Will Unilever's sustainability leadership pay off?

The Gunther Report

Will Unilever's sustainability leadership pay off?

[Editor's note: It's a busy week for Unilever. Aside from releasing its sustainability progress report, discussed in this article, on Tuesday, the food and beverage giant also is having its 24-hour Sustainable Living Lab today. And CEO Paul Polman also spoke at an event in London this week, saying that climate change is costing the company €200 million per year.]

Since launching its ambitious Sustainable Living Plan in 2010, Unilever is buying more sustainable palm oil and cage-free eggs, putting less salt and fat in its tomato sauces and spreads, selling water purifiers to poor people in the global south and rolling out climate-friendly freezers for its ice cream.

In my opinion, no big company is doing more to limit its environmental footprint while improving health and well being and growing its business. Unilever’s commitments are wide and deep. It’s no wonder that the firm and its CEO, Paul Polman, have become darlings not just of corporate-friendly NGOs like the World Wildlife Fund, but also a favorite of hard-charging activists from Greenpeace and the Humane Society of the U.S.

But even as Unilever on Tuesday reported making good progress towards its sustainability goals, questions remain about its strategy: Will consumers -- and investors -- notice and reward Unilever for its efforts?

It’s obviously too soon to say whether sustainability will drive growth at Unilever, but the early evidence appears mixed. Eco-efficiency efforts in factories have reduced waste and saved money. Unilever revenues have grown nicel, to $46.5 billion in 2001, up from $44.2 billion in 2010 and $39.8 billion in 2009. But the company’s share price is up by less than 2 percent in the last year in the U.S. market, slightly trailing the Standard & Poor's 500. (Its stock is doing better in European markets, where currency factors don’t come into play.) Meanwhile, Unilever’s corporate identity is all but hidden behind consumers brands like Lipton, Skippy, Ragu, Bertolli, Hellmann’s, Suave, Dove, Ben & Jerry’s and Breyers, at least here in the U.S. That makes it hard to win over those consumers who care about companies that do good.

On Tuesday, I attended a Washington event, with company execs, partners and NGOs, where Unilever’s president for North America, Kees Kruythoff, released a progress report on the company’s sustainability efforts.

“Broadly speaking, we feel like we’ve made good progress,” he said, citing gains around agricultural sourcing, waste reduction and energy efficiency, among other things. Some highlights:

  • 24 percent of the company’s agricultural raw materials, including palm oil, soy beans and soy oil, paper and wood, tea, fruits and vegetables, were sustainable sourced last year.
  • 48 million people in poor countries were reached with Lifebuoy soap’s handwashing program aimed at curbing disease.
  • 100 percent of the electricity that Unilever buys in Europe comes from renewable sources.
  • Pure-it, a water-purification technology, is expanding from India, where it already has reached 35 million people, to Bangladesh, Mexico and Brazil.

This week, Unilever also said that it will build a $100 million palm-oil processing plant in Indonesia to accelerate its efforts to buy palm oil from sources that can be certified as sustainable. Palm oil is used in many products -- soaps, detergents, shampoo, potato chips and ice cream -- but expansion of palm-oil plantations can destroy forests, threaten biodiversity and increase climate pollution. The move is part of the company's commitment to source all of its palm oil sustainably.

More impressive than any single accomplishment, though, is the scope and seriousness of Unilever's plan, as well as the thinking behind it, as I’ve written before. (See my 2011 blog post, Unilever CEO: Don’t stay on the sidelines) To see for yourself, you can download Unilever's progress report here.

During his presentation, Kees Kruythoff said that sustainability is being embedded into all of Unilever’s operations -- its procurement and supply chain, its manufacturing, its marketing (more slowly) and even in its efforts to influence the way consumers use its products.That’s partly because the world’s big problems create big opportunities for business.

“We live in a world where the population is growing, climate change is accelerating, water is scarce and 1 billion people are hungry. And another 1 billion are overweight,” Kruythoff said.

“Companies,” he said, “can no longer sit on the sidelines waiting for governments to take action on the huge environmental and social problems that face us.”

He said there’s no turning back from the company’s commitment to sustainability: “It drives growth. It drives efficiency. It drives innovation…This is how we run the business.”

But -- aside from the obvious eco-efficiency gains -- what’s unclear is how the effort will pay off with consumers. It costs more for the company to source sustainable palm oil or cage-free eggs, executives said. But will consumers pay more, for example, for Hellman’s Real Mayonnaise because it is made with cage-free eggs?

Kruythoff told me that, outside the U.S., brands that have been showcased as sustainable have performed well. Lifebuoy soap, concentrated laundry detergents that use less packaging and water and Comfort One Rinse fabric conditioner, which saves water, all have performed well. “These brands have all grown by double digits, faster than the average of the company,” he said.

He also told me that the Unilever brand and its sustainability commitments will become more prominent in U.S. marketing soon. Lipton Tea, for example, will be positioned as a brand that is healthy and good for the environment.

In an interview today with the Guardian, Unilever’s Paul Polman said many in the financial markets still don’t understand that the company has moved beyond old-style corporate social responsibility:

With Unilever, the Sustainable Living Plan is our business model. So we spend an enormous amount of time explaining it to our investors.

Does everyone get it in the City [and Wall Street]? No, and to expect it will ever happen is wishful thinking but investors will increasingly value our business on the basis of what we are doing.

Still, Polman also said Unilever’s sustainability strategy is creating waves across the corporate sector: “We are showcasing a different business model that shows how you give to society and the environment rather than just taking from them.”

It will be fascinating to see where Unilelver’s bold approach will spread.