Unilever: Harmonizing Profit & Corporate Social Responsibility

In 1885, William Lever launched a soap-making business with his brother James, Lever Brothers, later renamed Sunlight Soap.  Years before the term “corporate mission”, the Lever brothers operated with the vision to “make cleanliness commonplace, lessen work for women, foster health and contribute to personal attractiveness, and to make life more enjoyable and rewarding for the people who use our products”.

Decades later, sustainability remains vital to Unilever’s business.

The company’s vision is simple: to help people feel good, look good, and get more out of life with brands and services that are good for them and good for others.  “We will inspire people to take small everyday actions that can add up to a big difference for the world.  We will develop new ways of doing business that will allow us to double the size of our company while reducing our environmental impact”.

Under the direction of CEO, Paul Polman, Unilever has become the poster-child of corporate sustainability.  In 2010, Unilever launched their Sustainable Living Plan, striving for three key targets by 2020:

  1. To help more than one billion people improve their health and well-being
  2. To reduce the environmental footprint of its’ products by 50%
  3. To source 100% of its agricultural raw materials from sustainable sources

Success at Unilever is defined as “acting with the highest standards of corporate behavior towards our employees, consumers, and the societies and world in which we live”.  Unilever has made impressive progress in waste reduction and clean energy consumption.   Unilever has saved over $200 million by cutting raw and packaging materials and reducing disposed waste. That’s right – it’s possible to make money and do good at the same time.  Carbon emissions from manufacturing operations are approximately 35% lower than that of prior years.  50% of Unilever’s supplies are sourced sustainably, accomplished in large part through aligned supplier objectives.

But the major impediment to corporate sustainability is the difficulty of changing the behavior and mindset of the consumer.  Unilever is experiencing this barrier first-hand, as consumer support becomes vital in order for the Sustainable Living Plan to achieve all objectives.  In 2011, Unilever conducted a study measuring the carbon footprint of 2,000 of its products.  The results: 68% of greenhouse-gas emissions occurred subsequent to consumer purchase, typically through the process of heating water.  The firm has a goal of persuading 200 million consumers to take shorter showers (using Unilever products designed to work with less liquid) by 2015.  This objective has proved so difficult that employees have related it to attempting to convince smokers to quit.

The advent of sustainable mission requires patient capital. Yet, Unilever’s investors seem to be getting restless, as the share price has dipped in the last couple quarters. Looking back over the last 30 years, Unilever has returned 13 x, relative to competitor Procter & Gamble, who has returned 7 x.  Following Polman’s announcement of the Sustainable Living Plan, the company’s share price rose about 40% from 2011 – mid 2013, outperforming P & G by about 1,000 basis points.  But, by the end of 2013, Unilever’s performance was in-line with Procter & Gamble and by 2Q of this year, Unilever’s stock slightly underperformed.  Unilever has built a strong niche position amongst socially-minded investors.  Although hard to extrapolate, some of the share price dip could plausibly be due to investor hesitation that sustainability goals might overwhelm Unilever’s profitability instinct.

For whatever reason, investors are expressing a loss of confidence in the company’s business model.   Can Unilever achieve both its sustainability and profitability targets?  If investors were rational they would look to the long-term performance of what has been a profitable investment for the last thirty years.  But investors exercise consistency in one thing and one thing only – investing emotionally.

4 thoughts on “Unilever: Harmonizing Profit & Corporate Social Responsibility

  1. Hi Jen – Nice to see you again this weekend. In case Ally hadn’t forwarded to you, there’s an interesting article in today’s NYTimes about the Rockefeller family and Foundation and how they’re pulling their money out of fossil fuel CO’s. It’s as if they were reading our minds!

    Best… Larry

    Sent from my Verizon Wireless 4G LTE DROID

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  2. Great post! Could it be that investors are now undervaluing UN and overreacting to their own concerns about the sustainable mission? On the shorter showers and the analogy to quitting smoking, perhaps UN can fund a public service campaign (with gov’t $$ where possible to augment) that will help educate and also brand themselves in the process. Keep up the good work!

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  3. Seems as if almost every corporation is touting being green. If all or doing so much good; why do we still have such vast environmental problems?

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