Myanmar

Coca-Cola’s Report on its Myanmar operations - a model for others?

13 January 2013

By Donna Guest, Senior Advisor, South East Asia, IHRB

The Coca-Cola Company recently submitted its first report on its Myanmar operations to the US State Department under the Responsible Investment Reporting Requirements required of all US companies investing more than US$500,000 in Myanmar.

In recognition of Myanmar’s reform efforts, the US Government eased sanctions but established reporting requirements for newly authorized investment in the country. The State Department has said the reports are intended to help companies address impacts and empower civil society to monitor investment in Myanmar and work with companies to promote responsible investment.

The US reporting requirements cover key areas of business operations in Myanmar including land acquisition, labour rights, grievance mechanisms, stakeholder engagement, anti-corruption, communications with the military, and environmental policies and procedures. Companies are due to submit reports 180 days after meeting the $500,000 investment threshold, and annually thereafter.

So how does the Coca-Cola report match up with those submitted thus far, and should it be seen as a model for others?

First, it should be said that Coke’s report is by far the most substantive and comprehensive of the six reports which have been made public since the requirements came into force in May 2013. IHRB commends Coca-Cola for publicly reporting not only on the positive steps it has taken but also ongoing human rights challenges it faces.

Second, the report serves as a rare example of a company reporting transparently on how it has undertaken human rights due diligence in line with the UN Guiding Principles on Business and Human Rights. The report describes Coca-Cola’s due diligence activities in Myanmar which began already in 2009, well in advance of the US State Department reporting requirements, in anticipation of the country opening up to investment.

It is important to note that this process appears to be driven not by regulatory requirements but to meet the company’s internal policies and to figure out how it would do so in a high-risk environment like Myanmar. This is probably the most important message from the report – not how to do the minimum to meet the US reporting requirements, but instead an apparently thoughtful and well-structured due diligence process that supports the company in doing business in high risk environments in a manner that is aligned with the content and spirit of the UN Guiding Principles on Business and Human Rights. At the same time, the report sets an important precedent for subsequent reporters under the US Reporting Requirements.

Coca-Cola’s report sets out a description of the company’s due diligence processes that will provide useful tips for other businesses. The company used independent experts and auditors to conduct an initial risk assessment and engaged with a broad range of stakeholders. Given endemic corruption in Myanmar, the company has prioritized the prevention and elimination of facilitation payments, another welcome step.

With regard to corruption, and human and workplace rights, employees can make complaints about violations of these policies through several mechanisms. Coca-Cola also makes clear that it expects its suppliers to establish grievance mechanisms.

The report goes on to provide details about the results of human and workplace rights assessments in the two plants Coca-Cola acquired. Some of the findings include gender discrimination, with women being paid approximately 11% less than male colleagues; overtime above the legal limits (another endemic problem in Myanmar) and overtime payments either incorrectly calculated or not provided at all; and the discharge of untreated wastewater from facilities. A plan for corrective action was developed on these and other issues.

As part of training efforts, IHRB’s joint initiative with the Danish Institute for Human Rights, the Myanmar Centre for Responsible Business, worked with Coca-Cola on an initial training session for its suppliers on business and human rights, and arranged for a briefing by a local trade unionist.

Environmental due diligence was conducted by an independent external expert and a corrective action plan was put in place, which Coca-Cola recognized was crucial given the weak environmental legal and regulatory frameworks in Myanmar – although an Environment Law was adopted in 2012, no regulations are yet in place covering issues such as water pollution and air quality.

The company has developed a wide stakeholder engagement program to address the high risk of adverse human rights impacts in Myanmar, and we hope that Coca Cola’s next reports will highlight how this is being developed, what issues are being raised and how they are being addressed. One particular aspect to focus on will be what complaints and grievance mechanisms Coca-Cola is using with non-employee stakeholders.

The report explains that the company did not acquire any land during the reporting period. Coca-Cola investigations were not able to establish how the land had originally been acquired from the government, which highlights a major concern with regard to land tenure in Myanmar. Land laws and regulations are complicated and not properly harmonized and it is difficult to establish the history of legal tenure. Moreover land grabs and forced evictions in both rural and urban areas in Myanmar have been ongoing for decades. With the country opening up to foreign investment and land prices escalating, the risk of these land rights abuses has increased.

In this regard, IHRB welcomes Coca-Cola’s recent commitment of zero tolerance for land grabs globally. As Coca-Cola starts to source more local inputs, and in particular if it switches to sourcing Myanmar sugar, land will be a key risk. While there may be no obvious land risks related to current plants, it will be interesting to learn how Coca-Cola is addressing land and other risks that will arise as it builds a local supply chain.

The word on the street is that the due diligence and audit procedures Coca-Cola has undertaken to put its global policies and procedures in place in Myanmar have cost the company millions of dollars. But this expenditure should be viewed in proportion to the size of the company, and its profits, and the $200 million it plans to invest in Myanmar. When companies enter high-risk markets such as Myanmar, there are clearly higher entrance costs involved. A company of Coca-Cola’s size, seeking to make a long-term investment in a growth market, can afford to do this. Indeed, given scrutiny of its operations worldwide, it can’t afford not to.

Coca Cola’s first report on its operations in Myanmar has set a high bar for other companies to meet. This report and Coca Cola’s approach to responsible business conduct will be a useful resource for Myanmar companies who face similar challenges and for international companies investing in the country, but also for companies entering other ‘frontier markets’. Perhaps most importantly, Coke’s report has also provided a helpful starting point for Myanmar civil society and community-based organizations to engage with it and other companies on these important issues.

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