BUSINESS:

Cola giants compete to shrink emissions, trash piles

NEW YORK -- The great global cola war has spilled into a new theater of operations: the environment.

Hardly a week passes without the two soft-drink behemoths, the Coca-Cola Co. and PepsiCo, announcing new environmental initiatives. Both have launched ambitious water-conservation and recycling drives, and the two are now working feverishly to improve their energy efficiency.

Most of what they do saves them money and bolsters their bottom lines. But a recent barrage of press releases from both touting small-scale efforts in single bottling plants and massive global initiatives suggests Coke and Pepsi are engaged in combat over which will wear the "greenest beverage company" crown.

In the latest round, Coke is working with a New York company to encourage the glitterati at Fashion Week, which is ongoing, to recycle cans and bottles. Each day, Boro Recycling will empty recycling bins bearing Coke's "Give It Back" logo that are scattered throughout Bryant Park.

Coke launched a "recycle and win" program earlier this month in Mecklenberg County, N.C. It has hired the marketing firm Red Moon for a direct-mail campaign there explaining the effort and the opportunity for 520 households in the Charlotte metropolitan area to win $50 gift cards for participating.

Coke says the new North Carolina program is just the latest example of a global effort to increase the percentage of recycled bottles and cans used in finished products. Saving money is one motivation for the program, the company says, but not the only one.

"When you achieve efficiencies, there's cost savings in that, obviously, but also because it's what we all need to do," said Kirsten Witt, spokeswoman at Coke's North American headquarters in Atlanta. "We all need to recycle more. We need to look for ways where everything we are using is sustainable."

Meanwhile, PepsiCo says it is also making strides in expanding recycling. At least 10 percent of the plastic that goes into the average bottle of Pepsi is recycled material, and the company says it is trying to boost that percentage, aware that a greater reliance on recycled material will likely save the company money in the long term.

"If it didn't help the bottom line, it would be hard to justify -- especially in this economic environment," said David DeCecco at PepsiCo. "It is our belief that the sustainability efforts that save money are the ones that are going to last."

Beyond the recycling, Coke and Pepsi are competing for recognition of environmental stewardship in other ways.

For example, the Center for Resource Solutions announced last month that PepsiCo ranked among the top three U.S. companies in volume of renewable-energy credits purchased last year -- for buying Green-e Energy Certified clean-electricity credits in the voluntary marketplace.

Meanwhile, Coca-Cola was awarded the 2008 gold medal for international sustainable development by the World Environment Center. The honor was given for the company's apparent leadership in "energy management and climate protection," among other areas.

Spotlight on water conservation

Not surprisingly, given that they are beverage producers, both companies are massive water consumers. So they are focusing most of their attention on water conservation.

Muhtar Kent, president and CEO of Coca-Cola, said water conservation earned his company the 2009 World Environment Center award. "We have made a deep commitment to managing and preserving our water resources," Kent said upon accepting the prize last month. "This recognition from the World Environment Center gives us confidence that we are heading in the right direction."

Coke must save water out of necessity. In the midst of a record regional drought last year, Georgia Gov. Sonny Perdue (R) decreed that all companies must cut water consumption by 10 percent, spurring Coke to tighten the spigots even more.

"We have certainly been in a water-stressed environment here," Witt said. "We have achieved those reduction targets ... and we're continuing to look at ways to ensure that in our operations we are processing and recirculating water, that we're reducing the amount of water we need to produce our beverages."

Witt said Coke is also instructing its regional plants to do more to adapt to arid conditions through reallocating production schedules.

Coke also says it will enhance water efficiency in all operations by 20 percent against 2004 consumption levels by 2012. Although the company admits its total water use will expand as the company grows, it projects that more than 13.2 billion gallons of water will be saved as it narrows the ratio of water used to produce each can and bottle of Coke.

To help implement the efficiency scheme, Coke says it has signed up with the World Wildlife Fund to develop a "water efficiency toolkit," with software to help the company's regional managers review operations and develop strategies to meet the conservation goal.

Pepsi has announced an almost identical water-efficiency initiative, with an identical 20 percent savings goal.

The chief difference between Coke and Pepsi is that Pepsi plans to use a 2006 benchmark and wants to reach its goal by 2015. Pepsi is also working to cut its electricity per unit of production by 20 percent and overall fuel consumption by 25 percent in the same program.

DeCecco said much of PepsiCo's push into greater water efficiency was begun as a response to the drought in the Southeast and arid conditions elsewhere in the country. One Pepsi innovation is a system whereby compressed air is used as a lubricant in lieu of water, netting some Pepsi plants their best water savings.

Push on recycling, climate change

The most visible environmental competition between the companies is in recycling. Even though falling prices for raw materials have hit recyclables markets, both companies say they are aggressively expanding their recycling operations.

There is a huge, industrywide push coming from the American Beverage Association, which signed a "recycle together" agreement in December with the Climate Group, a U.K.-based advocacy organization founded by former British Prime Minister Tony Blair.

The two largest beverage companies appear to be leading the way in the drive.

Last month, Coca-Cola opened the world's largest plastic-bottle recycling and production plant in Spartanburg, S.C. The plant -- a joint venture with United Resource Recovery Corp. -- will take bottles from suppliers throughout the Southeast to produce brand-new ones from the 100 percent recycled material.

The company says it is also expanding incentive programs for consumers, such as the one in North Carolina and a separate rewards program launched in late January with RecycleBank.

PepsiCo says it is moving in sync with Coke and its other competitors on recycling. But the company says it is deepening its work on climate change, too.

Last month, Pepsi announced a partnership with the Carbon Trust, a nonprofit established by the British government, to certify the carbon footprint of several Pepsi products, starting with Tropicana juices.

Last year, an audit of the Tropicana supply chain commissioned by Pepsi determined that 3.75 pounds of the greenhouse gas carbon dioxide are released for every half-gallon carton of orange juice. The company is still considering what to do with that information, but company officials are fairly confident that moves to lower that carbon footprint will save money.

On climate, Coke is not far behind. The company has announced its goal to cut CO2 emissions of its operations by 5 percent in developed countries by 2015 from a 2004 baseline. And Coca-Cola Enterprises, Coke's corporate parent, announced it would deploy another 185 hybrid electric trucks in North America, bringing its total hybrid fleet size to 327.

Do investors care?

But so far, investors and financial analysts seem to be paying much less attention to these environmental announcements than consumers or the media might.

Two recent industry analyses by Citi Investment Research, for example, focus almost entirely on the strength of Coke's and Pepsi's core business operations and offer no separate assessment of the companies' environmental competition.

"The structural challenges to reversing consumer and investor attitudes toward soft drinks in the U.S. are myriad, but very addressable," Citi analyst Celso Sanchez said. In this case, "structural challenges" refer to public health concerns and the beating both companies are taking over obesity concerns.

Indeed, many analysts say rising concern over U.S. health care and a growing backlash against fast food pose problems that greater environmental awareness by the two industry leaders cannot overcome.

But the companies express confidence that keeping up their momentum on the environment will net rewards in the end.

"There's a competition between the two companies on everything, because we do compete in so many areas," Pepsi's DeCecco said. "But we know that we are doing everything we can on the environmental side to not only do the right thing from a green standpoint, but also do the right thing for our business."