You are the Chief Sustainability Officer (CSO) at Unilever. You are to make a presentation at the Annual Shareholders Meeting of this publically-traded multi-national corporation. Unilever has engaged in a major corporate business strategy to move toward sustainability. This corporate strategy is contained in its “Sustainable Living Plan” which you are primarily responsible for its adoption. While you have the strong support of your CEO Paul Polman, there is skepticism from both your CFO (Chief Financial Officer) and major shareholders about the business case viability of this strategy. They ask, “Does this strategy sacrifice profit for the corporation and its shareholders?” In your presentation, you should engage in an honest assessment of this strategy as it pertains to the Sustainable Tea Case Study at Unilever. You should try to answer the following questions through analytical analysis.

1. What are the positives (advantages) and negatives (disadvantages) of this corporate strategy? In this analysis, you should discuss the social, economic (financial), and environmental impacts of this corporate strategy.
2. What strategies or policies can you suggest that will address the negatives (disadvantages) of this corporate strategy?
3. And finally, do the benefits (the positives) of this corporate strategy outweigh the costs (the negatives)

Corporate strategy:

In 2010, Unilever announced its commitment to a new “Sustainable Living Plan,” a document that set wide-ranging, companywide goals for improving the health and well-being of consumers, reducing environmental impact, and, perhaps most ambitiously, sourcing 100% of agricultural raw materials sustainably by 2020. Such a goal implied a massive transformation of a supply chain that sourced close to 8 million tons of commodities across 50 different crops. Unilever CEO Paul Polman believed that the company’s ambitious goals could drive savings, product innovation, and differentiation across the company’s portfolio of products. But more importantly, it would create a company better suited to survive in the future that Polman envisaged: This is a world that is challenged. When you look at the interdependent challenges that we face on food security, poverty reduction, sustainability of resources, climate change, and social, economic, environmental development, these challenges have never been greater. And I believe that these pressures will only increase as 2 billion more people enter this world and many aspire to increase their living standards.1 The changes happening at Lipton, Unilever’s €3.5 billion tea brand, were an important cornerstone of Unilever’s plan. For more than five years, Michiel Leijnse, the global brand director for Lipton Tea, and the Unilever procurement team had led the transformation of the Lipton brand and its supply chain toward a goal of 100% sustainable sourcing. Approximately 25% of all Unilever tea now came from Rainforest Alliance–certified farms, and real gains had been made in the social, environmental, and economic sustainability of tea production. The scale of Unilever’s mainstream partnership approach was unprecedented in the beverages industry, where “ethical” brands had failed to grow beyond niche market positions. Unilever’s goal was to have all of the tea in Lipton tea bags sourced from Rainforest Alliance–certified farms by 2015, and to have every kilogram of Unilever tea sustainably sourced by 2020. Leijnse was confident that the company could achieve these goals, but it faced two critical issues as it worked to make them a reality.

The first issue was how Unilever could transform a supply chain that was not only geographically very diverse but also highly fragmented. Unilever bought tea from all producing regions, and in many markets, the majority of production was controlled by smallholders who sold their tea at open auctions. Unilever and the Rainforest Alliance had successfully certified Unilever’s own tea estates and those of many large plantations, but the firm now faced the increasingly difficult task of convincing smallholders in worldwide markets of the benefits of changing agricultural practices and pursuing Rainforest Alliance certification. India, for example, was a major tea producer and consumer, but the small scale of many of the farms and the nature of local farming practices made certification a significant challenge. What should Unilever do in such markets? Should Unilever insist on Rainforest Alliance certification or instead work to implement incremental change through standards better suited for Indian practices? How could it persuade hundreds of thousands of smallholders to adopt new farming methods in markets where most tea production and consumption were local and Unilever was not the dominant buyer? The second issue was whether and how Unilever could gain a market advantage from its move to sustainable tea. While the adoption of Rainforest Alliance certification appeared to have led to market share growth in some Western markets, it was not clear either that this would continue or that the concept of a sustainability message would resonate with consumers in developing markets like Turkey, India, or Russia. How should Unilever market its sustainability efforts in emerging markets? Beyond these two key issues, several other smaller but also potentially important questions consumed Unilever’s attention. The Unilever Sustainable Living Plan committed the company to source 100% of all agricultural raw materials sustainably by 2020. 

Did this mean moving to sustainable paper in tea bags and packaging or to sustainable ingredients sourced in very small amounts—such as chamomile—where there was currently no sustainable supply? If so, what was the best way to approach such moves? 

And more broadly, were there lessons in Lipton’s experience for the rest of Unilever’s agricultural supply chain and for the power of sustainability as a source of consumer differentiation?

Answer rating: 100% (QA)

Positives Advantages of the Corporate Strategy 1 Increased brand value and customer loyalty Unilevers commitment to sustainability has improved customer perception of the brand leading to increased br... View the full answer