We focus on the beverage sector this week and the lack of improvement within the industry with regard to water usage. Coca-Cola and Pepsi got fined in India for drawing on groundwater they agreed to replenish. Plus, we look at the lack of progress on earlier water commitments among beverage industry companies.
Much has been made about resource usage in the beverage industry, and companies have been quick to tout their carbon footprint reductions or packaging innovations. However, our ESG Safeguard platform reveals that many of the major companies in the industry seem to be missing the mark when it comes to the most important resource in the beverage industry, water. Water use in beverages begins at the supplier level in the agricultural products sector for raw inputs like sugar, barley, and a variety of other botanicals. Then, more water is used in the production and bottling process where those ingredients are turned from raw materials into finished products, like beer and soda. It is good to see that companies are addressing issues around carbon and pollution, but the major issue of water conservation is an area companies are having a tough time addressing.
A year ago, Coca-Cola (KO:US) laid out its water management plan that had targets set in place for 2030. Similarly, when Pepsi (PEP:US) issued its first green bond in 2019, water was a topic of concern for the company to improve on. While recent mentions from both companies on water management tout their water consumption goals, very little is discussed in terms of their accomplishments. Last week's news revealed that Pepsi and Coca-Cola were fined by the National Green Tribunal in India for illegally extracting groundwater that they had previously been required to help replenish.
Coca-Cola has a long history of water infringement in the region, with issues for the company in Uttar Pradesh specifically, dating back to at least 2006. The recent fines for both companies show us they do not have a solution for this ongoing problem in the water-stressed region. Coca-Cola has operations in similarly water stressed regions like South Africa, making their problem global in nature. Going forward, these companies will need more creative solutions as water scarcity persists, with several highly documented droughts in the drier regions of the world. These companies are lagging on their previous commitments towards water in light of these recent events.
One company we covered previously that had a plan in place for water management was Diageo (DGE:GB). Since then, there has been very scarce mention of water use by the company. Moreover, the beverage sector has failed to find adequate solutions on this matter, which is puzzling as it is a major pressure point for the industry. Recent mentions for Diageo did surface though for not having pollution permits for their distilleries in Scotland. Along the same lines, the company also announced they would be building their first carbon neutral distillery in Canada for their Crown Royal Whiskey to the tune of a $191M investment.
Rounding out our beverage coverage, Molson-Coors (TAP:US) will be switching from plastic ring packaging to more environmentally friendly cardboard. This is similar to other initiatives we’ve seen in the industry where companies can make simple changes and iterate on them quickly with solutions that have already been proven.
What will take a bit more imagination though for the industry will be drawing down the freshwater usage, especially in regions that don’t have much water to spare. Solutions that would help with these issues could be investing in seawater desalination plants that run on solar to help ease freshwater concerns. This is just one route Coca-Cola and Pepsi could take that would help achieve their ends. All eyes are on the big names in the industry going forward, and recent woes show they have a ways to go in making good on their water goals.
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This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.
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