Features

Towards inclusive growth: a new model for capitalism

29 March 2012
ITC News

Citizens around the world have lost confidence, understandably, in the ‘quarterly capitalism’ model that requires businesses to be managed exclusively for short-term shareholder value. At Unilever, the lesson we have learned is that business is part of society. As such, it has obligations not only to deliver a good return for its shareholders, but to make a contribution to the overall environmental and social well-being of the countries where it operates. Doing so can open up new markets, lead to the development of new products and drive growth.

Although there is still much to do, managing business in this way can also have a positive impact on social and economic development, suggesting a new form of capitalism: one that focuses on the long term and sees business as part of society, not separate from it; one in which companies seek to address the big social and environmental issues that confront humanity; one where the needs of citizens and communities carry the same weight as the demands of shareholders. 

 

Supporting change

Unilever products are sold in nearly every country of the world, including some of the poorest. They are present in half the households on the planet and, on any given day, 2 billion consumers will use a Unilever product. This enormous distribution reach gives the company the capacity to effect change on a large scale.

Take the provision of hygiene. Public health experts agree that one of the most effective interventions that can be made is to encourage people to wash their hands at key moments in the day: before meals, after going to the toilet and so on. The principal marketing strategy for Unilever’s Lifebuoy brand is a campaign to educate mothers and their children to do just this. When the strategy was tested in a clinical trial in Mumbai, India, results showed the population that had been exposed to the Lifebuoy behaviour change programme had a 25% lower incidence of diarrhoea and significantly fewer days of school absence due to illness than the control group.

The campaign is now being rolled out across South Asia and Africa. When executed well, it delivers a triple win. The consumer starts to enjoy the benefits of basic hygiene, society gains from reduced health costs and Unilever profits from increased sales of soap.

Another example is Pureit, Unilever’s recent entry into the water purification market. As populations grow and per capita availability of water diminishes, so its quality deteriorates. This is creating a need for simple, low-cost systems that will enable people to purify water. Pureit does this. It makes water drinkable, even from very contaminated sources, and does so at a price that is less than that of boiling the water and up to 15 times cheaper than bottled water. The product has already been successfully launched in India and is now making its way into other markets, including Bangladesh, Indonesia, Brazil and Mexico.

Products like Lifebuoy and Pureit have a positive impact on social and health indicators, but it is in agriculture that Unilever has the greatest effect on the environment.

 

Global agriculture

Unilever has a broad and deep presence in global agriculture. The company buys 12% of the world’s black tea crop, 3% of its tomatoes, 3% of its palm oil and large quantities of onions, soy and rapeseed oil. It works with large, industrial-scale farmers as well as smallholders.

There are three areas where Unilever’s agricultural sourcing can have positive environmental and biodiversity impacts. The first is on land use. The need here is to ensure that suppliers of high-volume commodity crops, such as palm and soy, do not expand their output by encroaching on tropical forests.

In an effort to tackle the problem of deforestation, Unilever helped found both the Roundtable on Sustainable Palm Oil and the Round Table on Responsible Soy. In 2011, the company drew over 800,000 tonnes of palm oil from certified sustainable sources and it has started on a similar journey with soy. Together with industry peers, the company is starting to transform these commodity markets and slow the rate of tropical deforestation.

The second area where Unilever can have an impact on global agriculture is in mandating sustainable farming practices for its suppliers around the world. The company’s Sustainable Agriculture Code, developed over the past 15 years, requires the adherence of suppliers. The Code covers everything from pesticide and fertilizer use, to irrigation, soil quality and biodiversity loss. When applied properly, it improves yields and reduces environmental impacts.

Finally, Unilever’s agricultural sourcing can have a positive effect on economic development through engagement with smallholder farmers. According to Oxfam, there are more than half a billion smallholder farms, and improving their lot is one of the most effective levers to alleviate poverty.

In one way or another, Unilever comes into contact with over a million smallholder farmers. In some instances, such as tea in Kenya, the company has been able to engage directly with the farmers to improve their productivity. This has been done in partnership with the Kenya Tea Development Agency and the UK Department for International Development (DFID).

In India, Unilever has had an even more profound impact on livelihoods by linking small gherkin farmers into its global supply chain. This has been done partly through training, helping the farmers with issues such as seed selection and drip irrigation, and partly by giving them access to a large market.

Each of these examples – Lifebuoy, Pureit and Kenyan tea farmers – shows how companies can deliver positive social and environmental benefits to the communities where they operate. Often, these benefits are delivered in partnership with non-governmental organizations. Sometimes they are funded by money from bodies such as the United States Agency for International Development and DFID.

These examples also illustrate the thinking that underpins the Unilever Sustainable Living Plan, a 10-year strategy designed to enable Unilever to double in size without increasing its overall environmental impact. The basic premise is that Unilever can decouple business growth from resource utilization and environmental impact. The three principal goals of the Unilever Sustainable Living Plan are: to help a billion people take action to improve their health and well-being, to halve the environmental footprint of Unilever products, and to source 100% of agricultural raw materials sustainably. These overarching aims are complemented by more than 50 quantitative, time-bound targets covering everything from the use of renewable energy in factories to the quantities of salt, sugar and fat in products.

Over its 120-year history, Unilever has learned that business based on these concepts can have a positive and inclusive impact on development and trade. It can also help win back the confidence of society by showing that business is more than about making money: it can also be socially useful.