Alexander Jason A.

Lumantao, 1,634 Words

MBA – 2019
LOB – Climate Change in 2018: Implications for Business

Writing this paper, I would be able to say that I am very proud because my
previous company, Unilever Inc., is one of the co-founders of the Sustainable
Development Goals (SDG) initiated by the UN. Tracing back to the Unilever Sustainable
Living Plan (USLP), my company definitely pioneered the concept of Sustainable
Development. What initially surprised me while reading the briefing of my company with
SDG is that they had a quote in their website with the following statement:

“We have long known that growth and sustainability are not in conflict – and we
now have evidence to prove this.” (Unilever Incorporated, 2018)

This literally means that pushing for Sustainable Development does not mean that
the other parts of the bottom line of people and profit will suffer as a result of fulfilling
the 17 measures in the SDG. The other quote which caught me by surprise is:
“The successful delivery of the SDGs will create market opportunities of at least
$12 trillion a year.” (Unilever Incorporated, 2018)
This means that observing multiple bottom lines taking into consideration the SDGs
would yield exponential growth which we previously had not heard about. As much as
we want to prioritize each and every SDG, this paper will focus on the SDGs affecting
climate change. Again, I am happy to see that climate change SDGs are on the “Very
High” scale in the matrix created by my company below:

(Unilever Incorporated, 2018)

 SDG is nothing new. It could be thought about as the evolution of the term
“Corporate Social Responsibility,” but this time, encompassing even more metrics that
actually contribute to a better and livable world. (Vietnam Investment Review, 2018)
Aside from Social Responsibility, Climate Change is also not a new concept. Surely, being
included in the SDGs means that this is another priority not just by my previous company
but as well as other companies. SDG is now considered by a lot of investors as well as
consumers in choosing brands that they will patronize due to more awareness to these
concepts.
Unilever Inc. focuses their Climate Change efforts in the reduction of Greenhouse
Gasses (GHGs). They are doing this in order to support four SDGs namely:
 SDG 7 – Affordable and Clean Energy
 SDG 13 – Climate Action
 SDG 15 – Life on Land
 SDG 17 – Partnership for the Goals
GHGs in a nutshell, form on the atmosphere of earth. Revisiting the term “greenhouse”
literally means that it is an “enclosed space.” GHGs create a layer which makes the heat
energy from the sun trapped within the earth. The net result is obvious with the earth
heating up because of the added energy that cannot bounce out of the earth’s surface.
GHGs are the main contributor to the change in climate that we are experiencing right
now. As per the accounting of Unilever, 10% of GHGs come from the logistics and
production of its products and 29% of the GHGs are from activities involving the
cultivation and procurement of the raw materials. On the other hand, 61% of the GHGs
emitted are from the use of its products. (Harvard Business School, 2016) The best
example of this is when its customers use their shampoo or body gel products, they tend
to use a water heater for their bathing. This means that their customers either consume
a lot of electricity or use heating oil to heat the bathing water. Admittedly on their end,
this is very hard to bring down and influence.
Because of these activities which produce GHGs, the earth heats up, and two scenarios
are presented:
 2° Celsius temperature increase scenario
o “Carbon pricing” will take effect, basically paying a certain amount for tons
of emissions
o “Zero-net deforestation” will take effect meaning cut down trees have
replacement seedlings in other areas
 4° degrees Celsius temperature increase scenario
o “Acute water stress” meaning water has unusual supply
 o Extreme weather characterized by massive flooding and droughts
o Temperature increase will reduce economic activity
Given that Unilever is the world’s highest consumer of palm oil, climate change will
aversely affect its operations. (United Nations Global Compact, 2018) Palm oil is being
used in almost every product from shampoos, skin care, and even up to food products
such as peanut butter and mayonnaise of Unilever. These two scenarios of either 2 will
surely destroy palm trees (from excessive wind forces due to massive typhoons such as
Yolanda). Another issue would be if the communities harvesting these palm oil would be
displaced due to a storm wreckage or extreme flooding.
Without steady sources of palm oil, my company would not be able to survive
because production would definitely decrease exponentially. Climate change therefore
disrupts the entire supply chain from its beginning source of raw materials.
Aside from looking at the negative aspect of climate change, it could also be
mentioned that it is possible to net greater sales from the company’s ice cream business.
Commonly known as Selecta or Wall’s Ice Cream in other countries, a hotter weather
could also mean that people would have increased demand for ice cream from Unilever.
Despite this possible increase in sales of ice cream, it is not prudent to push for
such a scenario because of the all-encompassing environmental effects of Climate Change
and Global Warming.
Going back to the financial impact of Climate Change, as stated initially from the
quotations, the SDGs can actually increase the revenue of a company. Unilever’s approach
in reducing their carbon footprint therefore has the positive effects of consuming less
energy in their factories. They had invested heavily in getting their production facilities
to become “carbon positive” by 2030 and this essentially means getting to GHG outputs
of the year 2008 (40% less) despite the increased production targeted with 2020.
(Unilever Incorporated, 2018)
All this investment obviously adds to expenses in their financials because every
upgrade or change in the manufacturing facilities will lead to further costs down the line.
These upgrades in order to meet these stringent goals for 2030 have required the
company to switch to renewable sources of energy. Given that renewable energy sources
are more expensive to purchase than the traditional coal-fired or petroleum power plants,
Unilever needs to contend to make these renewable sources part of their growth strategy.
As of the end of 2017, 33.6% of total energy use is now from renewable sources.
Another issue that complicates this push is the proximity of their manufacturing
plants to the power plants. In order for power from these renewable energy plants to
reach their production zones, they need to provide the infrastructure (basically the power
lines) to limit their consumption to be from renewable sources only. The best part of this
is that Unilever is on track at 65% of their total usage based on renewable energy from
their power grid. (Unilever Incorporated, 2018)
Successfully fending off a hostile takeover from Kraft Heinz last year is the definite
proof that Unilever is not in trouble because of its liquidity. With an operating profit of a
whopping 8.8 billion euros in its worldwide operations, it is a miracle that they had turned
a 9% increase in profit despite “challenging conditions.”
All this could change with Climate Change however because if the 4° degrees
Celsius scenario happens, they might be forced to give up their manufacturing plants
which are situated in flood-prone areas. The best example of this is their manufacturing
plant along UN Avenue in Manila. In the case of the 4° degrees Celsius scenario, frequent
flooding of the plant given that it is situated beside a waterway in Manila will surely
disrupt operations for Unilever Philippines. This would mean that they would have to use
a chunk of their liquid assets to purchase new land and have new buildings constructed
to house their production and warehousing facilities. The most recent change in address
of their corporate offices to Bonifacio Global City most likely encapsulates this preparation
step.
Currently, their food production facilities are located in an industrial park of Cavite
which is situated in a high-altitude location. It is only their personal care products
production which remain situated in their UN Ave. plant.
Being totally dependent to their local logistics partner, Li Fung Logistics (LF),
Unilever’s supply chain, will easily be hit by climate change issues. A perennial problem
of Metro Manila and some other urban provinces where deliveries are needed to be made
is flooding. It is possible for the trucks of LF to traverse these floods due to their high
ride height. However, the problem is, roads will surely be blocked by other vehicles which
would wait until the flood subsides. Aside from failed deliveries, floods will literally wipe
out inventory from low-lying warehouses used by LF.
Now, in terms of risk, there is always a risk in being a pioneer at something. In
the case of Unilever, they chose to be pioneers in the SDGs by being firm in their 2020
and 2030 strategic plans. The risk in pioneering the SDGs is that perhaps other companies
might not even support such initiatives. The best part however, is that more than 200
countries had signed the Paris Accords which means that most of the countries in the
world had agreed, however cliché it may sound, to make the world a better place.
The opportunity in this situation, then becomes obvious. Being the trendsetter
company in terms of SDGs means that you get to set the industry benchmark. And from
this more publicity is generated. The more publicity that is generated means that more
supporters come forward and vouch for you. Vouching for a company can almost always
be equal to loyal supporters of your product.
 Therefore, in this day and age of climate change and global warming, SDGs are
not guides for a “chic” lifestyle, but are rather guidelines for earth’s survival especially for
the upcoming generations. Unilever has year-in and year-out made it a commitment to
personify each of the 17 tenets included by essentially walking the talk and being the
change that companies need to become.