Unilever: a long-term sustainability plan meets short-term investors

The situation

On Friday 17 February 2017 Unilever’s board received a proposal from Kraft Heinz to buy the whole company for $50 a share, $30.23 in cash plus 0.222 shares in the combined group. It valued Unilever at about $143bn and offered an 18% premium to the previous night’s share price. Unilever rejected it the same day. “This fundamentally undervalues Unilever,” the company said, adding that it saw “no merit, either financial or strategic” for its shareholders. Two days later, on Sunday 19 February, the two companies announced that Kraft Heinz had withdrawn.

The bid was a test of a strategy that Paul Polman, Unilever’s chief executive since 2009, had built around the long term. He had stopped giving earnings guidance, told hedge funds he did not want them on the share register and in 2010 launched the Unilever Sustainable Living Plan, which promised to double the size of the business while halving its environmental footprint. The approach suggested that investors saw value in Unilever that its management was not delivering.

Unilever’s position was solid but not outstanding. In 2016 turnover was €52.7bn and the underlying operating margin 16.4%. Underlying sales growth was 3.7%, but volume growth was only 0.9%. The company said its products were used by 2.5 billion people every day.

This case follows the strategy from its launch through the bid, the end of the plan in 2020 and the retreat from several of its targets in 2024. It asks whether a public company can run itself for the long term when its shareholders can sell, or sell to a bidder, at any time.

Background

An Anglo-Dutch company

Unilever was created by an agreement signed on 2 September 1929 between Lever Brothers, the British soap maker founded by William Hesketh Lever, and Margarine Unie, a Dutch group formed in 1927 from the margarine businesses of Jurgens, Van den Bergh and others. The Economist called it “one of the biggest industrial amalgamations in European history”. The company was formally established on 1 January 1930, the same year Procter & Gamble entered the UK market and became one of its main rivals. For most of its life Unilever had two parent companies, the British Unilever PLC and the Dutch Unilever NV, run as a single business.

How it made money

Unilever sells packaged consumer goods: food such as Knorr soups and Hellmann’s mayonnaise, drinks such as Lipton tea, ice cream such as Magnum and Ben & Jerry’s, and personal and home care products such as Dove, Lifebuoy, Persil and Surf. It earns money by building brands that command a price premium over private label, selling them in very large volumes through supermarkets and small shops, and running a global supply chain at low cost. Much of its raw material comes from farms: palm oil, tea, soy, sugar, cocoa, paper and vanilla. It was the world’s largest buyer of palm oil, using about 8% of global production, according to an Eco-Business report in 2020.

By the time Polman arrived, about half of annual sales came from emerging markets, according to Management Today, and the company employed about 163,000 people. Unilever’s own regional figures, which group Asia, Africa, the Middle East, Turkey, Russia, Ukraine and Belarus together, show that region’s share rising from 32% of turnover in 2008 to 43% by 2016. The two measures use different definitions, which explains the gap.

The new chief executive

Polman, a Dutchman, joined Unilever on 1 January 2009. He had spent 27 years at Procter & Gamble, rising to group president for Europe, before becoming finance director of Nestlé in 2006. He took over in the middle of the financial crisis, when turnover was falling: from €40.5bn in 2008 to €39.8bn in 2009, with underlying volume growth in 2008 of just 0.1%.

His first major decision concerned investors. He told the City that Unilever would no longer give earnings guidance or publish full quarterly financial reports. According to Management Today, the shares fell 10% in a single day on the guidance announcement. He stopped presenting to hedge fund managers, who he said would “sell their own grandmothers if they thought they could make a profit”. His stated aim was to change the shareholder base towards long-term owners.

The industry

Packaged consumer goods is a mature, global industry dominated by a handful of large firms. Nestlé is the biggest food company, with 2025 sales of CHF89.5bn, organic growth of 3.5%, real internal (volume) growth of 0.8% and an underlying trading operating margin of 16.1%. Procter & Gamble, the largest household and personal care company, reported net sales of $87.0bn in its financial year to June 2026, with organic growth of 1%. Unilever’s own 2025 turnover, after the demerger of its ice cream business, was €50.5bn, with underlying sales growth of 3.5%, volume growth of 1.5% and an underlying operating margin of 20.0%.

Exhibit 1: Unilever and two main rivals, latest full year

Sources: Nestlé Annual Report 2025, facts and figures; Procter & Gamble annual report web page; Unilever Annual Report 2025 and charts 2016 to 2025. Each company defines its underlying measures differently.

The forces in the industry explain why growth is hard. Rivalry among the large firms is constant but mostly takes the form of advertising, innovation and promotions, not open price wars. Buyers are powerful: large supermarket chains control shelf space, push for promotions and sell their own private-label products, which are close substitutes in many categories. Suppliers of agricultural commodities are fragmented, which keeps their individual bargaining power low, but commodity prices swing with weather and markets, and companies bear the risk. New entrants rarely threaten the whole industry, but small brands sold online and through specialist shops can take share in particular categories such as skincare or ice cream.

Growth in developed markets is slow, so the large firms have relied on emerging markets, where incomes and consumption are rising, and on price increases. Volume growth across the industry has been weak for years. Unilever’s underlying volume growth was below 2% in every year from 2016 to 2021, and it was negative in 2022, when inflation pushed prices up sharply.

Sustainability creates particular pressures. Much of the environmental impact of consumer goods sits outside the company’s factories: in farms that grow raw materials, in the energy consumers use to heat water for washing, and in packaging that ends up as waste. Unilever’s own analysis at the plan’s launch found that consumer use accounted for more than two-thirds of the greenhouse gas emissions and half of the water across its products’ life cycle. Plastic is a further pressure. Unilever used about 2 million tonnes a year in 2020, and its small single-use sachets sold in developing countries could not be recycled.

The alternative to growth was cost cutting. David Garfield of AlixPartners said at the time of the Kraft Heinz bid that food companies had to find cost efficiencies or enter new markets, because selling more of known products or raising prices “obviously has its limits”.

The decision

Unilever faced three related decisions between 2009 and 2017.

How to deal with the stock market

The usual path for a chief executive taking over a company with flat sales would be to issue guidance, report every quarter and promise cost savings, to reassure investors. Polman chose the opposite. Ending guidance cost the company 10% of its market value in a day. In return it gave management room to invest for returns that would take years to show. The risk was that a lower share price and a less engaged investor base would make the company more vulnerable to a bidder.

How to treat sustainability

Unilever could treat sustainability as a reporting exercise, run by a specialist team alongside the main business plan. Or it could put sustainability targets at the centre of the growth plan, with numbers every brand and region had to meet. Polman argued for the second. At the launch in November 2010 he said that “growth at any price is not viable” and that companies acting on sustainability “will get a competitive advantage”. The business case rested on three claims: that sustainable sourcing would secure supplies of key crops, that brands with a social purpose would grow faster, and that cutting energy, water and waste in factories would cut costs. The case against was that the plan would cost money up front, expose the company to criticism when it missed its own targets, and invite the charge that it was putting purpose ahead of profit. Polman himself denied that some of the aims were mainly a way to boost sales.

Whether to sell

The third decision came with the Kraft Heinz approach. Accepting would have given shareholders an 18% premium and ended Unilever as an independent company. Rejecting it meant showing investors that Unilever could deliver similar value on its own, quickly. Kraft Heinz had until 17 March 2017 to make a firm offer or say it would not. It withdrew within two days of the rejection, saying it had done so “amicably”. But the episode showed that the share price had left room for a bidder to offer a premium and still expect to make money from cuts.

What they did

The Sustainable Living Plan, 2010

Unilever launched the Unilever Sustainable Living Plan (USLP) in November 2010 after twelve months of planning. Its headline aim was to double the size of the business over ten years while halving the environmental impact of its products. It covered the company’s own factories, its suppliers and the consumers who used its products. It set about 50 time-bound targets, which Unilever later said it had set without knowing whether, or how, it could reach them. Among them were:

• sourcing 100% of agricultural raw materials sustainably by 2015, including all palm oil;
• helping a billion people in Asia, Africa and Latin America improve their hygiene habits, to help reduce diarrhoea;
• linking more than 500,000 smallholder farmers and small distributors to its supply chain;
• cutting salt, saturated fat, sugar and calories in its foods;
• halving the greenhouse gas, water and waste footprint of its products, including consumer use.

The plan was tied to brands and partners. The hygiene target depended on selling soap with handwashing campaigns, and the plan included work with Oxfam and the Rainforest Alliance to raise living standards. Unilever later grouped the brands it judged most closely linked to the plan as “Sustainable Living Brands” and reported their growth separately. In 2018 it said these brands had grown 46% faster than the rest of the business and delivered more than 70% of its growth.

The response to the bid, 2017

Unilever announced the results of a strategic review on 6 April 2017, seven weeks after the bid. The measures were aimed at shareholders:

• a €5bn share buyback during 2017 and a 12% rise in the dividend;
• a target of a 20% underlying operating margin by 2020, up from 16.4% in 2016, with at least 80 basis points of improvement in 2017;
• cumulative savings raised from €4bn to €6bn over three years, with restructuring costs of about €3.5bn for 2017 to 2019;
• a target of net debt of about twice EBITDA, while keeping at least an A/A2 credit rating;
• the sale or demerger of the spreads business and the merger of the foods and refreshment divisions into one unit based in the Netherlands;
• a review of the dual Anglo-Dutch legal structure.

Polman said the review had “highlighted the opportunity to go faster and further”, and that the company would carry more debt while keeping a strong credit rating. Net debt rose from €12.6bn at the end of 2016 to €20.3bn a year later, as first reported (later restated to €22.3bn).

The spreads business was sold in July 2018. The proposal to simplify the dual structure under a single new holding company was put to shareholders in 2018 and withdrawn after opposition. Polman stepped down at the end of 2018 and Alan Jope became chief executive on 1 January 2019.

What happened

Financial results

Exhibit 2: Unilever financial record, selected years 2008 to 2025

Sources: Unilever charts 2008 to 2017 and 2016 to 2025. Figures to 2023 include ice cream; 2024 and 2025 are continuing operations after the ice cream demerger. Later restatements differ slightly from figures first published: Unilever’s 2018 annual report gave an underlying margin of 18.4% for 2018, against 18.6% in the later charts. The 2018 operating profit coincides with the sale of the spreads business, which the charts do not separate out.

The 2017 review’s margin target was not met on time. The underlying operating margin rose from 16.4% in 2016 to 19.1% in 2019, then slipped to 18.5% in 2020 and 16.1% in 2022, when cost inflation outran price rises. It reached 20.0% only in 2025, on a smaller company after the ice cream demerger. Turnover in 2020, at €50.7bn, was below the 2016 level, so the plan’s ambition to double the business over ten years was not achieved: turnover rose about 15% between 2010 and 2020 in euros, though currency movements and disposals affect the comparison.

The plan’s results

The USLP ended in 2020. Unilever published its results in May that year and was open about the misses.

Exhibit 3: Selected USLP targets and results at the end of the plan, 2020

Source: Eco-Business, 13 May 2020, reporting Unilever’s published results. Sourcing figures from Polman’s own early interview (about 10%) and from Unilever’s later reports (14% in 2010) differ.

The pattern is clear. Targets within Unilever’s own factories were met or beaten. Targets that depended on suppliers moved a long way but fell short. Targets that depended on how consumers used products, or on recycling systems outside the company’s control, were missed. Thomas Lingard, a Unilever sustainability director, said in 2020: “We’re doing really badly on helping consumers reduce emissions.” A colleague, Sarah McDonald, explained one reason: “People love long hot showers.” Jope said the pandemic had not weakened the commitment. The company announced a successor strategy, the Unilever Compass, with 2025 targets to halve virgin plastic use and raise recycled content to 25%.

Investor patience

Investor patience then wore thin. In January 2022 Terry Smith, whose Fundsmith fund held £888m of Unilever shares, wrote that the company was “labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials”. A company that felt it had to define the purpose of Hellmann’s mayonnaise had, he said, “clearly lost the plot”. Unilever’s shares had fallen 9% over the previous twelve months while the UK market rose 11%, and pre-tax profit had fallen from €12.4bn in 2018 to €8bn in 2020. Bruno Monteyne, an analyst at Bernstein, said Unilever had had “almost 5 years of near-zero returns”.

Unilever’s approach to GSK and Pfizer to buy their consumer healthcare business also met investor concern, according to its 2022 annual report. The board then said it did not intend to pursue large acquisitions in the foreseeable future. Nelson Peltz, whose firm Trian Partners had become one of Unilever’s top ten shareholders, joined the board in July 2022. In September 2022 Jope announced he would retire.

Other views

Supporters

Supporters of the strategy point to the factory results, the rise in sustainable sourcing from 14% to 62%, and Unilever’s claim that its purpose-led brands grew faster than the rest. Academic work offers some general support. Porter and Kramer’s 2011 article in the Harvard Business Review argued that firms can create economic value by tackling social problems, through new products, more productive value chains and stronger local clusters. Eccles, Ioannou and Serafeim, in a 2014 Management Science study of 180 US companies, found that firms which adopted sustainability policies early outperformed matched peers over the long term on both stock market and accounting measures. Neither study is about Unilever, and correlation is not proof that sustainability caused the outperformance.

Investors

Smith’s criticism was that management attention had shifted from running brands to public positioning. Monteyne’s was about returns. Both rested on the share price and profit figures. Unilever’s own numbers show that underlying sales growth from 2013 to 2020 ranged between 1.9% and 4.3%, lower than the 6.5% and 6.9% of 2011 and 2012, and volume growth was mostly below 2%. Unilever’s own reports do not attribute the slowdown to the sustainability plan, and the figures alone cannot separate its effect from currency, category trends and restructuring.

Campaigners and suppliers

Some campaigners argued Unilever had not gone far enough. Aida Greenbury, a sustainability adviser to an Indonesian oil palm farmers’ union, said in 2020 that Unilever’s transparency efforts did not match its influence and called for more investment in traceability, a price premium for deforestation-free products and more support for smallholders. A CDP regional director, Pratima Divgi, said Unilever needed to work harder with consumers to change behaviour. Unilever was routinely ranked among the world’s largest plastic polluters, and its small sachets were not recyclable.

Unilever’s own account

Unilever’s later managements did not reject the plan but changed its emphasis. Hein Schumacher, who became chief executive on 1 July 2023, said that across the group “growth was not competitive” and that “this is not good enough”. He said he was “determined we should retain that leadership role” in sustainability, but with more weight on delivery and on short-term, measurable goals. The chair at the time said results going back several years had not met the company’s or the market’s expectations.

Reading it through a framework

Stakeholder mapping

Mendelow’s power and interest grid sorts stakeholders by how much power they hold over a company and how interested they are in its decisions. High power and high interest means manage closely; high power and low interest means keep satisfied; low power and high interest means keep informed.

Polman’s strategy tried to redraw the grid. He reduced the influence of short-term investors, who had high power and a narrow interest in quarterly earnings, by ending guidance and full quarterly reports and by refusing to court hedge funds. He gave more weight to groups with high interest but less direct power, such as farmers, consumers in developing markets and campaigners, by setting targets that covered suppliers and product use.

The Kraft Heinz approach showed that power had not moved as far as the strategy assumed. A bidder could go straight to shareholders with an 18% premium. Unilever’s response in April 2017, a €5bn buyback, a 12% dividend rise and a 20% margin target, was aimed squarely at the high-power group. The later events followed the same pattern. Smith’s letter in 2022, the investor revolt against the GSK deal, Peltz’s arrival on the board and the scaling back of targets in 2024 all show the most powerful shareholders pulling the company back towards their priorities when returns lagged. In Mendelow’s terms, Polman tried to move shareholders into the “keep satisfied” box. They moved themselves back into “manage closely”.

Creating shared value

Porter and Kramer’s idea of shared value holds that firms can make money by solving social problems: reconceiving products and markets, redefining productivity in the value chain, and building local clusters. The USLP was built on a similar logic. Sustainable sourcing would protect supplies of key crops. Hygiene campaigns would grow demand for soap in developing markets. Cutting energy and water in factories would cut costs.

The results fit the theory where Unilever controlled the outcome. Factory emissions down 65%, factory water down by almost half and sustainable sourcing up to 62% all represent value created inside the company’s own operations and supply contracts, and at least some of it saved money. The theory fitted less well where success depended on consumer behaviour, such as emissions from heating water for washing and showering, or on systems outside the company, such as plastic collection and recycling. Those were the targets missed in 2020 and cut back in 2024. Shared value is easiest to capture when the firm holds the levers. Where it does not, the cost falls on the firm and the value on society, which is the situation the theory was meant to avoid.

Since then

Under Schumacher, Unilever set out a Growth Action Plan in October 2023, focused on 30 “Power Brands” that made up about 75% of turnover. In March 2024 the board announced it would separate the ice cream business, and it launched a productivity programme affecting about 7,500 mostly office-based roles, targeting about €800m of savings over three years.

In April 2024 Unilever cut back several sustainability targets.

Exhibit 4: Sustainability targets revised in April 2024, and status at end of 2025

Sources: RetailDetail, 19 April 2024; Unilever Annual Report 2025.

Unilever said at the time that voluntary goals were not enough and called for binding rules, including a United Nations treaty on plastic pollution.

Leadership changed again. Fernando Fernandez, the finance director, became chief executive on 1 March 2025, and Schumacher left on 31 May. The ice cream business, renamed The Magnum Ice Cream Company, was demerged on 6 December 2025 and listed in Amsterdam, London and New York, with Unilever keeping a 19.85% stake. Unilever’s 2025 annual report described a “simpler, sharper and faster” company of about 96,000 employees, with products used by 3.7 billion people every day, and said it would review the scope and baselines of its sustainability goals in 2026 to reflect the demerger. Fernandez warned that markets would “likely remain subdued in 2026”.

Fifteen years after the plan’s launch, Unilever is smaller in turnover than in 2016, more profitable as a share of sales, and more cautious in its public goals. Polman’s view that sustainability and growth go together has not been disproved. But the company that tried hardest to prove it has stepped back from the targets it could not control.

What to take from it

• Ending earnings guidance can buy room for long-term plans, but it does not protect a company from a takeover bid or from investors who lose patience when returns lag.
• Sustainability targets are most credible when they cover what the company controls directly, as Unilever’s 65% cut in factory emissions against a 2% rise in value chain emissions showed.
• Publishing misses as well as successes builds trust, but it also gives critics clear evidence when targets slip.
• A purpose-led strategy needs financial results that keep pace, or the most powerful shareholders will reset it, as happened at Unilever between 2017 and 2024.
• When a bid exposes a gap between a company’s value and its share price, the response tends to be financial measures such as buybacks and extra debt, which can crowd out the long-term plan the defence was meant to protect.

Questions to think about

1. Was Polman right to stop giving earnings guidance, or did it make the company more exposed to a bid like Kraft Heinz’s? What evidence would you need to decide?
2. Kraft Heinz offered $50 a share, an 18% premium. If the bidder expected to cut costs to lift Unilever’s margin from 16.4% towards 20% on turnover of €52.7bn, roughly how much extra annual operating profit was at stake, and how does that compare with the premium on a $143bn valuation?
3. Unilever’s turnover rose about 15% between 2010 and 2020 against a goal of doubling the business. How much of the gap would you attribute to the strategy, and how much to currency, disposals and market conditions?
4. Should Unilever have set fewer targets, limited to the areas it controlled directly? What would it have lost?
5. Were the April 2024 cuts to the plastic, sourcing and living wage targets realism or retreat? How would you judge the difference?
6. Using Mendelow’s grid, map Unilever’s main stakeholders in 2010 and in 2024. Which moved, and why?

Concepts at work

Stakeholder mapping, Creating shared value, Short-termism. Explore them in Insights.

Further reading

Oxford University Press covers this story as a teaching case in Cases in Strategy on Oxford Business Trove. The sources below are the public record this page was written from.

Written from the public sources listed below. Figures are as those sources report them.