Superheroes: Rising with the heat
Part 2 about the type of companies and efforts pulling away from ESG
Welcome to Part II of a three-part series on the types of companies and efforts pulling away from ESG. Each one will follow a similar structure to see what we can learn. As they are published, I will update these posts with links to the other parts. Enjoy!
The morning I published last week’s article about followers, another company withdrew from its specific commitments due to the difficult realities involved. While I often say we are in a transition period with ESG, it was a sobering reminder just how volatile and multi-faceted the transition is!
As I mentioned last week, the reality of these pullbacks is nuanced, which is why I’m writing this series. The following section, through “The superhero,” repeats content from last week for context. Feel free to skip down if you don’t need the reminder!
A couple of ground rules before we get into this:
It is essential to recognize that activists are pushing and pulling around ESG, trying to refocus companies to do more or less. In both cases, neither may be engaged in ESG, stakeholders, or materiality, and both may swing too hard toward values to drive impact.
The slowdown in institutional investors’ support of ESG proxy resolutions will not be covered here. Still, I believe they are doing their clients a disservice by not diving deep into nuances like these and the resolutions that arise.
When reading about these companies, I encourage you to go deeper and read the surrounding information. For example, what is in the company’s ESG report, 10K, or their industry news? Companies are not always getting ESG right, and the media is getting it wrong. Just as you approach any article with a healthy dose of skepticism, do that with ESG articles. After all, I don’t always get it right or complete!
The three types of companies
So again, we find ourselves faced with these three types of companies.
The follower is a company doing the bare minimum to comply with emerging regulations. It likely has spun up a range of ESG-related programs post-2020 in the face of stakeholder pressure. They’ve examined their competitors and tried to match programs rather than examine stakeholders and materiality. This type of company is an easy target for anti-ESG talking points as the public-facing programs are often not material and are of low company or systemic value.
The superhero is a company that wants to save the world and its people. This company may or may not have the luxury of doing so, based on its ability to fund programs and stakeholder appetite. Materiality may or may not be a consideration in these programs as they lead with ‘ideal’ ESG-related values.
The pragmatist is a company that takes a balanced approach to ESG and either recognizes the risks and opportunities or approaches them through a business perspective.
Each group doesn’t exist in a silo, but I believe that companies skew into one of these categories. As we’ll see here, we may have followers who back away from their goals but have a clear vision for the long term. We may have superheroes who pivot into pragmatism or pragmatists with a mix of focus from the other two. Companies may even be followers in one pillar of ESG and pragmatists in others.
Let’s make this real with an example of a company that appears to have long been a superhero pragmatist but became a superhero and their apparent shift to pragmatism.
The superhero
The superhero is a rare company indeed, and one that I don’t believe I have written about before. This type of company leads with sustainability and impact efforts, not in a philanthropic way or because it doesn’t understand ESG, but because it has aligned values with its purpose.
As with followers, these companies are engaging in net zero goals without carbon being a material issue, but they go much further. They double down on semi-material issues and try to lift their peers and value chains, not because everyone is doing it but because they are compelled to through purpose. These companies recognize that their industries will shift over the long term, and these issues will eventually become material for everyone, and they are out to change the world. The long-term value is likely so far out that it remains a near-term talking point, with impact taking the focus over the business.
This is undoubtedly a laudable approach with an interesting internality (not to be confused with externality). The result is a culture where employees find purpose aligned with work and possible activism around every cubicle. This can be a powerful talent attraction and retention tool and must be managed accordingly. Of course, this reputational benefit has a risk, too, but let’s not get ahead of ourselves.
These companies don’t follow their peers. They are leading the transition and bringing others along as they can. They may favor sustainability and other values-based social programs over what is material or relevant to the business.
In other words, they want to change the world, and their employees eagerly join them.
Let’s examine a company that appears to have moved into the superhero category over the past few years and what happens when it shifts its purposeful work to a more measured and pragmatic approach.
It starts with this question, which the Wall Street Journal asked in May 2022:
Does Your Mayo Need a Mission Statement?
Yes, the dismissive title of this article refers to the ESG efforts that Hellman’s Mayonnaise engages in and makes their work sound irrelevant. Hellman’s is one of the many brands in the Unilever family of companies. As a condiment, does it need to try and save the world? It’s a valid question, but one that is misplaced.
There is a long history of purpose at Unilever, with sustainable social goals stretching back to the late 1800s and founder William Lever. Building on the success of Sunlight Soap, which eased laundry washing for consumers, Lever wanted to provide employees with a living wage and good working conditions. Indeed, purpose has been built into the company since the beginning. In the modern era, Environmental and Social reports stretching back to 1999 are available in its online reporting archive.
In 2010, Unilever launched its Sustainable Living Plan, which included meeting the “United Nations’ requirement to reduce GHGs by 50-85% by 2050 to limit global temperature rise to two degrees” and also (quoted here):
We will help more than a billion people take action to improve their health and well-being.
We will decouple our growth from our environmental impact, achieving absolute reductions across the product lifecycle. Our goal is to halve the environmental footprint of the making and use of our products.
We will enhance the livelihoods of hundreds of thousands of people in our supply chain.
These goals don’t seem distant from Lever’s original visions, and the reasons listed for these pursuits in the initial announcement are well-aligned with an ESG mindset:
Drive consumer preference
Win with customers
Fuel sustainable innovation
Grow our markets
Generate cost benefits
This program started in 2010 under CEO Paul Polman. Polman kept this program running throughout his tenure and made mixed progress on the company’s Environmental goals. Some were highly successful, while others were not. Still, Unilever’s financial position remained strong, balancing growth and attention to sustainability goals. By 2019, Alan Jope had taken over as CEO and struggled to balance economic and sustainability gains.
Since Unilever isn’t a publicly traded stock in the US, there is no 10K to check. Their Annual Reports consistently have been focused on the company’s purpose with the title page proclaiming “Making Sustainable Living Commonplace” in 2013 from “Creating a better future everyday.”
Rather than pour through years of their annual reports, I decided to look in another place, the annual results the company provides through presentations. While Unilever had long been a pragmatic superhero, it started to draw attention to its ESG and impact work during Jope’s tenure, so I went through these documents to see when Unilever became a superhero.
Let’s take a look at those presentations to see how much Unilever focused attention on its sustainability ambitions to external stakeholders:
2010/2011: Sustainability was referenced financially as "Steady and sustainable underlying operating margin improvement." Remember, this was after the Sustainable Living Plan was adopted, yet there was no mention in the presentation.
2012/2013: The company added a statement under “Among other risks and uncertainties” as "finding sustainable solutions to support long-term growth." This appears to be the first recognition of the challenge ahead.
2014: Added "Making choices for sustainable top and bottom line delivery.”
2015: The risks and uncertainties remain the same, as did the initial 2010/2011 statement. The company removed "Making choices for sustainable top and bottom line delivery" and added "Sustainable Living: More growth, Lower costs, Less risk, More trust." We’re approaching the superhero origin story here, but this reads more pragmatic.
2016: The same risks and uncertainties were present, and the initial 2010/2011 statement was removed. Sustainability is listed as a long-term objective and appears in the "4G growth: Consistent, Competitive, Profitable, Responsible" section under "Responsible."
2017: Same risks and uncertainties. There is no other mention of sustainability or responsibility in the report.
2018: Alan Jope becomes CEO when this is published. The same risks and uncertainties are listed. The 4G returns with an additional priority: "Sustainable business and brands with purpose." One home care product is listed as "more sustainable."
Remember that the markets were picking up on the stakeholder shift and ESG around this time.
2019: The same risks and uncertainties exist. A new category on growth fundamentals appears called "Purposeful brands: 100% product & purpose innovation."
On December 10, 2019, the company held a Sustainability Event, apparently the first event dedicated to climate change and inequality. The company claimed “Our purpose is to make sustainable living commonplace” as part of a broad Unilever Compass. This initiative covered several broad areas, and the company lists “Our Financial Framework: Consistent and competitive growth driving top third TSR” on the document (TSR is Total Shareholder Return).
2020: The risks and uncertainties get more specific, including a new focus on plastics: Unilever's ability to find sustainable solutions to its plastic packaging and Unilever's ability to find sustainable solutions to its plastic packaging. The phrase "Purposeful brands" appears under competitive growth, while "Sustainable business" appears under the strategic change agenda.
And here's the big one. Under Vision and purpose, we see:
"Our vision is to be the global leader in sustainable business. We will demonstrate how our purpose-led, future-fit business model drives superior performance, consistently delivering financial results in the top third of our industry."
This appears to be when Unilever becomes the superhero, and the seeds of the 2022 WSJ article are planted. Some variants of ‘sustainability’ appear 21 times, with 'purpose' appearing 18 times.
2021: This presentation appears just months before the WSJ article and only includes purpose one time (albeit in the same way on section titles six times). Similar risks and uncertainties around plastics appear.
Before we proceed, please appreciate the aspirational thread from the late 1800s to Unilever’s recent targets under Polman and final acceleration under Jope over the past few years. For employees looking for purpose in their work, Unilever certainly had become that place.
The WSJ article drops here. A key concern of this article is how Unilever's peers experienced stock growth during a sharp decline for Unilever in the same period.
2022: The same risks and uncertainties around plastics remain. Purpose only appears again in a note in the Beauty and Wellness category with no reference to sustainability other than “Sustained strong cash flow.”
2023: The same risks and uncertainties around plastics appear with a product category note on plastics-free packaging success for Omo. Purpose is completely dropped in favor of “growth remains the priority.”
During this last year, Jope was in the process of leaving Unilever. During his short time, the stock had gone up from around $52 when Jope joined to $60 in late 2020/early 2021 but then dipped to the low to mid $40s. Unilever had poor performance against its peers in the same period, which is what the WSJ calls out as it correlated its sustainability performance to stock performance. While Polman led with ambitious goals and famously ‘ignored shareholders,’ yet doubled the stock price.
But, something else happened that garnered attention in the Governance area. Jope tried to buy GSK’s consumer healthcare business, something shareholders disapproved of. This had nothing to do with sustainability or ESG but was a big challenge for Jope. Meanwhile, sensing that Unilever had over-pivoted into sustainability, anti-ESG activist investor Nelson Peltz was voted to the board. You might remember Peltz for similar criticisms of Disney, resulting in a failed attempt to gain board seats there.
The critical difference between Unilever and Disney or Polman and Jope is that Unilever under Jope had finally stopped having stellar growth under Polman, and questions were being asked. Similarly, by the time Disney’s proxy battle ended, the company’s performance was so good that Peltz made money despite losing the proxy fight.
No one questions a superhero when times are good.
Setting the bar to save the world and its people has a downside
And so, Jope has departed Unilever. In May 2024, Unilever updated its long-term commitments to the environment with a few changes. The new “Climate Transition Action Plan” (CTAP) is available online and has sparked another headline, this time in the Financial Times, proclaiming Unilever’s sustainability rethink cheers investors but unsettles staff.
Let’s start with some of the changes with CTAP listed in the FT article:
The target to cut its use of virgin plastics by 50% by 2025 has been reduced to 30% by 2026.
The deadline to use 100% reusable, recyclable, or compostable packaging has been extended from 2025 to 2030 for rigid and 2035 for flexible plastic.
NOTE: As cited above, Unilever knew about the specific challenges with plastics and communicated it consistently.The company dropped a pledge to use 100% biodegradable ingredients by 2030.
The company also eliminated a pledge to spend 2.1 billion euros annually on diverse businesses by 2025 and a commitment to make 5% of its workforce up to people with disabilities by the same year.
Unilever’s Sustainability Advisory Council has been disbanded (according to two members).
As we saw with followers, the changes in goals draw immediate attention, not the pivot in strategy. In hindsight, you could see the more problematic pivot to purpose and values around 2020 and the more significant pivot away again to more practical steps recently. Ultimately, purpose has always been at the company’s center, but the whipsaw so heavily into purpose and out again has left employees reeling.
The same FT article points out that employees are now disillusioned with directors leaving and those remaining leaders holding town halls for reassurance. This description reminds me of how many felt during the Big Tech layoff of 2023. Those companies had touted employees, sustainability, and other values, yet relied on traditional mass layoffs to drive change.
For Unilever, purposeful pressure remains. Outside stakeholder activists are pushing for Unilever to advance its goals faster with Greenpeace blocking access to the company’s London HQ earlier this month around the company’s plastics efforts.
Ultimately, Unilever’s CTAP efforts appear to be better balanced toward the business, which is where any company should focus. They tout the savings from energy efficiencies to show financial savings, write about reformulations of products, and list many material Environmental issues while still supporting a net zero goal by 2039.
All in all, this pivot represents a lot of work still.
What superheroes can do
Superheroes are rare. At the same time, many companies appear to be part-time superheroes because they set non-material and highly ambitious goals. Yet, when the biggest companies in the world do it, there’s carry weight, and value chain actions follow.
Still, there’s a problem if the business or stock is floundering. While you might want to save the world and lead with purpose, it is a struggle to balance both. Not every company can do what Patagonia did as this is mainly transitional work that takes time. If you attempt to flip a switch to purpose, some stakeholders may be pleased, but you might be left holding the bag and explaining to shareholders why the business is behind its peers. There could be a diminishing set of sustainability returns as a result.
Superheroes have it tough. Shifting to purpose can boost a leader's reputation by saving the world and its people, but as soon as a superhero starts underperforming, hard questions are asked, goals are reworked, and trust can be broken.
One thing I can’t recommend enough is to start with what you know, which is your business and value chain. It is important to recognize that if you are the biggest XYZ company on the planet, you can make an impact, but you may not be able to impact systemic Environmental and Social issues in the way that you’d like. As difficult as this is to say, if you stray too far from your core business, you will likely not find success.
And we need successful companies to tackle issues as only they can.\
Companies that only lead with purpose may find that these programs are the first to get reworked when times are tough. All of that good will built up can disappear in a minute.
I don’t think Unilever broke trust here, nor do I think they’ve removed purpose from the company’s core mission. There is a lot of challenging work that they are committed to, but only time will tell.
So, let’s return to the WSJ article that started this all because Unilever was and is still getting it right there.
Hellman’s campaign, which still runs today, is about reducing food waste. On the surface, this may not seem material, but it is a huge opportunity and a great example for others to note.
Mayonnaise can address food waste by getting consumers to rework their food scraps into new meals. For a consumer stakeholder, this extends the life of the investment they’ve made in their purchase and helps reduce food waste. Hellman’s hosts a recipe finder where you can plug in ingredients and find recipes.
While your mayonnaise doesn’t need a mission statement, working with consumers to extend the life of leftovers with your product is a material issue, and similar to what Lever was originally after in making laundry easier to do.
In comic books, superheroes don’t often save the world, even though we think they do. Typically, superheroes fix a problem or threat and move on to the next challenge, keeping the world safe. There’s a difference here. Every company has unique ways to do this in the short term and the long term, and it starts with the business.