By Ananya Chandhok

Climate change is threatening people globally, but it also presents business opportunities through innovation and sustainability, said Bea Perez, Global Chief Communications, Sustainability, and Strategic Partnerships Officer at Coca-Cola.

Perez addressed hundreds of global influencers and upcoming MBA entrepreneurs at Northwestern University’s Kellogg Climate Conference this spring. Perez and other corporate leaders advocated for sustainability during the impending climate crisis linked to rising temperatures, economic instability, weather disasters and water insecurity. 

The conference drew on expertise from the energy, transportation, agriculture, food, finance and other sectors to leverage solutions, such as the generating enough electricity and parts to transition to electric fleets for corporate shipping and mass transit. 

An anticipated $1.3 trillion in investment will be needed to innovate and curb climate pain points companies have inflamed in recent years, turning the spotlight on the sustainability leaders globally. 

Perez focused on Coca-Cola’s recent sustainability efforts and errors at the conference hosted by the Kellogg School of Management and Northwestern’s Paula M. Trienens Institute of Sustainability and Energy. 

Evaluating big business’s responsibility to mitigate climate change

Kellogg brought corporate leaders from companies including Exxon-Mobil, Invenergy, and General Motors under one roof to educate and prepare future business leaders to prioritize sustainability and innovation. 

There’s two things everybody should understand about climate — where do greenhouse gasses come from and how are industries and companies following through on climate mitigation goals, said Meghan Busse, associate professor of strategy at the Kellogg School of Management. 

Perez combined the outlook for commercial profitability and sustainability to evaluate what roles the Fortune 500 company plays in prioritizing the climate as a key strategy in decisions, not just an offshoot program. 

Her theme was accountability — owning up to Coca-Cola’s mistakes and reimagining the company’s more recent role in mitigating climate change. Some steps included changing bottle design and water conservation. 

“Don’t you think we have a responsibility as a business to manage those resources [water and carbon] and do better?” Perez said.

Taking accountability

By reducing the amount of carbon used to produce a singular Coca Cola product by 25%, Perez said the company found a loophole when they first tried to focus on sustainability. 

Their per unit carbon usage was down, but since business was growing, it let Coca-Cola grow their carbon emissions in “absolute terms,” Perez said. 

“We made a mistake,” Perez said. “And so just as any smart business group would do… we had to reset the plan.”

In other words, Coca-Cola needed to establish new targets that held all aspects of their business accountable in lowering their carbon emissions – and not just their production line. 

Perez also recognized the role Fortune 500 companies play in restoring resources like water. 

“You can’t have a conversation about climate, unless you talk about water,” Perez said.  

Coca-Cola established three goals hoping to restore all the water they use for production globally: using 100% regenerative water across 175 facilities facing “high water stress,” improving 60 watersheds’ health, and returning two trillion liters of water to communities. 

In 2021, Coca-Cola introduced regenerative water as a metric for achieving their sustainability goals. The concept includes reducing, reusing, recycling and replenishing water to communities for nature and other stakeholders to use, according to their 2021 sustainability report. 

Perez’s talk put more responsibility on corporations to work on climate change mitigation, rather than falling on the consumer. 

“Water is a human right… A lot of places in developed countries don’t have water regulation. If you go into emerging markets, they typically do. And so how do you make sure there’s [a] great water policy in place for people and for society?”

Emphasizing community

Perez said that between 2018 to 2022, there were only 18 days, on average, between every billion-dollar disaster, compared to 82 days in the 1980s. 

Coca-Cola shifted its value proposition from getting communities to spend money on their products to investing back into the communities where resources are acquired from.

“If you don’t have strong communities, you don’t have businesses,” Perez said. 

“Water still will always be number one, but it cuts in many slices… Some people say, ‘we saw you met your target five years ahead of schedule, so what are you doing today?’” Perez said. 

She said Coca-Cola is now working to replenish 100% of the water it uses. 

Room for improvement

Despite getting ahead of their target, Coca-Cola falls short compared to the company’s leading food and beverage competitor: Pepsico.

Pepsico used 1.4 liters of water per liter of beverage product produced, according to their water stewardship approach, which is 0.39 liters less than of Coca-Cola’s usage in their latest business and sustainability report. 

Perez also spoke about the importance of independent auditing for environmental, social and governmental reporting. 

“Imagine if it were just Coca-Cola saying, ‘Hey, we did this,’” Perez said. “Do you think you would believe me? This is a little bit like a conflict of interest, right?” 

ESG reporting involves publicly disclosing information about environmental, social and governmental business operations, according to the corporate governance institute. 

Coca-Cola made the switch to sustainability report auditing through Ernst and Young, a multinational professional services company, in 2015. 

Coca-Cola was one of the first in the pack, since only 2% of Fortune 500 companies started ESG reporting back then, Perez said. 

Perez urged audience members to look up Coca-Cola’s business and sustainability reports, which replaced the reports that were originally only geared towards quantifying how well the company was reaching sustainability targets.   

The transition came after Coca-Cola realized it was sending “unintended signals” that they had two separate reports, Perez said. 

“It would look as if it [sustainability] wasn’t important to our business,” Perez said. “Frankly, you saw throughout those charts how important it [sustainability] is to our business].”

A data-informed approach

Coca-Cola incorporates a next-generation data platform to track and manage progress against ESG metrics and has abided by the Sustainability Accounting Standards Board standards since 2020, according to their 2021 reporting frameworks and sustainable development goals. 

The company focuses on water leadership, packaging, climate, sustainable agriculture and communities in their ESG report, according to their 2022 Business and Sustainability Report. 

“We integrated the data,” Perez said. “We made sure that we have the same standard that we have in our financial reporting as we have in here — [the ESG report].”

Currently, companies are only required to report Scope 1 and Scope 2 criteria, which involve reporting greenhouse gas emissions from sources an organization directly owns and from indirect energy sources the company has purchased, according to the Securities and Exchange Commission. 

Scope 3, emissions that the company does not produce by itself and are not from the companies’ assets, and water consumption reporting are still not required by the SEC.

Navigating the future of ESG reporting

Currently, Coca-Cola’s reporting has been voluntary in the U.S., so accountability hasn’t come at a penalty cost, yet. 

But what happens when the SEC enforces mandatory ESG reporting?

On March 6, the SEC adopted rules to “enhance and standardize climate-related disclosures by public companies,” according to the SEC’s Enhancement and Standardization of Climate-Related Disclosures for Investors. 

While declaring water-usage was proposed as an inclusion  for the final rule, it was ultimately axed to simplify requirements and prevent putting a “topical focus” on any one climate-related disclosure, according to the disclosure. 

Coca-Cola has already begun anticipating the SEC’s future moves towards making sustainability reporting mandatory.  

 Perez said she tells her team to consider how much voluntary reporting they’re doing that could impact mandatory reporting in the future. 

“If you report work you’re really not doing, with the SEC rules, you’re going to have personal fines to executives, criminal penalties potentially. So the stakes are higher,” Perez said.