Half Empty or Half Full?(A)
Last year, Trillium Asset Management launched a new initiative to address the social, environmental, and business risks of emerging global water scarcity, and we began our outreach efforts with beverage giants Coca-Cola and PepsiCo. Shortly after we raised the issue with them, both companies faced new controversies over their water use. Some local communities in India shut down Coca-Cola and Pepsi bottling operations over accusations that the bottling plants were depleting local wells. While these controversies are not fully resolved, we’re pleased to report that our engagement efforts have encouraged both companies to take new initiatives to address the growing challenge of water scarcity.
Last winter, we partnered with Real Assets Investment Management to file a resolution asking PepsiCo to report on the business risks posed by water scarcity. At PepsiCo’s annual meeting in May, the resolution received 8 percent support from shareholders, more than double the threshold needed to re-file the resolution. In response, the Financial Times of London reported, “The resolution, one of the first of its kind, shows that water is becoming an increasingly important environmental issue.”
PepsiCo also took notice. This fall the company negotiated an agreement with Trillium Asset Management and Real Asset to “review and include water as a key area of focus and to work with you and other stakeholders.” The company committed to us, “Over the next several months, we will evaluate our programs relating to water conservation throughout our operations, with the goal of improving our performance.” In exchange for this commitment, we agreed to take the opportunity to participate in the company’s planning process rather than re-filing our water scarcity resolution this year.
We also raised concerns about water scarcity with senior managers at Coca-Cola in several meetings over the past year. With our urging, the company included metrics on its water use in its first-ever environmental report published this fall. Because we pushed for more disclosure, the company also launched a new section of its website, Water and Our Business, outlining the company’s values related to water scarcity. The website includes the important statement,
“Clearly, there are important responsibilities that pertain to companies that sell drinking water products for profit. First, we recognize that the water itself is a precious and limited (though infinitely renewable) resource that everyone needs for daily life. This means that our demand for water should not infringe on the ability of people in communities where we operate to get the water they need. We believe that it is in the long-term interests of our business, our consumers, and the communities where we operate to ensure sustainable access to water for all users.”
The website also reports on the steps Coca-Cola is taking to address water scarcity, including, “creating a corporate Department of Environment & Water, considering water issues at the board level, developing new water policies and approaches through a systemwide environmental council, and consulting with independent experts on water scarcity and quality issues.” In addition, the company reports that at the regional level, it is conducting country risk analyses, developing contingency plans, and discussing water challenges with its bottling partners.
These steps will likely not resolve all the conflicts over water use these companies face. In fact, we expect these conflicts will only intensify as global freshwater resources face continued strains from global population growth, industrialization, and pollution. But we do think these efforts represent important first steps by PepsiCo and Coca-Cola to acknowledge and start to address the issue. Whether the glass is half full or half empty, we’ll keep working with these companies and others to encourage them to be responsible stewards of the water we all share.