Archive: November, 2014

Unilever’s Sustainable Living Plan

My interest in sustainability was piqued earlier this year when I attended a series of presentations as part of the CIPS Fellows’ Summer Dinner. I summarised the presentations in an article in July called Sustainability and then followed up with some further research in August in More on sustainability.

A recent case study in the Economist drew my attention to Unilever, the Anglo-Dutch consumer-goods giant. I was aware that the founder, William Lever, pioneered the Victorian model of paternalistic business that involved marketing products for their health benefits and providing employees with housing in Port Sunlight, a purpose-built company town on Merseyside. I was interested to learn that their responsible approach to capitalism continues to this day under the leadership of Paul Polman, the current chief executive.

As I’ve previously observed, many sustainability or corporate responsibility plans have been cost reduction programs by another name. They have focused on efficiency measures related to energy consumption and waste reduction. Admittedly some consumer goods organisations such as SABMillar, Coca Cola and Walmart have gone further and included programs for training small farmers in developing countries.

Unilever’s scope is much broader. Polman launched Unilever’s Sustainable Living Plan (USLP) in 2010 with the aim of doubling the size of the business while reducing the environmental footprint and increasing what they call their “positive social impact”.

As part of the strategy, Unilever calculated that almost a quarter of their greenhouse gas foot print came from their suppliers’ production of raw materials and nearly 70% from consumers. Only 10% came from manufacturing, transport, retail and disposal. To achieve their aim they realised that they would have to engage the whole value chain from the sourcing of raw materials to the way consumers use their products.

Unilever is a major player in the agricultural supplies market. They buy around 12% of the world’s black tea, 3% of tomatoes for processing and 3% of the palm oil produced. In 2010, they claimed that only 14% agricultural supplies were “sourced sustainably”. They define this in terms of protecting scarce resources. By sourcing sustainably, they ensure that deforestation, land use and social and community issues are managed responsibly. They also ensure security of supply for their business and reduce costs.

Their progress has been impressive. By concentrating on their top ten agricultural raw materials which account for around two thirds of their volumes they now claim that 48% are sourced sustainably.

Unilever have achieved this partly by backing its suppliers’ innovations. For its soup brand, it created a €1m Knorr Sustainable Partnership Fund, which invested in schemes such as drip irrigation for tomatoes in Spain and California that have increased yields and reduced water use.

Marc Engel, Chief Procurement Officer, said that “market transformation can only happen if everyone involved takes responsibility and is held accountable for driving a sustainability agenda. Our progress has been made possible by the commitment and efforts of a number of our strategic suppliers. We will continue to engage with our suppliers, NGOs, governments, RSPO, end users and other industry stakeholders to develop collaborative solutions to halt deforestation, protect peat land, and to drive positive economic and social impact for people and local communities.”

Although I believe in sustainability, I have been skeptical about the way it has been defined and the business cases that have been put forward. By putting sustainability at the heart of its strategy Unilever seem to have overcome many of the issues. Since USLP was launched, Unilever’s share price has risen by more than 40%. And this was during a period when its biggest rival, Procter & Gamble of America, lost its way.

But Unilever appear to have reached a critical point. Its recent annual results disappointed the markets and the share price dropped below the previous year. The early rises appear to have been fuelled by niche investors who focus on environmental issues.

Arguably the biggest challenge will come in the next 5 years as they shift their focus to the smaller suppliers and address health issues such as obesity which some of their brands like Ben & Jerry’s ice cream contribute to causing. A Unilever executive conceded privately that it may require a crisis—such as a spike in food prices like the one in 2007-08—for investors properly to value the new approach. For the time being, it remains an ambitious approach which others should follow.