In early 2011, Unilever (NYSE:UL) laid out an ambitious long-term plan before investors. The company announced its intention to double the size of its business while halving its environmental footprint by 2020. Unilever also set out a number of concrete milestones that it plans to achieve within this time, some of which include reducing greenhouse emissions, improving water quality and using sustainable sources for raw materials. 
The Environmental Message – Less is More
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While traditional lines of thought would assume that the two outlined targets are mutually exclusive – one getting in the way of the other – Paul Polman, Unilever’s CEO, is out to convince investors otherwise. According to Polman, Unilever’s attempts at shifting towards a more sustainable form of production will only help the company improve profitability. The company’s strong results in 2012 helps his case as the company routinely out-performed key competitor Procter & Gamble (NYSE:PG) across most product segments.
So how exactly is the company using its new go-green policy to boost business? The obvious answer lies in decreased costs. Reducing its ecological footprint brings with it benefits of reduced commodity expenses as the company increasingly turns to cheaper sources for raw materials: recycled products. Moreover, drawing raw materials from sustainable sources will directly decrease the company’s exposure to market volatility, making its supply chain more stable in the long run. This especially holds true for natural resources such as wood and paper pulp.
Partnering with Consumers – Driving Change by Changing Attitudes
Unilever’s new approach to long-term growth seems to be on track, as the company has successfully met most of its environmental targets for the year 2012 coupled with strong economic performance. However, as the company scales up even further on its environmental objectives in the next few years, we expect it to face challenges that will only grow steeper.
One major hurdle the company will have to overcome is consumer inertia. For example, as Unilever plans to draw most of its raw materials in the future from recycled products, it becomes obvious that the company will need to promote the spirit of recycling among its customer base if its policy has to succeed. Latest research in the UK, conducted by The Futures on behalf of Unilever, suggests that most consumers are in the dark about which products they can potentially recycle. Moreover, the lack of direct access to recycling systems makes recycling seem more like a bother than convenience. Furthermore, there is a persistent feeling among people that ‘waste-management’ implies more costs for the consumer. The survey results suggest that 68% of the people in the UK believe that an environment-conscious lifestyle costs more.
In order to succeed with its environmental policies, Unilever will have to correct consumer perception with persistent marketing. The company has taken several initiatives in this field – from promoting water conservation with shower-pooling to convincing people to recycle teabags. The latest in this line of promotional campaigns is the Unilever Sustain Ability Challenge which encourages 12 families across the UK to test practical ways in which they can minimize wastage while reducing household bills.
We expect Unilever to scale up such campaigns in the future, which will certainly help in promoting the visibility of its brands. We expect this to have a positive impact on the company’s market share while helping it achieve its environmental and therefore long-term economic objectives. 
We currently have a Trefis price estimate of $39 for Unilever, which is 5% above the market price.Notes: