Coca-Cola is one of the world’s most recognized brands. It’s staggering supply chain reaches every country on earth except North Korea and Cuba (and this might soon change). It is studied at the best business schools and emulated by top corporations and international aid organizations. But what is it, really? Steve Jobs would say it’s just sugar water in a bottle.
This article examines how climate change affects this company through three components that make up its signature product: sugar, water, and bottles.
As you probably know, Coca-Cola in some countries uses high fructose corn syrup in place of sugar. This key ingredient is under serious risk from climate change. Legislation incentivizing ethanol production, such as the Renewable Fuel Standard in the U.S. (2005 and 2007), has created substantial demand for ethanol’s primary input: corn. As gas prices rise, demand for ethanol will increase, causing corn prices to follow. This will squeeze Coca-Cola’s profit margin and will put upward pressure on price of beverages, potentially reducing demand.
Corn and sugar are both vulnerable to pressures on agriculture created by climate change. Indeed, half of the company’s spending on products and packaging is on agriculture. Threats include non-sustainable farming practices, droughts, desertification, changing weather patterns, and water scarcity.
In response to these threats, Coca-Cola has implemented several sustainability programs. It has set the goal of sourcing 100% of its corn and sugar from farms that have completed the seven stages of its Sustainable Agriculture Guiding Principles certification. It is currently at 15-20%. This certification focusses on among other things, management of resources like water and energy, conservation of ecosystems, and protection of soil. It has also diversified its source to protect against supply volatility.
Water supply scarcity is a major concern for Coca-Cola management as climate change progresses. It can affect agricultural production as well as quality and safety of the end product. Beyond the direct effects to the product, Coca-Cola can be threatened by social attitudes towards the company’s enormous water consumption. For example, in India, community uproar led to Coca-Cola closing down one of its plants, blaming the company for depleted groundwater in the area.
In response to this challenge, Coca-Cola has established the goal of replenishing 100% of the water it uses in local communities by 2020. In 2015, it reached 94%. It accomplishes this through increased efficiency, treatment and release of wastewater, and partnerships with international aid organizations. The replenishment is independently verified for accuracy and soundness.
Plastic bottles and aluminum cans rely heavily on fossil fuels for production. As the costs of these inputs rise from scarcity or carbon regulation, Coca-Cola’s margin will be under pressure. Further, the company continues to face social and political pressure regarding its packaging for the immense greenhouse gases emitted to produce them as well as the majority that end up in landfills. As jurisdictions introduce new regulations, Coca-Cola will need to make new expenditures to comply. Further, if taxes or bottle deposits are introduced or increased, this could have a negative effect on demand.
Coca-Cola has established programs attacking this problem on three fronts. First, it has created recycling programs in various countries. Second, it has introduced cleanup programs to recover littered packaging. Third, it has introduced a slightly less harmful plastic bottle made partially from plants.
Coca-Cola has taken several large scale steps to protect itself as climate change continues to worsen. It is beginning to address the need for sustainable agriculture and water sources. It should continue to raise the standards for sustainability. One problem is that the public does not know what these standards are. It should be transparent about the details of its sustainability principles for accountability and improvement. This would establish Coca-Cola as a leader in sustainability and will pressure competitors to catch up.
The company’s programs around packaging do not go far enough. Its stated goal is “to recover or recycle the equivalent of 75% of the bottles and cans we introduce into developed markets by 2020”. It has a relatively narrow focus on developed markets, which already have strong infrastructure for recycling.
As the market leader, Coca-Cola should introduce a global recycling program rather than the current hodge-podge of local partnerships and centers. Consumer tastes are shifting more and more against disposable cans and bottles because they often end up in landfills. A near 100% recycling and recovery rate would assuage these concerns, partly.
For the long term, Coca-Cola should create a prize challenge to design the next generation, 100% biodegradable water bottle. Its size warrants this investment. It would be excellent publicity, as well. (790 words)