Coca-Cola: A Major Part of the Problem, but Working to a Solution

Coca-Cola’s efforts to reduce its carbon footprint are a noble endeavor, but the company still has plenty of room for improvement

The reality of climate change is becoming increasingly difficult to ignore.  Changing weather patterns, increasing droughts, and rising temperatures are having pronounced impacts on businesses worldwide.  This is especially true for businesses within the global food and beverage industry, whose agricultural inputs are inherently reliant on the predictability and consistency of weather patterns, crop yields, livestock health, and other climate-dependent factors.

The food and beverage industry is the single largest consumer of agricultural raw materials, and climate change endangers its future.  Ironically, however, businesses in this industry have had enormous contributions to greenhouse gas emissions – the ten largest food & beverage companies, if combined, would represent the 25th most polluting country in the world.[1]

With climate change comes increases in temperature, CO2 content, and the rate and severity of droughts and floods, all of which threaten both the reliability and predictability of crop yields.  Scientists at NC State and Columbia University have predicted that by 2100 greenhouse gases could reduce crop yields by 30-46% under slow global warming scenarios and 63-82% over rapid global warming scenarios (Exhibit I below provides some context to the expected crop yield changes between now and 2050). [2]  All crops have optimal temperatures for reproductive growth, making reducing and adapting to climate change of utmost importance for food and beverage companies.[3]

Coca-Cola is one such company.  A major, global leader within this industry, Coca-Cola understands the importance of controlling human impact on the environment for the future viability of its business.  Though Coca-Cola does not own or operate any farms, it relies on the agricultural output of those farms (which it receives from its suppliers), to manufacture its end products – half of the company’s spend on procurement goes to its agricultural inputs.[4]  The company relies on millions of tons of fresh fruit, corn, tea, sugar, coffee and other ingredients every year.[5]  Coca-Cola’s long-term success depends on its ability to maintain reliable supply of those products.

However, Coca-Cola is also part of the problem – the company emitted 59 million metric tonnes of GHG in 2010 alone (roughly the size of Norway’s total annual emissions).[6],[7]

Given both the importance of climate change on its business and its huge carbon impact to date, Coca-Cola has done a good job in taking steps to boost its long-term sustainability, both for itself and for its peers across its entire value chain.  In 2013, the company announced a partnership with the World Wildlife Fund to cut the carbon emissions linked to each of its products by 25% before 2020 (off a 2010 baseline) (i.e., reduce the carbon footprint of the “drink in your hand” by 25%).  This is a comprehensive proposal that focuses on the entire value chain – ingredient sourcing, manufacturing processes, packaging formats, delivery fleet, and refrigeration equipment.[8]

The company has certainly made progress, cutting the CO2 embedded in the “drink in your hand” by 13% at YE2015, and it has done so through multiple initiatives.[9]  For example, the company has taken drastic measures in reducing the carbon footprint of its commercial fleet.  Coca-Cola has transitioned its transportation vehicles to become the largest heavy-duty hybrid commercial fleet in North America, with over 650 hybrid delivery trucks, and has also begun building a fleet of zero-emission trucks of alternative fuel vehicles (AFVs) in North America, which currently exceeds 750 vehicles.[10]  In addition, Coca-Cola has emphasized improving the environmental performance of its refrigeration systems with HFC-Free coolers.  The company has spent over $100 million over the past decade to make its coolers more socially responsible, developing devices that reduce electricity use by monitoring usage patterns and adjusting lighting and temperature to maximize energy efficiency.[11]

I applaud Coca-Cola for setting demanding targets for itself and setting a positive example as a leader of an industry that is in dire need of limiting and ultimately reversing its carbon footprint.  While I certainly believe that Coca-Cola has made solid progress on its initiatives to date and is on track for its 25% improvement by 2020, Coca-Cola still needs to de-couple its growth from its carbon footprint.  As a company that continues to look to expand, particularly in emerging markets, it should do everything necessary to make the changes and advancements required such that the company’s future growth does not increase its GHG emissions.  To do so, the company needs not only to increase its energy efficiency, but, more importantly, to make more of an emphasis on renewable energy sources for its manufacturing facilities.  Eventually, I hope the company can eventually come to rely more on clean energy technologies like wind, photovoltaic, hydraulic and biomass for its manufacturing – after all, it’s long-term future depends on it.

Exhibit I

exhibit-1

 

Word Count: 771

[1] Oxfam Canaca, “Big ten food companies emitting as much as the ‘world’s 25th most polluting country,’” https://www.oxfam.ca/news/big-ten-food-companies-co2-emissions-2014-05-20.

[2] World Resources Institute, “The Global Food Challenge Explained in 18 Graphics,” http://www.wri.org/blog/2013/12/global-food-challenge-explained-18-graphics.

[3] EPA, “Climate Impacts on Agriculture and Food Supply,” https://www.epa.gov/climate-impacts/climate-impacts-agriculture-and-food-supply.

[4] Coca-Cola, “COP21: Climate Talks Should Include Crops,” http://www.coca-colacompany.com/coca-cola-unbottled/cop21-series–climate-talks-should-include-crops.

[5] Coca-Cola, “Sustainable Agriculture,” http://www.coca-colacompany.com/sustainabilityreport/world/sustainable-agriculture.html.

[6] Coca-Cola, “2012/2013 Climate Protection Report,” http://assets.coca-colacompany.com/74/9d/4a39e1f6490bad6c44ebc3da4dec/2013-climate-report-pdf.pdf.

[7] The World Bank, “CO2 emissions (kt),” http://data.worldbank.org/indicator/EN.ATM.CO2E.KT?name_desc=false.

[8] The White House, “White House Announces Additional Commitments to the American Business Act on Climate Pledge,” https://www.whitehouse.gov/the-press-office/2015/11/30/white-house-announces-additional-commitments-american-business-act.

[9] Coca-Cola, “An Ambitious Goal: Reducing Carbon in Our Value Chain,” http://www.coca-colacompany.com/an-ambitious-new-goal-reducing-carbon-in-our-value-chain.

[10] Coca-Cola, “Sustainability Update: Energy Efficiency and Climate Protection,” http://www.coca-colacompany.com/our-company/sustainability-update-energy-efficiency-and-climate-protection.

[11] Coca-Cola, “2014/2015 Sustainability Report,” http://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/2015/09/2014-2015-sustainability-report.pdf.

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3 thoughts on “Coca-Cola: A Major Part of the Problem, but Working to a Solution

  1. Coming from the beverage industry I can attest that sustainability is top of mind both from a corporate responsibility standpoint and from the potential it has to reduce costs in the long-term. I agree with your assessment that there needs to be improvement across the entire value chain. I know that at Red Bull we are following Coca Cola’s lead and have introduced hybrid and electric trucks to our Red Bull-owned distribution fleets and have eliminated coolers containing HFC from our POS supply. For more on Red Bull’s sustainability practices see: http://energydrink-us.redbull.com/en/can-lifecycle

    I’m curious if you came across any research on how Coca-Cola is working to reduce waste in their manufacturing and distribution plants. This was a huge challenge for us at Red Bull since our products do have expiration dates and failure to properly forecast can result in millions of dollars worth of expired goods sitting in warehouses. I wonder what practices Coca-Cola has put in place to mitigate this.

  2. Prior to coming to HBS, I worked for a startup in Boston that was founded on the basis of trying to cut out the greenhouse gas emissions required to ship drinks to the consumer. The startup manufactured a machine that drew in tap water, and turned it into a variety of sparkling and flavored waters, which consumers would then dispense into their own water bottles. I’m glad to hear that Coca-Cola is working to reduce the carbon footprint of its commercial fleet by adding more eco-friendly vehicles.

    However, one are Coca-Cola can not control is what happens to their products after the consumer purchases it. Will the consumer recycle the bottle or can? As the price of oil decreases, many recycling facilities are shutting down, as it is not worth it to recycle (http://www.wallstreetdaily.com/2016/02/18/cheap-oil-recycling-industry/). It would be great to see Coca-Cola working with these facilities to try and increase recycling rates, or coming up with an alternate solution.

  3. Great read. As you mentioned, Coca-Cola’s ambitions are admirable, but I wonder whether a more targeted approach to reducing GHG emissions would serve the company better. The Company’s scale seems to beget a multi-pronged energy reducing strategy, ranging from sourcing to delivery. And yet, I am sure that out of all the strategies Coca-Cola is employing, there is one that is dollar-for-reduced-emission most effective. Purely from an economic standpoint, I would suggest Coca-Cola maximize this program first, before branching into other segments, at least in the short-term. I imagine that the multi-pronged approach is consequence of having to satisfy the energy-reducing desires inherent in having a plethora of constituents. Long-term, I think you hit the nail on the head. Coca-Cola needs to make an emphasis of using clean energy in its plants, but here the Company is constrained by the technology and renewable energy supplies available. Unless Coca-Cola were to itself invest in these renewable technologies, which I would vehemently oppose if I were a shareholder.

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