Unilever swaps earnings rat race for sustainability

WASHINGTON Sat Nov 3, 2012 4:56am IST

Paul Polman, CEO of Unilever attends a session at the World Economic Forum (WEF) in Davos January 28, 2010. REUTERS/Michael Buholzer/Files

Paul Polman, CEO of Unilever attends a session at the World Economic Forum (WEF) in Davos January 28, 2010.

Credit: Reuters/Michael Buholzer/Files

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WASHINGTON (Reuters) - Around the time of the 2008 global financial meltdown, consumer products giant Unilever decided to make a dramatic shift in strategy, away from meeting investors' quarterly expectations to a long-range plan that treads lightly on the environment and supports social goals.

Confident in profiting through doing good, the Anglo-Dutch maker of Dove soap, Ragu sauces and Lipton tea is working with the United Nations to save children's lives through handwashing and joining other corporations to stem illegal logging, among other things.

"We're not going into the three-month rat-races," Chief Executive Paul Polman said in a telephone interview last month. "We're not working for our shareholders. We're working for the consumer, we are focused and the shareholder gets rewarded."

Unilever's (ULVR.L) (UNc.AS) philosophical shift reflects increased awareness among corporations that long-range planning and future competitiveness depend on sustainability -- doing business without damaging or depleting natural resources.

A report this year by MIT Sloan Management Review and the Boston Consulting Group surveyed thousands of managers in 113 countries. Seventy percent of the companies have built sustainability into their management agendas; two-thirds said sustainability is necessary to being competitive, up from 55 percent in a 2010 survey.

Unilever is hardly alone in taking on the sustainability mantle: General Electric (GE.N), Nike (NKE.N), Levi's, Pepsi (PEP.N), Kraft Foods (KRFT.O) and Wal-Mart (WMT.N) have all moved in this direction.

Caroline Flammer, a lecturer at MIT's Sloan School of Management, said that sustainability - also known as corporate social responsibility - used to be seen as a drain on profits, but that is changing.

"Recent surveys suggest that actually more and more CEOs believe that sustainability will be critical, a key factor for their competitiveness and business success in the future," Flammer said in a telephone interview.

This focus can improve corporate performance, she said, whether through more efficient use of materials, higher employee motivation or access to new market segments, such as consumers who care about sustainability.

At Unilever, the company's share price has doubled over the four years since its Sustainable Living Plan was implemented in November, 2010.

Unilever's quarterly sales growth, reported October 25, beat forecasts as demand for cleaning and personal care products in China helped it outshine rival Nestle (NESN.VX).

'NOT ALTRUISTIC ... JUST COMMON SENSE'

Polman denied being purely idealistic.

"Business cannot survive in a society that fails, so it is stupid to think that a business can just be standing on the sidelines of a system that gives them life in the first place. So this is not idealistic at all. All of the actions that we do are hard-wired to our business purposes, hard-wired to our brands."

For Unilever, the Lifebuoy soap brand has been a leader in the push for sustainability, corporate responsibility - and sales.

Launched in Britain in 1894 as the "Royal Disinfectant Soap" by one of the original Lever Brothers, Lifebuoy was originally promoted for washing hands to ward off disease.

By 2012, the soap ranked as one of Unilever's fastest-growing brands, and the company partnered with the United Nations to promote Global Hand-Washing Day, an event embraced by 250 million people around the globe.

The hope, Polman said, was to save the lives of 600 million children under the age of five by curbing diseases like pneumonia and diarrhea - a "noble cause" that also happens to be good for business.

"Because we sell more Lifebuoy, we can do more hand-washing days, we can reach more people," he said. "And because we reach more people, we sell more Lifebuoy."

Another product Polman sees as a potential billion-dollar brand is Pureit, a home water purifying system that requires no gas or electricity.

"It's the mobile phone of drinking water," he said. "So yeah, we advocate clean drinking water, we advocate sanitation, but we do that with our brand. That's not altruistic, that's just common sense."

CORPORATE GROUPS CAN LEAD

Like its competitors, Unilever has made inroads in emerging markets, but Polman said his company's strategy aims to lift up the 2.5 billion people on Earth who lack access to clean water and the 1 billion who go to bed hungry. Unilever's sustainability plan also looks to mid-century, when world population is expected to rise to 9 billion.

Polman said companies must embrace sustainability because "the political environment is breaking down," evidenced by the weak sustainability agreement reached at the United Nations Summit in Brazil and the inability to conclude pacts on curbing climate change or global trade.

"The need for companies to play a more active role is very transparent to me," he said. "It's too late for business to say, government should give me this or the government should give me that."

Instead of governmental agreements, he sees coalitions of corporations and sometimes non-governmental organizations as the way forward.

Polman said Unilever had cut carbon emissions by 50 percent over three years, and developed detergents with lower washing temperatures, which use less energy, and sustainable and alternative farming techniques, which also can decrease the emission of climate-warming carbon.

To combat illegal deforestation, which he said is estimated to be responsible for 17 percent of global warming, Unilever joined an industry consortium that agreed not to sell any products made as a result of this illegal practice by 2020.

"You focus on the right things, you put the consumer in the middle of all you do, and ultimately your shareholder will benefit as well, as a result, but not as an objective in itself," Polman said. (Reporting By Deborah Zabarenko, Environment Correspondent, additional reporting by Sarah Young in London; Editing by Marilyn W. Thompson and Tim Dobbyn)

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