Author: Elizabeth Matsangou
30 Mar 2016
Following a stint as CFO of Nestlé, in 2009 Dutch businessman Paul Polman became CEO of Unilever, one of the world’s biggest consumer goods companies. From the outset, Polman caused quite a stir; in what was a drastic departure from standard CEO conduct, he eliminated quarterly reporting to focus on long-term value creation for shareholders and moved to block shareholders that didn’t share the company’s values. Then, in 2012, he unveiled a surprising and highly ambitious new strategy for the company – a 10-year plan to boost revenue, while also slashing the firm’s carbon footprint by half.
Polman’s philosophical outlook and philanthropic ways have made his tenure at Unilever truly unique. In fact, everything about Polman’s style is different to the norm; he espouses a new type of leadership and advocates for causes that we all have a vested interest in, namely a better world for every single person living in it. Naturally, he has faced criticism and challenges along the way, and continues to do so. Crucially, however, he is setting the example for a new type a business and a new type of leader. Put simply, he is an inspiration to the corporate world and beyond. In a frank and in-depth exclusive interview with European CEO, Polman paints the bigger picture – as he sees it.
In your opinion, what is the role of business in society?
The role of business, first and foremost, is to make a positive contribution to society; otherwise it has no reason to exist. Our world faces enormous challenges – inequality, poverty and food security, to name but a few. Tackling these challenges will be a key determinant of future economic growth and human development. Business needs to be actively involved in this. In emerging markets, it accounts for 60 percent of GDP, 80 percent of financial flow and 90 percent of job creation, therefore it has to be an integral part of the solution. It is in its own interest too – after all, there is no business case in enduring poverty. Business also has a moral obligation, as it cannot stay on the sidelines of a system that gives it life in the first place. While these are presented as challenges, they are also enormous opportunities to grow by applying new technologies and know-how or simply by leveraging brands.
With operations in over 190 countries, reaching more than two billion consumers a day, our global scale and reach means that we have a unique opportunity to help improve consumers’ lives. Particularly in emerging markets, where 60 percent of our business lies. We can do this through our products; for example, by providing clean drinking water, basic hygiene and sanitation, and good nutrition. We can also do this by leveraging our corporate scale; for example, improving livelihoods by creating jobs for smallholder farmers or driving labour standards throughout our supply chain. Or, we can do this by driving transformative change beyond the company alone, for instance our active work to stop deforestation or eliminate global food waste.
We take responsibility for our impact across the total value chain. That’s why we have adopted a new type of business model, the Unilever Sustainable Business Plan. which calls for decoupling our growth from environmental impact and increasing our overall social impact.
It seems that society is more open to change now, why do you think that is?
Various reasons. First, consumers have become more demanding. For example, research has shown that three in four people are more likely to buy products with sustainably sourced ingredients. The market for responsibly produced items is currently worth $400bn, and these products are set to account for 70 percent of total grocery growth in the US and Europe over the next five years. So, society is more open to change, yes, but it is also demanding it. This is driven especially by millennials, who are more purpose-driven and willing to put more of their money behind authentic and ethical brands.
Business also has a moral obligation, as it cannot stay on the sidelines of a system that gives it life in the first place
Second, the nature of the modern world means we are more connected than ever before. What happens within companies and across the total value chain is now increasingly visible. Think about the collapse of the Rana Plaza factory in Bangladesh. I truly believe that the most vital thing a business needs to protect is its reputation. In this age of transparency, not a week goes by without seeing another company paying the price for inaction or irresponsibility.
A lack of trust, combined with the seriousness and urgency of the challenges our world faces, makes these dangerous times for those businesses that do not consider wider societal interest. Empowered by new technologies and social media, people can take matters into their own hands.
Finally, we have reached the point where, even for less purpose-driven businesses, the cost of inaction is starting to exceed the cost of action. Climate change and the move to green energy is a great example where we are starting to see a tipping point.
How have the objectives behind the Unilever Sustainable Living Plan changed over the years?
Sustainability has always been in Unilever’s DNA. In the 1890s, William Hesketh Lever, founder of Lever Bros, wrote down his ideas for Sunlight Soap, a product that helped popularise hygiene in Victorian England. Ever since, Unilever has looked to build a strong business around societal needs. We believe it’s possible to grow and do good – indeed, to grow by doing good.
In 2010, we launched the Unilever Sustainable Living Plan (USLP), with the ambition of decoupling our growth from our environmental footprint, while increasing our positive social impact. This is still the core focus of our business – embedded across our operations, supply chain, innovation and brands.
Our vision is to make sustainable living commonplace and secure a better future for our children and planet
In an increasingly volatile and resource-strained world, the USLP is helping us become more resilient by cutting costs, reducing risk and driving consistent top and bottom-line growth ahead of our markets. To give a few examples, through improved manufacturing efficiencies we have saved one million tonnes of CO2 and €100m. And we now send zero waste to landfill at over 600 sites in 70 countries, avoiding €200m of costs, while at the same time creating hundreds of jobs.
Since its launch, we have further expanded the USLP, especially in the areas of social compliance and human rights, and lately by focusing even more on market transformational changes leveraging Unilever’s scale and reach. For example, in 2014 we strengthened the USLP to include new commitments: pledging to empower five million women by 2020 and accelerating our progress even further on global issues, such as access to clean water and hygiene, sustainable agriculture, and tackling deforestation. We released a first-of-its-kind human rights report, which sets out our ambition to actively advance human rights across all areas of our business.
Looking forward, how will you continue to drive the USLP?
Our vision is to make sustainable living commonplace and secure a better future for our children and planet. Our Sustainable Living brands are evidence of this vision in action – brands that make a measurable contribution to our sustainability targets, and with a clear purpose. They currently account for half of our growth, and are growing at twice the rate of the rest of our portfolio. Driving sustainability on our brands, therefore, continues to be our biggest opportunity.
To give one example, Lifebuoy soap has reached 257 million people across 24 countries over the last four years with its mission to improve hand-washing. We see a clear positive impact; in one of the poorest areas of India, the incidence of diarrhoea among children has fallen from 36 percent to just 5 percent. What’s more, this deeply engrained purpose has driven Lifebuoy’s success, making it one of our fastest-growing brands.
Our aim is for all of our brands to become Sustainable Living brands. Reaching two billion people every day, we hope to make a real difference and increase our positive social impact around the world. As a company, we will continue to take lessons from and build our brand impact around the framework provided by the UN Sustainable Development Goals, endorsed in September last year in New York. Critically, this requires extending partnerships with other businesses big and small, governments, NGOs and communities to drive the transformational change desperately needed.
How do you think the role of a CEO is changing in this current climate?
In these turbulent times, change is not only faster, but also increasingly unpredictable. Digital revolution, short-term pressures, geopolitical issues, increasing natural disasters, economic instability, currency fluctuations – it’s no surprise that the average length of CEO tenure is less than five years. This rate of change has become the new normal. It’s my belief that businesses with purpose and a long-term view will be best equipped to survive and continue serving their consumers long into the future.
It is becoming increasingly important for CEOs to de-risk the political process for governments. For example, at the COP21 climate agreement in Paris, the private sector demanded more urgent action from governments. Partnership, longer-term focus and a stronger sense of purpose will be key. Successful leaders will be system thinkers, able to cut through the external complexity, distil simple actions and drive implementation.
What does sustainable business mean to you?
A sustainable business model is one that looks to address the challenges our world faces to ensure a better world for all, including generations to come. It is in sync with both society and the environment. Huge opportunities exist for businesses who commit to operating in a sustainable and equitable way.
Let’s take climate change as an example. In the last decade alone, natural disasters are estimated to have cost the global economy $2.7trn. In addition to political instability, these disasters are costing Unilever around €300m a year. I have no doubt that the same is true for many other companies. However, solutions are increasingly available and economically viable. For example, solar and wind energy are now cost-competitive with fossil fuels in many regions. But, more than this, there is convincing evidence that it is risky business not to tackle climate change. This is the case for all businesses, not just Unilever.
A sustainable business model is one that looks to address the challenges our world faces to ensure a better world for all, including generations to come
It presents enormous opportunities for growth as well. As the Global Commission on the Economy and Climate has indicated, the global market for low-carbon goods and services is worth more than $5.5trn and growing. Investment in energy efficiency measures available today could boost cumulative economic output by $18trn by 2035.
So, crucially, sustainable business models are about operating long-term, using innovation to reduce your environmental footprint and mitigate risk, serving the societies where your consumers live and where your supply chains operate, contributing to social and economic development, creating jobs and stability, fostering a circle of growth.
What is the difference between sustainable businesses and purpose-driven businesses?
In order to pursue sustainable business models to build companies for the long term, businesses need to be purpose-driven and value-led. The world, and therefore business, will only function if we make it inclusive and work for everyone. So, for me, this sense of purpose is critical if we want to succeed and connect with our consumers and others around us. After all, you cannot have a healthy business in an unhealthy world.
Having purpose is also increasingly important to people. According to a global survey, only 30 percent of employees are happy at work – frightening, considering the time we spend there. We increasingly see the USLP driving recruitment at Unilever. Half of our graduate hires say they join the company because of the way we do business and we are among LinkedIn’s top three most sought-after employers; I am sure that our shared sense of purpose is central to this. It also helps us retain talent, with 75 percent of our employees feeling that they can contribute to the USLP in their roles and help realise our vision.
How important is it to have the right type of shareholders on board for a company like Unilever?
It is simply not possible to have a strong, functioning business in a world of increasing inequality, poverty and climate change. Business needs to be part of the solution, and there is a clear economic case for taking action too. Most shareholders are pension funds or institutional investors. They invest for the longer term, fully in line with the need for sustainable business models.
The finance community is increasingly understanding this. Nearly 400 investors with more than $24trn of invested capital have signed the Global Investor Statement on Climate Action and are calling for a price on carbon. These moves are mitigating risk and protecting portfolios. Investors see the economic opportunities too. A recent report by the Carbon Disclosure Project shows that businesses that actively take into account the issue of climate enjoy 18 percent higher returns on investment than those that do not.
I have found that running a business with the long term in mind tends to attract a more loyal shareholder base; investors who are less fixated on short-term pressures and instead are able to see the benefits of long-term, sustainable growth. 75 percent of Unilever’s shareholder base has held our shares for seven years or more, at a time when global holding periods have become shorter and shorter. We actively seek these shareholders that are aligned with our longer-term vision.
At Unilever, you are trying to tackle issues such as climate change, food security, employment and sanitation – what do you think it will take for these issues to be resolved?
The UN Sustainable Development Goals (SDG) and the recent Paris Agreement on tackling climate change have provided the world with a framework for tackling the most important issues it faces. But, these challenges are just too big and complex for any one organisation, sector or government to resolve alone. Only by working in partnerships can we hope to develop the long-term solutions that are needed, and this notion is at the very core of SDG 17. It means businesses, governments, NGOs and consumers all working together for a common good, creating tipping points to drive change at scale.
In the next 15 years, we have an opportunity to irreversibly eradicate poverty in a more sustainable and equitable way, as well as solve the runaway effects of climate change by decarbonising our economies
I’m optimistic, because momentum is building and we are seeing a groundswell of partnerships and coalitions, including financial institutions and investors, to support action for sustainable development and a low-carbon economy. Companies in the We Mean Business coalition, with combined revenues of $6trn, as well as 144 investors with $20bn in assets, have made nearly 800 commitments to climate action. Cross-sector support for UNICEF’s Community Approaches to Total Sanitation has reached 1.6 million people with improved sanitation. And representatives from leading universities, governments and international business have come together in support of campaigns like the UN Women’s HeForShe – an initiative close to my heart – which calls on men to be agents of change for gender equality.
However, there’s still a lot more we can do to fully grasp the business case for sustainability. At the World Economic Forum in Davos this year, business and civil society leaders launched the Global Commission on Business and Sustainable Development. Over the next year, we will work to measure and report the overwhelming economic case for businesses to support and implement the Sustainable Development Goals. Business is already taking action, but we must work in partnership with governments and civil society investments if we want to achieve the scale of the change needed and reap the benefits.
Done right, and done together, these actions will power our economies and sustain the world’s people for generations to come.
Finally, what does success mean to you?
For me, success simply means leaving the world a better place than it was when we entered it. Contributing to making the world safer, more equitable and working within our planetary boundaries – not against them. In the next 15 years, we have an opportunity to irreversibly eradicate poverty in a more sustainable and equitable way, as well as solve the runaway effects of climate change by decarbonising our economies. This is something I am excited about to be part of. It gives a deeper meaning to life.