Unilever 'clearly lost the plot' over ESG, says influential fund manager Terry Smith

WHILE businesses all over the world are under pressure to ramp up their environment, social and governance (ESG) efforts, one company has been criticised for taking things too far.

British fund management veteran Terry Smith lashed out at Unilever in his firm's annual letter to investors on Tuesday (Jan 11), saying that the London-listed multinational consumer goods company has "clearly lost the plot".

"Unilever seems to be labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business," he wrote.

Smith is the founder of Fundsmith, a top 10 shareholder in Unilever, the company behind many household-name brands such as Lipton, Dove and Magnum.

Unilever had been on a mission to prove that sustainable business does drive superior financial performance. Among its commitments are an aim to ensure that 100 per cent of the company's plastic packaging will be fully reusable, recyclable or compostable by 2025.

To illustrate Unilever's problem, Smith offered a few examples in his letter that was addressed to investors of Fundsmith's £28.9 billion (S$53.2 billion) flagship equity fund.

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The "most obvious manifestation" of Unilever's obsession, he said, is the public spat over its brand Ben & Jerry's refusal to sell ice-cream in the occupied Palestinian territories.

But he noted that there are "far more ludicrous examples", as he went on to say: "A company which feels it has to define the purpose of Hellmann's mayonnaise has in our view clearly lost the plot."

Stressing that the Hellmann's brand had existed since 1913, he added: "We would guess that by now consumers have figured out its purpose (spoiler alert - salads and sandwiches)."

The comment appeared to be taking a jab at Unilever's food waste campaign around the Hellmann's brand. On its website, it states that the brand now has "an even bigger role to play", which is to help people "make taste, not waste". Hellmann's purpose is "to help people enjoy good, honest food, for the simple pleasure it is, without worry or waste", it added.

Nevertheless, Smith said his fund will continue to hold Unilever shares, although it performed the worst among its consumer staples stocks during the pandemic, as he believes "its strong brands and distribution will triumph in the end".

Unilever shares, which fell 8.8 per cent in the past 12 months, closed down 0.6 per cent at £3,942 on Tuesday. The stock was one of Fundsmith Equity Fund's bottom 5 performers last year, alongside PayPal, Amadeus, Kone and Brown-Forman.

The fund's top 5 performers were Microsoft, Intuit, Novo Nordisk, Estee Lauder and Idexx.