“Most businesses operate and say how can I use the society and the environment to be successful? We are saying the opposite – how can we contribute to the society and the environment to be successful?”
In today's ARCUS I'm going to share why Unilever chose to adopt such a strategy and then maintain it whilst attacked by corporate raiders. I will review its successes and failings and what’s in store as new management targets 2030 and beyond…
What is the USLP?
A grand plan of action to transform their business strategy, by decoupling the company’s growth from its environmental footprint. The plan was simple - double the company’s revenue and slash the environmental footprint by half along the way. In doing so, Paul made Unilever the poster-child of corporate sustainability.
USLP with its 72 commitments covering three big goals under Social, Environmental, and Human Capital, was also aimed at improving Financial returns. This focus on ‘all’ forms of capital makes Unilever a prime Panvesting candidate.
Criticism of USLP
To achieve the USLP, Polman started a new leadership team called the Unilever Leadership Executive or the ULE, and they decided that the company will no longer give guidance and only report profits every six months. The rationale was that they are running the business for the long term, and for this to materialize, the USLP is central to this approach. A controversial decision to this day, with critics claiming its at the expense of financial returns.
However, the chart below shows Unilever's operating margins and return on capital employed (ROCE) have improved during USLP. Perhaps the improvement hasn't been as fast as some peers but those peers according to our resilience analysis have not shown the same respect to all forms of capital, thus leaving themselves open to future risks.
Source: Reuters and Panarchy Partners, 2020.
Another criticism of the USLP is its qualitative and "aspirational" targets. At a time when organizations were just waking up to the idea of incorporating voluntary environmental initiatives, Polman launched inspirational targets such as halving the company’s environmental footprint. This target is complex even for a small organization, let alone for a company the size of Unilever, a mammoth task indeed. The effect was profound though, because it rallied peers and the whole corporate community to take environmental issues seriously, that was Paul Polman.
Impact and Success
As one of the largest FMCG companies in the world, whose products are used by roughly 2.5 billion people a day across 190 countries, the above-mentioned ambitious goals and commitments were no doubt aimed to have an impact. The question is, have they?
The USLP has largely been successful on their social goals, as they have achieved the target of reaching 1 billion people two years ahead of 2020. As reported by end of 2018, the health and hygiene programs have reached 1.24 billion people. Under the nutrition pillar, almost half of the commitments have been reached ahead of schedule, with the remaining ones on track to be met by 2020.
USLP’s environmental targets focus firstly on production impact and secondly the use phase of the product by the consumer. On the product manufacturing side, they have done well by reducing their carbon emissions per tonne of production by 52% at end 2018 from 2010 levels (as can be seen from the figures below).
Many of the commitments are focused towards their own infrastructure such as i) to have a gender-balanced organization, ii) to provide opportunities for upskilling for women, and iii) to expand opportunities in the value chain. These have worked well purely due to their size as they are able to influence these issues better. For empowering 5 million women by advancing opportunities in their own operations, USLP has reached only 1.8 million women by end of 2018. This target can be classified as an aspirational one, which needs a rethink.
Some challenging targets remain
Despite successful delivery of many of the USLP targets, some aspirational ones remain undelivered and will be covered once we see the new targets. The most glaring targets needing refocus are:
- Environmental footprint of the consumer
- Sustainable sourcing
- Women empowerment
Alan Jope and the road to 2030
We now have new leadership at Unilever under the 35-year veteran, Alan Jope. Alan and his ULE team will determine the next version of the USLP. No surprise that they remain committed to it but with the ability to make it more impactful, tangible and financially fruitful for even shareholders.
“More and more of our brands will become explicit about the positive social and environmental impact they have. This is entirely aligned to the instincts of our people and to the expectations of our consumers. It is not about putting purpose ahead of profits, it is purpose that drives profits”.
Alan Jope, Unilever CEO.
Below we identify some areas that may shape how Alan and his team steer the USLP in the coming decade:
Data, data and more data…
While everyone from financial analysts, fund managers and even NGOs will be waiting to see updates on 2020 targets and beyond, we can expect the new version of the USLP to be more data centric. USLP’s original targets didn’t have the luxury of the same data science that is now available to CEOs, CSOs and Boards.
With environmental targets being set by the likes of science-based target initiative (SBTI), human capital development tools such as ‘Degreed,’ and ‘Experience Management’ software from the likes of SAP, Alan and team will have their work cut out as they have enough data to use. Will they be able to take advantage of it, that remains to be seen.
Correlation is not enough, we need Causation
Alan and team will be required to justify not only the targets on non-financial capital but also to show the financial community how this impacts financial returns. Paul Polman espoused benefits of sustainability with the lack of data limiting proof to correlation.
Alan will have to show proof through data and causation. Environmental impact on financials is becoming easier to calculate and communicate. Human capital recruitment, retention, re-skilling, satisfaction and productivity are also being measured. The cost and benefits of nurturing social license to operate though hard, but is not impossible to calculate. Fund managers and asset owners will need to see some proof that doing good is good business in financial terms as well.
In conclusion, the USLP’s success will not only be measured by the achievement of the non-financial goals but how Unilever proves that a business with sustainability integrated deeply can deliver as good if not better financial returns than peers. Alan Jope and team have great building blocks and the tools to now take USLP to the next level. In the coming decade, programs like the USLP will surely charter a new path of sustainability for businesses across the globe.
Do feel free to share your thoughts and comments on this.
Data from Unilever corporate website: https://www.unilever.com.sg/about/who-we-are/