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Chipotle Mexican Grill Photo courtesy of Chipotle
Chipotle's "responsible restaurant design" with all-electric features.

How Chipotle is ‘thinking outside the box’ to achieve ESG goals

Chipotle adjusted some of its priorities during Covid but is now ready to accelerate its progress with expanded executive incentives and more collaborations.

Chipotle first announced its carbon footprint reduction goal in late 2021, aiming to shrink its greenhouse gas emissions by 50% by 2030 from a 2019 base year.

The chain recently identified some new ways in which it plans to achieve that goal, including the introduction of a “responsible restaurant design,” with all-electric features from the kitchen to the solar panel rooftop. Two restaurants are already open with these design elements, and a third is planned for the summer. Further, more than 100 of the chain’s new restaurants opening next year will feature some of the design’s new elements.  

As the company aims to more than double its footprint – from its current 3,200 units to 7,000 – the new restaurant design is likely to come heavily into play with that 2030 goal in mind. Of course, this is far from the only effort Chipotle has made toward its broader environmental, social and governance goals.

“The principles we were founded on – how food is raised or grown or harvested really mattering – naturally lead to ESG efforts. Our founding principles came before CSR [corporate social responsibility] or ESG was a thing,” Laurie Schalow, Chipotle’s chief corporate affairs and safety officer, said during a recent interview.

That said, Chipotle didn’t formalize a report on its progress until 2018. Earlier this month, the company released its most recent sustainability report to the tune of 129 pages, outlining the progress that has been made since then. The focus has remained on three areas – food and animals, people, and environment – but it has become sharper since the onset of Covid.

“Like most companies, we set goals and targets; some are short term, some are long term. We’ve tried to be more transparent. What has changed in that time is now there is a lot more demand for this work,” Schalow said. “ESG is what investors are talking about. They’re more focused on environmental issues now than ever, so we talk about things like emissions reductions and what we’re doing to support a lower-carbon economy. We’re all more focused now.”

Indeed, ESG assets are on pace to constitute more than 21% of total global assets under management in the next five years. Schalow notes that Chipotle has a bit of an advantage as more companies lean into this work, however, having adopted the “food with integrity” slogan in 2001 to illustrate its sourcing mission. With that sourcing and its growth in mind, the company acknowledges its impact on climate change specifically in its most recent report, which has driven its adoption of several new strategies such as construction diversion, Energy Management Systems and the purchase of renewable energy.

These ESG initiatives require a hefty investment, but Schalow said the business case – and return – has become clearer, and plenty of studies back that up. As such, 89% of investors believe the inclusion of ESG metrics is important for annual and long-term incentive plans, according to WTW.

“It’s not often you find an opportunity that is great for the environment, great for people and great for business. We’ve always done that. It’s always been important and expected from our brand,” she said. “We believe we have a duty and a responsibility to be a leader in these areas.”

Five years since that first report and Schalow says she “feels great” about the progress the company has made, though some adjustments were necessary because of the pandemic, including simplifying some of this multilayered work.

“We’ve learned that we need fewer goals because there’s a lot involved to achieve them and add it onto a daily routine. Covid set us back a little bit because we had to focus on other priorities during that time, like keeping our employees safe,” Schalow said.

Still, the only goal that hasn’t yet been met is Chipotle’s supplier diversity program, introduced two years ago to increase minority-owned businesses’ access to its sourcing opportunities.

“Our supply chain just couldn’t get to it during Covid because they had to pivot and worry about getting hand sanitizer and masks to our restaurants. It was a setback that shows where our business priorities changed,” Schalow said. “We get frustrated with the Covid excuse, but the reality is we did have a shift in our business and were doing a lot of things just to stay open, like changing our hours of operation because we didn’t have the right staffing.”

Chipotle has since adopted what it calls Project Square One to get its operations back on track. It is also working to get back to full staffing levels and is currently on a 15,000-employee hiring spree. As the company gets back to those basics, Schalow anticipates additional progress toward its ESG goals. Much of that progress could even accelerate as Chipotle recently increased executive incentive bonuses tied to achieving certain sustainability goals, which Schalow said has been a significant catalyst.

“It helps us make better business decisions tied to those goals. If you set a goal and you have targets around it and tie it to compensation, you’re going to make sure you have a solid strategy in place to make it happen,” she said. “This has become very top of mind for everyone. We’ve moved from qualitative to quantitative, which has been very important to investors – to all of us.”

The scope of “all of us” has even expanded, which has been another catalyst. As Chipotle moves forward, it will focus on partnerships like those forged through its Cultivate Next program. The program launched last year to enable the company to make early-stage investments into “strategically aligned companies” that support Chipotle’s mission. Such collaboration opportunities are what excites Schalow the most as the company continues its ESG journey.

“I think about the blocking and tackling that can be done when we come up with creative, innovative partnerships that can help us achieve our goals,” she said. “We’re looking at things like keeping gloves out of dumpsters and turning them into trash can liners or reusing avocado pits and turning them into cutlery. We’re also looking at startup companies that can help us achieve our goals. There is a lot of innovation in this space that could help us. We’ve got to think outside the box to accelerate our achievements here.”

Contact Alicia Kelso at [email protected]

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