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Management in Practice

Should Companies Lead on Sustainability?

Unilever CEO Paul Polman’s vision for the consumer goods company sees it dramatically shrinking its environmental impact and increasing its beneficial contributions to the communities where it operates. All that, and grow profits, too. He says that it is essential for companies to shoulder such responsibilities if they want to be around for the long haul.

The question of whether for-profit companies should dabble in doing good is often framed as a tradeoff between pursuing profits and social responsibility. Milton Friedman, for one, took a strong stand that corporations should think first and foremost about profits in a 1970 essay with the self-explanatory title, “The Social Responsibility of Business Is to Increase its Profits.”

Friedman summed up his thesis, “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Friedman’s argument becomes more nuanced as he considers how corporations act in practice. He allows that corporations may sometimes want to undertake civic-minded initiatives, as long as such moves ultimately improve the bottom line. As an example of such acceptable civic action, he mentions that a corporation may want to improve its community in order to attract better workers.

Independent of such self-interest, Friedman said, the idea that corporations should act for the social good is a “fundamentally subversive doctrine.” Nearly 50 years later, such subversion has become common on the websites of Fortune 500 companies. The Unilever Sustainable Living Plan might be exhibit A, with its triple goals of “improving health and well-being, reducing environmental impact, and enhancing livelihoods.” A recent profile of Unilever CEO Paul Polman in the Financial Times emphasized that his approach represents a new way of doing business, saying, “[H]is speeches often make him sound less like a businessman and more like Bono, the U2 vocalist and campaigner.”

However, in an interview with Yale Insights, Polman identified at least two avenues through which genuine positive actions by a company can also contribute to its financial results.

Meeting evolving customer expectations for responsible behavior, Polman said, creates benefits for a company’s brand: “Brands that have a stronger purpose are brands that are more profitable.”

And, he asserted, societal problems may be costing the economy, and thereby individual companies, more than a solution would. “It is cheaper to attack the issues and invest in solving them than to deal with the costs,” Polman said.

Yale Insights spoke with Polman about how he’s aligned the 170,000-employee company behind his sustainability push, and why private-sector leadership will be necessary to overcome some of the biggest problems facing the world today.

Q: Unilever’s goal is to decouple its growth from its environmental footprint. How do you steer a giant company toward such a goal?

We did all the normal elements of a change program. You start with declaration at the top. If you don’t have a commitment from the CEO, it’s very difficult to get it through the company. We put clear measures out there—50 in our case, audited and reported on an annual basis. But then, more importantly, you have to share your vision with the company. And for us obviously it’s a purpose-driven business model to decouple our growth from environmental impact at a time when we’re already hitting the planetary boundaries, and then increasing the overall social impact.

Interestingly, we launched it just after the financial crisis in 2006-2007. We launched this in 2009. So people had a higher awareness of the need to make a positive contribution to society and the understanding was there because the environment was there. Millennials understand it, so you’ve got a section from the bottom of the company and directions from the top and where these two meet is where you need to do most of your work. So we spend a lot of time on building capabilities, setting goals for individual parts of our operations. It covers all of our brands and all of our countries, but the breakthrough I think that makes our model so powerful is that we take these commitments throughout the value chain. And where we see that we can get the most traction and commitment is in fact in the total value chain.

Getting out of carbon in your value chain, getting out of deforestation in your value chain, addressing the issue of livelihoods and jobs for smallholder farmers, providing opportunities for our children to reach the age of five by fighting infectious diseases, and the list goes on. The power is there.

And then, as a consumer goods company, linking it to your brand is the most important thing. Every brand has a purpose; we build it into our brand key. We can show now how much better the brands perform financially as well as in growth terms.

Q: How have you measured the success of this effort?

We measured the success ultimately in the overall success of the business. We clearly can see, as I mentioned, that brands that have a stronger purpose, are brands that are more profitable.

And then obviously we have measures that we put behind getting out of deforestation, sustainable agriculture, human rights standards. These things are hard measures that we track and report our progress on. These standards are quite stretching, and should make you feel uncomfortable. In our case, because they cover the whole value chain, they are more difficult to achieve just with our own efforts. It requires partnerships.

We’ve gone through the low-hanging fruits in the last six, seven years of this plan and it becomes more difficult as you get to the end of it. But what we also find is that the world is changing and the world is changing fast and we have to adapt our targets as well. So for us it’s a philosophy of doing business and a moving plan.

Q: What are you learning about consumer responses to sustainability initiatives?

Consumers get it. Obviously consumers look for a product they can afford, so price is important. The quality of the product needs to be good. If the food doesn’t taste good, they’re not going to buy it. But then if you ask consumers, do you want to have companies behave responsibly?, increasingly they will say yes. In the U.S., 80% of the growth of the food market is in responsible products—green, organic, bio. And people are looking increasingly for authenticity: Where does the product come from? How is the product made? How are the people being treated? Obviously there are many issues: some care about animal rights; others care about sustainable sourcing. Some care about labor standards in the value chain. So you really have to work this holistically if you want to be there long term.

You know from opening the newspapers daily that it is important that companies operate with an increasing level of transparency and make positive commitments to society. There are too many companies that have a hard time verbalizing their purpose. And then you really should ask yourself, if that is the case, why are they there in the first place? So for us it’s very important that our business model becomes a positive contributor to society over the long term because we want to be around for the long term.

Q: Have you been able to measure the shifting desires of your consumers or their response to these initiatives?

I believe consumers in this case are ahead of the manufacturers. Consumers are desperately screaming for it. They might not use fancy terms like “climate change” or “corporate social responsibility” or “sustainability,” but they are definitely asking every day, Why isn’t somebody helping me? Why is this a world for a few people and not for many people? Why don’t we take into account the planet as much as the people and try to live in harmony?

If you’re a fisherman in many of the emerging markets around the ocean, you’re seeing your fish disappear. Your nets are probably full of plastic. I just came from Africa for a seminar on corruption in corporate governance, and in Africa itself they have one and a half percent of the global footprint of carbon but they have probably half the cost of the effects of climate change.

It’s very much on people’s minds. They also expect, often in absence of government’s taking the necessary actions, business to take a very proactive role. So despite the trust being low in business, the bulk of the population sees business actually as a provider for solutions. And businesses that understand that, that make a positive contribution to society, will do well long term.

Q: How much can an individual company achieve in tackling a global-sized problem like climate change?

I think every individual can have a major impact. If you believe as an individual that you cannot make a difference, try to go to sleep at night with a mosquito in a room and you’ll discover what a big difference that can make. So everybody has an opportunity, I think, to contribute.

Where the biggest potential is, I believe, is if you actually work through your value chain. In a company like Unilever, we have 70,000 suppliers. Think about them bringing in labor standards that are acceptable, living wages, sustainable sourcing.

And then you probably have to become an advocate, help de-risk the political process, make your voices heard. There’s nothing that prevents us as citizens in this world from making our voices heard and advocating for change at a broader level. So everybody, every company, every individual, can make a difference. The World Business Council for Sustainable Development, which I have the honor of chairing, is an organization with 200 progressive businesses that actually are able to show that it’s possible.

We had most of these companies present in Paris, for example, at the COP 21 meeting. They presented what was called the Low Carbon Technology Partnerships initiative, basically identifying how we could cut about 65% of the carbon emission to keep warming below two degrees Celsius. Government saw these businesses pushing for it and their willingness to participate. By advocating, these businesses actually de-risked the political process and, I think, have contributed to getting a more progressive agreement out of Paris.

Q: What is the role of business on climate change, in particular, when you see the U.S. stepping back?

The role of business has always been to address challenges in society and provide solutions. We’ve forgotten that a little bit, but the main role of business is to serve the people that are out there. And by serving them around whatever issue needs to be solved, by serving them and making this a better world, they also indirectly serve the shareholder.

Unfortunately the shareholder primacy has started to take over and too many businesses are now focused on just serving the shareholder alone. And that has led to quarterly short termism. The result is that the average lifespan of a publicly traded company in the U.S. is now 17 years; it used to be 67 years when I was born in the ’50s.

The real role of businesses is to not be a bystander but to be an active participant in making this system work.

Q: In the CEO Guide to the Sustainable Development Goals you wrote that meeting the goals could unleash $12 trillion a year in market opportunities and generate up to 380 million new jobs by 2030. If sustainable development has so much potential for encouraging growth, why do you think some business and political interests are resistant?

The Sustainable Development Goals, which were developed in 2015 and signed off by 193 countries, have the simple objective to irreversibly eradicate poverty in a more sustainable and equitable way. And the investments we have to make are estimated to be about $3-$4 trillion a year, which is only 3-4% of the global economy.

We are at a point right now when the cost of not acting is starting to become higher than the cost of acting. Conflict prevention and wars take up 9% of the global GDP. Loss of biodiversity costs 3% of the global GDP. Climate change and all its indirect effects are 5% of GDP. It is cheaper to attack the issues and invest in solving them than to deal with the costs.

Then the question is, why isn’t it happening? Obviously it’s happening to some extent; the direction is clear. We’ve made great progress in this world. What we’re dealing with here is not the direction but the speed of implementation.

Business understands as well that there is no business case in enduring poverty. So what gets in the way is not the goodness of people. There’s no CEO who wants more people going to bed hungry or more air pollution or more children dying before the age of five. I haven’t met them. So what prevents them from doing this is often the boundaries that we operate in, the short-termism of the financial market. How do you move that to the long term? How do you put a value on economic and social and not only on financial capital? How do we redefine value? How do we change our economic system to not only reward capital but also reward labor and get a better income distribution or Gini coefficient?

If we don’t change the boundaries in which we operate, it is very difficult to change behaviors of people at the critical mass that we need to move at the speed that is required. That is really what we are focused on. In our position, when you run a company like this, which touches two and a half billion consumers a day and seven out of ten households in all countries in the world, you have an opportunity to perhaps be out there a little bit more and create this transformational change.

Viktor Frankl, who wrote the book Man’s Search for Meaning and was a Nazi concentration camp survivor, said very astutely that when they built the Statue of Liberty on the East Coast of the United States, they forgot to build the Statue of Responsibility on the West Coast. We very much believe that with that liberty that we have to operate everywhere, we as a company also have that responsibility to help move this world in the right direction at the speed that is required.

Q: If you are talking to a CEO of a company who is resistant, how would you convince him or her?

The moral arguments might not always win it, unfortunately. I think the economic arguments are starting to speak louder and louder. In the U.S., already there is more investment in green energy. The market cap of a company like Tesla is already bigger than the market cap of Ford, despite only selling one tenth or less of the number of cars. So the market is moving and pointing out to businesses how to participate in this process.

The food chain is a good example. We have created a food chain that is unsustainable, where we cut forests as if it’s nothing—13 million hectares a year, 20-25%of global warming right there. We waste 20-30% of the food we produce. If the waste of food was a country it would be the third biggest carbon emitter after China and the U.S. Then we have 800 million people going to bed hungry. We haven’t deserved the label of most intelligent species yet if we don’t solve this. We need to solve this across the value chain with the different partners. And by doing so, actually create an opportunity that is bigger for all of us.

What we’re short of in this world is not the ideas, not the economic potential if we fulfill these ideas, but we’re actually short of leaders, courageous leaders who go out there and are willing to move these systems forward. It requires a lot of effort. Not surprisingly there will be skeptics or cynics along the way, people who would love to see you fail. But at the end of the day, if we don’t do this, who is going to fight for the rights of citizens who, unfortunately, aren’t able to fight for themselves anymore?

As one of your countrymen, Benjamin Franklin, put it, “You may delay but time will not, and lost time will never be found again.” That’s the place we’re in right now.