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Equity
Sustainable Investing

Making Progress Toward Sustainability: A Unilever Case Study

The business case for how Unilever, a consumer products company, rethinks packaging, nutrition and governance.

By David Byrns, CFA, Brandon McKinzie
05/02/2024

Key Takeaways

Unilever, a top consumer products company, became a major polluter by selling products in single-use packaging.

The company has taken steps to minimize packaging or transform it into compostable forms to reduce waste.

While some Unilever food products aren’t very healthy, the firm has improved the nutrition of other offerings by reducing salt and sugar content.

Global greenhouse gas emissions and coal demand broke records in 2022.

What does that say about the trillions of dollars directed at sustainable investment strategies since 2019?

For one thing, we believe it highlights a shortcoming of many sustainability strategies: They often invest in companies that have already achieved significant progress in meeting sustainability goals while excluding those that haven’t.

American Century Investments’ Global Sustainable Value strategy takes a different approach by engaging with companies to drive their business model progression. We believe sustainable investing can better achieve real-world outcomes by helping guide companies on their journeys to sustainability instead of rewarding those that have already arrived.

Unilever is one such company. In our view, this global producer of consumer and food products, renowned for brands such as Dove® Chocolate and Ben & Jerry’s ice cream, stands out for its advancements in environmental practices, social initiatives and governance standards.

Sustainable Solutions for Consumer Products

By their very nature, consumer products like a bottle of soap or a carton of ice cream lend themselves to single-use packaging. If the packaging can’t be composted or recycled, it ends up in a landfill or elsewhere. As one of the world’s largest consumer products companies, Unilever has contributed significantly to waste pollution through its packaging.

A 2019 report by Break Free From Plastic, a non-governmental organization advocating for reduced plastics use, claimed Unilever ranked as the fifth largest polluter from single-use plastics in an audit that covered 484 brands in 51 countries.

That same year, Unilever announced plans to cut the amount of virgin plastics used in its packaging with a goal of removing 100,000 tons of plastic by 2025.

Our measurements show Unilever’s progress with packaging materials. In 2022, 55% of its packaging was recyclable or compostable, up 5% since 2019.

Reducing plastic use has clear environmental benefits and hasn’t come at a cost to Unilever’s bottom line. Sales grew 15% from 2019 to 2022. We believe that as consumers become more conscious of the environment and the impacts of their buying decisions on the world around them, they will become more keen on buying from companies with better environmental performance.

Cutting back on plastic may also help reduce legal and regulatory risks.

For example, the New York attorney general sued PepsiCo in November 2023 for allegedly causing widespread plastic pollution in the Buffalo River that threatens water quality and wildlife. This action came after regulators collected trash at 13 spots along the river and found that Pepsi-related products accounted for the highest proportion of the waste.1

Purported greenwashing was the focus of a recent complaint the European Consumer Organization and its member affiliates filed with the European Commission. The complaint targets Coca-Cola, Nestle and Danone for allegedly making misleading claims about their bottled water packaging. The consumer protection group disputes the companies’ assertions of “100% recyclable” or “100% recycled,” further stating that the use of green imagery “may even give the impression that the bottles would have a positive impact on the environment.”2

We believe avoiding legal and regulatory actions like these would benefit the environment and the company’s financial performance.

Healthier Food Options for Conscious Consumers

About one-third of Unilever’s business includes food products ranging from ice cream to mayonnaise. If not enjoyed in moderation, these foods aren’t particularly healthy.

In recent years, Unilever has moved toward healthier versions of its offerings. In 2020, Unilever said 61% of its foods met its “highest nutritional standards” based on globally recognized dietary guidelines, while 77% met its target for 5 grams of salt intake.3

From a financial perspective, we believe offering healthier foods may insulate the company from the potential consequences of weight-loss drugs if the use of these medications becomes widespread.

New classes of weight loss drugs have shown promising results in treating obesity and other obesity-related conditions like kidney disease. Several publicly traded companies in industries ranging from food companies to medical device manufacturers have seen share prices decline on the apparent belief that these drugs could impair their business models.

Governance Reform and Strategic Decision-Making

In 2021, Unilever tried to buy GlaxoSmithKline’s consumer health division in a deal that made investors recoil. When the financial press caught wind of the $68 billion buyout offer, the deal’s structure caused a sell-off in Unilever stock, and analysts reacted with bewilderment about Unilever’s pursuit.4

The proposal died under its own weight, but the matter didn’t end there. Led by activist investor Nelson Peltz, Unilever replaced its management team and part of its board of directors for considering a deal widely seen as a risky strategic decision. From a governance standpoint, taking that action demonstrated the company’s willingness to shield shareholders from transactions that could potentially dilute the company’s value.

Resilience Amid Economic Challenges

We believe these factors complement the company's durable and resilient business model. In our view, Unilever illustrates the potential that the Global Sustainable Value strategy seeks — companies progressing toward sustainability that may likely deliver results for shareholders.

Authors
David Byrns, CFA
David Byrns, CFA

Portfolio Manager

Senior Investment Analyst

Brandon McKinzie

Brandon McKinzie

Client Portfolio Manager

Discover more about our Global Sustainable Value capabilities.

Office of the New York State Attorney General, “Attorney General James Takes Historic Action Against PepsiCo for Endangering the Environment and Public Health with Plastic Pollution,” Press Release, November 15, 2023.

European Consumer Organization, “Consumer Groups Launch EU-Wide Complaint Against Major Water Bottle Producers for Greenwashing,” Press Release, November 7, 2023.

Unilever, “10 Years of the Unilever Sustainable Living Plan: Our Nutrition Journey,” May 2020.

Kit Rees, “’Please Don’t:’ Analysts Scorn Unilever’s Takeover Ambitions,” Bloomberg, January 17, 2022.

Many of American Century’s investment strategies incorporate sustainability factors, using environmental, social, and/or governance (ESG) data, into their investment processes in addition to traditional financial analysis. However, when doing so, the portfolio managers may not consider sustainability-related factors with respect to every investment decision and, even when such factors are considered, they may conclude that other attributes of an investment outweigh sustainability factors when making decisions for the portfolio. The incorporation of sustainability factors may limit the investment opportunities available to a portfolio, and the portfolio may or may not outperform those investment strategies that do not incorporate sustainability factors. ESG data used by the portfolio managers often lacks standardization, consistency, and transparency, and for certain companies such data may not be available, complete, or accurate.

Sustainable Investing Definitions:

  • Integrated: An investment strategy that integrates sustainability-related factors aims to make investment decisions through the analysis of sustainability factors alongside other financial variables in an effort to make more informed investment decisions. A portfolio that incorporates sustainability factors may or may not outperform those investment strategies that do not incorporate sustainability factors. Portfolio managers have ultimate discretion in how sustainability factors may impact a portfolio’s holdings, and depending on their analysis, investment decisions may not be affected by sustainability factors.

  • Sustainability Focused: A sustainability-focused investment strategy seeks to invest, under normal market conditions, in securities that meet certain sustainability-related criteria or standards in an effort to promote sustainable characteristics, in addition to seeking superior, long-term, risk-adjusted returns. Alternatively, or in addition to traditional financial analysis, the investment strategy may filter its investment universe by excluding certain securities, industry, or sectors based on sustainability factors and/or business activities that do not meet specific values or norms. A sustainability focus may limit the investment opportunities available to a portfolio. Therefore, the portfolio may underperform or perform differently than other portfolios that do not have a sustainability investment focus. Sustainability-focused investment strategies include but are not limited to exclusionary, positive screening, best-in-class, best-in-progress, thematic, and impact approaches.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

No offer of any security is made hereby. This material is provided for informational purposes only and does not constitute a recommendation of any investment strategy or product described herein. This material is directed to professional/institutional clients only and should not be relied upon by retail investors or the public. The content of this document has not been reviewed by any regulatory authority.