Unilever has announced plans to decarbonize its cleaning products supply chain within ten years, removing fossil fuel based materials. With the petrochemical industry expected to replace energy and transport demand in the oil industry, the consequences of Unilever’s plans could have significant economic consequences.
Growing focus on sustainability and investor interest in ESG is driving change in many industries. Unilever has consistently led the market in FMCG and the company is now committing to address its impact in a more structured way, a critical decision for a company of Unilever’s size. Peter ter Kulve’s Home Care business is where Unilever is now planning a €1 billion initiative to transform the cleaning industry, removing fossil fuel-based ingredients from its household portfolio worldwide by 2030.
Today, 46% of the carbon footprint of Unilever’s €11 billion global household portfolio is the result of the use of fossil fuel-based ingredients. That’s a carbon footprint equivalent to that of the country of Slovenia, while its water footprint is the same as that of the UK and its plastic consumption is the annual equivalent of 210 Eiffel Towers of plastic, most of which ends up in the environment. There is no question that there will be global impact: the cleaning division serves over 1 billion people every day, with 100 billion laundry washes per year around the world.
Unilever has split its plans across what it calls the Carbon Rainbow, purple carbon (using CCU to produce soda ash and other necessary chemicals for cleaning); green carbon (such as rhamolipids surfactant from biomass, which replace existing detergents): and grey carbon (where surfactants can be derived from plastic waste). The company is also looking at the development of biodegradable cleaning polymers and low carbon formulations (for example improving the weight efficiency of ingredients).
The reality, as ter Kulve sees it, is that if we want new sustainable cleaning products, we are going to need an entirely new science of cleaning. He describes his recognition of this point as the cleaning industry’s ‘diesel moment’, the recognition that “we need an era of scientific innovation, in energy, cleaning, transport, food and more.”
Unilever has given itself ten years to transform the entire portfolio, a challenge that is not for the faint-hearted. The vast majority of its portfolio of products will need to be reformulated, new materials sourced or created. Each of these new products will have to go through the testing and regulatory process and then to the critical issues of performance, hand feel and appeal to consumers.
As ter Kulve says, “We will have to scale up processes at an enormous level as it will need new sites and massive investment to achieve the goals but we are fully in. Only by going all in can we drive the scale necessary to create products at the same price, with the same performance. There is a long term intent here that allows our partners to make long term plans. We really believe that we can decarbonise home cleaning and remove plastics from the supply chain. ”
It’s not all cost concerns and scientific innovation challenges. One of the drivers behind the new initiative is an understanding that, while politics may delay decision making, governments are now seriously looking at the impact of externalities. Central banks are looking at the potentially destabilising effect of climate risk on national economies, and regulation and taxation are coming.
One example of the polluter pays principle is the Extended Producer Responsibility regulations that the EU expects to have fully introduced by 2025. That means taking products with negative environmental impact out of the supply chain makes good business sense. The direction of travel in manufacturing is changing and there is significant cost and risk if left behind.
At the same time, there is tremendous opportunity if the challenge is met. Not only in tackling emissions but in becoming a market leader. A 2019 report from the Ellen Macarthur Foundation suggests that around 45% of CO2 emissions can be tackled by transforming the way goods are made and used. In 2020 Accenture
Scale will be an early issue – for example the company’s Grey Carbon materials production currently sits at around 1000kgs – an amount that will have to scale dramatically to serve a global audience. The key question will be how to bring scientific innovation to large scale manufacturing, and who Unilever’s partners will be. There is little doubt that the major chemicals players will need to come on board but with a customer the size of Unilever and a hard deadline of ten years, there is incentive to move above and beyond future regulation. It’s about making strategic decisions to the benefit of the future, of society but also of the companies themselves.
For ter Kulve, the scaling of innovation to global scale production of novel ingredients will require a shift in the chemicals industry equivalent to the energy transition. That itself is the largest economic and industrial transition that we’ve seen since the industrial revolution.
Part of the programme’s success will be tied to the policy and regulatory environment, but with one sixth of the world’s economies already having committed to Net Zero targets and continuing work under the Paris Agreement, it seems likely that a meaningful carbon price, a virgin plastic tax, a tax on water pollution cannot be too far away. All of these will contribute to the business case – where cost avoidance will take sustainability out of the arena of ethical consumer choice and directly into the P&L.
Achieving industrial scale with novel materials and processes can address the pain points within the supply chain and help to pivot the entire system. ter Kulve says, “I’m in the business to grow the business. With better novel ingredients we can build advantage in a market where the existing science is commoditized.” He wants to see new S curves, inflection points where new products change the growth potential. He adds, “I hope that all the competitive juices get flowing in this space because a) it’s good for the world and will encourage investment and consumer engagement and b) when more people move it will have an impact on the overall supply base.”
For ter Kulve it’s about achieving change over a period which he can oversee. He says, “What is a product win when the planet loses? We need to find an integral solution.” With a global economy to transform, Unilever might be taking a momentous step, but the implications for the wider economic environment are also vast.
The energy industry is going through major upheaval, as the implications of COVID-19 and increasing climate risk drive investors and energy consumers away from fossil fuels. Coal-fired power plants are already stranded assets in many regions and oil demand and prices remain volatile, driving further interest in alternatives. Continuing fossil fuel demand from the transportation and petrochemical industries was expected to replace a considerable proportion of demand from the energy sector. As those industries decarbonise, the basic structures of the global economy are set to change.
One of the most challenging aspects in the oil industry is forecasting demand, working out where industrial and energy growth will come from. With the increasing disassociation between economic growth and fossil fuel demand, oil forecasting has been increasingly dependent on expected demand from transportation, aviation and petrochemicals. If Unilever’s initiative is successful, we won’t just be seeing a transformation in the home care but a significant industrial shift in the dynamics of global fossil fuel demand.
The advent of new technologies, ranging from electric vehicles, to cheap and increasingly efficient solar PV are already transforming the energy market. The decarbonisation of cleaning, driving a technology transition within the chemicals industry could lead to fundamental market change. What’s most important though is that such a move is unlikely to be limited to Unilever. The company is known as a market leader in sustainability, not only in FMCG markets but in terms of overall corporate strategy – and where it leads, many will follow.
The Clean Future Initiative
The initiative is a €1 billion project “reimagining the future of cleaning”. Part of Unilever’s pledge to achieve net zero emissions from its products by 2039, it is a clear reminder of Unilever’s lead in the sustainability space. In fact the initiative is unique in its intent to embed circular economy principles into both packaging and product formulations at the scale of global brands to reduce their carbon footprint.
The Clean Future initiative brings together a number of pilots already in place and, as ter Kluve explains, “We’re repurposing our budgets out of carbon and non-biodegradable products.” In Slovakia for example, Unilever has partnered with biotech company Evonik Industries to develop rhamnolipids, renewable and biodegradable compounds that lower surface tension between two liquids. They’re already used in Sunlight (aka Quix) dishwashing liquid in Chile and Vietnam
Today though, most cleaning and laundry products contain chemicals made from fossil fuel feedstocks, a non-renewable source of carbon. In fact, as ter Kulve explains the home cleaning division was chosen as the test case for the project as the chemicals used in Unilever’s cleaning and laundry products make up the greatest proportion of the company’s carbon footprint (46%) across their lifecycle.
There are existing technologies that will enable Unilever to achieve its goals, from capture, sequestration and use of CO2, biotechnology, low carbon chemistry, and biodegradable and water-efficient product formulations, among other R&D. The investment will also be used to create biodegradable and water-efficient product formulations and, increasingly important to consumers, to halve the use of virgin plastic by 2025
Cleaning is an integral aspect of most of our lives, and the COVID-19 pandemic has brought this to the forefront of consideration. The need to clean, to ensure hygiene and prevent the spread of disease is front of mind. Given that, consumers don’t want to risk giving up performance. As ter Kluve puts it, “For most people, they have to make choices but they don’t want to have to clean longer or pay more, so only around 10% of people are willing to make planet positive choices. We want consumers to choose our brands because it’s the same quality and price as our rivals, but sustainable.”