Turning a complex multinational company into a leading exponent of sustainable business practices is at least as difficult as you might suppose. But this is exactly what the Coca-Cola Hellenic Bottling Company (Coca-Cola HBC) is attempting; and it appears to be succeeding, gaining significant business and financial benefits in the process.
“Today, sustainability is embedded in everything we do,” says chief financial officer Michalis Imellos. Coca-Cola HBC is one of the biggest bottling companies working with The Coca-Cola Company, with sales of more than 2 billion unit cases and operations in 28 countries, mostly in southern and eastern Europe. Its bottling plants handle a range of ready-to-drink non-alcoholic products, including carbonated beverages, juices, water, tea and coffee.
In October 2016 it won the Large Business category at the Finance for the Future Awards (see page 63), which celebrate the work of finance functions that increase resilience by putting sustainability at the heart of an organisation’s business practices.
The company has also been included in the Dow Jones World and Europe Sustainability Indices every year since 2008; and was named sustainability leader for the beverage industry in both indices in 2014, 2015 and 2016. It features on the Carbon Disclosure Project (CDP) Climate A list. The CDP is a not-for-profit organisation that runs a global carbon disclosure system for companies, cities and states, now used by a growing number of investors.
Coca-Cola HBC is working with the Accounting for Sustainability (A4S) project, which is designed to help finance and accounting professionals embed sustainability within business practices and decision making. Its focus on sustainability is creating tangible business benefits that should protect its bottom line and profitability in the longer term.
The company was formed by a bottling company merger in 2000. Further acquisitions have increased its geographical reach, including taking over businesses in Russia and parts of central and eastern Europe. A focus on sustainability has existed in some form throughout the past 17 years. Today the company publishes fully integrated annual reports, providing details of its sustainability performance alongside business and governance information.
This commitment to sustainability and minimisation of the company’s environmental impact stand alongside other strategic objectives: the promotion of health and wellbeing; and support for the communities it serves, through investment projects that safeguard the environment and support wellbeing and youth development.
The sustainability strategy is to some extent also based on self-interest, because the company ultimately depends on the supply of energy, water, agricultural produce and other raw materials. The assumption is that energy and water costs are likely to increase in the longer term, due to a growth in global markets, resource scarcity and policy interventions from governments.
From an operational perspective, the most important business benefits to be gained through pursuing the sustainability strategy will come from achieving greater efficiency in resource and energy use.
“Our efforts will minimise operational costs and help us to avoid or minimise punitive taxes or other business restrictions,” says group supply chain finance director Gerhard Seidl. “But we are also inspired by the idea that companies can help find solutions to environmental problems and drive change in society.”
The company has worked towards its objectives by adding sustainability factors to its capital expenditure appraisal process, in line with principles outlined in the A4S initiative. In 2014 it created a team of experts who would work across the business to incorporate environmental and social impacts into business plans. The finance function worked with the cross-functional teams of experts to create a methodology for this.
The finance function had often been seen as an obstacle to sustainability initiatives. “Finance tends to see things in terms of financial paybacks,” says Seidl. “In many cases sustainability investments did not meet the financial test of payback periods of less than three years, which blocked funding.
“We are now seen as active participants, enablers and business partners focused on creating value over time, able to bring sustainability efforts to life, not as blockers who evaluate everything based purely on financial payback.”
This change has been possible because the finance function has defined an effective way to measure the true costs and benefits of sustainability initiatives, says Imellos. “We now have a finance function that contributes to objective measurement of sustainability. Before, a lot of thinking around sustainability benefits was more qualitative.” The sustainability assessment combined with the conventional finance assessment to provide a holistic view of the paybacks that projects could deliver.
The company aims to minimise environmental impacts in all countries in which it operates, in three main areas: carbon and energy use, water stewardship; and issues related to packaging, recycling and waste management. Arguably the greatest challenge was explaining the value of these initiatives to employees.
“We operate in 28 countries with very different levels of awareness of these issues,” says Imellos. “So it was a challenge to make sustainability relevant and easy to understand. We needed to explain why this is important, how it is relevant to them; and how it is measurable and can be expressed in financial terms.”
To this end, the finance function created a model to assess more accurately the total cost to the company of its use of water: including cleaning it, processing it and dealing with waste water. This enabled the company to build on existing initiatives to improve the way it uses water. Since 2004 the operational “water footprint” of the business has fallen dramatically from 51.7bn litres to 18.4bn litres in 2015 and an estimated 18.2bn litres in 2016. The target is to reduce this to 12.9bn litres by 2020.
“We now calculate the true cost of water,” says Seidl. “That has helped these projects to get prioritisation funding.” Under the previous processes, company water saving capital expenditure projects in 2016 would have delivered financial payback in five and a quarter years. The new methodology revealed that payback would only take six months.
A carbon reduction strategy is completely rational for a company dependent upon the weather and the environment to provide its raw mat-erials, says Imellos. Initiatives have included energy efficiency improvements, increased use of clean energy sources; and use of low carbon technologies such as combined heat and power (CHP) units at the company’s plants. In the five years leading to 2016 the company reduced its carbon footprint by 1.07m tons.
A growing focus on waste reduction was needed in part because this is such an important issue for the communities the company serves, but also because of the impact that climate change has on the supply of raw materials and on water sources. Initiatives have included the introduction of bottles that are 22% lighter than those previous used; and increased use of PLANTBottles, manufactured using 30% plant-derived material from renewable sources. The company is also increasing its use of recycled materials in bottles, while reducing the amount of aluminium used to create metal cans; and the weight of its glass bottles, some of which are also returnable.
“Working in a company that is a global leader in sustainability has a positive effect on employee engagement, and on our relationships with communities, with customers and consumers,” says Seidl. “Our people now know sustainability is a company-wide commitment.”
“The reputational benefits are very important,” says Imellos. “Being recognised as a leader in sustainability has helped us to connect more closely with the communities and consumers we serve. More shareholders and potential investors also look at sustainability criteria and for some, sustainability is very high on their agenda.”
The company has set out new sustainability targets to achieve by 2020. These include sourcing 40% of the energy it uses from renewable and clean sources, recovering 40% of all the packaging it uses for recycling, further increasing the use of recycled materials in bottles and packaging; and working towards a fully sustainable supply chain.
“Fully sustainable sourcing is something we want in the longer term,” says Imellos, “partly because it provides a predictability, a less volatile cost base.”
Any company would be well-advised to follow a sustainability agenda, says Seidl. Government policies across the world are almost certain to continue to tighten environmental and sustainability-related regulations, but also – as has been seen in several high profile incidents recently – companies that attempt to dodge the work required can suffer very serious regulatory consequences and severe reputational damage.
“It’s about credibility,” he says. “Be authentic. Make promises that you can and will keep.”
When asked what advice Coca-Cola HBC might offer another company following a similar path, Seidl highlights the need for detailed planning and a step-by-step approach, as well as cross-functional collaboration; and emphasises the importance of the link with the finance function; and of integrated thinking. “You can’t make these investments in carbon and water without an understanding of what you are doing, in financial terms,” he states.
For Imellos, the foundation of success is a strong understanding of why the company wants to work towards these aims. “This is a useful starting point for making your vision pervasive across the organisation,” he says. “Support from the top level of management, including the board, is very important. The tone from the top has to be aligned with and supportive of the vision.
“Keep it very simple: sometimes the simpler we communicate something the better we understand it. These subjects can get very complicated very quickly. And finally, make it measurable. Find a way to translate your aspirations into a tangible, measurable set of objectives.”
Finance for the Future Awards
These awards celebrate the work of finance functions that have embedded sustainability into business practices and decision making. The awards were created by ICAEW and HRH the Prince of Wales’s Accounting for Sustainability (A4S), with Deloitte a long-term partner. Their purpose is to raise awareness of the benefits of moving to a sustainable, resilient business model.
Entries for the 2017 awards opened on 6 March and close on Friday 5 May. This year’s awards will feature six categories: four open to organisations and their finance functions, for large businesses, small and medium-sized enterprises, public sector or third sector organisations; and an award for communicating integrated thinking. There will also be one award open to investors and financial services companies, for sustainable investing and financing; and one category open to individuals for the most innovative new idea in sustainable business practices.
Winners will be announced at an event on the evening of Thursday 12 October.
For more details, visit financeforthefuture.co.uk