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Is Coca-Cola Serious About Conserving Water?
 
By LING WOO LIU/SHANGHAI
Time Magazine
June 12, 2008

The global-warming debate has introduced some new catchphrases into the business lexicon. Becoming carbon neutral, for example, is now a goal for multinationals like Dell, HSBC and Tesco. But for another well-known international brand, becoming carbon neutral isn't enough. Last June, Coca-Cola CEO Neville Isdell flew to Beijing and pledged that his company would become "water neutral" every drop of water it uses to produce beverages would be returned to the earth or compensated for through conservation and recycling programs. "Water is the main ingredient in nearly every beverage that we make," Isdell said. "Without access to safe water supply, our business simply cannot exist."

Coca-Cola sells 1.5 billion beverages a day in over 200 countries, and it takes about 2.5 liters of water to produce just one liter of its products at Coke's bottling plants. In 2006 Coca-Cola and its bottlers used 80 billion gallons (290 billion liters) of water to produce its beverages equivalent to one-fifth of the daily water usage of the U.S. Some 40% of that went into drinks like Coke, Sprite and Fanta. The other 60% was consumed by the firm's supply chain and in the production of ingredients, including the water-intensive process of growing sugar and corn for corn syrup.

That big thirst is why it's essential that Coca-Cola addresses water issues as part of its corporate social responsibility program, says Jeff Seabright, the company's vice president of environment and water resources. Population growth and climate change mean that water is no longer available in seemingly limitless quantities and Coke needs to be part of the solution, not part of the problem. "It's great that companies used to hand out checks for scholarships or to clean up litter," says Seabright, "but increasingly the real relevance is using the company's core competence to address issues that are of societal concern." In its CSR initiatives, Coke last year announced it would spend $20 million over five years to help the WWF preserve seven of the world's major rivers. The firm is also working with partners on conservation projects in water-stressed areas throughout the world.

Coke isn't the only company tilting its CSR program toward the environment. Strained natural resources and growing pressure from NGOs, governments and consumers are forcing firms to address sustainability. In the past, "shareholder interests have dominated how the economy is run," says David Bevan, a sustainability expert at the University of London Royal Holloway's School of Management. "Now, it's more about being a community player." But Coke's water-conservation efforts go beyond altruism. It's trying to protect its brand and ensure the availability of a crucial ingredient. By 2025, two-thirds of the global population will face water shortages due to climate change, urbanization and population growth, according to a recent JP Morgan report. Marc Levinson, lead author of the report, says businesses that don't address looming shortages run the risk of plant closures, water rationing and sullied reputations. "There's a major risk of being punished by customers," he says. "These are real business risks. This is not something far off in the future."

Coke knows the risks well. In 2002, residents of Plachimada, a village in India's southern state of Kerala, accused the company's bottling plant there of depleting and polluting groundwater. Two years later, the local government forced Coke to shut down the plant. In 2006, when a New Delhi research group found high levels of pesticides in Coca-Cola and PepsiCo's locally produced soft drinks, several Indian states banned their sale. The incidents were particularly worrisome because they hurt Coke's brand in a rapidly developing market that's considered key to future growth.

Coke denied polluting water and sucking wells dry in India, but Seabright admits it mishandled the controversy on the p.r. front. "If people are perceiving that we're using water at their expense, that's not a sustainable operation," he says. "We sell a brand. For us, having goodwill in the community is an important thing." Last December, Coke spent $10 million to establish the Coca-Cola India Foundation, which has already installed 320 rainwater harvesting structures in 17 Indian states, and plans to provide clean drinking water to 1,000 schools by 2010.

The company is likewise trying to avoid incurring public wrath in China. In the first quarter of this year, Coke's sales there rose by 20% compared with the same period last year; sales growth in North America was flat in the quarter. But in the future, double-digit increases could be constrained by China's environmental problems. China is home to roughly 20% of the world's population, but only about 7% of the world's water. That means there are some 300 million people living in water-scarce areas and increasingly, citizens and officials are becoming more militant about protecting the resource. That kind of pressure is one of the reasons why Coke has partnered with local NGOs to promote environmental education, rainwater harvesting and river conservation in China and why the company's Chinese bottling plants are on the cutting edge of the company's conservation and recycling efforts. Between 2004 and 2007, Coke's 37 bottling plants in China reduced water usage by 27%.

At Coca-Cola's biggest bottling plant in China, located in Shanghai, plastic bottles and aluminum cans zoom by on conveyer belts, weaving in and out of massive machines that shape, clean and fill the containers. Grimy wastewater, generated from the cleaning of water filters and the heating and cooling of drinks, is shunted to a separate building behind the factory where it is treated so it can be used for street-cleaning, car-washing and other secondary uses. Leaking pipes have been fixed to save water, and a dry lubricant is used to keep conveyer belts running smoothly with less water. "We recognize the need to be more vigilant in how we manage our water," says C.B. Chiu, vice president and technical director of Coca-Cola China. "If we don't contribute to the community, the community will see us as outsiders."

Despite these efforts, the company has yet to silence its critics around the world. "Coke has done 'greenwashing' very well," says Richard Girard, a researcher at the Polaris Institute, a left-leaning think tank in Ottawa. "They shifted their image to one of a green and socially responsible organization, but they're not changing their operations." Specifically, he faults the firm for not setting a target date for its water-neutrality goal, and for not establishing water-efficiency requirements for its agricultural suppliers.

For now, Coke is focusing on reducing water in its plants and conserving water with the help of its partner NGOs. In the meantime, there's no prospect of demand for its products drying up. "The reality is that people will continue to need to drink liquids," says Seabright. "We're going to be in business." Always Coca-Cola? As long as its taps don't run dry.

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