The Front Line for Sustainable Growth - No corporate sustainability strategy can be credible without considering the environmental, social and economic effect of a company's entire supply chain. The requirement for true sustainable growth necessitates that procurement departments become strategic functions, developing and delivering business metrics rather than simply squeezing costs.

In 2009, Unilever launched Compass, its new business strategy aiming to double the size of the business. Then in 2010, the Unilever Sustainable Living Plan set out how the company intended to deliver true sustainable growth: by halving its environmental footprint by 2020, sourcing all of its agricultural raw materials sustainably, and improving the health and well-being of more than a billion people around the world.

The model considers three key areas: social (including factors such as human rights, working standards, and health and safety), economic (including the company's effect on the economies, the supplier companies and the infrastructure in the local markets in which it operates) and environmental (primarily material, water and energy use, greenhouse gas emissions, biodiversity, and waste).

Unilever's footprint extends far beyond its own operations. During the development of the Sustainable Living Plan, Unilever conducted a life cycle analysis of 1,600 representative products. This work was very revealing, for example, the key contributors to Unilever's greenhouse gas emissions come from the sourcing of raw materials (26% of the total) and consumer use (68% of the total). Manufacturing and logistics together contribute only 5%. This shows Unilever cannot meet its goals alone.

In areas such as raw material production and consumer use, Unilever had a low degree of control but a high degree of influence. Harnessing the power of its brands and its supply chain partners to encourage consumer and business behavior change has therefore become a key focus. Unilever works with around 8,000 raw materials suppliers, and approximately 50% of the raw materials it buys are renewable.

Unilever needs to work with the most innovative companies and persuade them to share their ideas and invest in capacity. But competing to work with the best companies means Unilever has to offer mutual benefits. The payoff to supply chain partners is that they will be able to exploit Unilever's global scale, growth potential and premium brands. Unilever has had to offer longer-term commitments to its key partners and develop a new procurement culture, employing a lighter touch and working more transparently.

Change will necessarily be gradual. This year, Unilever aims to source 30% of its agricultural raw materials sustainably. By 2015, this figure will rise to 50%, and the goal is 100% by 2020. However, there are big challenges ahead.

First Challenge: Scale

In raw material markets where companies like Unilever are key customers, they can use their scale to help drive change and encourage best practices, but market-moving customers have to work fast to encourage suppliers to provide sustainable materials on the scale they need. For example, Unilever is the world's biggest buyer of palm oil, procuring more than one million tons each year, and is currently the largest buyer of GreenPalm certificates in the market.

In the long term, Unilever's ambition is to develop segregated and traceable sources of supply. Although the company has started this, it will take time to achieve; in the interim we will continue to buy GreenPalm certificates.

However, one company cannot transform the market alone. More companies must act on similar commitments. In markets where such companies are smaller players and their ability to influence the market is correspondingly less, they need to find ways of working with non-competitive companies to build their sustainability efforts.

As Unilever makes progress on its top 10 agricultural raw materials, its focus will shift toward the "next 30" ingredients, where collaboration with other buyers becomes even more important.

Second Challenge: A Fragmented Primary Producer Base

On the agricultural side, smallholder farmers make up 85% of the world's farmers. Simply identifying all the possible sources of sustainably produced raw materials therefore becomes a huge logistical challenge. It has committed to improve the livelihoods of 500,000 smallholder farmers in the supply chain, providing them with tools and support to deliver sustainable yields. By doing so, the quality of farmers' livelihoods should improve, while food security should increase and collaboration on certification systems should bring the cost of traceability down.

Third Challenge: Developing Common Standards

Only a third of Unilever's agricultural raw materials can be sourced against current certification standards. Its brands are working to certify their raw materials with certifications like Rainforest Alliance and FairTrade and through roundtables like the Forest Stewardship Council and the Roundtable on Sustainable Palm Oil. In regions where there is no global or national standard, it has to work with industry bodies and roundtables to develop them and ensure that primary producers apply them.

For the other two-thirds of its renewables, it has developed standards in the last 15 years, which are now embodied in the Unilever Sustainable Agriculture Code. Suppliers are asked to assess their farmers against 11 key indicators, from using less water and pesticides to grow crops, to protecting biodiversity. A new piece of software has been developed to help farmers keep track of their progress and identify opportunities for continuous improvement.

Partnering to Win

The common theme in all aspects of this work is collaboration - not always a strength for large multinationals. In developing the Unilever Sustainable Living Plan, the company recognized that it had to accelerate the development of a collaborative business culture.

A major step forward has been through the development of a program called Partner to Win, working with suppliers on collaborative innovation and sustainability programs, in which Unilever shares consumer insights that drive R&D focus.

The Non-Renewable Challenge

Unilever is now looking at how it can responsibly source its non-renewable materials, which account for around 50% of inputs. It has mapped all its non-renewable raw materials (both mined and petrochemicals) to the primary raw materials and will deploy, in cooperation with suppliers, a program of reduce, replace and recycle to lower its dependency on these materials, and to reduce the carbon and water footprints attached to them. A pilot project with the Quarry Working Group of The Forest Trust is investigating labor conditions in some of the quarries it uses.

Procurement strategies need to understand and support the ecosystems of suppliers, customers and consumers. Price-based relationships are over. Value-based relationships are the key to a sustainable future.