(Bloomberg) -- Unilever Plc plans to abandon or water down a string of environmental and social pledges against the backdrop of a growing backlash from investors, consumers and politicians against companies pursuing non-financial objectives. 

The move by Hein Schumacher, Unilever’s chief executive officer, marks a major shift for the £95 billion ($118 billion) consumer group — home to brands ranging from Hellmann’s mayonnaise to Domestos bleach — which has built its business strategy on a bedrock of ESG policies for more than a decade. Seen as the corporate world’s biggest cheerleader for the idea that companies should do good in the world, the downgrading of some commitments will be watched closely by other businesses under shareholder pressure to reduce costs and boost stock market performance. 

Unilever, one of the world’s biggest users of plastic packaging, had previously committed to halve its use of virgin plastics by 2025. That target will now be one-third by 2026 — the difference accounting for more than 100,000 tons of fresh plastic annually. A commitment to pay all its direct suppliers a living wage by 2030 will be replaced by a living wage promise covering suppliers of half of its spending on goods and services by 2026. A pledge to spend an annual €2 billion ($2.1 billion) with diverse businesses worldwide by 2025 has been dropped along with a commitment that 5% of the workforce will be made up of people with disabilities by the same year.

The shift represents a sharp break with Schumacher’s predecessors Paul Polman and Alan Jope, who became industry advocates of the need for companies to take greater responsibility for sustainability and equality. 

“It’s cyclical,” Schumacher said of ESG in an interview with Bloomberg News. “When you have a huge drought for a number of months but everything else is going fine, the attention is on climate. These days it’s about wars and rightly so, that’s at the forefront.” 

“I’m not going to shout that ‘we’re saving the world’, but I want to make sure that in everything that we do, that it is indeed better,” Schumacher said explaining the change in emphasis away from the Polman mantra of “purpose”. “I feel that with the themes that we choose, whether it was climate, plastics, nature, and livelihoods, that given our global presence, given our portfolio, given our footprint, that those were the four areas where we could make a difference.”

Unilever shares rose 0.4% in early trading Friday in London. Since Schumacher took over in July 2023, they've fallen 8%.

The company still has pledges on carbon emissions, but with efforts to improve biodiversity and reduce plastics waste both critical environmental issues, any dialing down of its ambition in other areas could set a precedent of simply jettisoning goals when you can't meet them.

Many of those goals were set by Jope. But it was under Polman’s watch that Unilever introduced programs like Dove soap's “campaign for real beauty,” featuring diverse models of different body types.

“They were pretty much the pioneers of these ESG strategies and of focusing on things like recycling of plastics or general purpose claims. That was something Unilever was really leading at the time and many peers didn’t really care about it,” said Michael Illig, portfolio manager at Flossbach von Storch, Unilever’s fifth biggest shareholder. “This definitely worked in their favor.”

“Then over time I think this marketing became much more mainstream,” added Illig. “At the time they did it their financial performance was pretty strong.”

More recently, Unilever's performance has suffered, and the company has trailed rival Nestle AG in sales growth and profitability. Alongside separating Unilever's ice cream division, Schumacher launched a productivity program to save around €800 million over three years. But he says his new ESG goals are not going to reduce costs as he is increasing some investments to make sure targets are met. Asked whether that would satisfy investors clamoring for efficiency, he said they want a better top and bottom line but they don't tell him how to get there.

Schumacher said he is focusing on commitments which will stand up to scrutiny under increasingly granular regulatory requirements.

“It sounds like they are being cautious and possibly scared by greenwashing investigations,” said Lauren Compere, managing director of stewardship and engagement at Boston Common Asset Management, a Unilever shareholder, of the changes. “They may be ditching goals they couldn't meet. But it's a shame because Unilever has been a leader in plastics, and it's a business and reputational risk.”

Paul Polman, who spent a decade as Unilever CEO up to 2018, is credited with being the modern architect of Unilever’s ESG strategy. He seized on the company’s history and especially William Lever, who founded a soap business that became a core part of Unilever. Lever built houses for his workers in the nineteenth century, following a principle of “shared prosperity.” He was originally attacked as anti-capitalist, but more than 100 years later companies adopted some of Lever’s shareholder capitalism rhetoric. 

“People are more motivated, if they know they’re working on the bigger picture, what the direction is they need to take,” Polman said, insisting that companies like Unilever must be run with discipline, the right capital structure and cost management but that “purpose” should come out on top. 

Unilever’s transformation was clear. In 2008 the closest thing to ESG content in its annual report took up 1.5 pages dedicated to corporate social responsibility. New ESG-themed sections were gradually introduced and under Jope they were placed before the core financial numbers. Schumacher’s first annual report for 2023 included 17 pages devoted to planet and society.

Under Polman, Domestos helped fund a UNICEF project to improve access to toilets in India. Dove stood for body positivity, Hellmann’s for reducing food waste — a message it showcased in a celebrity-stuffed Super Bowl ad this year. The mayonnaise brand generates more than €2 billion in sales but rather than being an emblem of Unilever’s marketing prowess, it’s become a symbol of its purpose agenda going too far and Jope’s failure to revive growth, say critics.

Organic growth was below 3% in 2019 and 2020, before getting a boost from higher pricing in the next year. Shares are down more than 8% since 2019, when Jope became CEO.

Under him the company thought purpose could grow the top line and expand margins. Jope said that the brands with a strong social purpose were driving three-quarters of Unilever’s growth, but the causality wasn’t clear: what came first, the so-called purpose or the growth? Those leading brands could also just have benefited from more marketing spend. His purpose pitch failed to boost sales growth, frustrating investors. British fund manager Terry Smith mocked the notion that the purpose of Hellmann’s should be anything other than making salads and sandwiches taste better. Jope then lost the confidence of many with his failed £50 billion bid for GSK’s consumer health unit. 

In 2023, as Jope departed, the global cost-of-living crisis was deepening and the world was confronting inflation, energy shortages and war. Unilever suffered seven consecutive quarterly declines in volume. Shareholders, watching the stock price plumb new lows, began agitating for change. 

Activist investor Nelson Peltz had already joined the board and wanted Unilever to discover an earlier purpose: profit. He knew Schumacher from Heinz.

In a 44 minute conversation with Bloomberg this week, Schumacher — who joined Unilever from Royal Friesland-Campina, a Dutch dairy cooperative — used the word “performance” 15 times, almost every three minutes. 

The Unilever CEO blames external forces for the company missing its retired plastics targets. “On plastics, you need governments, you need retailers, you need partners in the petrochemical industry. You need recycling systems that match.”

Yet, Unilever continues to use unrecyclable plastic packets, selling 1,700 every second according to Greenpeace. They help the company attract poorer consumers in developing countries to its products. Recycled plastic is currently more expensive than virgin plastic so there looks to be a clear financial benefit to reducing the commitment on the use of virgin plastic. Big food groups like Nestle, PepsiCo Inc. and Mars Inc. have been falling behind on plastics targets and may be tempted to simply shift the goalposts, like Unilever.

Similarly, the watering down of the pledge to provide a level of pay to provide a good standard of living to all supply chain workers came down to pragmatism. “I believe we need to continue to lead on it, but we need realism on what we can do and influence and where we can really make progress,” Schumacher said. 

US investors, which represent almost half of Unilever’s ownership, have cooled on ESG. Some Republican politicians have launched a war on “woke” investing with a string of legal challenges to ESG strategies by red states, mainly on the basis that they are undermining returns or being carried out surreptitiously. Prominent voices have lashed out against ESG: billionaire investor Bill Ackman accused the “movement” of having “caused enormous harm” on X recently. Tensions are likely to rise ahead of November’s election when Donald Trump is likely to be the Republican presidential candidate. 

Yet regulators are actually demanding greater disclosures from companies. Schumacher said that in this context, the new guidelines, particularly on climate are about a more detailed plan on how to get to net-zero by 2039.

Geopolitics has further complicated making a stand on anything beyond profit. Campaigners have attacked Unilever for continuing to run factories in Russia even as it condemns Moscow’s invasion of Ukraine. Yet Schumacher said the company isn’t taking a stance on the Israel-Gaza conflict. As a result, Unilever is one of many Western brands that’s faced boycotts in majority Muslim countries like Indonesia. 

In the wake of the protests over the death of George Floyd — a Black man killed by a White US police officer in 2020 — Jope, like many executives, saw an opportunity to take a stand.

“Systemic racism and social injustice have to be eradicated,” he wrote on Twitter. “Business has a critical role to play in creating an equitable society which is intolerant of intolerance,” he added vowing to use Unilever’s influence to accelerate change. Today, racial diversity is nowhere to be seen in Unilever’s ESG pledges. Schumacher says he “didn’t feel that expressing a hard target on that in the value chain was the right thing to do.”

Individual brands like Ben & Jerry’s and Shea Moisture have their own racial equality commitments and Schumacher says those will remain. Though that too might be outside his control. Since the US Supreme Court struck down affirmative action in university admissions in June, conservative groups have filed lawsuits and targeted dozens of companies — from BlackRock Inc. to Macy’s Inc. — over initiatives to hire underrepresented workers. Terms like “anti-racist” are being struck from corporate filings as businesses big and small grapple with this backlash against diversity initiatives. Wall Street banks are opening up diversity initiatives to everyone. Uber Technologies Inc. and Citigroup Inc. have struck anti-racist language from their filings.

Schumacher says he doesn't regret the targets he inherited. “I think that was a time in which they had to imagine a world in which big ambitions were possible. And that was probably right at the time, but I have to now bring it back to something that I feel we can all really deliver on. I need to drive performance in the company.” 

--With assistance from Nabila Ahmed and Jody Megson.

(Updates with shares in seventh paragraph)

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