“If you can’t measure it, you can’t manage it” is business management dogma. It is usually met with the retort “the important things in business can’t be measured!” Important things – like employee engagement and leadership in corporate sustainability. So what drives change in your company? Values or data?
The answer is, of course, both.
Greening your business – and remaining profitable – will not be achieved solely by a motivated workforce. That is necessary, but not sufficient. In addition, getting detailed and consistent insight into your business’s environmental impacts and dependencies is vital in shaping operational strategies.
Then publishing this information raises the stakes further. To this end, in its latest annual report, the Coca-Cola Hellenic Bottling Company (CC-HBC) has shown disclosing environmental performance can improve standards and drive innovation.
CC-HBC supplies “ready-to-drink products” (mostly fizzy drinks to you and me) to the markets of central and eastern Europe, Russia and Nigeria. The company recently published its 2015 Integrated Annual Report; ‘integrated’ as social and environmental impacts are quantified alongside the standard regulatory and shareholder disclosure requirements. The report fulfills principles in the International Integrated Reporting Council’s framework and the Climate Change Reporting Framework and is the fourth year running an integrated report has been published.
The environmental reporting aspects mainly focus on the company’s use and discharge of water and its carbon emissions, but also acknowledges environmental risks associated with agricultural inputs. Being a relatively energy-, packaging-, water- and transport-heavy business, the company has recognised that disclosing such impacts and risks can maintain social license by demonstrating success and build investor trust by mitigating exposure to future financial or regulatory liabilities, at the same time as maintaining competitiveness.
Spotlight on Carbon emissions
One significant area of progress is in carbon emissions reductions. CC-HBC has been disclosing emissions since 2006 (as an initiative of the Carbon Disclosure Project) and its annual reports show impressive progress in reducing emissions from both its operations and from its value chain.
In 2015 scopes 1 and 2 carbon emissions (direct operational and secondary emissions from energy use) were reduced by 11.7% on the previous year and scope 3 emissions (value chain emissions in toto) were reduced by 3.6%. Since 2011, these emissions reductions are 18% and 16% respectively. The company aims to halve its emissions by 2020 (based on 2010 baseline).
The good news is both these metrics are heading in the right direction. If CC-HBC was a signatory to the Paris agreement, such a commitment would put it near the top of the list of contributors.
However, from a different perspective, the scale of the task is immense. If CC-HBC was a country, its 4.8 million tonnes of emissions would make it the 152nd largest contributor, between Rwanda and Suriname. It benefits from avoiding paying the social cost of their direct (scope 1) emissions to the tune of between $3.5 million and $18 million per year.
This potential liability is obviously well-understood by CC-HBC and the company is taking significant operational steps to drive down emissions. It has even introduced its own internal carbon markets for internal transfers, enabling it to target investments in the lowest marginal abatement costs options first. Without business intelligence on where the emissions are produced, competitiveness – and its legal commitments to shareholder value – would be put at risk.
Revealing environmental risk
The integrated annual report also provides a mechanism for disclosing environmental, regulatory and social risks. Businesses that are on the front foot in anticipating change, for example, the potential for extended producer responsibility schemes, will retain competitiveness by being better equipped and have the workforce capability to respond quickly.
The report even recognizes climate change may present opportunities! Leaving aside likely concerns from the world’s public health officials, a warmer climate may have a material impact on business “because consumption of cold, single serve beverages can be impacted by weather.” More hotter days = more refreshing Coca-Cola!
Full natural capital accounting
So far, CC-HBC’s monitoring and reporting of its environmental impacts are clearly in the ‘eco-efficiency’ basket. Whilst the company has some broad over-arching targets for water use and carbon emissions, the primary goal of the company is to reduce the energy and water intensity of each unit of production.
This is currently delivering gross reductions in emissions/ dependencies as the business is operating in relatively mature and competitive markets, where a sudden expansion of demand – driving up gross emissions for example – is unlikely. But given the opportunity, no doubt the company is still geared towards exploiting growing markets.
The disclosures and identification of environmental risks in CC-HBC’s 2015 Integrated Annual Report is a praise-worthy pursuit. Revealing your company’s emissions – hanging out your company’s ‘dirty linen’ – is indeed a bold move, particularly if reported figures start to reverse their positive trends.
The next stage is stage is full natural capital accounting, where the impacts on natural capital and your dependencies on natural capital dividends are fully declared as costed inputs and liabilities in annual reports. This information can help companies understand the full range of opportunities, dependencies and impacts and start to reveal the business strategies to build more sustainable value through its operations.
The final goal will be to create a restorative organisation, where it creates a broad and productive range of values through its operations, rather than one that pushes external costs onto others and diminishes flows of natural capital dividends.