Unilever CEO Paul Polman and PSI President & CEO Karl Hofmann. Photo by: World Economic Forum / CC BY-NC-SA and PSI

Unilever’s Sustainable Living Plan, launched in November 2010, aims to double the size of the company’s business while reducing our environmental impact by 2020. What progress has been made so far? PSI President & CEO Karl Hofmann asks Unilever CEO Paul Polman about lessons learned so far and the changes he expects to see in corporate philanthropy moving forward.

I’m a big fan of Unilever’s Sustainable Living Plan and find it fascinating. What’s the overarching philosophy of the plan? And what are two lessons Unilever has learned since its launch?

When I came to Unilever four years ago, it was very clear to me that there was an important need for a deeper purpose for business. We wanted to put a business model out there that actually accelerates our growth; we want to be successful and sustainable while increasing our positive impact on society. I think the difference between our model and others is that we decided to take responsibility for the total value chain, covering all of our brands and all of our categories. Our plan also covers the triple bottom line, as we look at our sustainability and equitability. The philosophy behind it goes back to the basics, where business needs to think more about how it can give to society versus take from society.

The crisis of 2008 brought business even more to the foreground. Now there is this enormous force of young and digitally-savvy consumers aggregating themselves. There is an enormous pressure on planetary boundaries with the population increase in the East and South. Then you have a government process that, because of all these shifts, is becoming very difficult. So companies like ours and nongovernmental organizations like PSI are now the glue, and consumer expectations are high.

Our learning was that we have to impact the total value chain. This is not corporate social responsibility anymore; this is taking co-ownership to reverse some of these negative trends and contribute to issues of health and sanitation, of food security, of equitable growth. Partnership is a tremendously important piece that we learn more about each day. We are also tackling the challenge of taking our work to scale. There are tremendous things happening with PSI, UNICEF, and the Bill & Melinda Gates Foundation. But how can you scale it faster, while continuing to share the same values?

People were skeptical when we launched our Sustainable Living Plan and our goal of doubling turnover. But I found that when we put that stretched goal out there, we were able to move faster and further in the last three years than we’ve done in the history of this company. It put people into a totally different mindset.

I really admire your leadership and your vision on this. The total value chain, it’s a compelling story, and we’re only in the early phases of it. How have your shareholders reacted?

We have had to learn how to communicate the Sustainable Living Plan to our shareholders. We have also needed to change the framework in which we did business so that people did not receive incentives that were contrary to our objectives. We abolished quarterly reporting; we abolished guidance; we moved to a different compensation system for the long term.

In the beginning, when you make these changes and your performance doesn’t have a good track record, people think you have something to hide and your share price can be under pressure. But we have stuck with this, and we have used every opportunity to communicate with our shareholders about our long-term strategy. We’ve also been able to change our shareholder base accordingly. Too many CEOs cater to current shareholders who have disparate points of view. We’ve found that you need to actively seek the right shareholders that fit with your model, and we’ve been able to do that.

Our shareholders are to some extent even pushing us. With the high volatility and input costs, they know that if we go up the supply chain and work with small rural farmers, we remove risks. By looking at social compliance, they see that we are less exposed to risks to market value because of big headlines in the newspaper. They see that we are thinking more strategically about our resources and cutting costs out of our system. Increasingly, we have shown them that the effects of a more engaged workforce means we can attract the best and brightest. And, last but not least, it has driven our innovation program, especially in areas where our consumers are resource-stressed, such as sanitation or the lack of water. Developing soap products, which make hand-washing easier, means we are saving lives and water while growing Unilever’s emerging markets.

We have been blessed that our business results have been very good. We have actually accelerated our growth. We’ve added about $14 billion to our top line in the last three years, so that makes it easier to have credibility. If our business results had been under pressure, there would have been more skeptics.

The Sustainable Living Plan calls for Unilever to work with more partners than before. How is this changing Unilever’s corporate culture?

When we launched this business model, one of my goals was to make this company more externally focused in the service of society. Internalizing these external challenges, we have put society right  smack in the middle of our company. People were worried that these 50 targets would lead us to expose ourselves or be criticized in the media for missing a few. We said that we can only be successful if you believe in the plan as well and help us. Saying that little sentence disarmed a lot of skeptics because we invited everybody to join.

So we have found if we create the right coalitions – PSI is one good example – and then everybody delivers value around very clear objectives transparently, we can achieve miracles. There are now more than 200 million people participating in Global Handwashing Day. Our company could not do that alone. To be part of a lot of these things, sometimes initiated by others, sometimes put together by all of us, allows us to achieve shared objectives. A good example of that is what we are doing together in Zimbabwe, Kenya and Vietnam around Lifebuoy – adding PSI’s expertise and Unilever’s expertise together to help communities. That’s very energizing. You need people with different skill sets who feel comfortable working transparently.

I think that’s right. You’re doing it, and on our side of the equation, we have to develop different skills, which we are trying to do enthusiastically.

I think it’s very important for organisations like yours, Oxfam, UNICEF, even the World Food Program, which we’ve chosen as our partners, that they understand more than ever in today’s economy with a need to create jobs and growth that business can help create that.

The very definition of sustainability is changing. There will continue to be a need to do charity and aid for the bottom of the pyramid as there will always be fragile nations and people that fall below any line. However, the role of business now is increasingly better understood and business increasingly understands that with this cooperation they can go much deeper into, let’s call it, the ‘human chain.’

Five or 10 years from now, do you think that corporations are still going to be talking in terms of corporate social responsibility and the sorts of activities that might have historically defined relationships between corporations and non-profits?

I think it will be another 15-20 years before we see responsible capitalism more institutionalized. Business knows how to measure and optimize financial capital; however, we are not so knowledgeable on social or environmental capital. If we don’t start to measure that natural capital and internalize it into our business model, it will be very difficult to change, even on the financial side. There are efforts underway in terms of integrated reporting or natural capital declarations, but they will take 10-15 years to take shape and drastically change people’s behavior.

Now, if we focus on about 100 companies, we can pick 25 of the world’s biggest and make them sustainable. If we focus on some of the largest countries, we can achieve the Millennium Development Goals. If we focus on a few big projects together like we’re now trying to do now with Waterworks in India, we can certainly have an impact. What I advocate for now is starting with a few big projects, such as sanitation. How can we build 500,000 toilets? That’s our current approach; that’s how it has to be done. Then, bit by bit in a very practical way, we can move this world forward and make a positive impact.

It’s an exciting time. Your company is doing fantastic things. We’re very, very proud to be associated with you personally and with everything that Unilever is doing.

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