A New Normal
We live in a precarious time where our action (or inaction) has the potential to cause irreversible damage to the world in which we live. In its 2014 Synthesis Report, the Intergovernmental Panel on Climate Change determined with 95% certainty that humans maintain responsibility for global warming and identify rising greenhouse gas emissions (GHG) as a primary driver for climate change (see figure 1).1
Recently, atmospheric carbon dioxide passed the 400 parts per million (PPM) threshold which indicates a potentially dangerous (and irreversible) trend that continues to fuel rising global temperature.2 Should we pass 450 PPM, it is projected that average global temperature will increase by 2oC and cause a “rapidly escalating risk of crossing climate ‘tipping points’ that would lead to intolerable impacts on human well-being.”3 However, even without reaching this threshold, we have already begun to experience the adverse effects of GHG emissions and the future operating environment for the beverage industry has irrevocably changed.
Impact on Coca-Cola
In Coca-Cola’s 2015 10-K, they list a variety of factors that have the potential to materially affect their business in future periods and specifically identify climate change, adverse weather conditions, and water scarcity as key risks.4 They also mention a concern that increased GHG levels will cause shifts in global weather patterns that will increase the “frequency and severity of natural disasters.”5 Such weather changes have the potential to limit access to or increase the cost of many key ingredients required to create products (e.g., sugarcane, sugar beets, and coffee). They also have the potential to degrade production and supply chain capabilities as well as decrease product demand.6 Furthermore, with a world population expected to reach 9.2 billion people by 2050, the global need for water will continue to grow in tandem with natural disasters that reduce availability as well as quality.7 As a result, climate change has the potential to significantly impact Coca-Cola’s bottom line if its effects are not properly mitigated.
At a company level, Coca-Cola has recognized the implications of climate change and created a “Climate Protection Strategy” focused on mitigating environmental effects of their operations and products. In practice, this effort has taken the form of programs and policies targeting water stewardship and GHG emission reduction focused on their manufacturing plants, distribution fleet, and cold drink equipment.8 A prime example of their commitment to combating climate change came in the form of a multi-year partnership with the World Wildlife Fund. Here Coca-Cola pledged to facilitate the conservation of global freshwater river basins, improve operational water management in their global supply chain, and reduce its carbon footprint.9 Furthermore, Coca-Cola, along with McDonald’s and Unilever, created and started employing HFC-free refrigeration units that made such an impact on reducing global warming that the Environmental Protection Agency awarded them their Climate Protection Award.10 Through these and similar efforts (e.g., green power), Coca-Cola has made a clear impact throughout the value chain that not only establishes it as a business leader in the area of sustainable practices but also helps curb further climatic instability.
When looking at the problem faced by Coca-Cola, one can quickly see that their key challenges lie outside of their direct control. Consequently, they have to find a way to not only diversify risk but also join the global fight to reduce GHG emissions, curb climate change, and better utilize increasingly limited resources. While Coca-Cola has already started initiatives along these lines of effort, they should continue looking for innovative ways to improve operational efficiency. Regarding their supply chain, they should look to create a decentralized production and distribution network with overlapping sectors of coverage that can handle supply shocks. Additionally, they should continue to improve their facilities, equipment, and transportation fleet by increasing investment in technologies that reduce GHG emissions (e.g., electric and autonomous vehicles, buildings powered by renewable energy, etc.). Coca-Cola must also look for substitutions to increasingly costly (or scarce) commodity ingredients (e.g., citrus), seek to improve resource productivity through waste reduction in process byproducts, and increase product circularity by repurposing materials for repeat use in the supply chain. By focusing on continuous improvement, Coca-Cola can lead the beverage industry in a new direction that helps create a sustainable business model which positively impacts both the environment and local communities in which it operates.
Word Count (excluding citations): 718
1 Core Writing Team, R.K. Pachauri, and L.A. Meyer (eds.) (2015), “Climate Change 2015: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change.” Geneva, Switzerland: Intergovernmental Panel on Climate Change, p. VI & 4.
2 Brian Kahn. “Earth’s CO2 Passes the 400 PPM Threshold—Maybe Permanently,” Scientific American, September 27, 2016, [https://www.scientificamerican.com/article/earth-s-co2-passes-the-400-ppm-threshold-maybe-permanently/], accessed October 30, 2016.
3 Rosina M. Bierbaum, John P. Holdren, Michael C. MacCracken, Richard H. Moss, and Peter Raven (eds.) (2007), “Confronting Climate Change: Avoiding the Unmanageable and Managing the Unavoidable.” Research Triangle Park, North Carolina: Sigma Xi, and Washington D.C.: United Nations Foundation, p. 69.
4 The Coca-Cola Company, December 31, 2015 Form 10-K (filed February 25, 2016), via Coca-Cola Website, accessed October 30, 2016, p. 11-21.
5 Ibid, p. 17.
7 United Nations, Department of Economic and Social Affairs, Population Division (2008). “World Urbanization Prospects: The 2007 Revision.” New York, New York: United Nations, p. 1.
8 “Position Statement on Climate Protection,” on Coca-Cola website, [http://www.coca-colacompany.com/stories/position-statement-on-climate-protection], accessed October 30, 2016.
9 “The Coca-Cola Company Pledges to Replace the Water It Uses In Its Beverages and Their Production; Multi-year Partnership Announced with WWF to Conserve and Protect Freshwater Resources,” PR Newswire, June 5, 2007, ABI/INFORM via ProQuest, accessed October 30, 2016.
10 “The Coca-Cola Company, McDonald’s and Unilever Recognized by U.S. EPA for Leadership in Fighting Global Warming,” PR Newswire, May 4, 2005, ABI/INFORM via ProQuest, accessed October 30, 2016.