For someone who wanted to be a priest in his younger days but had to give up on the pursuit after the seminary closed down to make way for a police training school, 58-year-old Paul Polman has surely come a long way. The chief executive officer of the €48.4 billion consumer goods giant Unilever Plc is no longer preaching religion, but is instead espousing doing business the ethical and sustainable way.
Polman, who took over the mantle at Unilever in 2009, is a consumer-goods veteran, beginning with his stint at P&G — as a building maintenance worker — and later at Nestle, before moving to Unilever. Having observed the industry’s working at close quarters, Polman has put into practice a sustainable agenda at Unilever aimed at achieving higher growth but with a social underpinning. Polman has taken it upon himself to advocate to his peers and brethren from the business community why climate change, food security, nutrition and sustainable livelihood are no longer just about corporate social responsibility but are an integral part of doing business.
Not surprising, then, that any forum of relevance that talks about climate change and sustainability has Polman doing the honours. The poster boy of sustainability did just that at the recently concluded World Economic Forum at Davos, urging business leaders and policymakers to wake up and smell the coffee before it’s too late. The following are edited excerpts from his interaction with Outlook Business and the two sessions that he was part of at Davos.
Has it now become imperative for businesses to follow the sustainability agenda?
It [sustainability] is no longer a business agenda, but more of a development agenda. People who actually suffer are the ones at the bottom of the pyramid who live in poverty. They are often, if not always, worst affected by climate change. Hence, it is important that we have ambitious agreements on climate change and sustainable development this year. We are at a moment in history where the cost of inaction is proving to be much higher than the cost of action. In the last decade, the world spent $2.7 trillion more on natural disasters than usual. The same disasters are costing Unilever around €300 million a year because of droughts, a rise in input prices and closure of factories due to flooding. It’s nearly a bi-monthly occurrence, if not more.
The second aspect is the high volatility in input costs. It is estimated that if no action is taken in the next 30 years, the entire profit of the food industry will be wiped out. The third aspect is about poverty agenda. If you cannot develop poor economies, you cannot develop the business agenda. Tremendous demand for food to feed the growing appetite of the world has resulted in 50% of deforestation across the globe. Commercial agriculture actually drove 71% of tropical deforestation in the last 12 years of this century, resulting in the loss of 130 million hectares of forest. In fact, it contributes about 15% to global emissions — more than the entire transport sector. If you don’t look at the entire value chain holistically, in the spirit of new global sustainable development goals (SDGs) and climate change together, we will not find the right solutions. Being 60% of the world economy, 80% of capital flows and 90% of job creation, the business community needs to work together with the government.
It’s not surprising to see far more businesses stepping up their play. Last year alone, 4,000 companies reported on their greenhouse emissions, that’s a big number. Many have integrated an ‘internal’ carbon price into their business strategies; 80% of the world’s 500 largest companies are now setting emission standards; over 50 of the top 200 companies have set carbon intensity reduction goals in line with a 6% per year reduction target — necessary to limit global warming to 2˚C. Interestingly, the top 35 leaders in their fields have targets for 100% reduction, well beyond the 6% target. The recent climate summit in New York saw 1,000 companies signing up for a World Bank statement calling for a price on carbon.
You might ask: is there a financial market for carbon? The answer lies in the over 1,200 signatories [of the UN-supported principles for responsible investment] managing $34 trillion in assets, asking for a price on carbon. Now, it’s not surprising why that’s happening. If you want to have growth, you have to invest in curtailing climate change. We have a report from the Oxford Institute that states that companies that have internalised sustainability have a low cost of capital. In turn, a low cost of capital gives companies a higher chance at profitability. Business needs clarity. If there is more clarity on carbon [prices], they will be able to invest better. Take the uncertainty away, and you will find investments going up. Also, corporates want a level playing field. We have a world where 90% of the people are connected directly or indirectly to the world of business. We need governments to create framework and policies for a level playing field in order to support investment. Companies, on their part, need to align themselves with transformative projects across the globe.
What has been Unilever’s response to sustainability?
At Unilever, we reach two billion consumers a day and engage with over 200,000 suppliers. Under the Unilever Sustainable Living Plan, we have now set clear goals to halve the environmental footprint of our products to help more than 1 billion people take action to improve their health and well-being, and to source 100% of our agricultural raw materials sustainably and enhance the livelihoods of people across the value chain. For us, tackling climate change is linked to poverty alleviation and economic development, given that both are two sides of the same coin. In emerging markets (EMs), there are a lot of investments to be made. For example, in Africa, you have small-holder farmers and room to create sustainable farming opportunities. We are bringing in a new supply chain, and in EMs it is better to design sustainability from the start. In fact, EMs will benefit from the $90 trillion investment in infrastructure needed over 15 years to build a sustainable economy to fight global warming.
What is the rub-off effect on Unilever?
People are driven by an enormous level of energy if the purpose is high. Businesses really want to make a bigger difference to the lives of people instead of just growing market share or improving profits. We’re showing that you can do that while at the same time satisfy your shareholders. For example, Lifebuoy is one of our hand-washing soaps. It’s growing at double digits because it really is helping children [in EMs] reach the age of 5, through the simple act of hand washing. That unleashes
enormous energy. If you bring these kind of strong purposes to the brands, it actually makes the brands a lot more relevant.
Given that EMs are generally price-sensitive, will consumers accept the cost associated with sustainability?
The assumption that it will cost more to do something right is wrong. For example, 30-40% of food [production] is wasted. Now, there is a way to design it with less waste. Sustainable agriculture, thus, has a higher yield. Often, the costs [of climate change] are much higher for society. If you have climate change, the cost of sickness, disease, and absenteeism for a country is much higher, including for countries such as India. More importantly, consumer behaviour can influence the climate change agenda. In fact, there is higher awareness and willingness among consumers from EMs to act on it, as they are the ones who are suffering the most from climate change. So, designing it [the sustainability chain] right is often at a lower cost in an EM.
In an era of cheap energy prices, how can companies become more energy efficient?
The manufacturing sector needs competitive energy, cheap is a relative word. We need sustainability, as the planet needs to stay around for the generations to come. We need to marry both of these together. We are fortunate enough to see increasingly cheap energy in the form of green energy. As a company, we are green-energy driven in Europe and in the US, and I am not paying more for it. I am just thinking about it differently. Many of my factories, across the globe, run on bio gas. So it’s a circular economy concept or a closed loop system. [According to a report by the Ellen MacArthur Foundation, if the consumer-goods industry moves from a linear model of production and consumption to a closed loop system, in which resources can be disassembled or broken down, and re-used, it could save $700 billion a year]. So, if you can think differently, you can have your cake and eat it too. That is increasingly becoming the case at the global level, and in places where that is not yet the case, it is because the market mechanisms [subsidies and the framework] aren’t fully working.
So, what steps does the business community need to take?
It was Stephen Covey who said: “You cannot talk yourself out of something that you have behaved yourself into.” I want to repeat that. We need action here. The first thing you need from the business community is commitment. If you are not committed, you are more destructive at the table. Fortunately, I haven’t met a leader who is against solving poverty, [reducing] climate change but we need to translate that commitment into specific action in a company, not only as a climate change initiative but also as a development agenda. If you are into food security, look at climate change but also look at small marginal farmers, look at women, look at nutrition. All of these are closely interlinked.
Second, translate that commitment into action with specific programmes in your company. Ideally, companies within the value chain need to be connected so that there is scaling for impact. We have a unique opportunity to show the government leaders that there are solutions, and these are better not just from an economic point of view, but also for sustainability.
After commitment and scaling up comes advocacy. We have been too long the silent majority — we have given the voice to the vocal minority. It’s just as simple as that. We have the Road to Paris [the United Nations Climate Change Conference in Paris] coming up this year, in September we have the Sustainable Development Goals [United Nations Summit in NY to adopt the post-2015 development agenda]. These are big platforms where we can come out with statements the way 52% of the world’s GDP did by seeking a price on carbon. That should give enormous confidence to the politicians to be more ambitious in their targets.
At the end of the day, we are talking of a model framework, we are not talking of opportunities just for us. That is why it is important that we give it [sustainability agenda] a push this year. Around 400 companies of the Global Consumer Goods Forum — which have a combined revenue of over $3 trillion — have pledged to eliminate deforestation from their supply chains and achieve zero net deforestation by 2020. These commitments are being made but we cannot do it alone — the governments need to be part of it.
I think the government should not underestimate what an enormous signal it can send to the business community if clear goals and targets are put out there. That will unlock far more investments needed to accelerate this and we might end up being pleasantly surprised. Second, we need a price for carbon: if you don’t price what you value, you don’t get people to react. Third, financing is a crucial part that we haven’t talked about enough — especially in EMs where all the growth is — to make this transition possible.
Finally, as Benjamin Franklin said, “You may delay but time will not.”
How is Unilever coping in the current economic environment?
Despite a challenging year for our industry with significant economic headwinds and weak markets, we have delivered another year of competitive underlying sales growth and margin expansion. This consistency, now established over the past six years, has been achieved during a period of high volatility as we have built a more resilient company. We have increasingly focused on our core business and have sharpened the strategy across each of our four categories. In today’s low-growth environment, we are driving efficiency and simplification initiatives to make the organisation more agile and more capable of responding to the unexpected. We have continued to remove cost and to streamline processes to provide fuel for growth. Our innovation programmes have further accelerated and we have exported our iconic brands into new markets. We have continued to use acquisitions and disposals to strengthen our portfolio.
Do you see Unilever’s business conditions improving in the current year?
We do not see a significant improvement in market conditions in 2015. Against this background, we expect our full year performance to be similar to 2014, with the first quarter being softer but growth improving during the year. We remain focused on competitive, profitable, consistent and responsible growth.