Unilever – Changing the business model of a $125B giant

How Paul Polman, a strong advocate for striving towards sustainability, is creating impact for one of the world's most well-known companies.

Paul Polman, CEO of Unilever, took home a salary of $10.4M in 2015 and $10M in 2014. And, why should he not? He exceeded expectations of growth in 2014 – generating revenues of over $66 billion and profits of over $6.4 billion. (1)

However, whenever Polman takes the stage to share his thoughts on the future of his industry, one can truly observe a stark divergence from the traditional demeanor of a Fortune 500 CEO. Unflinchingly and publicly declaring that his pay is too high, he would often attempt at lightening the audience’s mood with his uncanny sense of humor. An excerpt from one of his openings at the Stanford GSB:

“I was at the airport and overheard a heated discussion between three people – a doctor, an engineer, and an economist. The Doctor said that he has the oldest profession in the world which started when Eve was created from Adam’s rib. Perplexed by the argument, the Engineer reasoned that the sciences started right from the chaotic origins of the universe. The Economist smirked saying that who created chaos in the first place?” (2)

The intended humor often does not elicit a guffaw among the audience, but it does set the stage for one of the topics which is most important to Polman and Unilever.

At the Global Landscapes Forum ’14, much before the GSB talk, Polman laid out in explicit words, “Commercial agriculture accounted for 71 percent of tropical deforestation in the last 12 years. That translates into the loss of 130 million hectares (321 million acres) of forests. In fact, that loss contributes about 15 percent to global greenhouse gas emissions, more than the entire transport sector. These are the inconvenient facts.” (3)

The blame is pointed at not just one of the most environmentally demanding industries in the world, but rather, it is an inward reflection, unravelling the massive impact of increasing costs of food, water and utilities. The impact is immediate even today – it has been directly affecting the bottom line of Unilever and other consumer goods companies. It would be an understatement to claim that fixing this challenge is a hard problem, but with the increasing population, global food demand is expected to rise two times while the available land for cultivation is not projected to increase. So, in most certainty, the time to act in now.

Trying to sustainably survive and grow in the future, Unilever has taken the onus to eliminate the causation and impact of climate change from its entire supply chain – right from the growing fields, to the end customers’ hand. They are aiming to mitigate the effects of climate change with improvements in technology, processes improvements, alternative energy, along with presenting the thought leadership for businesses across the world. To achieve the target of sustainable sourcing of all agricultural raw materials (including tropical commodities, such as palm, soy and the paper and board used in its packaging) by 2020, Unilever is undertaking steps to employ renewable energy in all sites across Europe and North America, trying to eliminate the use of hydrofluorocarbons from refrigeration plants, and spearheading the creation of the Tropical Food Alliance which is a partnership between 400 consumer goods companies, major governments and NGOs. Further, to facilitate governments across the world to take actionable steps towards changing policies concerning climate change, Unilever is an active member of various advocacy groups – including the Corporate Leaders Group on Climate Change. They are also calling upon the members of the European Union to adopt legally-binding targets to improve energy efficiency by 2030. (4), (5)

In addition to the commendable efforts put in by Unilever so far, they should try to harden their stance on the definition of sustainable businesses. As a bold leader, they must restrict the prospect of businesses where the environmental consequences are bound to increase with the company’s growth. They should also consolidate their efforts on changing consumer demand of products which require high amounts of inputs. Also, they should encourage entrepreneurs to develop ideas and technologies which can be incubated and incorporated into Unilever’s value chain.

To conclude, Miguel Veiga-Pestana (Bill and Melinda Gates Foundation) sums it up perfectly, “If every major company affected by climate change – not only in the food and beverage sector, but other impacted sectors such as tourism, insurance and transport – were to address the issue as one of business survival, and step change their efforts for delivery, we could together make a significant impact”.

Word Count – 742 words.

Sources:

  1. Unilever, Director Renumeration Report- https://www.unilever.com/Images/directors_remuneration_report_ar15_tcm244-477393_en.pdf
  2. com – Stanford GSB Global Speaker Series talk on May 13, 2016, https://www.youtube.com/watch?v=y3M_FVerkkE
  3. Business Insider, Justin Catanoso, “UNILEVER CEO: We Need To Do More To Fight Climate Change”. http://www.businessinsider.com/unilever-ceo-speaks-on-climate-change-2014-12
  4. Unilever, Unilever issues call for businesses in fight against climate change, https://www.unileverusa.com/news/press-releases/2014/unilever-issues-call-for-businessesin.html
  5. org, Unilever Statement on Climate and Energy Policy, http://www.greenpeace.org/eu-unit/Global/eu-unit/reports-briefings/2013/Unilever%20Statement%20on%20Climate%20and%20Energy%20Policy.pdf
  6. Image courtesy – http://my.mastersindigitalmarketing.org/

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4 thoughts on “Unilever – Changing the business model of a $125B giant

  1. I vastly agree with your comment, but would also like to see Unilever focusing on the downstream part of the process in a more pronounced way. For instance, are they willing to start the dialogue with consumers in a more vocal way, discussing impacts of food waste, not recycling packages, among other subjects, in an attempt to educate consumers (despite the risk of being perceived as “more expensive” for being sustainable)?
    Also, are they able to further optimize their logistics platform (efficient truck loading, fewer trips from distribution center to retailers, direct distribution from factory to large players with sizeable orders)? Have they considered the use of electrical trucks when distributing their products (either own fleet or third-party providers)?
    I would love to hear that the response is YES for all these questions!

  2. I agree 100% with your last point that in an ideal world all the global movers would join forces for real, large-scale impact to occur. With that said, I believe that Unilever is such a significant player on the global market that investments in more sustainable practices on just their end would already show many signs of positive change. They should leverage their position as a market influencer to bring to the forefront methods of creating a sustainable future. I draw potential parallels with the hotel industry, the topic I wrote on, where Accor engaged with guests so that both the company and the consumer bear shared responsibilities for sustainable practices. I can imagine scenarios where Unilever sends the right message to the huge number of people they reach – action from even a fraction of those people who be a step in the right direction.

  3. It is great to read how an important player in the food and consumer packaged goods industry, like Unilever, is making significant progress to reduce its environmental impact. I like the way you position the efforts and provide an overall perspective of the situation; however, I would have liked to read more detail on the specific interventions, besides joining international committees, that the company is doing to reduce their footprint. I am sure that they are taking similar actions of those of the CPG industry leader, P&G, like working on product innovation to help consumers be more environmental friendly or making sure that their palm oil supply chain does not deforest. In addition, it’s great to read how a CEO of a huge corporation is putting sustainability as priority for a company in a very competitive industry. I think he is giving an example to others CEO’s on how matching growth targets and sustainability are not divorced objectives.

  4. Thanks for the great read. I am with you and Orianne that if every major company could pitch in to the effort of reducing their carbon footprint and minimizing their impact on the environment, great progress could be made (which could also result in increased incentives from governments to continue the good work). I also agree with T@HBS in acknowledging the extremely important role clients play in this equation.

    But to go a step further, I would also turn to investors and shareholders (and global markets as a whole), who have a very significant role to play in how they react to such initiatives. It’s not uncommon for such initiatives (which usually involve significant capital investments, with quite long horizons for positive future returns) from public companies to be met negatively by the market that does not yet seem to reward such behavior. This being said, I am basing this on personal observation and intuition, so if anyone has information/research that points in different direction, I would be interested to learn more about it.

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