Unilever’s 2024 Climate Transition Update

Emissions, Food Systems, Shareholder Engagement, Equity
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Unilever’s (ULVR) 2024 update of its Climate Transition Action Plan (CTAP) marks a key step in the company’s efforts to align with global climate targets, particularly the 1.5°C pathway set out in the Paris Agreement. Below Planet Tracker evaluates the updated CTAP focusing on Unilever’s revised targets, strategies, and governance mechanisms for mitigating climate change impacts. We conclude that this latest plan is a significant step forward although more detailed financial disclosure would provide further clarity on linking specific investments to expected outcomes. Planet Tracker acknowledges Unilever for its recognition of the intersection of climate and nature, and for allocating specific funds to address this interrelationship.

Unilever’s Previous CTAP

Planet Tracker’s last analysed Unilever’s climate transition strategy in May 2023. See ‘Unilever PLC – Climate Transition Analysis’. This was based on its 2021 CTAP, which had been approved in the annual shareholders’ meeting in the same year, and progress was subsequently reported annually in its report and accounts. Planet Tracker found that their emissions mitigation strategies were falling short of a 1.5°C pathway, missing emission targets set by the Science-Based Targets initiative (SBTi) by 45% when total GHG emissions were considered. This implied the company was on track for a 2ºC warming scenario by 2030. We share the key highlights from this earlier analysis below:

  • Climate Alignment Challenge: Unilever’s Scope 3 emissions, particularly from upstream activities, were projected to be significantly higher than the Science Based Targets (SBTs) recommendations, potentially aligning the company with a 2°C warming scenario by 2030.
  • Engagement with Suppliers and Policymakers: Unilever demonstrated commendable engagement strategies with its suppliers, customers, and policymakers. This included providing tools and solutions for sustainability and supporting various land-use policies and regulations.
  • Policy and Governance: The company presented a strong policy and governance framework supporting sustainability, including a mid- to long-term management remuneration system linked to sustainability Key Performance Indicators (KPIs).
  • Risk Analysis and Management: Unilever identified significant potential financial impacts from climate-related risks. Planet Tracker projected these to be around 42% of the company’s three-year average annual operating profit (2019-2022). Yet, quantified metrics for mitigating or managing these identified risks and opportunities were not disclosed.
  • Investment in Climate Transition: The 2021 Climate Transition Action Plan (CTAP) included sensible initiatives to mitigate environmental impact. However, the linkage between the company’s climate mitigation strategies and their disclosed investment necessary to sustain these ambitions was limitedi.

Planet Tracker’s Main Proposals:

Following this 2023 climate transition analysis, Planet Tracker recommended the following actions:

  • Disclose the Investment and Mitigation Link: Planet Tracker suggested that Unilever should disclose the link between potential emissions reductions and required invested capital. Unilever’s strategies and initiatives, although significant, lacked clear financial linkage to especially achieve Scope 3 mitigation goals, at the time of our assessment.
  • Financial Forecast Clarity: Unilever considers the potential financial impact outlined in their scenario analyses as a form of cost increase exercise, not a financial forecastii. This should be explained to provide investors with clearer expectations regarding the company’s financial resilience against climate transition risks.
  • Increase Investment in Climate Transition: Compared to peers, Unilever’s investment in its Climate Transition objectives is lagging. Increasing investment, especially for Scope 3 emissions mitigation, is crucial. In 2023, Scope 3 accounted for 99% of total emissionsiii. Engaging with public, private, and philanthropic partners for financial leverage was found to be commendable, but detailed plans and targets are needed for a credible CTAP.

2024 Upgraded Targets and Strategy

In February of this year, Unilever (ULVR) announced an updated CTAP. Below we show the main changes when compared to 2023.

  • Enhanced Climate Alignment:

Operating Emissions – Unilever committed to a 100% absolute reduction in Scope 1 and 2 emissions by 2030. This target will now be supported by a EUR 150 million (or USD 166 millioniv) investment to be deployed over the next three years. This investment intends to finance Unilever’s manufacturing decarbonisation programme focused on three key areas (1) decarbonising its thermal and electrical energy, (2) increasing its use of renewable power, and (3) reducing emissions from refrigeration (or cooling) in its operations.

Value-chain Emissions – A fundamental challenge in climate transition for Unilever remains addressing its Scope 3 emissions. The updated 2024 plan introduces new ambitious targets:

  • A 42% absolute reduction in Scope 3 energy and industrial GHG emissions by 2030 from a 2021 baseline.
  • A 30% reduction in Scope 3 forest land and agriculture (FLAG) emissions over the same period.

Notably, while these two targets are separate, according to the company together they represent a 39% absolute reduction in total targeted Scope 3 emissions.

  • Engagement with Suppliers and Risk Management

To progress towards these ambitious new targets, by the end of 2023, Unilever had put in place the infrastructure, monitoring, and verification systems to manage a deforestation-free supply chain.

By investing in more infrastructure (e.g. a cumulative investment of USD 350 million was deployed in Unilever’s Oleochemicals facility in Indonesia) the company aims to increase sourcing at the primary production and farm levels and support more suppliers on their transition to deforestation-free and Net Zero pathway.

Furthermore, Unilever continues to focus on regenerative agricultural practices aiming to deliver positive impacts on soil health, and farm biodiversity, and enhance the resilience of agricultural systems, while reducing its carbon footprint. At the time of the 2024 CTAP publication, Unilever was running 46 projects in collaboration with its suppliers, covering 270,000 hectares of land transitioning to regenerative systems. The company aims to scale up the adoption of regenerative agriculture and cover 650,000 hectares by 2027. Unilever estimates the currently identified regenerative agriculture projects will cumulatively cost around EUR 140 million (or USD 155 millionv) by 2030.

In addition to lowering emissions, these initiatives intend to promote the resilience of the company’s supply chain, reducing price volatility and safeguarding access to raw materials. However, Unilever does not disclose the range of emissions or potential cost reductions these actions are projected to achieve.

  • Policy and Governance

As highlighted in our recent “Climate Transition Mismatch” paper, in some circumstances, a trade association may be advocating for policy changes that run counter to a corporate’s interests or position. In Unilever’s case, when a misalignment is found the company’s management engages with the trade association to determine a) why their position is at odds with theirs; and b) if their position(s) can change. If a trade association’s position cannot be aligned, then Unilever reserves the right to withdraw or keep its membership explaining publicly how the mismatch will be addressed.

Further details can be found in the company’s recently published “Climate Policy Engagement review”. This new policy more closely aligns Unilever with the best practices for trade association memberships, as outlined in Planet Tracker’s “Climate Transition Mismatch” paper.

When it comes to linking climate performance to executive remuneration, in March 2024, Unilever proposed amendments to its Remuneration Policy which, if approved by shareholders at the 2024 AGM, would result in a Sustainability Progress Index (including climate targets) with a 15% weighting for 2024 Performance Share Plan (PSP) awards. The PSP will, if approved, apply to members of the Unilever Leadership Executive (ULE) and to senior managers (approximately 500 employees) from 2024 onwards.

  • Investment in Climate Transition:

As per our recommendations in the 2023 climate transition analysis, Unilever published some additional capital disclosures, as part of its suppliers’ engagement. Additionally, the company has committed to investing EUR 1 billion (or USD 1.1 billionvi) between 2020 and 2030 through their Climate & Nature Fund and hopes to mobilise an equal amount in co-financing from partners through vehicles such as the private equity impact fund created with AXA and Tikehau Capital in 2022.

We commend Unilever’s recognition of the overlap between climate and nature, and for allocating specific investment to demonstrate this.

Notably, by the end of 2023, the Climate & Nature Fund had spent and committed EUR 286 million (or USD 316 millionvii) since its inception.

Progress and Concerns

  • Financial Disclosure and Impact

While Unilever’s update clarifies some aspects of its financial commitment towards its climate goals, the precise link between required capital and potential emissions reductions remains vague. Given that this is a key point of interest for the overall credibility of the company’s transition strategy, further elaboration is desirable to assess the plan’s feasibility fully.

  • Addressing Scope 3 Emissions

The updated targets for Scope 3 emissions reflect a positive advancement in Unilever’s climate strategy. Still, the ambitious nature of these targets, especially in the context of the broader value chain and supplier emissions would require wide collaboration and innovation. This is something Unilever seems well-positioned and willing to undertake.

  • Governance and Accountability

The enhanced governance structure, including the role of the Unilever Leadership Executive and the linkage to remuneration, provides a solid framework for accountability. Planet Tracker will be monitoring its implementation and the effectiveness of these mechanisms in driving actual emissions reductions, to determine whether this could become a template for other corporates to follow.

Closing Comments

In conclusion, Unilever’s 2024 CTAP update represents a significant step forward in addressing the urgent need for climate action. The company has made commendable progress in operational emissions reductions and has set ambitious targets for its broader value chain. However, critical areas such as detailed financial disclosure related to climate and nature investments, and the outcomes from these deployments of capital, would assist in providing further clarity. As Unilever continues to refine its climate strategy, transparent reporting, and the demonstration of measurable outputs will be essential in evaluating the plan’s efficacy and alignment with global climate goals.

i The only investment disclosure Planet Tracker was able to find at the time of our initial assessment pertains to Unilever’s Climate and Nature Fund, as the company intended to invest EUR 1 billion to promote reforestation, landscape restoration, and other nature-based solutions, as well as to encourage regenerative agriculture practices in its supply chain.

ii For clarity the scenarios analysis exercise is not viewed by Unilever as a financial forecast, but merely an alternative exercise on theoretical cost(s). We consider investors should be made aware of this distinction.

iii Source: 2023 Annual Report – page 47, note 1. https://www.unilever.com/files/92ui5egz/production/b09c3510ee7cec58440d5f044f02bdefe85aa186.pdf

iv At an exchange rate of EUR 1 = USD 1.1056 on 29th of December 2023.

v At an exchange rate of EUR 1 = USD 1.1056 on 29th of December 2023.

vi At an exchange rate of EUR 1 = USD 1.1056 on 29th of December 2023.

vii At an exchange rate of EUR 1 = USD 1.1056 on 29th of December 2023.

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