© 2007-2012 IMD – Institute for Management Development. Not to be used or reproduced without permission.

Embedding Sustainable Sourcing in Corporate Strategies: Unilever Tea

Professor Ralf W. Seifert IMD

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The Brundtland Commission

(WCED)

Global warming. Scientists agreement

1983 1988 1987

“Our Common Future”

(Elkington)

1994

Earth Summit (UNCED,

Rio de Janeiro) UNFCCC

1992 1997

ISO 14001, 1st version

2001 2003 2004 2002 2005

ISO 14001, 2nd version

sustainable development

UN World Summit (NY) MDGs

GRI: organization

ISO 14040

GRI: 1st standards

World Summit on Sustainable

Development (Johannesburg)

life cycle thinking

Life Cycle Initiative (UNEP &SETAC)

2009

Kyoto Protocol adoption

(global warming)

Montreal Protocol (ozone depletion)

1980 1990

2000 2010

Kyoto Protocol into force

Waste Electrical &Electronic Equipment

(WEEE Directive

2007

REACH, EU directive on chemicals

EU Restrictions on Hazardous

Substances (RoHS) Directive

2000

2008

Triple Bottom Line (TBL)

WBCSD (involve business in

sustainability issues)

1998

GHG Protocol Initiative

GHG Prot. Corporate Std. 1st ed

ISO 14042 ISO 14043

ISO 14041

Copenhagen Summit

1999

DJSI launch

PAS 2050 (assessment

LC GHG)

1995, Nestlé: 1st envir. report

1998, Dell: 1st envir. report

2007, Nestlé: Creating Shared

Value report

2004, Dell: Sustainability

report

2013

EU ETS 1st trading period

EU ETS 2nd period

EU ETS 3rd period

1991

NGGIP (guidelines

national GHG inventories)

1996

GRI: 2nd version

GRI G3: 3rd

version

2006

Sustainable development has been talked about for 30 years: Timeline on the attention to environmental issues

2

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And public awareness as well as reporting is increasing

1996

2000

200

1800

1600

1400

1200

1000

800

600

400

Nb.

arti

cles

0

Media Incidence of the phrase “climate

change” in the British press

Sources: http://www.guardian.co.uk/sustainability/climate-change-reporting ISO 14000—Environmental Management: www.iso.org www.globalreporting.org

2005

-

50,000

100,000

150,000

200,000

1997 2000 2003 2006

ISO 14001 certificates

-

400

800

1,200

1,600

2000 2003 2006 2009

GRI reports Average annual growth = 42%

Avg.annual growth = 51%

EMS Environmental Management

Systems

2009

ISO 14001 certificates

Sustainability Reporting

GRI reports certified (Global Reporting

Initiative)

Joana M. Comas

3

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Yet, price pressure continues to increase in food supply

Food expenditures as a percentage of disposable personal income

23.4%

9.5%

Sources: http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/Expenditures_tables/ www.redd-oar.org Roundtable for Sustainable Palm Oil: www.rspo.org

%

Demand for cheaper food:

4

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Unilever Initiative: Leapfrogging to Mainstream

Public commitment to source 100% Rainforest Alliance CertifiedTM Tea by 2015 • All tea used in PG Tips & Lipton Yellow Label tea bags in Western Europe sourced from Rainforest Alliance Certified farms within three years of announcement • All Lipton tea bags sold globally from Rainforest Alliance Certified farms by 2015

Video: Transforming the Tea Supply Chain

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Unilever Case (A) – Discussion Questions

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What lessons can be learned from the Unilever initiative to shift its entire supply to tea from Rainforest Alliance CertifiedTM farms?

What are the opportunities, the challenges and risks posed by this initiative? Video: Interview with Paul Polman, CEO

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A leadership issue and a supply chain issue …

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How do you execute such an initiative making sure that you can balance supply and demand across regions during the rollout?

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Rainforest Alliance certified packs

TV announcement “Take a sip”

National press, radio and PR

Short movie to inform and entertain

THE CAMPAIGN

2nd phase TV “Senor Al” Promo packs

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Rainforest Alliance – Overview

Founded in 1987 2009 operating budget of $30.1 million USD Nearly 300 staff worldwide

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Rainforest Alliance Programs

Agriculture Sustainable farm management certification 1.35 million acres certified in 24 countries United Nations funding to certify 10% of global coffee supply Forestry World’s largest certifier of forest lands Certifies to the Forest Stewardship Council (FSC) standard 131 million acres certified in 66 countries Tourism Working with the UN to improve the sustainability of tourism

industry Climate Verifying forest carbon and developing methodologies for

agricultural carbon.

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Rainforest Alliance Certified: The Gold Standard of Certification Comprehensive Standard built on the three pillars

of sustainability: People, Profit, Planet.

Stakeholder input: conceived in the tropics by farmers, environmentalists and scientists; monitored by local auditors local indicators make it real.

It helps producers drive cost efficiencies, higher yields and crop quality; gives them access to value added markets to meet consumer demand for responsibly produced goods

Applicable to large plantations and small holdings. Rainforest Alliance certifies farms and producers; not companies

• 10 Principles

• 94 criteria

• 14 CRITICAL criteria

Requirement scores for Certification:

– 100% on critical criteria

– 80% overall score

– 50% minimum score in EACH of the 10 principles

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Sustainable Agriculture Network Standards

Management System Ecosystem Conservation Wildlife Protection Water conservation Working Conditions Occupational Health Community Relations Integrated Crop Management Soil Conservation Integrated Waste Management

Conservationists Scientists

Communities Industry

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Rainforest Alliance Certified Tea Origins: 2007

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Rainforest Alliance Certified Tea Origins: 2009

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Rainforest Alliance Certified Tea Origins: 2014+

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Unilever Case (A) – Questions

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Can Unilever rely on the Rainforest Alliance to monitor

ongoing compliance with certification over time? How exposed is Unilever if the standard for the certification is raised?

Video:

Interview with Mercedes Tallo, Rainforest Alliance Manager

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17 The Rainforest Alliance Tea Journey

Started in 2006, now covering: •Kenya •Tanzania •Argentina •India •Indonesia •Malawi

•87,000 hectares •125,000 tonnes •170,000 workers

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• First certification in Aug 09: Momul Factory (KTDA)

• 2 other factories certified since • Total of 38,000 smallholders,

whole farm approach to certification • 8,800 hectares • 15,000 tonnes tea • 16,000 Personal Protective

Equipment sets sourced by KTDA • 25,000 tea bushes in-filled • 40,000 native trees planted

Kenya Tea Case Study

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• Good agricultural practices, safe use of agrochemicals and Farmer Field School (FFS) training

• 5-15% increase in yield in 4 pilot factories through better plucking and pruning techniques

• Project in place to scale-up the FFS methodology to cover every single factory in 2010, reaching 530,000 smallholders over the next few years

• Kenya Tea Development Agency: set up a new national microfinance institution to provide PPE and other inputs to farmers

Kenya Tea Case Study

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• Argentina is the largest exporter;

• 40% of production to US market

• 6,500 small growers; not organized

• 40K ha tot. production and 7K ha. certified; 2012 projection = 14K ha.

• Conservation of biodiversity ‘hotspot’ Misiones, Amazon region

• Creation of biological corridors; protection critical habitat for native

species of jaguar, tapir, anteater

• Empowerment of women; higher paying jobs

• Intercropping with yerba mate (complimentary growing cycles)

Argentina Tea Case Study

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Unilever Case (B)

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Put yourself in the shoes of Mark Birch and Michiel Leijnse. What could you do to ensure that the demand surge coming from competitors “getting on the bandwagon” would not feed on Unilever’s certified supply base.

Video: Interview with Marc Engel, CPO

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Member of the ETP Tetley Blue Rainforest Alliance

Certified in the UK and Canada by 2011.

All Tetley brands 100% Rainforest Alliance Certified by 2016.

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Tetley Initiative

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Ethical Tea Partnership

ETP: an industry association of 20 tea companies “A thriving tea industry that is socially just and environmentally sustainable”

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Summary of Lessons

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Sustainability is seen by some analysts as one of the biggest business opportunity of the 21st century.

It is clearly a supply chain issue (90% of the potential).

Engage stakeholders, suppliers and employees.

Embracers see benefits: Cost reduction and improved visibility in the SC Assurance of supply Brand reputation and right to operate

Customers are not (yet) willing to pay for eco-friendly products.

How? Execution must balance supply and demand.