PepsiCo has announced it will restore and protect a handful of watersheds in Latin American countries in which it operates, including Mexico, Brazil, Colombia and Guatemala.

The company announced plans to “replenish” all the water used during manufacturing in high water risk areas by returning it to the watershed from which it was taken.

It’s biggest competitor, Coca-Cola, was criticised last year for its use of the term “replenish” after claiming it had returned nearly 192bn litres of water to the environment and local communities in 2015. It turned out Coca-Cola wasn’t returning the water directly back to the areas in which it operates. Rather, the company measured its results by the amount of water restored through its nearly 250 water conservation projects in high-risk areas around the world.

Coca-Cola acknowledged it wasn’t replacing the water in the exact location from which it was taken, but said all its plants were focused on sustainable production, and that damaging the surrounding environment wouldn’t be in the company’s “best business interest”.

It had already faced criticism for extracting too much groundwater and exceeding pollutant limits at a bottling plant in India.

PepsiCo is taking a different tack, and plans to replace the water at the source from where it was extracted. The company’s plan includes planting native trees, bushes and shrubs to reduce soil erosion, restoring and protecting riverbanks, and putting up fencing to stop cattle from getting into environmentally vulnerable areas.

Why water matters to PepsiCo

Global demand for fresh water is expected to outpace sustainable supply by 40% in 2030, according to a report from the 2030 Water Resources Group, a World Bank backed public-private consortium. Climate change is exacerbating natural disasters such as droughts, depleting water sources around the world that are already being drained by an increasing population.

For companies, the impact is already significant, with droughts, water scarcity, pollution and other water risks costing businesses $14bn (£11bn) this year, up from $2.6bn in 2015.

PepsiCo says it used 92.7m cubic meters of water globally in 2015, but has not faced the same levels of criticism as Coca-Cola for its water conservation efforts (although, like Coca-Cola, the company has long been criticised for marketing sugary drinks to children and adults alike).

As part of the new Latin America plan, PepsiCo, with the help of non-profit The Nature Conservancy, mapped its operations and identified the areas most vulnerable to threats, such as forests being converted into agricultural land, soil degradation, and urbanisation.

The company donated $3m to restore and protect five watersheds in cities including Sao Paulo, Bogota and Mexico City over the next seven years. PepsiCo hopes to return nearly 600k cubic meters of water back to watersheds in these areas by 2023.

“All these cities need a clean, consistent water supply to thrive,” says Laxman Narasinhan, chief executive officer of PepsiCo Latin America. “However, many drinking water sources are severely degraded.”

Latin America has 31% of the world’s fresh water, the largest of any region. Since fresh water appeared to be plentiful, up until recently governments hadn’t focused on freshwater conservation or investment in water infrastructure, and communities weren’t educated about how to protect their water supply, says Tensie Whelan, director of New York University’s Center for Sustainable Business.

But that’s changed as climate change-related weather events, such as increased droughts in the Amazon, have affected water supplies. In addition, the population in urban areas is expected to grow from 260 million to 315 million by 2025, driving up demand for a reliable source of clean water.

One project will plant trees near a Pepsi bottling plant in Guatemala City in Guatemala. Workers will clear away dead vegetation and prepare the soil to make way for the new flora.

The project, which will cost a little over $140,000 over a year, aims to provide enough vegetation to make it easier for water to be absorbed into the soil, rather than run off barren ground. Biologists will monitor the area to make sure the trees are flourishing and to replace any that have died.

Is PepsiCo’s plan greenwash?

Companies risk their reputations if they justify draining water in one aquifer by promising to improve water conditions in another, says Brooke Barton, senior director of water and food programs at sustainable business consortium Ceres.

While agreeing companies should invest at the source, Whelan says it’s not necessarily a bad thing for them to help protect water in other high-risk areas, especially where they are operating in an area with a low water risk. Not all the water Coca-Cola uses, for example, comes from areas vulnerable to water issues, she says.

“If you are sourcing from high-risk areas, you should absolutely work to invest there,” she says. “But if you source from low-risk areas, your investment might be better used in a high-risk water area, especially if you’re a company like Coca-Cola that sells to those places.”

However, others have accused PepsiCo and Coca-Cola of greenwash. Until big corporations are fully transparent about their carbon impact and how and where they are emitting greenhouse gases, there will always be an element of greenwashing to any of their sustainability claims, says Daniel Kammen, director of the renewable and appropriate energy laboratory at the University of California-Berkeley.

“Pepsi and Coke are companies that are highly water intensive, and a great deal of their energy use goes to transporting and purifying water. You have to do both – replenish water and be transparent about your carbon,” he says.

Sign up to be a Guardian Sustainable Business member and get more stories like this direct to your inbox every week. You can also follow us on Twitter.