Unilever CEO Alan Jope is under pressure from investors to show that the company’s sustainability focus can have a positive impact on its financial performance. This comes as Unilever has been experiencing slower sales growth and lower margins compared to its competitors, which has resulted in a decline in its shares. Terry Smith, the CEO of Fundsmith LLP, Unilever’s ninth-largest shareholder, has accused the company’s management of prioritizing sustainability at the expense of the business’s fundamentals.

Unilever has positioned itself as a socially and environmentally responsible company, with 400 brands supporting various causes. CEO Alan Jope has previously stated that brands without a purpose will not have a future with Unilever. However, investors are raising concerns about the company’s strategy and its ability to balance sustainability with financial success.

Ahead of Unilever’s quarterly results, Reuters interviewed several investors, the majority of whom acknowledged Unilever’s focus on environmental, social, and governance (ESG) issues. However, half of them expressed a desire for more clarity on how Unilever plans to navigate the intersection of sustainability and financial performance. So far, Alan Jope has not publicly responded to these concerns, but the mounting criticism may prompt him to address them.

The pressure on Unilever has intensified with reports that activist shareholder Nelson Peltz’s Trian Partners has acquired a stake in the company. However, Trian Partners, like Fundsmith and Unilever, has chosen not to comment on the matter.

While some of Unilever’s brands have seen success in terms of market share growth, others have struggled. Euromonitor International data shows that Dove soap’s market share has increased, but Hellmann’s mayonnaise has lost market share. Unilever is expected to report a slight rise in fourth-quarter underlying sales, but lower full-year margins due to rising costs of raw materials, labor, and transportation.

Analysts attribute Unilever’s challenges to its exposure to certain foods and emerging markets with high inflation rates, which puts the company at a disadvantage compared to competitors like Procter & Gamble (P&G) and Nestle. In response, Unilever has announced a restructuring plan that involves cutting 1,500 management positions.

One hurdle in assessing the impact of Unilever’s sustainability initiatives on profitability is the lack of specific information regarding the costs associated with these initiatives. JPMorgan analyst Celine Pannuti explains that without detailed cost breakdowns, it is difficult to determine the financial consequences of sustainability commitments.

Unilever’s commitment to sustainability has also led to controversies. In 2021, several U.S. pension systems reduced or limited their stakes in Unilever after its Ben & Jerry’s ice cream brand announced it would halt sales in Israeli-occupied Palestinian territories. CEO Alan Jope has supported Ben & Jerry’s decision, emphasizing the brand’s right to make choices based on its social mission.

Investors, like Dan Kern of TFC Financial Management, believe that Unilever needs to prove that it can maintain its ESG focus while effectively reducing costs and prioritizing brands, as P&G and Nestle have successfully done.

As Unilever prepares to announce its quarterly results, all eyes are on CEO Alan Jope, who must show that sustainability and financial success can go hand in hand. Investors are eager for greater clarity on Unilever’s strategy and its ability to strike a balance between sustainability and business performance.

Useful links:

– For more information on Unilever’s sustainability initiatives, visit Unilever’s Sustainable Living website.
– To learn about the impact of ESG factors on financial performance, explore this Morgan Stanley article on ESG investing.