Coca-Cola
2.1. Coca-Cola’s profile
Coca-Cola started its business in 1886 as a local soda
producer in Atlanta, Georgia (US) selling about nine beverages per
day. By the 1920s, the company had begun expanding internationally,
selling its products first in the Caribbean and Canadian markets
and then moving in consecutive decades to Asia, Europe, South
America and the Soviet Union. By the end of the 20th century, the
company was selling its products in almost every country in the
world. In 2005 it became the largest manufacturer, distributor and
marketer of non-alcoholic beverages and syrups in the world.
Coca-Cola is a publicly-held company listed on the New York Stock
Exchange (NYSE).
2.2. Coca-Cola’s CSR policies and reporting
In 2007 Coca-Cola launched its sustainability framework Live
Positively embedded in the system at all levels, from production
and packaging to distribution. The company’s CSR policy Live
Positively establishes seven core areas where the company sets
itself measurable goals to
improve the business’ sustainability practices. The core areas
are beverage benefits, active healthy living, the community, energy
and climate, sustainable packaging, water stewardship and the
workplace.
Coca-Cola has a Code of Business Conduct which aims at
providing guidelines to its employees on –amongst other things –
competition issues and anti-corruption. The company has adopted
international CSR guidelines such as Global Compact and Ruggie’s
Protect, Respect and Remedy Framework (Ruggie’s Framework), but
these guidelines do not seem to be integrated into the Code of
Business. However, these CSR initiatives are included in other
activities or policies of the company. For instance, the UN Global
Compact principles are cross- referenced in the company’s annual
Sustainability Reviews and Ruggie’s Framework is partly adopted in
the company’s ‘Human Right Statement’. After the conflict in India,
in 2007 Coca- Cola formed a partnership with the World Wildlife
Fund (WWF)21 and became a member of the CEO Water Mandate, as water
is one of the company’s main concerns.
Every year Coca-Cola publishes a directors’ report denominated
‘The Coca-Cola Company Annual Report’; the last one was published
in March 2011 and comprises the company’s activities during 2010.22
In this report there is a small section dedicated to CSR and it
includes a brief description of the initiatives in community
development and water preservation that the company has developed.
Since 2001, Coca-Cola also annually publishes a separate report
devoted to CSR called ‘The Coca-Cola Company Sustainability
Review’. These reviews, which are published every two years, are
verified and assured by a third party, the sustainability rating
firm FIRA Sustainability Ltd. This verification provides ‘moderate
assurance’ on the reliability of the information reported by
Coca-Cola. Both reports – the annual company review and the
sustainability reports – are elaborated based on the GRI G3
guidelines, which were adopted by the company in 2001. Due to its
relevance to Coca-Cola’s business, the company also annually
reports on the progress of the water stewardship programme’s
targets.
2.3. Coca-Cola’s conflicts
Several campaigns and demonstrations followed the publication
of a report issued by the Indian NGO Centre for Science and
Environment (CSE) in 2003. The report provided evidence of the
presence of pesticides, to a level exceeding European standards, in
a sample of a dozen Coca- Cola and PepsiCo beverages sold in India.
With that evidence at hand, the CSE called on the Indian government
to implement legally enforceable water standards. The report gained
ample public and media attention, resulting in almost immediate
effects on Coca-Cola revenues.
The main allegations made by the NGO against Coca-Cola were
that it sold products containing unacceptable levels of pesticides,
it extracted large amounts of groundwater and it had polluted water
sources. These conflicts will be discussed under 2.3.1 and
2.3.2.
2.3.1. The presence of pesticides
Regarding the allegation about Coca-Cola beverages containing
high levels of pesticide residues, the Indian government undertook
various investigations. The government set up a Joint Committee to
carry out its own tests on the beverages. The tests also found the
presence of pesticides that failed to meet European standards, but
they were still considered safe under local standards. Therefore,
it was concluded that Coca-Cola had not violated any national laws.
However, the Indian government acknowledged the need to adopt
appropriate and enforceable standards for carbonated
beverages.
In 2006, after almost three years of ongoing allegations, the
CSE published its second test on Coca-Cola drinks, also resulting
in a high content of pesticide residues (24 times higher than
European Union standards, which were proposed by the Bureau of
Indian Standards to be implemented in India as well). CSE published
this test to prove that nothing had changed, alleging that the
stricter standards for carbonated drinks and other beverages had
either been
lost in committees or blocked by powerful interests in the
government. Finally, in 2008 an independent study undertaken by The
Energy and Resources Institute (TERI) ended the long- standing
allegations by concluding that the water used in Coca-Cola in India
is free of pesticides. However, because the institute did not test
the final product, other ingredients could have contained
pesticides.
2.3.2. Water pollution and the over-extraction of
groundwater.
Coca-Cola was also accused of causing water shortages in –
among other areas – the community of Plachimada in Kerala, southern
India. In addition, Coca-Cola was accused of water pollution by
discharging wastewater into fields and rivers surrounding
Coca-Cola’s plants in the same community. Groundwater and soil were
polluted to an extent that Indian public health authorities saw the
need to post signs around wells and hand pumps advising the
community that the water was unfit for human consumption.
In 2000, the company established its production operations in
Plachimada. Local people claimed that they started experiencing
water scarcity soon after the operations began. The state
government initiated proceedings against Coca-Cola in 2003, and
soon after that the High Court of Kerala prohibited Coca-Cola from
over-extracting groundwater. By 2004 the company had suspended its
production operations, while it attempted to renew its licence to
operate. Coca- Cola argued that patterns of decreasing rainfall
were the main cause of the draught conditions experienced in the
area. After a long judicial procedure and ongoing demonstrations,
the company succeeded in obtaining the licence renewal to resume
its operations. In 2006 Coca- Cola’s successful re-establishment of
operations was reversed when the government of Kerala banned the
manufacture and sale of Coca-Cola products in Kerala on the ground
that it was unsafe due to its high content of pesticides. However,
the ban did not last for long and later that same year the High
Court of India overturned Kerala’s Court decision. More recently,
in March 2010, a state government panel recommended fining
Coca-Cola’s Indian subsidiary a total of $47 million because of the
damage caused to the water and soil in Kerala. Also, a special
committee in charge of looking into claims by community members
affected by the water pollution was set up.
The long legal procedures against the Indian government that
Coca-Cola had to face were not the only consequence of the
conflict. The brand suffered a great loss of consumer trust and
reputational damage in India and abroad. In India there was an
overall sales drop of 40% within two weeks after the release of the
2003 CSE report. The impact in annual sales was a decline of 15% in
overall sales in 2003– in comparison to prior annual growth rates
of 25-30%. This highly publicised conflict in India also caught the
attention of consumers in the US. After a series of demonstrations
by students who joined two activist groups in the US, ten American
universities temporarily stopped selling Coca-Cola products at
their campus facilities.
2.4. Coca-Cola’s CSR policies post-conflicts
Two years before the water conflict in India in 2003,
Coca-Cola adopted the GRI Guidelines and started reporting on
sustainability. By 2003, the company had already experienced a few
CSR- related conflicts in other parts of the world. However, none
of them had the grave consequence of a loss of trust in the company
and its products by consumers and the public in general.
According to Pirson and Malhotra, the main reason why this
controversy ended so badly for Coca-Cola lies in its response to
the problem. Coca-Cola denied having produced beverages containing
Elevated levels of pesticides, as well as having over-exploited and
polluted water resources. By denying all claims and trying to prove
its integrity, instead of demonstrating concern towards the
situation, Coca-Cola failed to regain consumers’ trust. The Indian
population viewed Coca-Cola as a corporate villain who cared more
about profits than public
health. In comparison, previous conflicts experienced by the
company in the US and Belgium were better handled because it
included stakeholder engagement in its strategy.
It appears that the company became aware of its mistake after
the controversy had been ongoing for a couple of years. In 2008
Jeff Seabright, Coca-Cola’s vice president of environment and water
resources, recognized that the company had not adequately handled
the controversy. He acknowledged that local communities’ perception
of their operation matters, and that for the company ‘(...) having
goodwill in the community is an important thing’.
Although Coca-Cola still denies most of the allegations, the
reputational damage experienced after the controversy in India
pushed Coca-Cola to take damage-control measures. Those measures at
first consisted of statements to confirm Coca-Cola’s integrity. For
example, Coca-Cola dedicated a page in the Corporate Responsibility
Review of 2006 to address the controversy. The statement consisted
mainly of providing information supporting its good practices and
water management of its operations in India. But this statement did
little to combat the declining sales and increasing losses
exceeding investments. Coca-Cola gradually changed its strategy to
include damage-control measures that addressed the Indian
communities’ grievances. In 2008 the company published its first
environmental performance report on operations in India, which
covered activities from 2004 to 2007.53 It also created the
Coca-Cola India Foundation, Anandana, which works with local
communities and NGOs to address local water problems. But perhaps
the most outstanding change of strategy by Coca-Cola consisted of
launching various community water projects in India. An example is
the rainwater harvesting project, where Coca-Cola’s operations
partnered with the Central Ground Water Authority, the State Ground
Water Boards, NGOs and communities to address water scarcity and
depleting groundwater levels through rainwater harvesting
techniques across 17 states in India. These techniques consist
mainly of collecting and storing rainwater while preventing its
evaporation and runoff for its efficient utilisation and
conservation. The idea behind this is to capture large quantities
of good quality water that could otherwise go to waste. By
returning to the ecosystem the water used in its operations in
India through water harvesting, the company expected that this
project could eventually turn the company into a ‘net zero’ user of
groundwater by 2009.55 In the 2012 Water Stewardship and Replenish
Report, Coca-Cola stated that its operations in India have
‘achieved full balance between groundwater used in beverage
production and that replenished to nature and communities – ahead
of the global target’.
It appears that the controversy in India was a learning
experience for the company, and that it motivated the company to
adopt a more proactive CSR policy on a global scale that focuses on
water management. In June 2007, Coca-Cola implemented a water
stewardship programme and committed itself to reduce its
operational water footprint and to offset the water used in the
Company’s products through locally relevant projects. To achieve
those commitments Coca-Cola established three measurable
objectives:
(1) Reducing water use by improving water efficiency by 20%
over 2004 levels by 2012. The latest data available from 2010 shows
a 16% improvement over the 2004 baseline.
(2) Recycling water through wastewater treatment and returning
all water used in manufacturing processes to the environment at a
level that supports aquatic life and agriculture by the end of
2010. By September 2011, the progress observed concerning this
target was 96%.59
(3) Replenishing water used by offsetting the litres of water
used in finished beverages by 2020 through local projects that
support communities and nature (i.e. watershed protection and
rainwater harvesting). Currently, Coca-Cola reports that it holds a
global portfolio of 386 community water partnerships or
community-based replenish projects. By 2011, about 35% of the water
used in finished beverages was replenished.
It is noteworthy that Coca-Cola publishes, in addition and
separate to the sustainability reports, an annual water report. In
these reports the company publishes assessments of and the
progress in its water initiatives. Some of the assessments are
made by the Global Environment & Technology Foundation, an
American NGO experienced in facilitating the creation of public-
private partnerships.
Also, in 2007, Coca-Cola entered into a partnership with WWF.
Its core objectives are increasing understanding on watersheds and
water cycles to improve Coca-Cola’s water usage, working with local
communities in various locations worldwide, and developing a common
framework to preserve water sources. Finally, and also in the same
year, the company became a member of the public-private initiative
CEO Water Mandate, which is a public-private initiative that
assists companies in the development, implementation and disclosure
of water sustainability policies and practices.
ELEMENTS TO BE ADDRESSED
-Sustainability
-Accountability
-Transparency
QUESTIONS TO BE ANSWERED
-What are the principles od CSR involved in this case?
-What are the environmental issues and their effects and
implications? -Should CSR be a voluntary Activity?
-What is the relation between CSR and profit?