Why Terry Smith must take responsibility for his immense influence (a defence of Unilever)

A public attack of consumer goods company Unilever by one of the most influential investors in the UK has left some people scratching their heads and others cheering in accord. But whether we agree with Smith about Unilever’s sustainability credentials is rather beside the point. 

Terry Smith’s latest letter to shareholders features his usual frank, and some might say provocative approach to communicating with holders of his flagship fund. 

As a darling of retail investors, Smith’s Fundsmith Equity Fund has been one of the most popular portfolio holdings among this cohort over the past decade. It is also a favourite with advisers and, according to data from AJ Bell, saw the most flows of any fund in 2021 via its Investorcentre platform. As of 31 December 2021, it was inching towards £30bn in assets – the largest equity vehicle in the UK. 

This popularity brings with it both influence and responsibility. While he might not be at ‘Oracle of Omaha’ (Warren Buffett) status yet, he is certainly a British equivalent – the Maven of Mauritius maybe, given this is where he runs his business from. 

In his update Smith made specific reference to Unilever, one of the largest holdings in his fund, which has more recently “detracted from performance”. As usual, his comments made for compelling headlines.  

Courting publicity at what cost? 

In searching Google News, the term “Terry Smith” brings up six stories related to his views of Unilever on solely the first page of results. These are published across a mix of consumer and trade publications.  

Fair enough, saying something quotable is all part of the game and an entirely valid way to build brand recognition. But, at the same time, my concern is that beneath all the bluster some valid points risk being missed.  

His comments imply that the FMCG giant’s position as a detractor in his portfolio is a consequence of their sustainability efforts. This feels like a step backwards in our understanding of the role sustainability can play and feeds the misconception that a focus on sustainability goals necessitates a performance sacrifice. Research shows otherwise.1 

As marketers bringing the stories behind investments alive, we must take responsibility for what we say and how it is interpreted. Much attention has been paid to a cheap joke Smith made about “defining the purpose” of Hellmann’s mayonnaise, one of Unilever’s core brands.  

We are aware of the fun poked at marketing buzzwords (and would be lying if we said we didn’t occasionally find mirth in them ourselves). But sustainability is not a buzzword and it is dangerous to suggest it is.  

A cheap shot or a legitimate concern? 

Smith’s attempt at humour distracts from a decade of commitment Unilever has dedicated to making sustainable living more commonplace through its sustainable living plan. 

In those 10 years the company has:  

  • Reached 1.3 billion people through health and hygiene programmes. 
  • Reduced the total waste footprint per consumer use of their products by 32%, and achieved zero waste to landfill across all their factories. 
  • Reduced greenhouse gas emissions from their own manufacturing by 65%, and achieved 100% renewable grid electricity across their sites. 
  • Enabled 2.34 million women to access initiatives aiming to promote their safety, develop their skills or expand their opportunities.
  • Continue to get closer to their goal of a gender balanced workplace in which 51% of management roles are held by women. 
  • Met recognised High Nutrition Standards in over 50% of their foods portfolio and reduced sugar across all their sweetened tea-based beverages by 23%. 

I would argue a business cannot be too focused on sustainability; corporate responsibility is real. However, it should certainly spend more time focusing on what is material and tangible than talking about it. Despite the sarcastic tone, the mayonnaise example probably resonates with consumers who are already sceptical about the sustainability claims being made by businesses and increasingly on the lookout for greenwashing. 

It is undeniable that Unilever’s business model relies heavily on the volume of product sold. This is somewhat at odds with trying to prioritise lower levels of consumption globally, given population growth and finite resources on our planet. How businesses reconcile this with the need to provide returns for investors is a major challenge for capitalist economies on the path to net zero.  

Out of touch and out of place 

In a post-COP 26 environment, many political and business leaders are waking up to the need for businesses and society to behave more sustainably. As such, investing sustainably is not merely a ‘style’ but a necessary shift to safeguard our chance of a prosperous future. This makes Smith’s dismissive attitude to a pioneer like Unilever not only disheartening but also damaging to the broader aim of moving the investment industry (and investor opinion) in the right direction. 

What is his end goal in taking this stance then: to provoke Unilever into making the changes he believes they should? Or simply to make sure he starts the year in the news, and for different reasons than his own recent relative underperformance? 

As believers in the importance and impact of genuine sustainable investing, we hope to see more nuance in his next update. For the sake of Unilever but also for the benefit of end investors’ understanding. 

Our ongoing research into retail investor and adviser attitudes to sustainable investing narrows in on the challenges asset managers face. We can provide a strategic assessment of your business’ approach and give actionable recommendations for progress.  

Get in touch to find out more.