How Green Is My Coke?

By Internalizing Its Once External Costs, Will Coke Be Forced to Transition Out of the Soft Drink Business?


In his book, "The Necessary Revolution: How Individuals and Organizations Are Working Together to Create a Sustainable World," Peter Senge, Chairman of the Organization for Learning, highlights the unlikely partnership that the Coca Cola Company forged with the World Wildlife Fund to study the impacts of Coke's water use on the watersheds and biodiversity of countries in which the company operates.

To demonstrate its seriousness about the environmental impacts of its business, Coca Cola has set as a goal not only to be more efficient in its use of water but also to become "water neutral." That will require that its "waste" water be pure enough for agricultural irrigation and that it completely "offset" the amount of water it uses in its soft drink products by funding clean water projects and watershed preservation efforts around the world. 

Setting aside the difficulties of determining how progress towards water neutrality can be precisely and objectively measured, Senge notes the strategy is risky for Coke:"By merely teaming up with WWF, Coke acknowledges that the water crisis is real and could impact the soft drink industry. It is bringing attention to an issue--the amount of water used by soft drink companies in their entire supply chain--about which many people are unaware. As more people recognize this issue they will want to know what percent of a country's water, especially for water-scarce countries like India, is being used for what purposes--and even though the percentage for soft drinks is quite low, it puts companies like Coke in the spotlight and could put them on the defensive." 

The Coke case highlights the rocky road that many companies are beginning to travel down as they attempt to call attention to their green credentials. And while many sustainable investors may applaud Coke's sustainable water projects, they may inevitably ask that Coke own up to the nonsustainability of its very product line. "We would not invest in Coke," says Leslie Christian, President of Portolio 21 Investments, a fund that invests according to strict sustainability criteria. "For us to invest, Coke would have to say something like 'we recognize we have a finite resource we are putting into this product and we will change our product base away from a water-based one.' Coke is not an appropriate product for an eco-constrained world." 

Going totally green for Coke would also require the company to own up to the health care impacts of the consumption of sugary soft drinks like Classic Coke or of the empty calories of Diet Coke that the company has thus far not been required to internalize in its cost structure". It would be fantastic if producers had to pay the external costs associated with their production," says Simon Thomas, Chief Executive, of the London-based Trucost which analyzes environmental corporate risk for the investment community. "If it can be proved that Coke plays a part in obesity then consumers should pay a tax reflecting the contribution Coke makes to the social costs of obesity."

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