Sri Lankan consumers are changing. This is the case of consumers anywhere in the world and Unilever Sri Lanka is poised to leverage on this change thanks to a global initiative. “Sri Lankan consumers are evolving to become more and more aware of social issues and sensitivities. This means, consumers everywhere are holding businesses accountable for their actions and their direct and indirect impacts,” Shazia Syed, Unilever Sri Lanka Chairperson, says.
“We have seen companies feel the heat from consumer boycotts”. While these boycotts have been led by activist groups, social media is making consumers active participants. Unilever Sri Lanka is showing how companies here can respond to this change.
Anglo-Dutch multinational Unilever has a business plan. It’s called the Unilever Sustainable Living Plan and was launched in 2010 with three mutually inclusive targets: first, to positively impact the lives of one billion people and enhance livelihoods of millions. Secondly, to halve its environmental carbon footprint by driving product innovation without destroying the natural environment; use less natural resources like fuel; energy and water; and reduce waste. Doubling the top line by 2020 is the third goal, leading to enhanced profitability. It is a holistic model requiring each goal to feed into and drive the others. But why take all the trouble? Why put goodness on the top of the agenda. Surely, shareholders and investors would have been pleased with the doubling of the business size? Unilever’s Chief Executive Paul Polman thought differently, he saw the need to do good to do well.
Consumers are becoming more and more aware of the problems in the world. Volatile markets, climate change and inequality are issues capitalism has exacerbated since it won world dominance as an ideology and economic system over socialism half a century ago. The global financial crisis has exposed capitalism to ridicule and shame. Social media has made consumers more discerning and aware of the world around them. They are beginning to demand more responsibility from companies. They are demanding goodness from companies. Inequality and climate change are no longer buzz words for activists and leftist ideologues. Now multinational companies are embracing them. Because goodness can make them stay in business and do well.
“The need for businesses to adapt is clear, as are the benefits and opportunities. This calls for a transformational approach across the whole value chain if we are to continue to grow. Consumers are recognising this too, increasingly demanding responsible business and brands,” Chief Executive Polman says.
Formed in 1930 when Dutch margarine maker Margarine Unie and British soap maker Lever Brothers merged, Unilever’s product portfolio has 400 products in personal and household care, food and beverages. It is said that two billion people consume a Unilever product each day. In 2014, the multinational with two head offices in the Netherlands and the UK, reported a turnover of €48.4 billion, equal to 72% of Sri Lanka’s GDP in 2014.
Unilever’s sustainability initiative is not designed only to double its revenue by 2020 and improve profitability in the process, but to drive this growth by growing its market share by appealing to discerning young people across 190 countries. Unilever’s growth challenge is two-fold: it must convince shareholders that goodness is good business and it must convince consumers that Unilever is delivering on goodness. Both require tangible results.
Convincing shareholders that doing good is good business is the first challenge. Young consumers who will make a far bigger share of customers will prefer to buy from a company that is seen to be more responsible. Unilever’s business is also global, and the damaging effects of manufacturing and consumption are not just a rich country problem. So when the firm set its business targets, it made a lot of sense to address challenges of attracting and retaining young and educated consumers all over the world. It made sense to do good.
Capitalist wisdom is that a private company focused on maximising shareholder value serves all its stakeholders because it automatically aligns incentives. Its shareholders naturally benefit and they will bid up its valuation, which reduces the cost of capital for the business. For the government, higher profits mean more tax revenues which can be used to build public infrastructure. For its employees a profitable and growing company will offer opportunities for advancement that stagnant enterprise cannot. And for consumers of products an efficient supply chain delivers value for money. This has been capitalism’s main argument and explains its success over the last century. But capitalism for all its successes has failed to find answers to rising inequality and climate change, which remain the biggest challenges facing the world. Polman argues that businesses need to reverse the model of putting maximisation of profits first. He says shareholders must come last: a firm improving the lives of peoples and taking care of the environment will ultimately be rewarded by consumers and result in good shareholder value.
This is why the Unilever business plan was introduced. By improving the wellbeing and livelihood of people, and reducing environmental footprint across supply chains, production and consumption, Unilever believes consumers would recognise and reward the company, enabling it to double its business by 2020.
The Unilever business plan is not an elaborate CSR project or philanthropic exercise. It’s a business plan. Polman, who crossed from Swiss food multinational Nestlé in 2009, would know better. He has a lesson to learn from the company’s own history with goodness in business.
William Lever, founder of Lever Brothers, marketed his soaps Lifebuoy and Sunlight to fight widespread disease in Britain. The brands were affordable and available to ordinary people at a time soap was only for the rich. He campaigned for state pensions to the elderly, provided schools with healthcare and good wages to palm oil plantation workers in West Africa. He also provided decent housing for company employees in Britain, aptly named Port Sunlight after its still popular washing powder brand. He restored a museum and donated lands for public use. In 1920, shareholders responded and forced him to curb his trait for ‘goodness’. Polman, who initiated the company’s second goodness thrust a century later, knows well that delivering profitability and goodness is a challenge.
No shareholder or investor will want to get involved in a company that does not give them worthwhile returns. But Polman has been courting long-term investors in a bid to reduce the company’s exposure to investors looking for quick short-term gains like hedge funds. Hedge funds, which held 15% of the company, reduced their stakes to just 5% by 2012.
“This was something that our global leadership agreed with investors and shareholders, and is a strong indication that we are not a business that is governed by the short term,” Syed says.
To make the Unilever business plan work, executives and managers across the globe, including here in Sri Lanka, are benchmarked and rewarded for achieving each and every target, not just the profitability target owed to shareholders and investors.
Shareholders have responded to the Unilever business plan somewhat positively. The share price grew 50% in five years.“We are confident that they are brought into our vision. We see this reflected in the fact that share prices have moved positively in the recent past – and this gives us confidence that they are strongly aligned to the company’s plans going forward,” Shazia Syed, Unilever Sri Lanka Chairperson, says. CSR is a good place to start but companies will have to move beyond this. They need to make goodness the way they to do business, like Unilever has done.
But companies looking at putting goodness into the heart of their core operations need to have a proper plan. They may save the planet but if they are not profitable they may need saving themselves. A chief executive trying to drive sustainability without a convincing plan for business growth will be booted out of the company by disgruntled shareholders.
Earlier this Unilever reviewed the progress of the Unilever Sustainable Living Plan since launching in 2010. On doubling of the business by 2020, the top line grew by just 9%. On impacting the lives of one billion people by 2020, the company reported a better result at 400 million. On halving its environmental footprint, its carbon footprint is down 40% and water footprint is down 30%.
Taking a closer look at the profitability pillar of the plan, it is making some progress on the shareholder-value of doubling the business. Profits grew 17% from 2010 to €5.5 billion in 2014. Revenue grew 9% to €48.4 billion, dampened by uncertainty in the global economy. Worryingly for Unilever, growth is concentrated around four of its more than 400 brands.
Dove, a personal care brand, Lifebuoy soap, Ben and Jerry’s ice cream and Comfort, a fabric conditioner supplement for clothe washes, what Unilever calls its sustainable living brands, achieved above average growth, with high single and double digit sales over the past three years.
Paul Polman, Unilever CEO, said at the review: “Our…sustainable living brands are delivering stronger and faster growth. These brands accounted for half the company’s growth in 2014 and grew at twice the rate of the rest of the business.”
Consumer response to Unilever’s Sustainable Living Plan is worrying with sales growing just 9% since 2010, but this is because out of 400 brand names, global sales are driven by a handful of brands designed to improve the wellbeing of consumers. Convincing consumers is Unilever’s second challenge.
Unilever’s successful implementation of its business plan needs the support of not just its employees and executives. Governments, suppliers and business partners need to chip in a significant way. In Sri Lanka, the health ministry, and dental and paediatrician associations help Unilever deliver their wellbeing message to consumers. It is working with tea producers to switch to sustainable agriculture.
Unilever is counting on the support of its consumers the most.
Of Unilever’s total environmental footprint, the company is directly responsible for just 8%. The rest is due to its suppliers and consumers. Suppliers account for 21% of Unilever’s environmental footprint. So it has to convince and reward suppliers to change their processes. But the biggest challenge is convincing consumers who account for 70% of Unilever’s environmental footprint.
Unilever is finding it difficult to convince people in some markets to buy their products and help reduce its environmental carbon footprints by reducing water ,and heating for showering and washing. Critics commend Unilever’s efforts to cut its own environmental footprint, but argue that trying to change consumer habits was over ambitious. But Unilever has a plan.
Unilever has developed a model called the ‘Five Levels of Change’ in consultation with psychologists, academics from leading universities and hygiene experts. This model is designed to help Unilever achieve its target of reaching out and positively impacting the lives of one billion people, and help its existing consumers develop responsible consumption habits – both lending to higher turnover.
The first step in Unilever’s Five Levels of Change is creating awareness. The second step is to show people how easy it is. The next step is to make the change desirable by showing how a good habits can help people realise the self-image they aspire to. The fourth step is making it a habit by reinforcing the message and repeating an action for 21 days, long enough to develop into a habit. The final step is the reward, to show a brand can bring savings and wellbeing.
The Unilever business plan sets out to positively impact the lives of a billion people by 2020, helping them form wellness habits like washing hands before meals, brushing teeth twice a day or helping young mothers keep their babies happy.
Unilever says it helped improve the health and wellbeing of nearly 400 million people globally since its business plan was launched in 2010 through its brands identified for the purpose: Lifebuoy soap, Pureit water purifier, Signal toothpaste and Dove personal care brands, the very brands that bolstered Unilever’s top line, an indication that consumers are starting to believe in Unilever’s ‘goodness’.
In Sri Lanka, Lifebuoy soap, Pears babycare, Signal toothpaste and Astra margarine contribute a third of Unilever Sri Lanka’s turnover with the company campaigning to show that these products contribute to wellbeing. It touched the lives of over three million people to help them develop the habit of brushing their teeth twice a day and washing hands before meals.
Unilever is not allowed to openly advertise its products at these campaigns in schools , but it believes the message is more important. In any case, the children and their parents can and do make the connection, “taking our brands to that sweet spot in the market,” as Unilever Sri Lanka Chairperson Shazia Syed puts it.
With the Pears babycare brand, over 500,000 rural mothers have also received advice on how to care for their babies and keep them happy. Unilever Sri Lanka launched its ‘Project Saubhagya’, in 2003 with five women entrepreneurs to create micro-enterprises that provide them with a sustainable source of income through recommending and selling Unilever brands house to house in their own villages. Today, there are over 4,500 women in the programme. These women have doubled their contributions to Unilever Sri Lanka – their business grew 26% in 2014.
Unilever is delivering on its pledge to halving its environmental footprint by 2020. What it really intends to do is leave its environmental footprint unchanged as its business doubles. But this has not stopped the company from reducing its footprint.
The company says more than half of Unilever’s agriculture raw materials are sourced without hurting the environment and rainforests. The company reported that no hazardous waste was dumped at landfills across its global factory network. The global environmental footprint from energy is down by nearly 40% and water is down by 32%.
Half of Unilever Sri Lanka’s Lipton brand’s Ceylon tea is sourced from producers accredited by the Rainforest Alliance, a global initiative to conserve natural forests through sustainable agriculture. Unilever Sri Lanka is encouraging other tea producers and buyers to follow the same model. It targets reaching 100% sustainably sourced tea by 2020. It has already invested Rs20 million on capacity building for sustainable farming. Paperless order processing has helped Unilever Sri Lanka save 21,000 papers, 300 litres of fuel and 900 hours per annum.
In eco-efficient manufacturing, its factory in Horana has been able to halve its CO2 emissions, and cut water and energy consumption by nearly a quarter. While fuel costs increased by 80% and electricity costs by 19%, the factory’s total energy cost fell by 20%. Its biomass boiler saved the company Rs100 million in 2013 alone.
In 2014 and 2015, Unilever Sri Lanka’s instant tea factory in Agarapathana reduced its CO2 emissions by 79% and cut water consumption by 60%. Waste is down 44%. Renewable energy sources account for 60% of the factory’s energy requirement. The factory’s energy savings plan resulted in a Rs63 million saving last year and Rs57 million for the first six months of this year.
Optimizing routes and utilization improvements saw Unilever Sri Lanka’s logistics operations cut CO2 emissions by 35% and distribution costs by 15%. Globally, Unilever’s product innovation has sustainability at its core. They are designed to significantly reduce the company’s and its customers’ global carbon and water footprint, promote wellbeing and empowerment, and capture market share among a growing number of discerning consumers so it can reach its goal of doubling sales by 2020. These are some of its initiatives: It developed an environmentally-friendly deodorant can half the size and with half the propellant but delivering the same amount of deodorant. The carbon footprint per can is down by 25% and transportation is down by 35%.
Unilever believes if a million users use its new deodorant instead of a regular product, 124 tonnes of carbon dioxide and 7 tonnes of aluminium could be saved – the amount of carbon dioxide emissions of a car travelling 22 times around the earth and enough aluminium to make nearly 3,500 bikes. The company is encouraging consumers to recycle used aerosol cans.
New packaging technology has helped Unilever reduce the plastic content of its Dove Body Wash bottles by 15% by using gas injection to create gas bubbles in the middle layer of the bottle wall to reduce the density and the amount of plastic, which is 100% recyclable. This technology is expected to save 27,000 tonnes of plastic each year. Unilever waived its exclusive rights to this technology so that other manufacturers worldwide could contribute towards sustainability. Unilever’ Comfort fabric conditioner has been designed to allow consumers to reduce the amount of water used for washing clothes by 75%. People using five buckets of water to wash clothes can do it with two buckets because Comfort gets rid of the soapiness that otherwise takes several washes to remove, and leaves a fragrance as a bonus. Unilever’s Pureit water filters purify water, without the need for expensive refills or electricity.
Companies are challenged with delivering shareholder value in the midst of global economic uncertainty. Executives and managers of Unilever not only have to deliver profitable results but show tangible results for goodness too: cutting its environmental footprint, improving livelihoods, and positively impacting lives. Incorporating goodness or sustainability may be foolhardy, and shareholders will be quick to pounce on such foolhardiness. But there are long-term gains in terms of profitability. Of all capitalism’s enemies, its bane has been its own infatuation with shortterm gains; breaking this mould is tough. Unilever has done it.
“We are not a business that is governed by the short term,” Syed says. But Unilever needs to keep tabs on market realities and peer performance. Winning market share is always going to be important to stay in the game.“Driving competitive growth by staying ahead of the benchmark in the industry is something that a chief executive must do—and at Unilever, even our reward structure is aligned to that kind of performance-driven culture,” Syed says.
Unilever has committed itself to the Sustainable Living Plan and coming good on its pledges are crucial. Consumer activism is real and will intensify in the years to come. Goodness is not CSR or corporate philanthropy. It is a way of doing business and it is gaining traction.
“As responsible corporate citizens, businesses and industry can’t ignore the problems the world and the country are facing. We have to make an explicit, positive contribution to addressing these problems, and business has to be part of the solution. But for that, businesses have to go through a change process and sustainable, equitable growth is the only acceptable business model,” Syed says.
Unilever is just half way through its 2020 Unilever Sustainable Living Plan, its business plan, and amidst depressed global markets, it is showing some progress and it looks like Polman’s plan will work and he may escape the founding Lever’s fate. One thing is certain. Goodness is a Big Idea. Companies will have to do good to do well, there is no escaping this. The question before many companies is how can goodness be incorporated to the core business? Well, watch the pathfinders, but start the journey before it’s too late.