Unilever’s Focus On Going Green Can Help The Company Improve Its Cost Efficiency
With Climate Change and environment protection initiatives gaining traction all around the world, the UK based consumer goods manufacturing giant Unilever (NYSE:UL) does not want to be left behind. Unilever has declared its seriousness towards this mission by repeatedly announcing various environmental friendly initiatives and commitments which it plans to achieve in the near future. It is early into 2017 and the company has already been in news for two such initiatives.
In this article, we will discuss how these measures will not only help the environment, but also improve the cost effectiveness of the company, thus improving its bottom line.
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Recent Green Initiatives & Announcements Made By Unilever
- In January, Unilever made a commitment to use a 100% recyclable plastic packaging by 2025. Unilever uses 2.5 million tonnes of packaging every year. This announcement came soon after P&G pledged to become a zero manufacturing waste generating company by 2020. Also, both P&G and Unilever were criticized by recycling campaigners earlier in December for not using recycle label on all of their products.
- Also in January, Unilever had declared that five of its sites in the UK had become carbon neutral by using bio methane for heating purposes. This was in accordance to the commitment it had made in December 2015 to become Carbon positive by 2030.
- Overall, 600 of Unilever’s sites have achieved zero non-hazardous waste to landfill status. It plans to convert all of its sites under this banner by 2020.
Not Only Environment, Recycling Plastic Might Help In Improving Costs As Crude Oil Stabilizes
- With a fall in crude oil prices, the price of plastic too fell across the globe as crude oil is one of the primary materials in plastic manufacturing. For instance, prices of HDPE resin grade plastic fell by almost 50% during 2014-15 crude oil slump. While this turned beneficial for the costs of consumer goods companies, it led to recycled plastic becoming more expensive than the new one.
- However, with oil prices rebounding from the lows of $26 per barrel to over $50 a barrel, it is likely that recycled plastic might again become cheaper as compared to the virgin plastic over the long term. Although prices of recycled plastics will also rise in proportion to crude oil, but in comparison to new plastic it is likely to be more cost effective. This might bring a relative stability to Unilever’s costs and its brand image, as the company plans to produce 100% of its packaging from recycled raw material in the near future under its strategy of ‘Circular Economy’, where all waste products will be reused instead of being discarded.
- Unilever’s waste management and recycling efforts have already added to the cost savings of the company. Unilever claims that it has avoided costs of over 600 million pounds since 2008 through these activities.
- The company’s raw material cost as percentage of revenue has declined by 2.5 percentage points since the start of this decade. Given the fact that Unilever’s EBITDA margins of around 18% are less than its competitors, it seems going green is becoming a priority for Unilever to improve its cost efficiency over the long term.
