Making Sustainability the Real Thing

What you pay attention to can play a big role in whether you succeed. Jeff Seabright, The Coca-Cola Company’s vice president of environment and water resources, says sustainability begins with the simple act of paying attention. “You can’t manage what you can’t measure,” he says. MIT Sloan Management Review contributing editor Samuel Fromartz talked to Seabright about how Coca-Cola, with more than 90,000 employees and a footprint in more than 200 countries, is measuring all it can, from water efficiency rates to packaging material use to its carbon footprint. It’s the key way, he says, that the company is becoming more sustainable.

How has sustainability evolved at Coke?

It’s been an evolution over decades, but the initial focus was on corporate governance around the environment, which obviously is compliance-driven. We’ve moved well beyond a focus solely on compliance, but our movement has happened over time.

On meeting regulations and so forth?

Yes, in the ’70s with the advent of Clean Air and Clean Water Act, companies really began to pay attention to the emergence of new regulatory requirements.

The opportunity then was to move beyond compliance to think about what’s been called “eco-efficiency” — doing more with less, being more efficient, cutting waste out.

There’s sort of a third level of this evolution — recognizing there’s a real competitive opportunity in putting together programs that add real value to the business across lots of different channels.

We are a consumer goods company built on brands. So we are dependent upon our customers loving us every day and we need to be relevant to their concerns. As the public becomes more engaged and interested in how our beverages got to them — and what impact that process has — then that’s something that we need to be working on.

Another thing —- we need to talk about challenges and risk to the business because of the corporate reporting requirements of Sarbanes-Oxley.

And that would be environmental risk?

Yes. For example, water as a resource is undergoing stress around the world and that’s a challenge for a business that is fundamentally based on access to water. Not just the availability of water but the quality of it in terms of groundwater pollution, etc. It’s not an insurmountable risk, but it’s something that the company felt important to acknowledge.

As a matter of managing our business, we recognize the importance of having a global water strategy. We have a choice. We can either be reactive or we can really tackle this and understand the full range of issues and challenges around water and turn a risk into an opportunity because we do have deep expertise in water. We believe we can manage water well and contribute to better management of it in the communities where we operate too.

Are there places where you are actually running out of water?

Well, “running out” is probably not the right word. The reality is that water is a resource under growing stress on our planet. We see that reflected in our business. That’s why we’re trying to get ahead of the issue.

Where, for example?

We have a facility in Rajasthan, India, the northern desert state, near Jaipur. The local groundwater aquifers are stressed and declining. Obviously, for our business to continue, we have to have access to water, when other uses are competing for it as well, like agriculture. We need to be extra sensitive to the needs of the community and to the health of that watershed.

We began working very closely with the local government in that area, to invest in and support things like rainwater harvesting structures that capture the monsoonal downpours and channel them into the aquifer so they don’t flash-flood off, which is what happens on the baked desert dirt. This is an ancient technique that a lot of societies have used. We’ve also put in rainwater harvesting structures on the roofs of schools, and check dams, and other measures that can help with that.

Then we also invested in drip irrigation to enhance the efficiency of water irrigation. We got some of the local farming cooperatives to migrate away from flood irrigation, which is highly wasteful, to drip irrigation, which is much more targeted in the delivery of water to crops.

As a result, the groundwater aquifer is healthier. Our business has earned its license to continue to operate in that community. The community is better off and we’re not going to have to write off a business, which might have occurred had we been uninvolved in water stewardship.

We recognize that we’ve got to look well beyond the four walls of our operations to the watersheds that sustain our business ultimately, and to the communities that share that resource.

When you’re considering those kind of programs, is cost an issue?

Everything that we do as a business has to be put into a kind of a cost-benefit scenario. We talk about it in terms of three buckets: risk, revenue, and reputation.

In many cases, we’re trying to turn risks into opportunities, like the risk that we’ll face increased eco-taxes on packages if we don’t do more on recycling.

There are also cost avoidance opportunities – which we view as part of the revenue piece. If I can drive 20 percent improvement in energy use in our bottling operation, that will equate to very significant savings.

Then there are revenue upside issues like, “If we do this right, we can gain market share with customers like Wal-Mart.” It gives us a business opportunity, it opens doors, it creates opportunities for top line growth.

And then there’s reputation. By doing the right thing, by communicating the right thing, and by engaging employees and our partners in the business supply chain, our equity from a reputational point of view increases and that’s a good thing.

Which sustainability issues do you think will have the biggest implications for your business?

We clearly see water as the first among equals, given the nature of our business. If you had to pick one, that’s certainly our issue.

There are three things that we’ve really focused on in the last five years: water stewardship, sustainable packaging, and then energy management and climate protection, because we have a lot of manufacturing operations, a big fleet, a lot of refrigeration equipment, and that has a footprint that needs to be managed.

The emerging area that we’re beginning to really look at is sustainable agriculture.

In your case, would that be sugar plantations?

Sugar, juice, coffee, tea. Our beverage portfolio is very big and we have a huge juice business, we have a big coffee business, not in North America but globally. There’s a big opportunity in that whole area of agricultural ingredients.

Looking at climate, do you see the potential of rising costs as the cost of carbon emissions are recognized in regulatory regimes?

We’re trying to set some hard targets to reduce our emissions in advance of regulations. And that means becoming more energy efficient. It’s not terribly dramatic, but there’s always a lot of low-hanging fruit and it keeps growing back so you’ve got to keep going after it. By doing that, we’re taking cost structure out of our business, reducing emissions, and positioning ourselves for a carbon constrained world.

We’ve also focused on making sure we understand the emissions profile of our system with 300 bottlers, and more than 800 plants in 200 countries. We report that data, which is a tremendous effort.

So you know your carbon footprint?

Absolutely. You can’t manage what you can’t measure.

One of the interesting things about the sustainability agenda is that it offers insights into the business that perhaps were not self-evident. When you start really peeling back the layers to see where the embedded carbon is in the value chain, and you let the data speak, it offers insights into waste.

For example, when we did a carbon footprinting analysis around our beverages last year, the embedded carbon in packaging really jumped out. It gave us a roadmap to say, “We have a real opportunity here around lightweighting and using recycled content in our packaging.” We accelerated our commitment in those areas.

I think other companies are beginning to see that as well, moving beyond doing this as a reactive exercise. It becomes a real driver of business value, both in terms of the reputation, and in terms of insights into the business itself.

We have other programs as well to mitigate emissions – we are moving to become 40 to 50 percent more energy efficient in refrigeration and phasing out hydrofluorocarbons, or HFCs, which are a potent greenhouse gas.

And we’re introducing a range of new technologies and efficiencies in our fleet, like hybrid diesel in the 3,500 ton weight category here in North America where we have the largest medium-weight hybrid fleet in the world.

How do you go about setting goals on what you want to achieve?

We talk about setting stretch goals. I mean, there’s no point in setting a goal that you can easily hit, because that doesn’t change anything. We’ve been working with our partners at the World Wildlife Fund around agreeing on some stretch goals that would be sufficiently robust that they would feel worthy to embrace them, and that we feel are doable. We take them seriously.

How does this work with your bottlers?

We have a host of tools and training and capability development that we make available to our bottlers. On water efficiency, we developed a tool kit jointly with WWF that allows plants to go online and identify similar kinds of plants around the world and benchmark their performance in terms of water use efficiency.

And are there sanctions if a bottler doesn’t cooperate?

We have an agreement with our bottlers. Part of their commitment contractually is to adhere to our environmental standards.

We audit our bottlers and our suppliers against our standards. If we see any problems, the intent is not to punish the odd violator, but to work with them to make sure they correct whatever issues may exist. If a bottler or a supplier consistently is incapable of improving and aligning with our standards, then we have to consider ceasing the relationship. But it generally does not come to that; it has not in my tenure.

We have a very strict requirement on wastewater treatment that we’re working on, for example. By the end of 2010 all of our facilities will treat wastewater to a very high level. It would be a very serious issue if a bottler was not able to come into compliance with that requirement in that time frame.

Are there any particular opportunities that you could point to that you think will emerge from sustainability?

We’re continuing to elevate the issues and challenging our suppliers to innovate against this agenda. In our own operations, we’re striving for continuous improvement. Then, the big opportunity for a consumer-facing business such as ours, is to be as close to our consumers as we can to express those values in the marketplace.