations we've created and subsequently licensed for external use across industry. One example of that is our Virtual Beta process in the area of polypropylene and polyethylene recycling, which takes recovered resin and returns it to a near virgin like state. Now regarding progress against our goals, our key 2030 goals for packaging are first, designing 100% of our consumer packaging to be recyclable or reusable. As of last fiscal year, we were closing in on 80% and that represents a significant improvement versus just 2 years ago when we were at 55%. The second goal is reducing virgin petroleum plastic packaging by 50% per unit of production versus a 2017 baseline. We reached a 13% reduction last year. And for perspective, P&G has doubled recycled material usage over the last couple of years to 100,000 tons, and we're projecting to double that again over the next 2 years. In fact, by 2030, we expect to be using roughly 400,000 tons of recycled material, which would represent a 10-fold increase versus our 2017 baseline. If we turn to Water. Water is a focus area for P&G as all of our manufacturing facilities require water to operate and about 2/3 of our products require water during the consumer use case. In addition, we know that water stress is increasing around the globe. In fact, estimates are that at least 50% of the world's population, so roughly 4 billion people live under high water stress conditions for at least 1 month of the year. And so our water strategy has the three key focus areas you see on the slide: reducing water in our own operations, restoring water and water stress basins and responding to water challenges through innovation and partnership. Now last year, we shared examples of how product innovation could help reduce water in the consumer use phase. And we highlighted examples like cascades efforts to encourage consumers to skip the pre-runs because the product cleaned so well, they don't need to pre-run and that can help reduce water use in the home. Product innovation can also play a role in decreasing the amount of water in our products. And while the total volumes are less than those in the consumer use space, by reducing water in the formula, these innovations can help our manufacturing plants, advance progress against their water efficiency goals. Now one of the benefits of our Tide PODS' innovation was actually a significant reduction of water in the formula versus traditional liquids. The design of PODS with three or four separate chambers, allows us to include different chemistries in the product with only 12% water. It's the water and the washing process that does the mixing for us. So we effectively provide the convenience of a unit dose with superior performance. And now we're taking this to the next level with Tide evo, which is currently in test market in Colorado. Evo is a multilayer dry form unit dose that also enables multiple chemistries in the finished product and is designed to dissolve instantly upon touching water. It's packaged using paperboard that reduces plastic usage and delivers improved storage efficiency given a shake. Again, a great example of irresistible superiority with a sustainability focus. We're leveraging a similar drive form technology to create new OLAY Cleansing Melts. Melts are made with just eight concentrated ingredients, that's about 6x fewer than many competitive cleanses. It includes a deep yet gentle cleansing system that is spun into three layers of dissolving threads that clean, tone and refresh. Again, this represents irresistible performance in a product that's easier to store, lighter weight and enjoyable to use, and all of that comes in a recyclable box and trade container. This is another great example of innovation and in this case, represents proprietary technology with about 50 patents. Now most important, the initial consumer reaction has been outstanding. We're receiving the highest testing scores since the launch of OLAY Daily Facials in 2004. In late April, we began building an online waitlist for Melts on olay.com and exceeded all previous consumer waitlist in just 4 days. OLAY Cleansing Melts will launch nationally later this summer. If we look at operations, we have two overarching water goals for 2030. We're seeking to increase water efficiency by 35% per unit of production and recycle 5 billion liters of water every year. As you can see on the slide, we're making good progress towards our goal. In addition, P&G has conducted a 3-tier water risk assessment to identify P&G manufacturing sites that are in areas with high water stress. We refer to these as Tier 3 sites. All Tier 3 sites, and there's about 33 in total, now have site-specific water action plans that they are implementing. The fourth pillar in our environmental strategy is Nature. Unfortunately, research and data continue to point to declining health of ecosystems around the world and the significant loss of biodiversity. So our nature pillar captures the efforts that we have had in place for many years and the more recent commitments that we have made. Now the foundation of our efforts in the Nature pillar continues to be ensuring the responsible sourcing of key commodities like wood pulp and palm oil. Second focus of the pillar is on protecting, improving and restoring critical ecosystems that are relevant for the commodities that we source. Now we have published a consolidated Forest Commodity Sourcing Policy in May of last year. It includes four key focus areas that from our benchmarking puts P&G among the leaders in this area. This includes a very clear commitment to no deforestation and an explicit policy expectations for our suppliers to maintain no deforestation. It also includes requirements for third-party certification of wood pulp and palm oil, and these third-party certification systems also include independent compliance audits of supplier practices. We also have robust compliance monitoring that goes beyond what's required by the third-party certification system. For wood pulp, that includes biennial field assessments of suppliers and by annual desk side audits. For palm oil, we're using third-party satellite monitoring of our palm sourcing regions, and we're now piloting a similar process for wood pulp sourcing regions in Canada to get even more granular data on sourcing regions that may border in tech forest landscapes. The last component of our systems are the public grievance process that we have in place, should we receive any allegations of non-compliance, we share that through a public grievance log. We also share the results of investigations and any actions that we have taken, and that public grievance log is available on our ESG portal. So in the area of wood pulp, our ongoing goals and ambitions are: first, to achieve 100% of wood pulp certified by globally recognized systems, and we have been consistently achieving and maintaining that goal. We also have a long-term ambition to achieve 100% FSC certification for our Family Care brands, which we view as being FSC certification. We view that as being the most robust certification available. Our Family Care brands reached 90% FSC certification last fiscal year, and this really is a significant achievement because the supply of FSC-certified fiber is limited. In addition to that, we also have a 95% FSC certification target for the provinces of Quebec and Ontario in Canada. Now these provinces have been a focal point for efforts to protect Caribou Habitat and FSC certification provides robust Caribou Habitat Protection Provisions. Our Family Care business achieved 97% FSC certification in these provinces last fiscal year, clearly exceeding our target. If we turn to sourcing of the Palm oils, our goal is 100% RSPO Certification for palm oils used in P&G brands, which we have achieved and maintained. Now if we broaden this out to all palm oils, which would include those used in our chemicals business and subsequently sold to external parties, we achieved 100% RSPO-certified palm oil, but supplies of RSPO-certified palm kernel oil still remain limited. So that resulted in an 84% RSPO certification overall. The main barrier to reaching 100% is the industry-wide need for more certified supply of palm kernel oil. Rounding out, Nature, is our paper packaging efforts. We're making great progress towards our goal of having 100% recycled or third-party certified virgin fiber content. And of that virgin fiber content, we're well ahead of our 2025 goal to have at least 50% of that fiber FSC certified. And finally, we often get questions around whether or not we respond to CDP. The answer is we do. And this slide captures our latest scores across climate, water, pulp and palm. So with that, I will now hand things back over to Jon.

Thanks, Jack. I hope that was a helpful overview of our work and progress across the environmental, social and governance areas for P&G. I hope you got a strong sense of the integrated nature of that work that I described at the onset of this discussion. That helps ensure that we increase in the case of environmental sustainability that we continue to make strong progress while building, Jack gave you many examples, the superiority of our products as a result, growing our business, generating returns for shareowners. With that, we'll be happy to take your questions.

Great. Thank you, Jon. We have several questions in the queue. We'll start with one. Jack, I think you probably leave the response to. First question is, will P&G comply with EU note deforestation regulations and what will be the impact?

Yes. Thank you, John. So I think the short answer to that question is, as we do everywhere we operate, we comply with applicable laws and regulations. However, I think it's important to acknowledge in this case that P&G does not own or manage for us, right? So the primary obligations for compliance will be on our suppliers. And they know the importance of compliance, because this is not unique to P&G. This impacts all of their customers. So we've been working with our suppliers to understand their compliance plan. Now there are still some detailed guidance on some aspects of the EU rule that are still pending. So for example, the EU is planning to characterize countries as either high standard or low risk. And I believe that level of detail is still pending. So there's a few details to be determined. I also think it's important to just acknowledge that specific to our Family Care business, which is our tissue towel business, that is a North America only business, so U.S. and Canada. So the finished products that we sell are not in scope for the EUTR. So the impacts there will be limited. So I guess I'll just close by where I started, which is as we do everywhere we operate, we'll comply with applicable laws and regulations.

Okay. Next question. Jon, in related innovation, can you discuss where P&G stands with innovation and R&D embedding sustainability into innovation and the opportunity you see for sustainability to drive category growth and share gains going forward?

It's totally embedded from what we refer to as the front end of innovation through to commercialization. It's a fundamental part of the design process because we believe that in many cases, it increases consumer delight. So Jack gave us a couple of examples, I think, which brings this to life well. The integration of environmental sustainability with washing superiority in cold water on products like Tide Evo. That project has had a component of environmental sustainability as a driver of consumer delight from its inception. There was always an objective to be able to use less water to be able to enable consumers to use less energy, to use less energy and transportation because of the compact packaging to be more shelf-friendly and warehouse friendly for our retail partners, while increasing the level of cleaning performance. So I'll just leave it there. I spent a fair amount of time with our R&D teams and our business leaders on these topics. I believe the organizations are fully aligned and integrated on the and nature of this work. I see very little work that isn't driven by both objectives.

And maybe, Jon, if I may, one more mechanical element of that integration is the work we've been doing over the past 2 years to build an integrated data infrastructure and the work on life cycle analysis we mentioned, because fundamentally, we need to be able to claim the sustainability advantages in a credible way. So they come to life for consumers and the communication on the pack, and that is the enabling element to being able to do them.

And we talked a little bit earlier about life cycle analysis. If we were working on a project or a strategy for a category 5 to 10 years ago, that would not have been an active part of the discussion. That is a very active part of the discussion currently. So when we're presented with different, for example, packaging options, one of the first questions is which of these has the best LCA footprint. So again -- and this is really important because the integration of this work, as we talked earlier, into the entirety of the business activity system was, in my view, the only way that we were going to make substantive progress. And there was a time when most of this work was approached from a central standpoint or a corporate standpoint. That was never going to work. And I really applaud the business units for their receptivity to make this in part of their work and they were embrace of its potential. That gives me more confidence in our ability to make progress jointly on superiority, on sustainability and importantly, on shareholder return than anything else.

Great. There's related follow-up question that we kind of came right up to the edge of. What kinds of -- it was acknowledging the improvement we made in packaging and laundry. And the question is what kinds of other product reformulations are in the works that can enable more products to be packaged in cardboard or other biodegradable packaging?

Obviously, we're not going to discuss at this juncture innovation that's in the pipeline or has not yet been announced to the market. But Jack cited the tremendous consumer response that we've seen as some of those packages have been introduced. We've also seen tremendously positive response from our trade customers, not just because of the growth of the market, which is incredibly, incredibly important, but from an operational efficiency standpoint. So you can assume that we're working to apply those concepts in other areas. It's not as straightforward as you might initially assume. It gets back to the LCA question. We want to make sure that we're only doing things that truly present an environmental end consumer benefit. The Tide Evo project, which Jack also talked about, and he talked about Olay Melts, that's an amazing platform. We're still in test market on both of those. I want to be very, very clear about that. We've got a lot of work to do to prove both concept and affordability and the industrialization process. But they're very, very unique, because they combine P&G's two major platform strengths from an innovation standpoint, one being substrate technology, the other being formulated chemistry. And this allows us to combine chemistries in very unusual and exciting ways. And that you can -- without me describing the exact applications, you can easily envision that, that's something that might be relevant in categories beyond laundry detergent and facial cleansers.

Okay. Next question relates to climate. Jack, SBTI validated P&G's near-term commitments, but P&G's net zero commitment was removed from the SBTI dashboard earlier this year, along with many other companies. Does P&G plan to continue pursuing validation for the long-term targets? And will it demonstrate that its long-term commitment aligns with 1.5 degree Celsius goal of the Paris Agreement?

Yes. Thanks, John, and that's a great question. So the first thing that I think is super important is that none of our commitments have changed, right? So I've described our net zero ambition across our supply chain and operations by 2040 and the fact that all of our 2030 targets across Scope 1, 2 and 3 have all been validated by the SBTI. SBTI did publish a net zero standard after we announced our net zero ambition. And that standard was fairly prescriptive on how to achieve net zero and added some additional requirements within that standard. And if you look at our commitments today, right, net zero by 2040, which is 10 years ahead of what the science says, and 2030 targets that have been aligned or validated by the SBTI, that is very much science-based and consistent with the science. So we did not elect to pursue net zero validation at this time, but the SBTI has announced that they are reopening a feedback process to the standard, and we're expecting to hear updates from SBTI on some potential changes probably within the next 3 months. And so when that happens, we'll reassess where we are.

And at some risk, while I understand the value of targets, and they've been valuable in evolving our own thought process. I think we need to evolve the conversation quickly beyond that to action. And that's what we've tried to do in the conversation this morning. And action with this broadest footprint as possible, whether that's in the social space or the sustainability space because that's what will make a difference. And again, I'm not dismissing the importance of targets. I acknowledge they've been helpful. But I really want to take the majority of our energy and effort and apply it to action.

Next question related to Waste. In terms of Waste Sustainability, how do you make sure that all recyclable packaging is actually collected and processed given your global presence, what influence do you have?