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Investment capabilities, other vehicles, have questions, more perspectives & research, select a location, making progress toward sustainability: a unilever case study.

The business case for how Unilever, a consumer products company, rethinks packaging, nutrition and governance.

Key Takeaways

Unilever, a top consumer products company, became a major polluter by selling products in single-use packaging.

The company has taken steps to minimize packaging or transform it into compostable forms to reduce waste.

While some Unilever food products aren’t very healthy, the firm has improved the nutrition of other offerings by reducing salt and sugar content.

Global greenhouse gas emissions and coal demand broke records in 2022.

What does that say about the trillions of dollars directed at sustainable investment strategies since 2019?

For one thing, we believe it highlights a shortcoming of many sustainability strategies: They often invest in companies that have already achieved significant progress in meeting sustainability goals while excluding those that haven’t.

American Century Investments’ Global Sustainable Value strategy takes a different approach by engaging with companies to drive their business model progression. We believe sustainable investing can better achieve real-world outcomes by helping guide companies on their journeys to sustainability instead of rewarding those that have already arrived.

Unilever is one such company. In our view, this global producer of consumer and food products, renowned for brands such as Dove ® Chocolate and Ben & Jerry’s ice cream, stands out for its advancements in environmental practices, social initiatives and governance standards.

Sustainable Solutions for Consumer Products

By their very nature, consumer products like a bottle of soap or a carton of ice cream lend themselves to single-use packaging. If the packaging can’t be composted or recycled, it ends up in a landfill or elsewhere. As one of the world’s largest consumer products companies, Unilever has contributed significantly to waste pollution through its packaging.

A 2019 report by Break Free From Plastic, a non-governmental organization advocating for reduced plastics use, claimed Unilever ranked as the fifth largest polluter from single-use plastics in an audit that covered 484 brands in 51 countries.

That same year, Unilever announced plans to cut the amount of virgin plastics used in its packaging with a goal of removing 100,000 tons of plastic by 2025.

Our measurements show Unilever’s progress with packaging materials. In 2022, 55% of its packaging was recyclable or compostable, up 5% since 2019.

Reducing plastic use has clear environmental benefits and hasn’t come at a cost to Unilever’s bottom line. Sales grew 15% from 2019 to 2022. We believe that as consumers become more conscious of the environment and the impacts of their buying decisions on the world around them, they will become more keen on buying from companies with better environmental performance.

Cutting back on plastic may also help reduce legal and regulatory risks.

For example, the New York attorney general sued PepsiCo in November 2023 for allegedly causing widespread plastic pollution in the Buffalo River that threatens water quality and wildlife. This action came after regulators collected trash at 13 spots along the river and found that Pepsi-related products accounted for the highest proportion of the waste. 1

Purported greenwashing was the focus of a recent complaint the European Consumer Organization and its member affiliates filed with the European Commission. The complaint targets Coca-Cola, Nestle and Danone for allegedly making misleading claims about their bottled water packaging. The consumer protection group disputes the companies’ assertions of “100% recyclable” or “100% recycled,” further stating that the use of green imagery “may even give the impression that the bottles would have a positive impact on the environment.” 2

We believe avoiding legal and regulatory actions like these would benefit the environment and the company’s financial performance.

Healthier Food Options for Conscious Consumers

About one-third of Unilever’s business includes food products ranging from ice cream to mayonnaise. If not enjoyed in moderation, these foods aren’t particularly healthy.

In recent years, Unilever has moved toward healthier versions of its offerings. In 2020, Unilever said 61% of its foods met its “highest nutritional standards” based on globally recognized dietary guidelines, while 77% met its target for 5 grams of salt intake. 3

From a financial perspective, we believe offering healthier foods may insulate the company from the potential consequences of weight-loss drugs if the use of these medications becomes widespread.

New classes of weight loss drugs have shown promising results in treating obesity and other obesity-related conditions like kidney disease. Several publicly traded companies in industries ranging from food companies to medical device manufacturers have seen share prices decline on the apparent belief that these drugs could impair their business models.

Governance Reform and Strategic Decision-Making

In 2021, Unilever tried to buy GlaxoSmithKline’s consumer health division in a deal that made investors recoil. When the financial press caught wind of the $68 billion buyout offer, the deal’s structure caused a sell-off in Unilever stock, and analysts reacted with bewilderment about Unilever’s pursuit. 4

The proposal died under its own weight, but the matter didn’t end there. Led by activist investor Nelson Peltz, Unilever replaced its management team and part of its board of directors for considering a deal widely seen as a risky strategic decision. From a governance standpoint, taking that action demonstrated the company’s willingness to shield shareholders from transactions that could potentially dilute the company’s value.

Resilience Amid Economic Challenges

We believe these factors complement the company's durable and resilient business model. In our view, Unilever illustrates the potential that the Global Sustainable Value strategy seeks — companies progressing toward sustainability that may likely deliver results for shareholders.

Portfolio Manager

Senior Investment Analyst

Client Portfolio Manager

Discover more about our Global Sustainable Value capabilities.

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Office of the New York State Attorney General, “Attorney General James Takes Historic Action Against PepsiCo for Endangering the Environment and Public Health with Plastic Pollution,” Press Release, November 15, 2023.

European Consumer Organization, “Consumer Groups Launch EU-Wide Complaint Against Major Water Bottle Producers for Greenwashing,” Press Release, November 7, 2023.

Unilever, “10 Years of the Unilever Sustainable Living Plan: Our Nutrition Journey,” May 2020.

Kit Rees, “’Please Don’t:’ Analysts Scorn Unilever’s Takeover Ambitions,” Bloomberg, January 17, 2022.

Many of American Century’s investment strategies incorporate sustainability factors, using environmental, social, and/or governance (ESG) data, into their investment processes in addition to traditional financial analysis. However, when doing so, the portfolio managers may not consider sustainability-related factors with respect to every investment decision and, even when such factors are considered, they may conclude that other attributes of an investment outweigh sustainability factors when making decisions for the portfolio. The incorporation of sustainability factors may limit the investment opportunities available to a portfolio, and the portfolio may or may not outperform those investment strategies that do not incorporate sustainability factors. ESG data used by the portfolio managers often lacks standardization, consistency, and transparency, and for certain companies such data may not be available, complete, or accurate.

Sustainable Investing Definitions:

Integrated:  An investment strategy that integrates sustainability-related factors aims to make investment decisions through the analysis of sustainability factors alongside other financial variables in an effort to make more informed investment decisions. A portfolio that incorporates sustainability factors may or may not outperform those investment strategies that do not incorporate sustainability factors. Portfolio managers have ultimate discretion in how sustainability factors may impact a portfolio’s holdings, and depending on their analysis, investment decisions may not be affected by sustainability factors.

Sustainability Focused:  A sustainability-focused investment strategy seeks to invest, under normal market conditions, in securities that meet certain sustainability-related criteria or standards in an effort to promote sustainable characteristics, in addition to seeking superior, long-term, risk-adjusted returns. Alternatively, or in addition to traditional financial analysis, the investment strategy may filter its investment universe by excluding certain securities, industry, or sectors based on sustainability factors and/or business activities that do not meet specific values or norms. A sustainability focus may limit the investment opportunities available to a portfolio. Therefore, the portfolio may underperform or perform differently than other portfolios that do not have a sustainability investment focus. Sustainability-focused investment strategies include but are not limited to exclusionary, positive screening, best-in-class, best-in-progress, thematic, and impact approaches.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

No offer of any security is made hereby. This material is provided for informational purposes only and does not constitute a recommendation of any investment strategy or product described herein. This material is directed to professional/institutional clients only and should not be relied upon by retail investors or the public. The content of this document has not been reviewed by any regulatory authority.

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Gabriela Salinas and Jeeva Somasundaram

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

In April this year, Hein Schumacher, chief executive of Unilever, announced that the company was entering a “new era for sustainability leadership”, and signalled a shift from the central priority promoted under his predecessor , Alan Jope.

While Jope saw lack of social purpose or environmental sustainability as the way to prune brands from the portfolio, Schumacher has adopted a more balanced approach between purpose and profit. He stresses that Unilever should deliver on both sustainability commitments and financial goals. This approach, which we dub “realistic sustainability”, aims to balance long- and short-term environmental goals, ambition, and delivery.

As a result, Unilever’s refreshed sustainability agenda focuses harder on fewer commitments that the company says remain “very stretching”. In practice, this entails extending deadlines for taking action as well as reducing the scale of its targets for environmental, social and governance measures.

Such backpedalling is becoming widespread — with many companies retracting their commitments to climate targets , for example. According to FactSet, a US financial data and software provider, the number of US companies in the S&P 500 index mentioning “ESG” on their earnings calls has declined sharply : from a peak of 155 in the fourth quarter 2021 to just 29 two years later. This trend towards playing down a company’s ESG efforts, from fear of greater scrutiny or of accusations of empty claims, even has a name: “greenhushing”.

Test yourself

This is the fourth in a series of monthly business school-style teaching case studies devoted to the responsible business dilemmas faced by organisations. Read the piece and FT articles suggested at the end before considering the questions raised.

About the authors: Gabriela Salinas is an adjunct professor of marketing at IE University; Jeeva Somasundaram is an assistant professor of decision sciences in operations and technology at IE University.

The series forms part of a wider collection of FT ‘instant teaching case studies ’, featured across our Business Education publications, that explore management challenges.

The change in approach is not limited to regulatory compliance and corporate reporting; it also affects consumer communications. While Jope believed that brands sold more when “guided by a purpose”, Schumacher argues that “we don’t want to force fit [purpose] on brands unnecessarily”.

His more nuanced view aligns with evidence that consumers’ responses to the sustainability and purpose communication attached to brand names depend on two key variables: the type of industry in which the brand operates; and the specific aspect of sustainability being communicated.

In terms of the sustainability message, research in the Journal of Business Ethics found consumers can be less interested when product functionality is key. Furthermore, a UK survey in 2022 found that about 15 per cent of consumers believed brands should support social causes, but nearly 60 per cent said they would rather see brand owners pay taxes and treat people fairly.

Among investors, too, “anti-purpose” and “anti-ESG” sentiment is growing. One (unnamed) leading bond fund manager even suggested to the FT that “ESG will be dead in five years”.

Media reports on the adverse impact of ESG controversies on investment are certainly now more frequent. For example, while Jope was still at the helm, the FT reported criticism of Unilever by influential fund manager Terry Smith for displaying sustainability credentials at the expense of managing the business.

Yet some executives feel under pressure to take a stand on environmental and social issues — in many cases believing they are morally obliged to do so or through a desire to improve their own reputations. This pressure may lead to a conflict with shareholders if sustainability becomes a promotional tool for managers, or for their personal social responsibility agenda, rather than creating business value .

Such opportunistic behaviours may lead to a perception that corporate sustainability policies are pursued only because of public image concerns.

Alison Taylor, at NYU Stern School of Business, recently described Unilever’s old materiality map — a visual representation of how companies assess which social and environmental factors matter most to them — to Sustainability magazine. She depicted it as an example of “baggy, vague, overambitious goals and self-aggrandising commitments that make little sense and falsely suggest a mayonnaise and soap company can solve intractable societal problems”.

In contrast, the “realism” approach of Schumacher is being promulgated as both more honest and more feasible. Former investment banker Alex Edmans, at London Business School, has coined the term “rational sustainability” to describe an approach that integrates financial principles into decision-making, and avoids using sustainability primarily for enhancing social image and reputation.

Such “rational sustainability” encompasses any business activity that creates long-term value — including product innovation, productivity enhancements, or corporate culture initiatives, regardless of whether they fall under the traditional ESG framework.

Similarly, Schumacher’s approach aims for fewer targets with greater impact, all while keeping financial objectives in sight.

Complex objectives, such as having a positive impact on the world, may be best achieved indirectly, as expounded by economist John Kay in his book, Obliquity . Schumacher’s “realistic sustainability” approach means focusing on long-term value creation, placing customers and investors to the fore. Saving the planet begins with meaningfully helping a company’s consumers and investors. Without their support, broader sustainability efforts risk failure.

Questions for discussion

Read: Unilever has ‘lost the plot’ by fixating on sustainability, says Terry Smith

Companies take step back from making climate target promises

The real impact of the ESG backlash

Unilever’s new chief says corporate purpose can be ‘unwelcome distraction ’

Unilever says new laxer environmental targets aim for ‘realism’

How should business executives incorporate ESG criteria in their commercial, investor, internal, and external communications? How can they strike a balance between purpose and profits?

How does purpose affect business and brand value? Under what circumstances or conditions can the impact of purpose be positive, neutral, or negative?

Are brands vehicles by which to drive social or environmental change? Is this the primary role of brands in the 21st century or do profits and clients’ needs come first?

Which categories or sectors might benefit most from strongly articulating and communicating a corporate purpose? Are there instances in which it might backfire?

In your opinion, is it necessary for brands to take a stance on social issues? Why or why not, and when?

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Unilever: Enhancing Investor Engagement

Unilever is a British multinational consumer goods company - one of the world’s largest, with over 400 brands and products available in over 190 countries. In 2020, Unilever announced the ‘Unilever Compass,’ their new integrated strategy. Made up of five strategic priorities, they use multiyear metrics and targets to show investors what these mean and how they plan to measure progress. 

This case study shows how to communicate with investors effectively and how effective investor engagement can be instrumental to supporting a company’s successful journey to net zero. By viewing sustainability as integral to value creation, embedding it into their business model and putting it at the core of their strategy, Unilever has consistently delivered financial results in the top third of their industry.

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Unilever: Leading the way through ESG collaboration

17 December 2021

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As the third-largest consumer products company in the world in terms of revenue, Unilever operates roughly 400 global and local brands, including 13 billion Euro brands such as Dove, Lux, Axe, Rexona, Knorr, and Lipton. They’ve used their standing in the marketplace to become a force for good in environmental, social and corporate governance (ESG), actively working towards a green agenda for the last decade. Today the company takes steps to support the UN Sustainable Development Goals, which includes improving the health and well-being of people worldwide and working toward net-zero emissions in the making and use of their products by 2039. Unilever is also dedicated to enhancing millions of people's livelihoods with fairness in the workplace and inclusive business practices, most recently announcing further equality and inclusion measures to support more SMEs in its extended value chain, including minority-owned suppliers.

Treasury supporting a green agenda

According to Tuomas Raesaenen, Treasury Manager for Unilever, the company’s commitment to ESG trickles down to every area of the organization – including Treasury. “The goal is to operate in such a way that everything we do as an organization is consistent with our corporate purpose,” says Tuomas. “From a finance perspective, finding ways we can align with the corporate sustainability goals can be a challenge.”

They began by funding green initiatives, issuing their first green bond in 2014. However, Unilever also wanted to do something sustainable with their cash– and that’s really where they found a lack of opportunity. “We were looking for a vehicle that would help us hit our targets of safety and yield but at the same time support green investments and give us access to liquidity if we needed it.” So Unilever turned to their banking partners, including HSBC, and challenged them to find or create a solution that would meet their needs.

Many green deposits are concentrated in developed markets,” says Tuomas. “The fact that HSBC has included emerging markets is very helpful for us, considering our broad geographical footprint. Tuomas Raesaenen | Treasury Manager for Unilever

Marking a world of firsts together

With a long relationship history, HSBC has a good understanding of Unilever’s needs. “The bank was very supportive of our goals, and being in many of the markets we operate in was critical,” says Tuomas. “The team really did their homework and delivered a solution that was pretty polished from the start, not just some ideas of what they might be able to do." This allowed Unilever to work with HSBC to further refine the solution, which had to ensure full transparency. "The reporting was critical. We needed an audit trail to evidence that the cash was going to fund green priorities and that the deposits were 100% sustainable.”

The result was a series of firsts in the industry. HSBC developed the first EUR 31-Day Notice Account green deposit in the UK to accommodate Negative Credit Interest (NCI) – and Unilever became the first UK headquartered global corporate to make an initial deposit. HSBC also brought to market an INR green deposit in India, as well as VND and USD green deposit in Vietnam, in which Unilever placed the initial investment. This made the bank the first to achieve a global approach to green deposits by using their extensive network to go green in the UK, India, and Vietnam simultaneously. “Many green deposits are concentrated in developed markets,” says Tuomas. “The fact that HSBC has included emerging markets is very helpful for us, considering our broad geographical footprint.”

Beyond the cash deposit solutions, Unilever was also the first to agree to work with HSBC to trial a digital and automated self-service experience. This gave them the ability to transfer deposits themselves for multiple geographies, including emerging markets, using their existing channels.

Collaboration leads to a better solution

“One of the reasons we challenged our banking partners was not only to meet our own sustainability goals,” says Tuomas. "But really to carve a path to help others see how Treasury can support corporate sustainability safely and profitably." The collaboration between Unilever and HSBC, he says, is an example on how to develop solutions that create a competitive yield whilst delivering positive impact towards our ESG ambition. "Together, we are investing in the future."

According to Gordon Elliot, Regional Sector Head, Global Liquidity and Cash Management, HSBC, the time is precisely right. “A reaction to the COVID pandemic we didn’t expect is that the green agenda seems to have grown in importance,” he says. “As we did a series of webinars in 2020 around working capital, Brexit and COVID-19 – green initiatives and ESG kept coming up. The pandemic seems to have brought focus on what we can all do to protect the health and well-being of the entire planet.” Tuomas agrees that these issues are increasingly top of mind for corporates. “More and more, clients want to do business with companies who are focused on sustainability.”

That's why it's crucial for banks and corporations to work together, says Michelle Arundale, Director, Sales, Global Liquidity and Cash Management, HSBC. "When we team up with clients, we can make a real difference," Michelle says. "Unilever is that kind of client, working with us over the years to develop several scalable new products, including our green deposit offerings, that others in the marketplace can now take advantage of."

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Former Unilever CEO Paul Polman Says Aiming for Sustainability Isn’t Good Enough—The Goal Is Much Higher

Paul Polman, former CEO of Unilever, challenges business leaders to ask themselves if they care about the world’s problems.

How can a company profit from solving the world’s problems, not from creating them? Is the world better off because your business is in it, or not? These are some of the fundamental questions that Paul Polman, former CEO of Unilever, asks business leaders to consider as the stakes for not taking direct action rise. Polman’s new book, Net Positive: How Courageous Companies Thrive by Giving More Than They Take , points out that sustainability, while a laudable goal, is far from enough. “[I]ncreasingly, companies are starting to understand that you need to be restorative, reparative, regenerative. And this is really what net positive leaders do.” Net positive leaders take responsibility for their total impact on the world, lead with transparency, and focus on the long term. They aim for cooperative leadership, not just competitive leadership, because the world’s problems are so immense that it is beyond the scope and ability of a single company to fix them.

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The Role of Science in Shaping Sustainable Business: Unilever Case Study

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Unilever is a leading example of a multinational company in the Fast-Moving Consumer Goods (FMCG) sector. Unilever has long been an advocate of sustainable business, using scientific assessment as the basis for its strategy and initiatives. Given its business, Life Cycle Assessment (LCA) is established within the company and there is a current focus on improving the methodology and scope of LCA. Recent developments include new approaches to fill data gaps for agricultural ingredients and new impact assessment methods for assessing land use change. We have also adapted LCA approaches to inform corporate strategy and to engage a broad range of stakeholders both within the company and outside. The most recent and significant example of this has been the use of product footprinting as an integral element of Unilever’s Sustainable Living Plan (USLP); currently over 2000 products are footprinted annually across 14 countries.

LCA approaches will continue to play an important role in Unilever’s strategy. However, there is an urgent need to develop more predictive, regional/global level approaches that take into account the limited availability of many earth resources, the non-linearity of certain impacts and the absolute limits of sustainability. Several conceptual systems-level frameworks and theories already exist, but the Planetary Boundary (PB) approach has been selected as the most promising for developments in data, modelling and contextualization of environmental assessment. We have identified the need for developments in informatics to exploit new data gathering approaches as well as new modelling initiatives utilizing Geographical Information Systems (GIS) mapping and ‘big data’ approaches. In particular, we see real value in developing a distinct and novel, ‘PB-enabled’ normative LCA approach to support product/service/sectorial decision-making.

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Unilever sustainable living plan

• Fast-moving consumer goods sector
• Life cycle assessment
• Environmental footprinting
• Earth systems science
• Resilience science
• Planetary boundaries
• Ecosystem services

1 Introduction

Unilever is a Fast Moving Consumer Goods (FMCG) company with over 400 brands, operations in nearly 100 countries and sales in nearly every country in the world. Our products (foods, beverages, ice cream, home and personal care) are used 2 billion times a day in over half the households on the planet. Our strategy for sustainable growth sets out a vision for leveraging this global reach to improve health and well-being, reduce environmental impacts and enhance livelihoods. Unilever has long been a pioneer of sustainability, and throughout this journey, science has been the foundation for the company’s sustainability strategy and initiatives. As such, the focus of this chapter is not the business case for sustainability in Unilever (which can be found in Bell ( 2013a , b ); Lingard ( 2012 )), but an illustration of how science has helped inform and shape the company’s thinking on sustainability so far and also how we will continue to use science to help us think about future challenges.

To date, Unilever has relied on scientific methods based around Life Cycle Assessment (LCA) to guide and inform our sustainability decision-making and such approaches will continue to have an important role to play. However, LCA does not address all relevant environmental impacts; nor does it deal with each impact category in an equally robust way. Therefore, there is an urgent need to develop more predictive approaches that take into account the limited availability of many resources, the non-linearity of certain impacts and the absolute nature of sustainability as articulated in the planetary boundary concept.

2 The Journey So Far

Life cycle assessment (LCA) is the preferred tool for many organizations to help them understand the impacts and performance of their products and services in a rigorous and scientific manner (Baitz et al. 2013 ). The LCA methodology was codified in the late 1980s/early 1990s through the work of SETAC and ISO. However, LCA is not a static tool and it is continually being evolved and improved to reflect new science and to expand the robustness and scope of the environmental impact assessment.

The flexibility of the LCA concept is one of its strengths; in Unilever, we have exploited this feature and in doing so helped inform and shape our environmental strategy over the past 20 years (Fig. 15.1 ). In the mid-1990s, Unilever developed the Overall Business Impact Assessment (OBIA) approach (Clift and Wright 2000 ) as a means to scientifically identify our priority environmental impacts and to inform the selection of key sustainability programs. Unlike traditional LCA which focuses on single systems, usually products, the OBIA approach can be used to assess the effects of all the individual products produced by a business for a given period of time, typically 1 year. The potential environmental impacts of the business are presented as a profile or imprint and contributions are scaled (normalized) against annual global totals for each of the indicators and the economic size of the business (Clift and Wright 2000 ). By comparing the potential environmental impacts of a business to the economic size of the business, the OBIA approach helped to identify those areas where most benefit to the global environment can be achieved. The insights arising from the application of OBIA led to Unilever focusing on three sustainability themes in the late 1990s and early 2000s, namely sustainable fisheries, including the co-creation of the Marine Stewardship Council together with WWF (Constance and Bonanno 2000 ), the Sustainable Agriculture Initiative (Unilever 2010 ) and the creation of institutions such as the Roundtable for Sustainable Palm Oil and the Sustainable Water Initiative.

Evolving development and application of environmental sustainability science within Unilever

Unilever continues to innovatively develop and apply LCA and life cycle thinking to help inform strategy and to engage a broader range of stakeholders both within the company and outside. At a product level, recent method developments and applications have included new approaches: to fill data gaps in agricultural data (Milà i Canals et al. 2011 ; Roches et al. 2010 ; Nemecek et al. 2012 ); to better represent the impacts arising from land use change (Flynn et al. 2012 ; Milà i Canals et al. 2013 ); to better represent the impacts arising from product disposal (Muñoz et al. 2013 ); and the application of new methods for assessing impacts related to water (Jefferies et al. 2012 and Van Hoof et al. 2011 ). In addition, we have developed approaches to conduct brand/portfolio footprints with examples of Knorr and Ben & Jerry’s (Garcia Suarez et al. 2008 ; Milà i Canals et al. 2010 ). LCA also formed one of the elements of the innovative Brand Imprint process that Unilever deployed with its Brand teams to help them understand the sustainability impacts and issues of their brands and to identify sustainability marketing opportunities in the late 2000s (Gowland 2009 ).

The most recent and significant example of the use of the LCA approach to guide sustainability strategy has been the use of product footprinting as an integral element of Unilever’s Sustainable Living Plan (USLP) (Rigarlsford et al. 2010 ; UNEP 2015 ). The USLP footprint, which is an example of an organizational LCA (UNEP 2015 ) is based on a streamlined process that involves the definition of representative countries and products. Fourteen countries were selected on the basis of business parameters (e.g. annual sales and consumer habits) and environmental ones (e.g. carbon intensity of the electricity grid, waste management infrastructure and water scarcity). The business and sales in each country are then described by a series of representative products. Currently over 2000 products are footprinted annually and one of the key USLP objectives is to decouple business growth in sales from an increase in the footprint (Fig. 15.2 ).

3 Looking to the Future

As outlined in the previous section, to date our ability to think about sustainability has mostly focused around classical LCA, but we recognize the existence of global environmental limits; the earth’s systems are not behaving as we have designed our economic and social systems. ‘What is becoming apparent is that earlier assumptions about the stability, linearity, and reversibility of changes in ecosystems and the Earth systems fell short of what actually happens’ (Whiteman et al. 2013 ). Assessment of corporate decisions in this context cannot be wholly facilitated by traditional LCA approaches. Though these remain important, their focus on eco-efficiency and relative sustainability will not be sufficient.

The refresh of Unilever’s Sustainable Living Plan (USLP) in 2014 (Unilever 2014 ) articulates a desire to drive transformational change. There are three particular aspects to this: (1) helping to eliminate deforestation; (2) championing sustainable agriculture and smallholder farmers and (3) improving water, sanitation and hygiene (WaSH). This marks the start of a move towards more holistic, systems-level analysis and action to achieve a decoupling of growth and impact. Systems-thinking requires new concepts, approaches, methods and tools. These need to be predictive, point to early warning signals or non-linear relationships between growth and environmental impacts (Biggs et al. 2009 ; Barnosky et al. 2012 ; Sheffer et al. 2009 , 2012 ; Wang et al. 2012 ), be spatially resolved and operational at different scales of decision-making, but particularly portfolio, company and sectorial decisions (Fig. 15.3 ). Whilst clearly a ‘tall order’ when considering also the urgency with which we must act, Unilever has already begun efforts in this direction, for example, working with the Natural Capital Project at Stanford University to develop methodologies to help us understand the spatial dependency of Biodiversity and Ecosystem Services (BES) impacts associated with large scale agricultural expansion (as implied by the large and converging demand on agricultural raw materials from the foods, chemicals, energy and textile sectors). The research was set to explore possible nonlinear changes in environmental impacts which may arise from different amounts and spatial configurations of land use change, and which may be affected by corporate strategic sourcing decisions (Chaplin-Kramer et al. 2015 ).

Systems thinking – implications for method development and data

The need for such systems thinking and macro-level approaches, enabling us to predict and avoid unintended environmental consequences of growth and strategic choices (as discussed in Chap. 2 ), is amply illustrated by the example of biofuels. ‘IPCC (200 7) highlighted the large potential for biofuels to meet the growing energy needs as well as contributing to GHG emissions reduction, especially in the transportation sector. Escalating oil prices and the uncertainty about sustained oil supplies further added to the growing interest on biofuels’ (Ravindranath et al. 2009 ). As such, a number of governments developed policies and financial incentives to encourage the production and use of biofuels. Unfortunately, large scale expansion of biofuel crops has led to land use change (LUC ), notably the conversion of natural lands such as peatlands, forests and grasslands to the production of biofuel crops. ‘Studies have shown that the possible GHG emissions from the induced LUC can substantially influence the climate benefit of biofuels production and use (Leemans et al. 1996 ; Schlamadinger et al. 2001 ; Fargione et al. 2008 ; Searchinger et al. 2008 ; Gibbs et al. 2008 ) […] Fargione et al. ( 2008 ) shows that land-use conversion from native land-uses to biofuel crops leads consistently to significant GHG emissions and a negative carbon balance, or carbon-debt, for many years’ (Ravindranath et al. 2009 ).

3.1 Conceptual Basis for Developing Scientific Approaches

Several conceptual systems-level frameworks and theories already exist, such as Ecological Footprint (Wackernagel and Rees 1996 ), Carrying Capacity (Rees and Wackernagal 1994 ) and ‘Limits to Growth’ (Meadows et al. 1972 ), but by far the most promising as a guiding concept for developments in data, modelling and contextualisation of environmental assessment is the Planetary Boundaries (PB) concept (Rockström et al. 2009a , b ; Steffen et al. 2015 ). This concept stands out for a number of reasons:

The positive framing of a ‘safe operating space’ or an ‘earth system stability domain’ is helpful in a corporate innovation context. Planetary Boundaries firmly establishes the principle of ‘absolute sustainability’, attempting to set limits on how much impact or change can be tolerated in various PB categories before boundaries are transgressed and the Earth system moves outside of the set of parameters that are deemed ‘safe’ for humanity (into a ‘danger zone’) and beyond which global change is likely to have profound negative consequences for us. However, unlike other concepts such as ‘Limits to Growth’, it does not make assumptions about human ingenuity in terms of technology. As noted by Steffen et al. ( 2015 ), ‘the PB approach is embedded in this emerging social context [rapid increase in human pressures on the planet], but it does not suggest how to manoeuvre within the safe operating space in the quest for global sustainability.’ Rather we can view PB as presenting the context for transformative innovation.

For Unilever specifically, there is a strong connection between this framing and the USLP transformational change agenda , particularly zero net deforestation (principally aligned to the land system change boundary) and improving water, sanitation and hygiene (WaSH) (particularly aligned to the biogeochemical flow and freshwater boundaries) (see Hague 2014 ).

The PB focus and framing also encourages predictive assessment , as opposed to descriptive or retrospective assessment, since the idea is to recognise the approach to boundaries so as to find ‘risk-reducing interventions’ (Steffen et al. 2015 ) and avoid transgressing the boundaries.

Planetary boundaries has received strong interest (with more than 60 peer-reviewed papers on the subject since the seminal Rockström et al. paper in 2009a ) and reasonably widespread acceptance, due to its robust empirical base which draws on both Earth System and Resilience Science. Clearly there is potential to improve quantification for all nine PB categories and efforts are on-going in this regard (Carpenter and Bennett 2011 ; de Vries et al. 2013 ; Gerten et al. 2013 ; Mace et al. 2014 ), but ‘the approach guarantee[s] a higher degree of consistency and meaningful aggregation (commensurability) than composite indices’ (Whiteman et al. 2013 ) such as the ‘Ecological Footprint […] which fail to fulfil fundamental scientific requirements of validity and reliability (i.e. normalization, weighting, and aggregation), and reveal a high degree of arbitrariness’ (Böhringer and Jochem 2007 , in Whiteman et al. 2013 ).

Finally, the concept aims to hold focus on these nine categories simultaneously, recognising the inter-dependencies between them: this imposes limits to trade-offs in that temporal and spatial trade-offs could be considered within a PB category but not between them (Murphy et al. in prep ). Clearly this implies considerable space for the development of multi-disciplinary approaches.

The planetary boundary (PB) concept is increasingly being accepted as a science basis for understanding sustainability in business and government policy contexts (e.g. EU Sustainable Foods Policy development, WBCSD Action 2020), although measurement and analysis of the actions advocated is required to provide assurance that actions will and indeed are leading to the right outcomes; or, otherwise stated, ‘to quantitatively measure the role of companies within the decline [or maintenance] of Earth systems’ (Whiteman et al. 2013 ). ‘We therefore need more studies that analyse how the micro role of firms and industries interacts with a macro-view of the world informed by system dynamics in order to better address environmental externalities (Whiteman et al. 2013 ). Indeed this is the challenge: PBs are planetary-scale and “conceptual” and we need to find ways in which they can be made operational at various geographical scales (local, regional and global) (see for example, Nykvist et al. 2013 ; Cole et al. 2014 ; Dearing et al. 2014 ) but particularly decision-making scales (product, portfolio, company and industry sector). This is where scientific advance aligned to the PB concept is required. An early attempt can be seen at the sectorial scale with the ‘Mind the Science, Mind the Gap project’ (CDP et al. 2014 ), which proposes guidance on methodology to set science based GHG emissions reduction targets in line with a 2 °C decarbonisation pathway.

3.2 Applying the Planetary Boundaries Approach for Business Decision-Making

There are, however, few such examples since the operationalization of PB is still immature. We argue for further methodological development to build on existing data gathering and modelling initiatives using new GIS-based mapping and ‘big data’ approaches e.g. Future Earth ( www.futureearth.org ) and the UK Centre for Agricultural Innovation in the area of agri-informatics and sustainability metrics (White 2015 ) in order to improve our ability to measure the PBs appropriately, but to do so in a ‘solution-focused’ frame. That is to say that even when risks, impacts or transgression of the PBs are uncertain, we still need approaches that will help to move the PB approach into day-to-day decisions as a matter of priority. For this reason, towards the end of 2014, Unilever’s Safety and Environmental Assurance Centre (SEAC) and the Centre for Environmental Strategy, University of Surrey, co-hosted an expert workshop on this topic. The outcome is a ‘roadmap’ for how operationalizing the PB concept can be approached in practical decision-making. This is a ‘forward looking’ agenda for research and implementation in which we will propose a possible framework for progress (Murphy et al. in prep ). In summary, the agenda includes the need for: (1) additional science to underpin each boundary, but particularly the biodiversity (now revised to ‘biosphere integrity’ in Steffen et al. ( 2015 )), chemical pollution (now ‘novel entities’ in Steffen et al. ( 2015 )) and freshwater boundaries Footnote 1 ; (2) development or identification of ‘rules of thumb’ that can be implemented rapidly; (3) normative debate for example around equity, human/societal values, governance, land use contests, lifestyle changes, etc. and; (4) tools for integrating the science in decision-making contexts. In particular, we see real value in developing a distinct and novel, ‘PB-enabled’ normative LCA approach to support the adoption of the PB concept in product/service/sectorial decision-making; this would be a complement to, and not a replacement of, existing LCA uses.

4 Conclusion

It is evident that Unilever’s pioneering position in regards to sustainability is firmly rooted in our innovative application of, and commitment to, environmental sustainability science. This has helped inform and shape the company’s thinking on sustainability and we will continue to use science to help us address future challenges. Currently, systems thinking remains in the margins of scientific development, but increasingly this needs to be brought to the fore so that large companies such as Unilever, as well as governments, are better equipped to make choices that can drive transformational change. This implies even more intensive cross-disciplinary activity, merging elements from Environmental Sustainability Science, LCA, Earth Systems Science, Resilience Science and Economics for more holistic insights and business/policy relevant assessment tools. The emerging developments in big data, informatics, and the deployment of imaging technologies and information systems to visualize earth systems will facilitate the move towards a more holistic understanding of environmental impacts and the sustainable management of Earth’s resources.

These boundary categories were chosen as the focus for the workshop as they are of particular relevance to Unilever because of the types of products the company designs and markets (acknowledging of course that due to inter-linkages between PB categories, all are relevant in some way or another to companies such as Unilever). In addition, we believe that (better) definition and consensus of the planetary boundary for these three is particularly important since the boundaries are either missing entirely (chemical pollution/novel entities), challenging on the basis of scale (regional vs global) (all three), or indeed now considered to be ‘core PBs’ in a ‘two level hierarchy of boundaries’ (biodiversity/biosphere integrity) (Steffen et al. 2015 ).

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Sim, S., King, H., Price, E. (2016). The Role of Science in Shaping Sustainable Business: Unilever Case Study. In: Clift, R., Druckman, A. (eds) Taking Stock of Industrial Ecology. Springer, Cham. https://doi.org/10.1007/978-3-319-20571-7_15

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Conducting sustainability audits to drive performance improvement and ensure data accuracy for reporting

Unilever has been the Food & Beverage super-sector sustainability leader on the Dow Jones Sustainability Index (DJSI) for 12 straight years. Launched in 1999, the Dow Jones Sustainability Indexes are the first global indexes tracking the financial performance of the leading sustainability-driven companies worldwide. Based on the cooperation of Dow Jones Indexes and SAM they provide asset managers with reliable and objective benchmarks to manage sustainability portfolios.

Investors perceive sustainability as a catalyst for enlightened and disciplined management and thus, DJSI is a crucial business success factor. Highly regarded by influential investors all over the world, the DJSI helps shape the increasingly popular sustainability-driven investment portfolios.

The Unilever Sustainable Living Plan is Unilever’s groundbreaking and ambitious roadmap to achieve its growth vision in a way that increases the social value of its brands while simultaneously reducing its environmental impact.  Unilever will report its progress to achieving the goals set forth in the USLP and therefore Unilever wanted to ensure that the Sustainability data collected and reported by its manufacturing sites was accurate.

Our Approach

As a pilot exercise, ERM offered to extend its existing audit to a Unilever facility.  This work involved completing a detailed review of the Environment, Health and Safety sustainability data that had been reported, and comparing this data to the situation on site.  As a result, ERM made a series of recommendations which Unilever adopted.

The sustainability related audit took one day to complete and, following its success, has now become a standard process for all Unilever sites across the Americas. ERM’s involvement will enable sites to ensure the accuracy of the data collation and reporting.

As a long-term partner, ERM has completed 82 audits for Unilever in the last three years.

Benefits and Value

Integrating ERM’s recommendations on sustainability into Unilever’s existing audit program will help Unilever in:

• Reporting against its new sustainability goals
• Safeguarding the accuracy of EHS data being reported across the Americas
• Drive performance improvement
• Leveraging ERM’s experienced auditors

The DJSIs are the world's most important and widely-recognized indexes for tracking the performance of sustainability-driven companies. They are calculated and published by the Swiss investment boutique SAM Group in cooperation with Dow Jones Indexes

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Unilever case study: Managing ESG controversy within a sustainable portfolio

Castlefield’s Ita McMahon explains how the team actively engaged with Unilever over its continued presence in Russia

Ita McMahon, partner, Castlefield Investment Partners

As anyone who works in sustainable investing will tell you, it’s an awful feeling when you scroll through the morning news and find a negative ESG headline about a stock held in one of your firm’s funds.

It’s even worse when that company is Unilever – a titan in responsible business and widely held in sustainable portfolios – and the controversy is the Russian invasion of Ukraine and the ongoing conflict there. Unilever has been in the spotlight in recent months for its continued presence in Russia, even though many, many other Western brands have now exited.

See also: – Castlefield Q&A: Having an influence as a smaller investor

So how does the investment manager respond when controversy arises at a company held in a sustainable portfolio? Unilever and its operations in Russia, the aggressor in the war in Ukraine, provides a live example of how we address such controversies.

The motivation for writing about this is to highlight the careful judgment calls we make in these circumstances but also to point out that no company is perfect. Sustainable fund managers can be guilty of portraying companies as either “good” (we will invest) or “bad” (we won’t). Of course, there are egregious industries that many sustainable funds avoid, ourselves included. Nevertheless, we need to move beyond a simplistic framing of the corporate sector and be more open about the fact that bad things can and do happen at good companies. It’s how the company responds that counts.

Like most sustainable fund managers, there’s a process that kicks in when any of our holdings get in the press for the wrong reasons. First, we seek to establish the facts. We’ll then conduct an informed engagement with the company, before we finally form our view on the issue.

And so to Unilever

Let’s start by acknowledging the contribution that Unilever has made over the past two decades to corporate responsibility. An early adopter of sustainability reporting and ambitious goal-setting, it has continued to build a strong track record ever since. Although not without marketing mis-steps and isolated incidents of poor practice, Unilever’s consistent commitment to responsible sourcing, human rights and reducing its environmental impacts have set the standard for the consumer goods sector for years. It’s worth recognising too the readiness of the investor relations team to talk openly and thoughtfully about the situation in Russia.

The company employs 3,000 people in the country and prior to the invasion, it accounted for around 2% of Unilever’s global revenue. From the outset, Unilever denounced Russian aggression in Ukraine. It continued to operate there, and to produce a broad range of products, but took steps to isolate the subsidiary by stopping imports to and exports from Russia, as well as stemming all capital flows. Importantly, Unilever is operating under UK sanctions law and therefore has no contact with its Russian business.

Unilever’s view is that continuing operations within strict parameters is the “least worst” option, and preferable to closing the business and risking state appropriation. It has also been unsuccessful in finding a buyer that would both safeguard staff and “avoid the Russian state potentially gaining further benefit.” In effect, it is stuck with the status quo. Crucially for us, all profits generated within Russia are ring-fenced, so thoughtful and principled UK investors can take comfort that they are not benefitting from the arrangement. That said, the subsidiary will be paying tax to the Russian state. 

Active engagement

As part of our engagement, we requested an update on Russia in the Q3 results call scheduled for October. We made our position on the matter clear: Unilever’s Russian operations are adding very little to the investment case from a financial or reputational perspective; in fact the opposite is true. We would like to see Unilever exit the market, notwithstanding the difficulties in finding a suitable buyer and its reluctance to sever ties with local employees. It’s easy to be cynical about statements around employee wellbeing, but, as the company itself notes, Unilever colleagues in other volatile locations will be watching on with interest. Plus, as an employee-owned business ourselves, we want other firms to value each and every employee.

However, the risk of a forced exit is growing; Danone and Carlsberg have had operations appropriated by the Russian state in the past few months. Unilever is increasingly an outlier, at a time when many other Western brands have now left Russia . There are no signs of any major consumer boycotts at the moment, but that could change with an effective NGO campaign.

Can Unilever still be considered a sustainable leader and a titan in responsible business? The company’s hard-earned reputation for sustainability has been damaged, but remains propped up, for now at least, by the comprehensiveness of its sustainability programme to date.

We remain invested, taking reassurance that Russian profits are ringfenced away from the rest of the business. We’ll continue to engage on this topic and to push for further updates from management, particularly as the new CEO has now settled in. This is a classic example of a “bad” thing happening at an otherwise largely “good” company, highlighting both the complexities of multinational firms and the judgment calls that we make as sustainable investors.

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Business school teaching case study: executive pay and shareholder democracy

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Winfried Ruigrok

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

This is the latest in an FT series of mini case studies on business dilemmas, for exploration in the classroom and beyond. Read the argument and then consider the questions raised in the box below

Across the western world, big pay rises for chief executives have triggered shareholder dissent.

In May, aerospace group Boeing’s outgoing chief executive David Calhoun was awarded a pay rise of 45 per cent to $32.8mn despite shareholder opposition, following a series of recent incidents and accidents .

In March, the board of pharma giant AstraZeneca proposed to pay chief executive Pascal Soriot £18.7mn. Two proxy advisers called the package “ excessive ”, but one major shareholder argued Soriot was “ massively underpaid ” and the package was approved. Also in March, a proposed increase to the fixed salary part of Banco Santander executive chair Ana Bótin’s package drew fire from adviser ISS.

These debates about executive pay, on both sides of the Atlantic, raise questions about the checks and balances on remuneration.

ISS research found that chief executive officers’ pay went up by 9 per cent in the US in the first part of 2024, even when company performance went down. And, in response to a widening pay gap between US CEOs and their European counterparts, many FTSE 100 companies have also proposed significant pay rises this year.

To retain senior executives, the chair of UK-based medical devices maker Smith & Nephew argued it was necessary to raise pay for US executives working at “Brilo” companies: “ British in listing only ”. The head of the London Stock Exchange Group even called on investors to support higher executive pay , to prevent UK-based companies that generate only a “ fraction of their revenue in the UK ” relocating to the US.

Research on the effects of CEO pay on performance is extensive but many questions remain. Some work suggests that long-term stock options most effectively align incentives between shareholders and executives, and that large differences between senior and junior employees may be associated with higher long-term profitability. Other studies warn that high pay and large differentials may undermine the extrinsic motivation of top executives and hurt employee morale.

Executive pay is subject to a company’s governance. In line with the OECD’s principles of corporate governance , the board of directors establishes a remuneration committee, which proposes the components and level of the CEO’s and executive team’s remuneration. Ultimately, shareholders vote on this proposal at the company’s annual general meeting.

Occasionally, a board of directors is criticised for not having done its work properly. In January, the Delaware Court of Chancery turned down a $55.8bn pay deal proposed by the Tesla board for Elon Musk. The judge said the board behaved “like supine servants of an overweening master” and the chair’s objectivity had been compromised by “ life-changing ” sums of money she received when selling Tesla shares worth $280mn in 2021 and 2022. Musk replied that Tesla should move its headquarters from Delaware to Texas.

In theory, when the board fails, shareholder democracy should kick in. But it is rare for an AGM to vote down a remuneration package. One exception was in May 2023, when Unilever shareholders rejected a base salary increase for Hein Schumacher, the incoming CEO.

Sometimes, a large minority will vote against a pay proposal, as happened with the €36.5mn package put forward for carmaker Stellantis’ CEO, Carlos Tavares , in April. However, while such signs of dissent may be embarrassing, they rarely change the outcome.

There are concerns, therefore, that shareholder democracy is not functioning properly.

One explanation for this is that an increasing percentage of shares is owned by passive investors such as BlackRock, Vanguard and State Street. They act on behalf of other financial actors, such as pension funds, but rarely voice opinions on CEO pay. In 2020, BlackRock, the world’s largest passive investor, announced that, by the year-end, “all active portfolios and advisory strategies will be fully ESG integrated” — raising hopes among activists that executive pay would be linked to environment, social and governance standards. But the recent anti-ESG backlash has left some boards uncertain if, and how, to link remuneration to sustainability goals .

A second explanation, as at AstraZeneca and Banco Santander, is that proxy advisers play a growing role. Many institutional investors delegate their voting rights to these specialists. The two largest of them — ISS and Glass Lewis — control most of the proxy advisory market and state opinions on a growing variety of issues . As a result, board members increasingly complain about the influence on pay that these advisers have.

To many critics, then, shareholder democracy is failing in arbitrating on fair executive pay.

Questions for discussion

In your view, has CEO pay become excessive?

Should European CEO pay follow the levels set by US companies?

How credible is the risk that European companies will move their head office to another state or country? How damaging would this be to the original state or country?

How do you evaluate the growing role of passive investors in a corporate governance context?

Have proxy advisers become too powerful?

Should executive pay be based more on ESG criteria?

In your opinion, is shareholder democracy failing us when it comes to executive pay? Why (not)? If so, what should be done to improve it?

Should executive pay be capped? What would be the benefits? What would be the cost?

Read more FT ‘instant caselets’ at ft.com/business-school

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