Unilever A new
paradigm for sustainable growth
Paul Polman is in no doubt that the unprecedented changes we have seen in the global economy over the past decade are an opportunity rather than a threat. “We are increasingly more successful in what I call a VUCA environment – volatile, uncertain, complex and ambiguous.”
That success started in 2011 when the Unilever CEO launched the “Sustainable Living Plan” integrating every aspect of Unilever’s business. The revamp called for Unilever to double its sales and halve its environmental impact within a decade; this at a time when most people in the CEO office wouldn’t project from one quarter to another.
“It’s a realistic and difficult business model. But in a world where increasingly people feel that the system is unfair to them or where they feel excluded, where there is an enormous resource stress, companies that don’t more actively become part of the solution will become obsolete.”
He also understands that in today’s interconnected world, social media is a powerful tool in the hands of the people, and the consumer is not afraid to say what he wants. “In the digital age we’ve seen the power of the consumer coming up and I always tell our people here that if they can bring down a regime in Egypt in about 17 days they can bring down an irresponsible company in nanoseconds...
"The consumer is really the boss and there is no bigger power than the power of the wallet. So we’re opening up our company to the consumer more than anything else. Two billion consumers worldwide use our products every day. And we’re saying as a company that your small actions make a big difference.”
The price of connectivity
For Polman, connectivity with the consumer is a two-way process. The company can promote products and services but the consumer can also make his or her preferences known, which has led to the faster development of new products that better suit their needs. Recent innovations include detergents that only require one rinse cycle rather than three, and dry shampoo – particularly relevant in drought areas of the world.
Polman believes there is no reason why green growth should be incompatible with profitability. In fact ignoring the environment is no longer an option if companies are to survive. “We live in a world where a billion people still go to bed hungry and where climate shocks have cost business a lot of money - €200 billion last year alone. In Africa there are 300 million climate change refugees. The businesses that have a business model that responds to the needs of society are going to be successful.”
He takes pains to point out that Unilever is not a charity. “We are a business first and foremost. Everything we do has to make sense in terms of the profitability of the business. Sustainable growth doesn’t have to come at the expense of either top or bottom line growth. Indeed I would say that such a strategy actually accelerates both top and bottom line growth.” He is quick to point out that Unilever’s Sustainable Living Plan owes more to Adam Smith’s notion of equitable capitalism than modern Green politics. “We’re seeing that governments are increasingly unable to deliver. The essence of what we are doing lies in the origins of capitalism – it’s just that we forgot about it.”
It may not be a charity, but Unilever has a long history of philanthropy and of being socially and environmentally responsible. And while CSR may be the “buzz phrase” of the 21st century, Unilever has been quietly practising social responsibility for more than 130 years. Lord Leverhulme’s strategy of building a company that would improve society rather than undermine it grew out of the deprivation that he saw in late 19th century England, a time when 50 percent of babies died before their first birthday because of poor hygiene. That chilling statistic led Lord Leverhulme to introduce affordable bar soap to the market.
Evangelical zeal
Polman is the only CEO of the Anglo Dutch giant who has not been a company man for most of his career. In fact he spent 27 years at Unilever’s arch rival, Procter & Gamble, with a brief spell working for the other great European exemplar of sustainable growth, Nestlé. But now his commitment to Unilever’s mission to develop a sustainable growth model borders on the evangelical.
“Sustainable sourcing is at the heart of our strategy,” he confirms. “In the next 30 years the world will consume as much food as it did in the last 30,000. Food supply needs to rise by 70 percent over that period.”
These needs and Polman’s audacious growth targets seem to have focused minds within Unilever to deliver results ahead of schedule. “After 130 years in business, only around ten percent of our materials were sustainably-sourced. We’ve now set ourselves a target of having all materials sustainably-sourced within a decade. In the first year that’s already at 24 percent.”
Agriculture is responsible for 70 percent of global water use which far outweighs the amount used by industrial food production. Unilever is using its R&D expertise across the whole supply chain to reduce the environmental footprint of its products. Their rigorous assessment of all stages of the journey from soil to plate has resulted in the introduction of technologies such as drip irrigation to replace flood irrigation, and improved techniques of soil management, which are having a positive impact on water use and productivity.
Ambitious targets also have another effect – they force companies like Unilever to work in collaboration not just with other companies and competitors, but also with NGOs and governments. Polman is vice chairman of the World Business Council for Sustainable Development, and on the board of the Consumer Goods Forum where he co-chairs the board strategy and the sustainability committees. Unilever is converting all its ice cream fridges to natural refrigeration and working in partnership with companies like Coca-Cola to make use of this new green technology.
Polman acknowledges that Unilever can’t do it all alone. Even though they have already made considerable progress to reduce the company’s carbon footprint and source sustainably, much of the environmental impact of their products happens before it arrives in the factory as raw materials and after it leaves the factory gates as finished products. Farmers and consumers have to play their part in Unilever’s Sustainable Living Plan.
“Successful change comes from a real understanding of people, their habits and their motivations.” He also believes that institutions like the G20 need to engage with the newly-connected consumers via social media. “The consumer is absent from the debate at Cancun and the G20. We need to involve consumers and particularly young people. Some 30 percent of food gets wasted in western world. A lot can be done without compromising on our lifestyles.”
Shifting from markets to matrix
One of Polman’s first acts as CEO was to axe quarterly reporting as part of a shift of focus from short term financial metrics to longer term social and environmental impacts. This sent a strong signal to the markets about the company’s renewed sense of purpose towards a wider focus than just the bottom line. “We made it very clear that the purpose of our company is not to just satisfy shareholders. We are really here as a company to satisfy consumers and do that well over the long term. And that will reward shareholders and we don’t think that is a compromise. It’s increasingly proved that companies that are myopically focused on just creating value for shareholders tend to be very short-term and have a short life and actually sub-optimise that wealth.”
Polman also acknowledges that not all investors will like this sustainable growth strategy and will be reluctant to give up their short-term habits. He is prepared to “disinvite” those investors who don’t share his vision: “The world is big enough for them to put their money somewhere else.” He believes that companies should take a stronger stance about what their strategies are. Early signs are that this approach has done little to dent investor confidence and the current share price reflects the fact that enough savvy investment funds are prepared to buy into the Polman vision for Unilever.
The new strategy would seem to be particularly appropriate as emerging markets become more important for Unilever. 80 percent of its growth and 55 percent of its business is currently generated in emerging markets in Asia, Africa and Latin America.
Polman predicts that in 30 years’ time the emerging markets will have well and truly emerged and 80 percent of the world population will be living outside Europe and North America. Some 60 percent of those people will be living in mega cities in coastal areas. That, Polman believes, will create social and environmental stress.
The actions that countries like China and India are now taking, combined with the kind of sustainable growth strategies pursued by companies like Unilever, will go some way to mitigate those stresses and maintain social cohesion. For Paul Polman, business as usual is no longer an option.
Nigel Roberts Courtesy of INSEAD Knowledge
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