The Fundsmith founder has criticised the extent of Unilever’s sustainability agenda, but investors need to get with the programme or be left behind, writes Luke Tugby.
Some investors just don’t quite get it yet, do they?
At a time when a number of major institutional investors are reshaping their portfolios towards ethical and sustainable businesses – and lenders are offering companies new credit facilities linked to their ESG progress – others are seemingly yet to comprehend the true value of the green pound.
Terry Smith, the founder of Fundsmith, would appear to be one of those. The veteran fund manager took a swipe at consumer goods titan Unilever over its sustainability strategy.
In a letter to investors in the Fundsmith Equity Fund, which owns a stake in Unilever worth almost £900m, Smith suggested the company’s management was “obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business”.
“Terry Smith appears to have misread the room spectacularly on this occasion”
He hit out at “ludicrous examples” of Unilever’s ethical focus and said it had “lost the plot” in attempting to “define the purpose” of one of its key brands and products: Hellmann’s mayonnaise.
“The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches),” Smith said.
Far be it from me to tell a man as experienced and respected as Smith when or where to speak up or in which companies to invest his clients’ billions, but he appears to have misread the room spectacularly on this occasion.
Unilever is setting the bar in a number of areas when it comes to sustainability, encouraging others to ramp up their efforts to keep pace.
Its ambitious strategy encompasses 10 pillars including switching to renewable energy, reducing plastic use, raising living standards globally for workers in its supply chain and driving positive nutrition.
“Unilever’s sustainability focus is about appealing to tomorrow’s shopper and sustaining not just the planet, but longer-term brand perception and profitability”
It is also on a journey to only stock sustainable brands. In 2018, its purpose-led Sustainable Living Brands – including Dove, Vaseline, Ben & Jerry’s and, incidentally, Hellmann’s – grew 69% faster than the rest of the business, accounting for three-quarters of its overall growth that year.
Smith might well be right in that the majority of today’s consumers probably do only look at Hellmann’s mayo as an accompaniment for sarnies and salads. But Unilever’s sustainability focus hasn’t been established to appease its current audience – it is about appealing to tomorrow’s shopper and sustaining not just the planet, but longer-term brand perception and profitability.
The businesses that go beyond simply fulfilling their primary purpose and think carefully about how their products are produced and what they do for charities and communities, as well as telling a broader, ethical story that builds genuine connections with shoppers, will be those that capture the loyalty and spend of that future consumer.
And that future isn’t far away. The younger generation, better educated than many of their elders about the dangers and impacts of climate change, are already influencing what their parents, friends and colleagues put into their trolleys.
Last weekend, I overheard a conversation between a mother and her young daughter in my local Tesco Extra. It was an exchange that might, on paper, sound like an early contender for the 2022 Didn’t Happen of the Year Awards (a Twitter account well worthy of a follow, I might add), but this was one that absolutely did happen.
“Where’s the cling film?” the mum asked – probably rhetorically.
Without skipping a beat, the little girl, no more than seven or eight years old, snapped back: “No, Mummy, you need to buy kitchen foil. It’s better for the planet.”
Guess which product went in the mother’s basket?
That influence over purchasing decisions will only grow. In 25 years’ time, that little girl, her siblings, her school friends and her teammates at sports clubs will have homes and families of their own. Their lives will change, but their collective knowledge and mindset around doing good for the planet are likely to stick.
“Consumers’ thought processes about what is best for the planet and the people that inhabit it will be applied to all their purchasing decisions, no matter what is on their shopping list”
And in that world, who can say for certain that today’s roll of cling film won’t be tomorrow’s jar of Hellmann’s mayonnaise? Because, rest assured, consumers’ thought processes about what is best for the planet and the people that inhabit it will be applied to all their purchasing decisions, no matter what is on their shopping list – from cling film to condiments, carpets to curtains, consoles to cars.
A failure to prepare for that future would be to the detriment of the long-term viability of your business.
Unilever’s strategy, and indeed that of other businesses such as Tesco, Marks & Spencer, Primark and Asos – all of whom are putting ESG at the heart of their plans – is not just about the sustainability of the planet and its natural resources. It is about the sustainability of customer relationships, the sustainability of brand relevance and, ultimately, the sustainability of the bottom line.
Companies that fail to act accordingly will soon find their business models are as unsustainable as the wares they are struggling to sell.
Unilever hasn’t “lost the plot” at all – but maybe Smith has.
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