What to make of Unilever’s commitment to living wage and diversity in its supply chain

By Oliver Morrison contact

- Last updated on GMT

GettyImages/Poulssen
GettyImages/Poulssen

Related tags: Unilever, Wage, Sustainability

Investors look likely to applaud Unilever’s commitment to ensuring all suppliers will pay the living wage in its supply chain. But the consumer goods giant risks potential challenges if costs are passed on to end consumers, says an analyst.

Unilever has pledged to ensure that everyone who directly provides goods and services to it earns at least a living wage or income by 2030. 

The consumer goods giant said this is a critical step towards building a more equitable and inclusive society and a living wage should allow workers to participate fully in their communities and help them break the cycle of poverty.

It also committed to spending €2 billion annually with suppliers owned and managed by people from under-represented groups by 2025. Further, it has promised to equip 10m young people with essential skills to prepare them for job opportunities by 2030.

Alan Jope, Unilever CEO said: “The two biggest threats that the world currently faces are climate change and social inequality. The past year has undoubtedly widened the social divide, and decisive and collective action is needed to build a society that helps to improve livelihoods, embraces diversity, nurtures talent, and offers opportunities for everyone.

“We believe the actions we are committing to will make Unilever a better, stronger business; ready for the huge societal changes we are experiencing today – changes that will only accelerate. Without a healthy society, there cannot be a healthy business.”

The company has not yet established exactly how many workers stand to benefit from the changes. A Unilever spokesperson told FoodNavigator it is still scoping out the scale of the task.

We have a large and complex supply chain with about 60 thousand suppliers who directly invoice us and many more suppliers within our supply chain, including smallholder farmers in agriculture,”​ we were told.  

“The work on living wage and living income has a broad scope that will include millions of people within this supply chain. While we have made an estimate of the scope of the work, we expect to be able to firm it up as this work progresses.” 

The spokesperson said the positive impact of paying a living wage or supporting a living income affects not only the workers in its supply chain, but also their family members and communities. Therefore, the number of people ultimately impacted is greater still. 

Unilever is also confident its suppliers are on board with the proposed changes. “We have spoken to a number of suppliers ahead of this announcement. They welcome the commitment while understanding it will require a roadmap with a phased approach. Suppliers have a crucial role to play in achieving this goal, therefore we will be working in close partnership with them over this 10-year period,”​ the spokesperson said.

Asked  if it will be increasing the amount it pays suppliers to cover the increase and how the living wage pledge among its suppliers will be policed, Unilever responded: “We will engage with our suppliers, peer companies, NGOs and others to understand what needs to change in order to deliver this critical commitment. We believe that addressing social inequality and paying a living wage is a fundamental responsibility of businesses.  

“Verification that living wages are reaching the workers is a critical element of this commitment so we will create an ’inclusive’ assurance process which we will deploy with stakeholders.”   

Unilever’s latest commitment includes a promise to promote supplier diversity throughout its value chain, encouraging its suppliers to have ‘diversity amongst their respective partners’.

“This commitment is designed to increase our spend with businesses owned, managed and controlled by people from diverse and under-represented communities, with a focus on women, under-represented racial and ethnic groups, persons with disabilities and LGBTQI+,”​ the spokesperson said.

Asked how it plans to encourage its suppliers to have diversity and if specific targets have been set, it responded: As with many commitments of this size, we will be much more effective if we work in collaboration with our partners, and we hope that they will join in this commitment with us to set commitments to help to increase diversity. This would then have a flow-on effect to our Tier 2 suppliers.

There will be no allocation of spend or targeted split of spend between countries or groups. We’re committed to significantly increasing our spend with diverse suppliers around the world, which is what this commitment is designed to do.”  

 Unilever’s main commitments include:

  • Ensuring that everyone who directly provides goods and services to the company earns at least a living wage or income by 2030
  • Spending €2 billion annually with suppliers owned and managed by people from under-represented groups, by 2025
  • Pioneering new employment models for our employees, and equipping 10m young people with essential skills to prepare them for job opportunities by 2030

The Unite trade union in the UK welcomed the move and called for the living wage pledge to be met before 2030. Rhys McCarthy, Unite national officer, said: “Unite applauds Unilever’s recognition that inequality is increasing...corporate decision making is often far too concerned with short-term gains and not long-term sustainability and workers’ pay and conditions.”

Investors expected to applaud the commitments, but will consumers?  

In December, Unilever became the first FTSE 100 company to give investors a say on its climate strategy. It will hold a non-binding advisory vote at its next annual meeting in May on measures that include plans to cut emissions from its operations to net-zero by 2030 and to halve the environmental impact of its products.

Shareholders will not be voting on these latest commitments. “As these are commitments we are making, rather than a proposed strategy, today's announcement therefore won't be a part of our next AGM,”​ we were told.

However, it’s believed shareholders will likely welcome Unilever’s latest commitments even if the move threatens Unilever’s historically healthy dividends in the short term.

“Investors will broadly applaud this,”​ Bernstein analyst Bruno Monteyne told FoodNavigator. “Investors have increasingly become aware of the necessity to back long-term sustainability. And Unilever is trying to address those issues. So, I would not expect a negative impact, just from the announcement. Being sustainable in all its forms: plastic, climate, minimum wage, is the new norm. As such, it becomes part of the cost of doing business.”

However, Unilever could face potential challenges if the latest commitments cause costs to be passed on to end consumers, he said.

“Weaker brands tend to struggle to pass on cost of higher commodities, strong brands pass it on quickly, and that is where Unilever could potentially have issues: to what extent do they have strong and winning brands, that are able to pass on extra costs or absorb it through cost cutting.

At that point you have very different views. Unilever surely believes they have strong brands and will do well. We think that Unilever’s brands have lost some of their historical strength, and will struggle more than others (e.g. Nestle, L’Oreal) to pass on the higher cost of doing business. But that is still disputed...and only time will tell.”

Investment bank UBS said it is also cautious about the group’s medium-term earnings growth prospects, based on Jope's comments in an interview earlier in January.

“We still hold that the first half of this year will be a continued period of suppressed consumption...with that starting to come back in the second half of this year and then next year,”​ he told Reuters.

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