CORPORATE SOCIAL RESPONSIBILITY: CASE STUDY

Coca-Cola

2.1. Coca-Colas 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-Colas 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 companys 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 Ruggies Protect, Respect and Remedy Framework (Ruggies 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 companys annual Sustainability Reviews and Ruggies Framework is partly adopted in the companys 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 companys 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 companys 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-Colas business, the company also annually reports on the progress of the water stewardship programmes targets.

2.3. Coca-Colas 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-Colas 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- Colas 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 Keralas Court decision. More recently, in March 2010, a state government panel recommended fining Coca-Colas 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-Colas 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-Colas 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-Colas 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-Colas 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 Companys 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-Colas 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?