Unilever 2009 Annual Report Download - page 36

Unilever Annual Report and Accounts 2009 33
Description of risk What we are doing to manage the risk
Consumer safety and environmental sustainability
• Maintaining high social and environmental standards
• Designing and producing products that are safe for
consumers
• Building an environmentally sustainable business
Unilever has developed a strong corporate reputation over many
years for its focus on social and environmental issues, including
promoting sustainable development and utilisation of renewable
resources. The Unilever brand logo, now displayed on all our
products and advertising, increases our external exposure. Should
we fail to meet high product safety, social, environmental and
ethical standards across all our products and in all our operations
and activities it could impact our reputation, leading to the rejection
of products by consumers, damage to our brands including growth
and profitability, and diversion of management time into rebuilding
our reputation.
We aim to grow our business while reducing our environmental
impact. The environmental measures that we regard as most
significant are those relating to the amounts of CO2from energy
that we use, the water we consume as part of our production
processes and the amount of waste that we generate for disposal.
Failure to design products with a lower environmental footprint
could damage our reputation and hence long-term cash flow,
turnover, profits and/or profit margins.
Our Code of Business Principles and other operational and business
policies are designed to ensure that we consistently maintain high
social and environmental standards, and we have established
processes to track performance in these areas. Our strategy benefits
from the insights of the Unilever Sustainable Development Group,
comprising five external specialists in corporate responsibility and
sustainability, that guide and critique the development of our
strategy.
Detailed operational policies and procedures ensure that quality and
safety are built in to the design, manufacture and distribution of all
of our products. Procedures are also in place to respond quickly to
consumer safety and quality incidents including provision to initiate
product recalls where necessary.
Our ‘Brand Imprint’ process ensures that the direct and indirect
environmental impacts of our products and brands are assessed in a
consistent way across the value chain. Specific targets have been
set against our environmental impact ambitions, and progress is
monitored and published in the annual Sustainable Development
Report.
Operations
• Securing raw materials and key third-party services
• Maintaining safe, secure and operational production and
distribution capability
• Maintaining a competitive cost structure
• Handling major incidents and crises
Our ability to make products is dependent on securing timely and
cost-effective supplies of production materials, some of which are
globally traded commodities. The price of commodities and other
key materials, labour, warehousing and distribution fluctuates
according to global economic conditions, which can have a
significant impact on our product costs. For example, in 2008 we
saw unprecedented increases in many of our commodity costs,
including edible oils and crude oil. If we are unable to increase
prices to compensate for higher input costs, this could reduce our
cash flow, profits and/or profit margins. If we increase prices more
than our competitors, this could undermine our competitiveness
and hence market shares.
Further, two-thirds of the raw materials that we buy come from
agriculture. Changing weather patterns, water scarcity and
unsustainable farming practices threaten the long-term viability of
agricultural production. A reduction in agricultural production may
limit our ability to manufacture products in the long term.
We are dependent on regional and global supply chains for the
supply of raw materials and services and for the manufacture,
distribution and delivery of our products. We may be unable to
respond to adverse events occurring in any part of this supply chain
such as changes in local legal and regulatory schemes, labour
shortages and disruptions, environmental and industrial accidents,
bankruptcy of a key supplier or failure to deliver supplies on time
and in full, which could impact our ability to deliver orders to our
customers. Any of the foregoing could adversely impact our cash
flow, turnover, profits and/or profit margins and harm our
reputation and our brands.
We have strategies and policies in place to monitor short- and
long-term raw material demand forecasts. These are used to
determine future production requirements and facilitate the
forward-buying of traded commodities to reduce future volatility of
commodity costs. We have contingency plans to enable us to secure
alternative key material supplies at short notice, to transfer/share
production between manufacturing sites and to use substitute
materials in our product formulations and recipes.
We have programmes of regular preventative maintenance for
key lines and production sites. We have in place mandatory
occupational health and safety policies to ensure the well-being
and safety of our employees, including procedures for regular self-
certification.
We regularly undertake value improvement programmes to identify
cost/value opportunities in direct and indirect costs. We benchmark
internal product and service costs against external providers and we
regularly model our production, distribution and warehousing
capability to optimise capacity utilisation and cost.
We routinely assess potential threats to our operations that could, if
they materialise, give rise to a major incident or crisis. We review
the appropriateness of our incident response, business continuity
and disaster recovery plans taking into account external
developments.