Cleaning up Cleaning: Unilever to spend £890m to cut fossil fuels from detergents

September 15, 2020

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3 min read

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What's going on here?

Unilever is planning to spend £890m to remove fossil fuel-based ingredients from its cleaning and laundry products. The announcement is the first phase in its “Clean Future” initiative, which pledges net zero emissions from Unilever’s products by 2039.

What does this mean?

The consumer goods group behind the Dove and Persil brands aims to eliminate fossil fuel-based chemicals from its products by 2030. The chemicals in Unilever’s cleaning products currently make up 46% of its overall carbon footprint. By swapping them with more sustainable plant-based ingredients (such as algae), the Anglo-Dutch firm will reduce its footprint by up to 20%. This move will transform the sustainability of household cleaning brands such as Domestos, Cif, Persil and Omo. Cleaning up is about to get a little bit cleaner.

Peter ter Kulve, President of Unilever’s €11bn home care unit, has described the decision as a response to the cleaning sector’s “diesel moment”: a reference to the automobile industry’s revelation that diesel cars caused more pollution than thought. In the past, efforts to reduce the greenhouse gas impact of laundry have focused on the energy consumed by washing machines. But Unilever has disclosed that a neglected source of emissions is the chemicals used in its detergents. By eliminating these chemicals, the company will cut 1m tonnes a year of fossil fuels from its supply chain.

What's the big picture effect?

Unilever’s plan to be emission-free by 2039 is 11 years ahead of the deadline enshrined in the 2015 Paris Agreement on tackling climate change. It’s a change of strategy that illustrates the global economy’s transition away from oil and towards renewables. This year’s coronavirus-induced oil price crash (see our article on that here) and the long-term viability of renewables is turning heads. Companies across sectors are using this period to realign their strategies for the future. For example, in May, oil major Total announced its goal to eliminate all of its carbon emissions by 2050. Total’s plan follows similar pledges from BP and Shell following pressure from shareholders. Unilever’s decision to wean itself off petrochemicals could add another nail to oil’s coffin.

As the UK’s largest public company, Unilever is also accountable to investor sentiment. There is growing pressure from investors for companies to have strong environmental, social and governance (ESG) credentials. And it’s not because every investor is a saint. There is a growing body of empirical evidence that companies with good ESG scores perform better financially over time. Against this backdrop, Unilever’s “Clean Future” plan is in its long-term financial interest. According to the Wall Street Journal, global ESG funds are seeing a record inflow of funding – the total value of funds quadrupled between 2014 and 2019. Companies are, therefore, in a race to raise their ESG scores to capitalise on the investor-led ESG gold rush. 

Law firms are poised to play a key role as climate change concerns become more prominent. Capital Markets teams, for example, will advise companies on their disclosure obligations to investors concerning climate risks. M&A lawyers will help integrate ESG factors into due diligence practices, which will affect the price of acquisition targets. Risk Management teams will advise companies on the changing regulatory landscape and litigation risks. The flip side of this is that law firms will also need strong ESG credentials to win work from clients. Shell, for instance, has set out a list of sustainability requirements for law firms to be part of its legal panel. As investors continue to prioritise ESG in their decisions, companies (and by extension law firms) that fail to take the topic seriously risk being left behind.

Report written by Deniyi Coker

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