3rd quarter 2023: Our active stewardship illustrated

CCI produces, distributes and sells sparkling and still beverages of The Coca-Cola Company across Turkey, Pakistan, Kazakhstan, Azerbaijan, Kyrgyzstan, Turkmenistan, Jordan, Iraq, Syria, Uzbekistan and Tajikistan.

As an investor in CCI’s-first issued SLB, we wanted to monitor the issuer’s progress on the Sustainability Performance Target (SPT) set. In addition, we noted their low MSCI rating which contrasted with the higher Carmignac proprietary START² score of “C” (ranging from A-E). This triggered an engagement with the issuer.

We held a call with the Issuer’s IR representatives and Head of Sustainability.

The focus of this engagement was to assess the Issuer’s approach to integrating sustainability considerations in its strategy, as well as to linking sustainability targets to financing. The sustainability pledges of CCI and of The Coca-Cola Company, its second largest shareholder, are very similar but also differ to take into account their business models as well as local and cultural considerations.

The SPT consists in a reduction in water use to 1.47 litres of water withdrawn per litre of product produced by 31 December 2027 from a baseline of 1.69L/L in 2020. Failure to do so will lead to a coupon step-up of 50 bps. We engaged with the issuer on the progress made against this target and how it is concretely working to achieving it. We note that the issuer works in collaboration with public authorities and also especially Non-Governmental Organisations (NGOs).

We welcome the issuer’s annual reporting on progress made against the target as well as verification by an independent third party, as this allows investors to efficiently monitor its progress.

Our assessment of the issuer’s approach to social-related topics identified areas for improvement which we engaged on. This included a request that it reports on progress against its overall commitment to be 100% compliant with its human rights policy. We also noted an increase in the number, as well as the severity of lost time incidents in 2022. This is explained by a change in its approach to reporting this data which involves more granularity in its reporting. Lastly, they also explained the challenges the company faces regarding diversity targets, given the nature of its business operations and the countries in which it operates.

This engagement allowed us to monitor the issuer’s progress on the SPT target. It also contributed to our assessment of the Issuer’s ESG performance and validated the issuer’s START rating of “C.”

As part of our ESG strategy and in line with our engagement focus, we monitor this Issuer’s environmental and social strategy.

The Issuer is a significant holding in our portfolios. We monitor it to ensure it continues to have a strong commitment to source responsibly, phase out undesirable chemicals and design environmental standards into products.

We had a face-to-face meeting with the Environmental Leadership Director and other company representatives.

The meeting was an opportunity for Carmignac to provide feedback to the Issuer on its sustainability strategy. The issuer has set ambitious targets in place on environmental and social KPIs, and we acknowledge its progress so far.

We highlight below the key points of the discussion:

• Living wage in the supply chain;
• Product safety;
• Biodiversity targets;
• Usage of biobased products;
• Sustainable packaging.

This engagement allowed us to monitor the Issuer’s progress on its sustainability targets.

We were encouraged that, unlike some peers, the Issuer has set targets in its supply chain, in addition to its own operations. Also, the Issuer has made significant progress in increasing the usage of bio-based products and introducing refillable products.

We did note, however, that on its social supply chain living wage target commitments, the work has just started and therefore, we will continue to observe this topic for further developments.

This engagement contributed to our assessment of the Issuer’s ESG performance and validated the Carmignac proprietary START² rating of “A” (ranging from A-E).