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Unilever’s CEO Has a Green Thumb

May 23, 2013, 11:12 AM UTC
LONDON, UNITED KINGDOM - MARCH 07: CEO of Unilever Paul Polman is photographed for Fortune magazine on March 7, 2013 in London, England.
Harry Borden

A version of this article appears in the June 10, 2013 issue of Fortune.

Paul Polman calls himself a “hard-core capitalist.” Sometimes you have to wonder. The day he became the chief executive of Unilever in 2009, Polman said the consumer products giant would stop providing earnings guidance and quarterly profit reports. “I figured that the day they hired me, they can’t fire me,” he says, “so that was probably the best moment to do that.” The stock fell and analysts grumbled. Not long after came word from the CEO that Unilever, whose brands include Dove, Lipton, Hellmann’s, and Ben & Jerry’s, was determined to tackle big social and environmental problems like climate change, disease, and poverty. “If you buy into this long-term value model, which is equitable, which is shared, which is sustainable, then come and invest with us,” Polman told investors. “If you don’t buy into this, I respect you as a human being, but don’t put your money in our company.” Shareholder return, he insists, cannot and will not trump nobler aims. “Our purpose is to have a sustainable business model that is put at the service of the greater good,” he says. “It is as simple as that.”

This sounds like the boilerplate that fills corporate-responsibility reports, but Unilever (UL), which has headquarters in London and Rotterdam, the Netherlands, has gone beyond big U.S. companies like GE (GE), IBM (IBM), and Wal-Mart (WMT) by putting sustainability at the core of its business. In a 2010 manifesto called the Sustainable Living Plan, Unilever promised to double its sales even as it cuts its environmental footprint in half and sources all its agricultural products in ways that don’t degrade the earth by 2020. The company also promised to improve the well-being of 1 billion people by, for example, persuading them to wash their hands or brush their teeth, or by selling them foods with less salt or fat. “The essence of the plan,” Polman tells Fortune, “is to put society and the challenges facing society smack in the middle of the business.”

For more on companies with sustainable business, watch this video:

See Unilever on 2016 Change the World list HERE.

A tall, 56-year-old Dutchman, Polman talks about climate change, biodiversity, deforestation, and the UN Millennium Development Goals to anyone who will listen. “We live in a world where temperatures are rising, natural resources are being depleted, species loss is accelerating, and the gap between rich and poor is increasing,” he says. “This is completely unsustainable.” It isn’t the kind of thing you expect to hear from a guy who makes his living selling soup, shampoo, and laundry soap. Predictably, Polman has become a darling of NGOs and academics who believe that the corporate world needs change. At a company-sponsored event to mark Global Handwashing Day — Oct. 15, if you missed it — Jeffrey Sachs, the director of Columbia University’s Earth Institute, declared that Unilever is a “great company, and it’s led by a visionary CEO.” And guess what? Polman has done very well for investors too. In a sluggish global economy, revenues were up by 10.5% in 2012, to $68 billion, and earnings grew by 5.5%. Since Polman took over as CEO four years ago, Unilever has increased its sales by 30% and trounced its biggest rival, Procter & Gamble (PG), particularly in emerging markets, where Unilever has deep roots. Last year Unilever generated about 55% of its revenues from the developing world. “The company is growing again after years of decline,” Polman says. Unilever’s stock recently touched its all-time high; it has grown by about 75% on Polman’s watch, while P&G shares are up by 35% in that span.

Whether Unilever’s do-good agenda has driven its financial success is hard to know. Polman says the two are inseparable. “Sustainable solutions — it drives our top line, it drives costs out, it motivates our employees, it links us with retailers,” he says. The global hand-washing campaign, for instance, which is backed by the UN and health ministers in Africa and Asia, lifts sales of Lifebuoy soap, while a “brush day and night” campaign helps Pepsodent and Signal, Unilever’s tooth-care brands. Socially responsible marketing around beauty and self-esteem for women helped Dove become Unilever’s bestselling brand in the U.S. “This idea of conscious consumption is definitely moving up the ladder,” Polman says.

The search for sustainable solutions drives innovation too. Unilever researchers are working to develop a laundry detergent that can clean clothes in a few minutes at any water temperature. More broadly, Polman says, the company’s sustainability plan has galvanized employees and made Unilever a more desirable place to work. On LinkedIn, Unilever is one of the five most-searched-for employers, behind Google (GOOG), Apple (AAPL), Microsoft (MSFT), and Facebook (FB). That’s not bad for a company that traces the Dutch side of its lineage back to a family butter-making business in 1801.

People at Unilever like to say that doing good is in the company’s DNA, and they took me to Port Sunlight, a tidy little suburb on the banks of the River Mersey, near Liverpool, to underscore the point. Port Sunlight is where Unilever’s British antecedents took root: William Hesketh Lever, the founder of Lever Brothers, built a factory here to make Lifebuoy soap to combat cholera in Victorian England. He, too, promoted the health benefits of hand washing.

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The paternalistic Lever was an early advocate of profit sharing — he called it “prosperity sharing” — but he didn’t want to share his wealth directly with his workers. “It would not do you much good if you send it down your throats in the form of bottles of whisky, bags of sweets, or fat geese at Christmas,” he once said. “On the other hand, if you leave the money with me, I shall use it to provide for you everything that makes life pleasant — nice houses, comfortable homes, and healthy recreation.” Lever built a model village for his factory workers at Port Sunlight that included flower gardens, a church, a school, a library, a swimming pool, and more than 800 houses that are desirable dwellings yet today. It’s a lovely place, even on a chilly, rainy winter day. Unilever still operates a soap factory there employing about 700 people; another 800 work at a research and development laboratory on the site. Polman, who visited Port Sunlight as soon as he became CEO, says that Lever’s values remain “firmly embedded into the fabric of the business,” although, he notes wryly, the company founder “never made money.”

Polman himself didn’t intend to become a businessman. One of six children of a tire company worker in Amsterdam, he went to school in a Carmelite seminary and hoped to become a priest or a doctor. But when those paths were blocked — there wasn’t enough demand for priests, and admissions to medical school were limited — he went to the U.S. in 1979, intending to find a job at B.F. Goodrich in Akron, which had acquired the tire company where his father worked. Instead he landed in Cincinnati, where he pursued an MBA at the University of Cincinnati and worked nights as a maintenance man for P&G. He eventually landed a position in finance and stayed for 26 years, working in finance and marketing.

His interest in sustainability grew gradually. An early P&G assignment to a Belgian detergent factory showed him the value of taking waste out of manufacturing. As president of global fabric care at P&G in the early 2000s, he talked about the business opportunities created by “poverty, disease, nutrition, the quality of women’s lives.”

Unilever was floundering when Polman came aboard as an executive director in 2008. Revenues had been flat, or worse, for a decade. The company had been through cost cutting, restructuring, asset sales, and acquisitions that turned people inward and left them “a little bit far removed from consumers,” he says. A focus on sustainability, he decided, would force the businesses to connect with consumers and their needs, particularly in emerging markets. In the wake of the 2008 global financial crisis, he felt, companies needed to step up and show they could help solve big problems. “Too many businesses, unfortunately, are just bystanders,” Polman says.

Not Unilever. The company pokes its nose into everyone’s business. It’s asking its customers to use less water. It wants to reduce the sugar in its ready-to-drink teas and remove calories from ice cream. It’s telling the farmers who supply it with palm oil, soybeans, tea, cocoa, and tomatoes to get their crops certified as sustainable, or else take their business elsewhere. The chickens that lay the eggs that go into Hellmann’s mayonnaise or Ben & Jerry’s ice cream henceforth must be cage free.

No other company has a sustainability program as wide and deep. Unilever’s plan includes 60 targets, with timetables, such as sourcing “75% of the paper and board for our packaging from certified sustainably managed forests or recycled material” and “providing 50 million households in water-scarce countries with products that deliver excellent cleaning but use less water.” The thinking is that the sourcing of raw materials and the use of its products by consumers represent the bulk of Unilever’s social and environmental footprint, so the company and its 170,000 employees have to figure out how to change the behavior of suppliers and customers. Certainly the opportunity is there — the company’s products are used more than 2 billion times a day.

Polman’s sustainability plan tied together existing efforts and set big goals. Some of the payoffs were immediate. Reducing packaging saves the company money: The Vaseline Petroleum Jelly jar uses 3% less plastic than it used to, saving 113 tons of resin a year as well as energy costs in its production. Eliminating waste is another winner: In the U.S., 10 of the company’s factories now send no waste to landfills. Unilever operates in more than 190 countries and runs up big travel expenses; now its offices in 54 of those countries are equipped with videoconferencing facilities. A program called “Agile Workplace” enables people to work at home, which reduces the company’s real estate needs.

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Other efforts will take longer to bear fruit. Unilever’s sustainable sourcing program is intended to ensure that the company will have access to affordable raw materials for as long as it needs them. The company buys 6% of the world’s tomatoes and 5% of the world’s onions, mostly for Knorr soups and Ragu sauces. By the end of 2012, about 36% of the company’s agricultural raw materials were sustainably sourced, up from 14% in 2010. That means they are being farmed in a way that doesn’t deplete the soil, overuse water, or harm biodiversity. “We’re future-proofing the business,” explains Gail Klintworth, the company’s chief sustainability officer, who formerly ran its South African operations. Unilever also hopes that consumers will care. Increasingly Lipton highlights the fact that its tea comes from plantations certified by the nonprofit Rainforest Alliance, while Ben & Jerry’s touts its fair-trade bona fides and has run a “Caring Dairy” program that seeks to establish dairy standards that “better balance the needs of man, cow, milk, and earth.”

It’s harder to fathom the business case behind Unilever’s efforts to change consumer behavior — which are extensive. The company has run a cheeky online ad campaign for the Axe brand of grooming products that urges young men to save water by showering with a friend or “an attractive stranger.” Suave, an affordable beauty brand, ran a campaign called “Turn Off the Tap” informing people that if they turn off the shower while applying shampoo and conditioner, they would save water and energy costs. Dove and Suave have also launched dry shampoos that save even more water.

Polman’s willingness to go beyond business as usual is best exemplified by a product called Pureit, a water purifier for the home aimed at the world’s poor, many of whom lack access to safe drinking water. (The World Health Organization estimates that waterborne diseases kill about 1.8 million people a year.) Manufactured in India, Pureit sells for just $40 and removes bacteria, viruses, parasites, and other pollutants from water. So far, Unilever has sold about 10 million units, mostly in India, and the product is being rolled out elsewhere in Asia, Africa, and Latin America. Says Polman: “We want to make it a billion-euro business.”

The trouble is, Pureit makes no money for Unilever, and at best is expected to break even as it grows. Investors may gripe that it dilutes the company’s margins, but Polman is undeterred. “I don’t look at it as a P&L. I look at it as creating societies that function,” he says. “As long as my total business works, I’m not accountable for every SKU.”

Right now, investors are giving Polman plenty of leeway because the business is working very well. Last year, despite rising commodity prices, budget crises in southern Europe, and slowing growth in emerging markets like China, India, and Brazil, Unilever posted record revenues and profits. Its sales grew in every region even as it reduced costs. “This is a company that in its entirety is starting to deliver consistent top-line growth, above the market, and consistent margin expansion,” Polman told financial analysts on a recent earnings call.

Polman is fully aware that “the moment Unilever underperforms, the guns will come out,” as he puts it. He understands that he risks being ridiculed as a soap salesman trying to save the world. But there’s no arguing with his results so far — maybe he is a hard-core capitalist after all.