Coca-Cola: Quenching the Thirst of the Future Sustainably

As a global industry leader, Coca-Cola recognizes the far-reaching consequences of increasing greenhouse gas emissions and is committed to helping address key sustainability challenges.

Climate change is a global issue that has severe consequences for us all. One particularly challenging problem due to rising temperatures is a diminished freshwater supply, with an estimated overall water supply shortage of 40% by 2030 [1]. Additionally, according to the United Nations, approximately 1.6 billion people experience water scarcity, and water usage has been growing at twice the rate of population growth [2]. Fortunately, at least one company, Coca-Cola, a global leader in the beverage market that uses more than 300 billion gallons of water per year, recognizes this issue and is tackling it head on [3]. The company has publicly pledged to achieve an ambitious set of sustainability targets by 2020, including improving water efficiency, replenishing water used, and reducing CO2 emissions, to combat the effects of climate change and sustainably rehydrate the planet [4].

In terms of usage, by 2020 Coca-Cola aims to improve water efficiency in manufacturing operations by 25% compared with a 2010 baseline; however, it should be noted that the company has already made substantial progress [5]. For example, in 2004 the company used 2.7 liters of water to make 1 liter of product (e.g., Coca-Cola and Diet Coke), and today that figure is down to only 1.98 liters [5]. Through focus, effort, and significant investment, Coca-Cola has achieved 13 years of consecutive improvements and is well on its way to achieving its 2020 target of 1.7 liters of water usage per liter of product.

Exhibit 1: Coca-Cola Water Efficiency

exhibit-1

Although improving water efficiency is a great start, it is not enough, as even at an improved rate, Coca-Cola still uses more water (1.7x) than is contained in the resulting beverage. This is where Coca-Cola’s replenishment and recycling goal comes into play. Coca-Cola has committed to replenishing 100% of water used, an impressive goal. To achieve this, Coca-Cola has invested over $1 billion to process, clean, and return water used in the manufacturing process at a level that supports aquatic life, even when not required by local governments [5]. Additionally, the company has partnered with local communities to support a variety of water projects, such as improving water access and sanitation, also known as replenishment projects [5]. Combined, these two efforts returned over 100% of water used in 2015, five years ahead of plan [6].

Exhibit 2: Coca-Cola Water Use & Returned Water

exhibit-2-a

Finally, while it is certainly useful to address the water supply issue directly, it should be recognized that water shortage is only a symptom of a larger issue – global warming. Coca-Cola is also helping to address this underlying cause by aiming to reduce CO2 emissions across its value chain by 25% by 2020 as compared to a 2010 baseline. By sourcing more of its energy from renewable sources as well as meaningfully improving the average plant’s energy efficiency, Coca-Cola has made strong progress on this front to date. For instance, Coca-Cola has reduced the energy required per liter of product by approximately 10% since 2010 [5]. Although the company still has a ways to go to meet its 2020 target, the investments made will help not only Coca-Cola, but the planet as a whole.

Exhibit 3: Coca-Cola Energy Use Ratio

exhibit-3

Interestingly, years ago Coca-Cola would fight almost any change that resulted in higher water costs, according to Radtke, Coca-Cola’s water sustainability director. Now, however, the company is actually willing to pay more for water if it is going to be more sustainable [7]. Clearly Coca-Cola views addressing the challenges presented by climate change as a priority, and even more important, the company is actually on track in terms of meeting its bold 2020 sustainability targets [8]. In fact, Coca-Cola is so dedicated to meeting its sustainability goals that the company appointed the former CMO of Coca-Cola North America, Bea Perez, to a newly created role called Chief Sustainability Officer [9].

Admittedly, a key question for critics is whether Coca-Cola could, and should, be doing more. To the first, I say of course it could. In 2015, Coca-Cola generated more than $7 billion of net income and distributed nearly $6 billion to shareholders via dividends [10]. Instead, Coca-Cola could have used those funds to invest in additional sustainability efforts or donated to water conservation organizations, such as the World Wildlife Fund; however, in terms of should, that is much more controversial. To whom is Coca-Cola’s ultimate obligation? If it is to the world, then perhaps Coca-Cola should do more. If it is to the shareholders, then Coca-Cola appears to be doing enough.

(Word Count: 784)

Endnotes:

  1. “UN Predicts Serious Water Shortages by 2030.”com. The Weather Channel, 23 Mar. 2015. https://weather.com/science/environment/news/water-shortage-united-nations-report. 29 Oct. 2016.
  2. Liu, Jiaqian, and Yifei Fang. “The Analysis of the Clean Water Supply and Demand in the Water-Scarce Regions.”International Review of Management and Business Research 2 (2016): 379-99. ProQuest. 1 Nov. 2016.
  3. Davenport, Coral. “Industry Awakens to Threat of Climate Change.” New York Times. New York Times, 21 Jan. 2014. http://www.nytimes.com/2014/01/24/science/earth/threat-to-bottom-line-spurs-action-on-climate.html?_r=0. 29 Oct. 2016.
  4. “Our Sustainability Commitments.”  Coca-Cola Company, n.d. http://www.coca-colacompany.com/stories/2020-sustainability-commitments. 29 Oct. 2016.
  5. “Stories – The Coca-Cola Company.”  Coca-Cola Company, n.d. http://www.coca-colacompany.com/stories. 29 Oct. 2016.
  6. Moodie, Alison. “Coca-Cola to Reach Water Goal Five Years Early.” The Guardian. Guardian News and Media, 25 Aug. 2015. https://www.theguardian.com/sustainable-business/2015/aug/25/coca-cola-replenish-water-goals-early-watersheds. 29 Oct. 2016.
  7. Jordan, Steve. “After Water Usage Criticism, Coke Chooses Sustainability over Costs.” com. Omaha World Herald, 16 Sept. 2015. http://www.omaha.com/money/after-water-usage-criticism-coke-chooses-sustainability-over-costs/article_1fb395e1-9808-5f06-bfee-1da83fb3afe4.html. 29 Oct. 2016.
  8. “2020 SUSTAINABILITY COMMITMENTS: PROGRESS UPDATE.” (n.d.): n. pag.  Coca-Cola, 2015. http://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/2016/Scorecard-2020SustainabilityCommitments.pdf. 29 Oct. 2016.
  9. Albanese, Maya. “How She Leads: Coca-Cola’s Beatriz Perez.”  GreenBiz, 3 Oct. 2011. https://www.greenbiz.com/blog/2011/10/03/how-she-leads-coca-colas-beatriz-perez. 29 Oct. 2016.
  10. “KO Financial Statements.” Yahoo Finance. Yahoo, 2016. https://finance.yahoo.com/quote/KO/financials?p=KO. 29 Oct. 2016.

Photo & Exhibit Credits:

Cover Photo: “Our Sustainability Commitments.” Sustainability. Coca-Cola Company, n.d. http://www.coca-colacompany.com/sustainability. 29 Oct. 2016.

Exhibit 1, 2 & 3: “Stories – The Coca-Cola Company.” Stories. Coca-Cola Company, n.d. http://www.coca-colacompany.com/stories. 29 Oct. 2016.

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5 thoughts on “Coca-Cola: Quenching the Thirst of the Future Sustainably

  1. Anthony – Thanks for the article. It’s interesting that often only after facing a crisis is a company sufficiently motivated to focus on sustainability. Coca Cola’s CEO Muhtar Kent, for example, attributes the company’s sustainability efforts to a particular experience in India, which Muhtar Kent refers to as Coca Cola’s ‘water wakeup call.’ Twelve years ago, Coca-Cola’s Indian operations faced public outcry for misusing water during a national drought. [1] While the company was cleared of any legal wrongdoing, the accusations resulted in various plant closures and damage to Coca-Cola’s reputation. [2] Following that experience, Coca-Cola made water sustainability a key business priority and in 2007 committed to replenishing all the water the company used. More often than not, companies can point to a particular experience that acted as their ‘sustainability wakeup call’ where management realized that sustainability efforts and corporate profitability are not separable goals.

    To your question of to whom is Coca-Cola’s ultimate obligation, I would argue that the ultimate obligation will always be to shareholders. At the same time, however, I would argue that Coca-Cola’s sustainability investments and donations ARE in the best interest of shareholders. Companies (as stewards of shareholder capital) are beginning to recognize that thoughtful management of environmental, social, and governance (“ESG”) issues is smart business and is essential to long-term success in a rapidly changing world. Only by carefully managing ESG risks and opportunities can a business be well situated in an uncertain future given diminishing resources, changing consumer demands, and increased regulation. I only hope that for those companies that have not yet experienced their ‘wakeup call,’ it isn’t too late.

    [1] https://www.theguardian.com/money/2006/mar/19/business.india1
    [2] http://www.environmentalleader.com/2016/08/31/coca-cola-ceo-reducing-water-use-inside-our-operations-isnt-enough/

  2. Anthony, thanks for the post – very important topic! To your question about doing more – Coca-Cola is also one of the largest producers of plastic bottles. So, they are also trying to move in this direction, by reducing the plastic usage, recycling and introducing the world’s first PET plastic bottle made entirely from plant materials last year.
    http://www.coca-colacompany.com/sustainabilityreport/world/sustainable-packaging.html#section-creating-more-efficient-packaging
    http://www.coca-colacompany.com/press-center/press-releases/coca-cola-produces-worlds-first-pet-bottle-made-entirely-from-plants

  3. Given the strength of the brand, which has been critical in fueling its continued growth and expansion around the world, I actually believe that taking a strong stance on sustainability and environmentalism will be important for its continued relevance as a symbol of lifestyle and progress.

    As Stan has pointed out, this is why Coke has begun to adopt a greener face – as green as one can be as a peddler of plastic bottled drinks. With all of Coke’s strengths, I wonder if they will also be able to help consumers transition to more sustainable actions and habits to enjoying softdrinks.

  4. I think the question you pose at the end is critical in thinking about addressing climate change. Ideally, incentives would perfectly align, and it would be in both the best interest of shareholders and the planet to make a variety of significant changes to be more sustainable. I would argue that many of the changes they are making will in the long run (if not already) help profitability by increasing resource productivity. In the long term, as demand for water continues to rise, these changes can help to serve as a way of mitigating their exposure. If it were a private company, then incentives would align better… But the pressure for public companies to make quarterly earnings make these types of long term investments imperfectly aligned with shareholder interests.

  5. Given the relevance and volume of the company, I was surprised by such an aggressive target of improving water efficiency by 25% in 10 years. I was curious to learn more about how they plan to do it and what advancements were already done to accomplish it. Also, how they competitors do? Are they less or more efficient? For sure, water management is a priority for beverage companies, so we must see a lot of development in the following years.
    For beer companies, the ratio of water-to-beer is 3:1, so Coca-Cola is already ahead in the race.
    http://www.environmentalleader.com/2016/10/14/anheuser-busch-coca-cola-millercoors-take-on-water-security/

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