Supply Chain Management

Embedding Sustainable Sourcing in Corporate Strategies: Unilever Tea

Professor Ralf W. Seifert IMD

© 2007-2012 IMD – Institute for Management Development. Not to be used or reproduced without permission. Sustainable development has been talked about for 30 years: Timeline on the attention to environmental issues 2

1983 1987 1988 1991 1992 1994 1996 1997 1998 1999 1980 1990 2000 “Our Common The Brundtland Global NGGIP Earth Summit Triple Bottom ISO 14001, ISO 14040 ISO 14041 DJSI Commission Future” warming. (guidelines (UNCED, Line (TBL) 1st version GRI: GHG launch (WCED) Montreal Protocol Scientists national GHG Rio de Janeiro) (Elkington) organization Protocol (ozone depletion) agreement inventories)  UNFCCC sustainable Initiative

development WBCSD (involve Kyoto Protocol adoption business in 1995, Nestlé: 1st 1998, Dell: 1st (global warming) sustainability issues) envir. report envir. report

2001 2002 2003 2004 2005 2006 2007 2008 2009 2013 2000 2010 ISO 14042 World Summit on Waste Electrical UN World Copenhagen GHG Prot. REACH, PAS 2050 Sustainable &Electronic ISO 14001, Summit (NY) Summit ISO 14043 Corporate EU directive (assessment Development Equipment 2nd version MDGs Std. 1st ed on chemicals LC GHG) (Johannesburg) (WEEE Directive Kyoto Protocol life cycle thinking EU Restrictions on into force GRI G3: Life Cycle Initiative Hazardous 3rd EU ETS EU ETS EU ETS 1st nd rd (UNEP &SETAC) Substances (RoHS) version 2 period 3 period Directive trading period GRI: 1st GRI: 2nd 2004, Dell: 2007, Nestlé: standards version Sustainability Creating Shared report Value report

EMS Sustainability Reporting Media Environmental Management Incidence of the phrase “climate Systems change” in the British press 1800 GRI reports certified ISOISO 14001 14001 certificates (Global Reporting

1600 Initiative) 200,000 1,600 GRI reports

1400 Average annual 1200 150,000 1,200 Avg.annual

growth = 42% 1000 growth = 51% 100,000 800 800 Nb. articles 600 50,000 400 400 200 - - 1997 2000 2003 2006 2000 2003 2006 2009 0 1996 2000 2005 2009

Sources: http://www.guardian.co.uk/sustainability/climate-change-reporting ISO 14000—Environmental Management: www.iso.org www.globalreporting.org Joana M. Comas © IMD 2007-2012 Yet, price pressure continues to increase in food supply

Food expenditures as a percentage Demand for cheaper food: of disposable personal income

% 23.4%

9.5%

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

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

. 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

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

Rainforest Alliance certified packs

Short movie to inform and entertain

Promo packs 2nd phase TV “Senor Al”

TV announcement “Take a sip”

National press, radio and PR

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

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.

. Comprehensive Standard built on the three pillars of sustainability: People, Profit, Planet. . Stakeholder input: conceived in the tropics by • 10 Principles farmers, environmentalists and scientists; monitored • 94 criteria by local auditors local indicators make it real. • 14 CRITICAL criteria . It helps producers drive cost efficiencies, higher Requirement scores for Certification: yields and crop quality; gives them access to value – 100% on critical added markets to meet consumer demand for criteria responsibly produced goods – 80% overall score . Applicable to large plantations and small holdings. – 50% minimum score in EACH of the 10 Rainforest Alliance certifies farms and producers; principles not companies

Management System

Ecosystem Conservation Conservationists Scientists

Wildlife Protection

Water conservation

Working Conditions

Occupational Health

Industry Community Relations Communities

Integrated Crop Management

Soil Conservation

Integrated Waste Management

. 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

Started in 2006, now covering: •Kenya •Tanzania •Argentina •India •Indonesia •Malawi •87,000 hectares •125,000 tonnes •170,000 workers

• 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

• 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

• 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)

. 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

. 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.

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

24 . 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.