Will Unilever and Ben and Jerry’s Split Impact Other B-Corporations? A Deeper Look at the Financial Performance

Recently, consumer goods giant Unilever announced that it would be separating from its Ice Cream division, helmed by premium American ice cream brand Ben & Jerry’s. The announcement, part of the company’s aggressive Growth Action Plan (GAP), essentially severs ties between the multinational corporation's ice cream brands, including Magnum, Walls, and Cornetto. The aim, per Unilever, is to have the brands become a stand-alone entity.

Initial headlines zeroed in on Ben & Jerry’s, a certified B-Corp with a history of being publicly outspoken on social justice issues. The premium ice cream brand has been at odds with its parent company several times in the past and is one of the pioneers of social justice-driven companies.

For people who watch the performance and outlook of sustainable companies and B-Corporations, this news may be alarming or potentially a sign of the vulnerability of B-corps to a very volatile market. But looking beyond the headline, we find a much more straightforward business story. 

In this article, we will examine Unilever's financial performance and the current economic environment that led to this decision.

Unilever and Ben & Jerry’s: A Unique History

Before becoming a Certified B-Corp in 2012, Ben & Jerry’s was at the forefront of the socially responsible business model, often publicly committing to various causes. So it was no surprise that when they were acquired by Unilever in 2000 for $326 million, after four months of intense negotiations, the partnership was unique and driven by the ice cream maker’s commitments to social and economic justice.

Unilever agreed to several unique stipulations for the acquisition, such as committing 7.5% of Ben & Jerry’s post-acquisition profits to a foundation and establishing a $5 million fund for minority-owned businesses. 

Ben & Jerry’s also established an independent board of directors, which it still maintains to this day. This unique governance structure was presented in detail in our Ben & Jerry’s Case Study in 2016.

Over the past 24 years, ideological differences have existed between Unilever and Ben & Jerry’s. Based on popular media headlines, the casual reader may infer that the companies decided to split ways after what was sometimes a rocky road. However, a holistic view of Unilever’s recent financial performance tells a much more nuanced story.

The Financial Story Behind Ice Cream at Unilever

Despite owning some of the largest food and personal care brands on the market, Unilever’s lackluster financial performance and strategic missteps hamper the company’s growth and potential. Overall performance in 2023 was flat or declining, with a nearly 14% decline in net profit. In Q3 of that year, the company reported underlying sales growth of 5.2%, with 5.8% price growth and 0.6% volume decline. 

That same quarter, the company’s CEO, Hein Schumacher, hired earlier that year to overhaul Unilever's profit, culture, and innovation, announced his highly anticipated action plan (GAP). The GAP focuses on accelerated growth, a simpler brand portfolio, and building back gross margin.

The decision to spin off Ice Cream becomes much clearer with that additional context. Ice Cream, as a whole, does not perform as well as other Unilever brands; in 2023, It grew a modest 2.3% compared to Unilever’s well-being, beauty, and personal care business, which grew 8%. Additionally, the company’s profit margins in ice cream are less than half that of wellbeing and personal care. Unilever also previously identified 30 brands that account for 70% of sales, none of which are in ice cream. For a company trying to simplify, innovate, and regain its financial footing, a business with higher price elasticity and thin profit margins may pose a serious problem for long-term growth.

 In a nutshell, ice cream isn’t growing as fast as other sectors. On top of that, consumers are opting out of premium ice cream brands in the wake of inflation and a looming recession. 

Feeling the Pinch of Inflation and Dwindling Consumer Demand

Ice cream’s underperformance is not unique to Unilever–between inflation and consumer demand, premium products like name-brand ice cream are not a priority for the average consumer. According to reports, the prices of groceries rose more in 2022 than in the previous four decades, and consumers are paying 25% more for groceries than in 2019, outpacing inflation in almost every other sector. 

Consumers are responding to these prices by trading down to save money. In a 2023 McKinsey report, 66% of consumers stated they sought out less expensive goods, and that switch was more prominent in categories such as meat and dairy. With Unilever’s portfolio carrying premium ice cream brands, the outlook is dire for growth and profitability, a fact the brand previously shared in its 2023 report: 

“It has been a very disappointing year for Ice Cream with price elasticity in the in-home channel much more negative than that seen in other categories, and strong consumer down-trading to private label. ”

— Unilever 2023 fiscal year report

Coupled with ongoing financial performance issues and their aggressive action plan, cutting ice cream from the overall portfolio makes sense.

Is this Activist Investor Behind Unilever’s Decision?

The day Unilever announced the separation of the ice cream portfolio, shares were up, with some publications reporting a nearly 6% increase in share price at one point. The stock’s movement underscores another significant component of the decision to offload ice cream: keeping investors happy. Investors and analysts have been vocal about their displeasure with Unilever’s performance, and after an unsuccessful attempt to acquire pharmaceutical company GlaxoSmithKline’s consumer goods division, questions about the company’s direction arose.

Enter Nelson Peltz. Peltz, a vocal and prominent activist investor, joined Unilever’s board as a non-executive director in 2022. One of the founding partners at Trian Partners, an alternative investment management fund based in New York City, Peltz has a long history of working with consumer goods companies to increase profitability and stock performance. He has previously used his influence to institute similar changes at Invesco, Sysco, Mondelez and, most famously, Proctor & Gamble (P&G). 

When the NYC-based investor and billionaire joined Proctor & Gamble’s board after a high-profile proxy war, he made similar demands: streamline and simplify. In response, the makers of Tide reorganized operations from ten to six business units and held a stable market share. The proposed changes also paid off for investors: P&G stock gained 47%, and revenue increased 20% between Q1 2018 and Q4 2022.

Investor pressure is often a driving force for significant changes like those currently underway at Unilever, and based on Peltz’s history, there may be a net positive for investors. However, that doesn't mean this is the end of ice cream.

What’s Next for Ben & Jerry’s?

While the ice cream division may not be a top performer at Unilever, it is still profitable. The collective brands are valued at around $18.4 billion. As for beloved brand Ben & Jerry’s, there are several potential go-forward strategies:

• Unilever executes a demerger, where the parent company splits from the subsidiaries, and they are either liquidated or set up as a new entity. Ben & Jerry’s would remain a part of this new entity, which could potentially debut a listing in either London or Amsterdam 

• Ben & Jerry’s could raise capital and become a private company again, essentially repurchasing themselves from Unilever

• A competitor, such as P&G or Nestle, could acquire either the entire ice cream portfolio or negotiate for one or more of the ice cream brands separately

The future is unclear, and Unilever’s announcement says that the process will take around two years to complete. Whatever the company decides, this is an excellent reminder of the importance of looking beyond headlines and analyzing the complete picture of any company’s financials and current business environment. 

A proud Benefit Corporation, the team at Keene Advisors is well-versed in understanding the unique benefits and challenges of Certified B-Corporations. We became a Certified B Corporation in 2016 and were recognized as Best for the World in 2017 and again in 2018 and 2019. It is part of our stated mission to partner with other innovative socially-responsible companies in their quest to grow. Read more about our Areas of Expertise and Contact Us today for a complimentary consultation.

Disclaimer: This commentary is intended for general informational purposes only. Keene Advisors does not render or offer to render personalized financial, investment, tax, legal or accounting advice through this report. The information provided herein is not directed at any investor or category of investors and is provided solely as general information. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action. Keene Advisors does not provide securities related services or recommendations to retail investors. Nothing in this report should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.

Are there Financial Benefits to Corporate Sustainability Objectives?

Last year, the U.S. economy produced Real GDP growth of 2.5%, up from 1.9% in 2022, growth that was largely propped up by resiliency in consumer spending which represented $18.5 trillion in 2023 or over two-thirds of U.S. gross domestic product.

Consumers hold the power, so it’s no wonder that companies have been aligning their business objectives to shifting consumer demands. No area is this more visible than in the shifting focus to sustainable business practices. Research from IBM shows that 85% of consumers consider sustainability to be an important factor when choosing a brand, with 62% admitting that they were willing to change their purchasing behavior to help reduce negative impacts on the environment. A corporate focus on sustainability and ESG (Environmental, Social & Governance) goals is not only good for the world, but it’s good for business.

Sustainability Gives Customers What They Want

Business success largely hinges on giving the customers what they want — and these days, customers want to shop with businesses that prioritize ESG goals and sustainable business practices. Over the past five years, there has been a 71% increase in sustainability-related online searches relating to global goods and McKinsey & Co. reports three-quarters of millennial survey respondents and two-thirds of all respondents say sustainability is a factor in their purchasing decisions from a particular company.

But are ESG Initiatives Profitable?

There are two ways to answer that question: assessment of downside risk and consideration of upside financial opportunity.

Downside Risk: The Cost of Doing Nothing

Climate scientists agree that the rate of global climate change has been surging at an alarming pace throughout the past decade and that the current response to halt climate change or reverse the damage done is woefully inadequate.

As a result, business leaders have recognized the potentially massive cost of doing nothing to increase global sustainability. The estimated cost of the large-scale impacts of climate change, from worsening hurricanes to the increased frequency and scale of wildfires, to the impact of snowfall and flooding is growing exponentially. The Office of Management and Budget (OMB) estimates that the financial impact of inaction on climate change will cost US consumers in excess of $2 trillion annually. Humanitarian impact aside, the more consumers must spend on clean-up from climate change related disasters, the less they will have to spend to support the rest of the economy and that hurts businesses.

Upside Opportunity: Increase Revenue with Operations Improvements that are Viable

Some immediate gains in both sustainability and increased profitability can be realized by addressing waste and inefficiency in a company’s operations. Focusing on efficiency improvements can help ensure the long-term viability of sustainability practices. Business leaders can start their efforts by focusing on three key areas:

1. Improving resource management by eliminating waste and reducing operational costs.

2. Enhancing supply chain management that limits environmental harm throughout the value chain and identifies areas for margin expansion.

3. Ongoing fostering of innovation to continue to identify sustainability opportunities and fine-tuning current processes to increase cost reduction and expand revenue generation.

Financial Benefits of Adopting Sustainable Business Practices

Increasing Profitability Through Cost Savings

Sustainability strategies like reducing resource consumption, energy usage, and material waste can lead to corporate cost savings.

Photo credit: Packages at an Amazon same-day site

An example of environmental cost savings translating into financial success is Amazon’s recent cost-cutting initiatives. Amazon has publicly committed to aggressive sustainability goals  like aiming to use 100% renewable energy in its operations by 2025. Yet in their most recent earnings report, sustainable cost cutting initiatives, such as changing their fulfillment logistics from a National to Regional model not only reduced the distance that packages need to travel to reach customers, but also helped expand operating margin to 7.8%, a near 6% improvement from a year prior when it was 2%. Another strategic cost-cutting and environmentally-friendly component involved filling trucks with more products, reducing the total number of trips they’d have to make. Not only did this decrease Amazon’s environmental impact, but it also saved money on labor, gas, and vehicle maintenance, allowing for margin expansion.

Expanding Opportunities for Revenue Growth

Tangentially, businesses have the opportunity to embrace sustainable practices that can result in revenue growth. The National Institute of Health published research indicating increased customer satisfaction due to green-friendly practices which can directly impact customer adoption and retention. There’s a direct connection between increased customer satisfaction levels with increased word-of-mouth and loyalty, which may drive down a company’s customer acquisition costs. As well, the NIH research indicated a consumer willingness to pay more for sustainable products, which may give sustainable businesses more pricing power.

The challenge for each business is understanding how to tap into their target market’s specific preferences as they implement sustainability practices.

The footwear giant Adidas partnered with Certified B Corporation Allbirds to design and launch their first shoe designed with one material, called FUTURECRAFT. By investigating reusable materials, Adidas and Allbirds are poised to launch an athletic shoe with only one material – that would make it more easily recycled after use. By tapping into their consumer’s preferences, Adidas and Allbirds innovated a new product segment that will drive revenue growth.

With projections show the global sustainable footwear market reaching $13.0 billion by 2030, driven in large part by consumer demand, Adidas and Allbirds are responding to these forecasts insightfully.

Steps For Developing a Sustainable Growth Strategy

To get started developing a sustainable growth strategy, we’ll break down the steps that are crucial in identifying and implementing sustainability practices into your business:

Conduct A Sustainability Audit: A sustainability audit assesses a business’s environmental impact and creates a baseline from which improvements can be measured. The key areas to audit include:

• Waste systems, materials purchasing, and recycling efforts

• Energy usage and energy efficiency

• Water usage

• Measuring your business’s carbon footprint

• Identifying inventory waste

One a baseline is established in these areas, focus on reducing energy-based inefficiencies, reducing waste and surplus purchasing, increase recycling efforts, and implement commitments to optimize resources in an effort to reduce the company’s carbon footprint. These improvements in operational efficiency will not only reduce your business’s environmental burden, but will also improve profitability as costs decrease.

Set Clear and Attainable Goals: When setting goals, make them measurable, time-bound, and highly specific. Record your baseline, as measured across several impact areas above, then set aspirational yet achievable targets for your company to achieve. Consider the differences between ‘upstream’ impacts (i.e., purchased goods or services) and ‘downstream’ impacts (e.g., the end of a product’s useful life or what the products are used for) and look to find synergies to achieve multiple impact goals simultaneously.

For example, suppose your company found has set a measurable goal to reduce waste by 10% in 1-year and decrease surplus purchasing by 15%. These are both aspects of “upstream” impacts that could be combined into the same operational efficiency tactic that will be implemented across your organization.

Invest In Sustainable Technologies: Technology plays an integral role in enabling and maintaining sustainable business practices. From implementation of digital marketing and remote work policies, to investing in energy-efficient data centers and developing sustainable building designs, there are multifaceted ways that companies can leverage technology productively. Include a sustainability impact analysis in your technology purchasing decisions. By including measurable sustainability goals, the return on investment (ROI) of your technology purchasing decisions may increase.

Engage Stakeholders: Communication and feedback from your key constituencies will be key to ensuring that your sustainability goals are in-line with stakeholder objectives, and will increase accountability across the organization. Buy-in into a company’s sustainability journey from investors, employees, customers, suppliers, and surrounding communities ensures that the influential stakeholders are on the same page and improve the chance of long-term success. Essential steps include understanding what key constituencies expect, defining desired outcomes and objectives, and clear/consistent communication.

Monitor, Report, and Adjust: Set up systems to monitor progress, provide transparent sustainability reports, and course correct/pivot when necessary. Include defining key performance indicators (KPIs), gathering and analyzing data on sustainability metrics, creating progress reports, soliciting stakeholder feedback, implementing technology, and seeking third-party verification in your reporting process.

Learn by Example: There are many great case studies and examples of companies implementing sustainable and profitable business practices to glean inspiration:

Consumer goods manufacturer and supplier Unilever has committed to switching 100% of their energy to renewable sources by 2030. They detail their successes and challenges in doing so.

International furniture retailer IKEA is planning to eliminate plastic packaging by 2028.

Hundreds more companies have overhauled traditional marketing practices to accelerate the transition to digital and reduce waste.

Many more inspiring examples and tactics can be found here.

Ultimately, investing the time and resources to develop sustainable business practices are not only good for the world, but can improve a company’s long-term financial performance.

Whether you’re a startup or a Fortune 500 company, Keene Advisors offers a trusted partner to companies looking to increase sustainability while bolstering their bottom line. Contact us today with your inquiries.

Disclaimer: This commentary is intended for general informational purposes only. Keene Advisors does not render or offer to render personalized financial, investment, tax, legal or accounting advice through this report. The information provided herein is not directed at any investor or category of investors and is provided solely as general information. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action. Keene Advisors does not provide securities related services or recommendations to retail investors. Nothing in this report should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.

Navigating Capital Raising as a B-Corporation: Opportunities and Challenges

B-Corporations, recognized for their commitment to social and environmental responsibility, navigate a unique path in the business world, especially when it comes to raising capital. The dual focus on profit and purpose sets B-Corporations apart, presenting both advantages and hurdles in the pursuit of capital partners. This article delves into the impact of B-Corp Certification on the capital-raising process, highlighting the pros and cons companies may encounter.

The Capital Raising Landscape for B-Corporations 

Certified B-Corporations strive to balance profit with the planet and people. This approach can significantly impact the process of raising capital, including the types of likely investors, the due diligence process, and corporate governance discussions, among others. 

The Rise and Influence of “Impact Investors” 

When seeking investment, B-Corporations are often attracted to a specific subset of the financial community that values sustainability and ethical business practices alongside financial returns.  These investors, often referred to as Impact investors, are individuals, groups, or institutions that allocate capital with the intent of generating not only financial returns but also positive social and environmental outcomes. Unlike traditional investors, who primarily focus on financial performance, impact investors aim to also address global challenges such as climate change, poverty, and inequality through their investments. This approach is rooted in the belief that capital can and should work to create a more sustainable and equitable world.

Impact investing spans a wide range of sectors and industries, including renewable energy, sustainable agriculture, microfinance, affordable housing, and healthcare, among others. Investors may use various financial structures, such as equity capital, debt financing, and even grants to support businesses, nonprofits, and funds that align with their environmental or social impact goals.

The field of impact investing has grown significantly in recent years, attracting attention from mainstream financial institutions, philanthropic foundations, and individual investors. This growth reflects a broader shift toward responsible and sustainable investing, driven by a growing recognition of the interconnectedness between social, environmental, and economic well-being.

The Process of Raising Capital

Raising capital as a B-Corporation is not altogether different than raising capital as a C-Corporation. For B-Corporations, this will also include several key steps that detail the company's commitment to transparency, accountability, and social impact:

1. Preparation: Articulating the company's environmental and social impact alongside its financial potential is crucial. This includes preparing detailed reports and forecasts that highlight both economic performance and environmental and social contributions.

2. Targeting the Right Investors: B-Corporations often target Impact Investors, social venture capital firms, and ethical investment funds that are more likely to value the company's mission. However, companies shouldn’t entirely rule out traditional financial investors. If the company’s financial profile and growth story are exciting and the company has a specific brand advantage due to B-Corporation Certification, traditional investors such as family offices, Private Equity and/or Venture Capital firms may also be viable partners.

3. Due Diligence and Negotiation: Potential investors will conduct a thorough evaluation of the financial and legal health of the B-Corporation prior to an investment. In addition, the three main criteria of becoming and maintaining B-Corporation Certification, verified social and environmental performance, legal accountability, and public transparency will be thoroughly assessed as part of the diligence process. Similarly, terms of an investment may include specific clauses related to maintaining or enhancing social and environmental performance, particularly if the investors also have an impact mandate.

Benefits of Raising Capital as a Certified B-Corporation

• Alignment with Impact and Socially-Motivated Investors: B-Corporation Certification is likely to appeal to Impact Investors who are specifically looking to support businesses that align with their mission-driven investment thesis.

• Differentiation in a Crowded Market: The B-Corporation Certification can help companies stand out to potential investors by demonstrating a commitment to environmentally responsibility, ethical business practices, and long-term sustainability. In addition, leveraging the B-Corporation brand as a marketing tool in fundraising efforts may help companies reach investor audiences specifically aligned with their current and future goals. Many investors view the focus on sustainability and ethical business practices as indicators of long-term viability and resilience, making Certified B-Corporations attractive investment candidates.

• Access to a Supportive Community and Network: The Certified B-Corporation network can provide valuable connections, resources, and support during the capital-raising process. Connecting with fellow B-Corporations who have forged the same path may illuminate opportunities and create new networking opportunities.

Potential Difficulties of Raising Capital as a Certified B-Corporation

• Perceived Financial Trade-offs: Some traditional investors may still perceive a trade-off between an environmental or social impact and financial returns, potentially limiting the pool of potential investors. B-Corporations would do well to lead conversations with traditional investors by sharing the financial growth profile of their company, then sharing evidence that investing in sustainable business practices leads to improved financial outcomes as shown in multiple research studies including a recent initiative through the NYU Stern Center for Sustainable Business and Rockefeller Asset Management.

• Rigorous Reporting Requirements: The need for detailed impact reporting to maintain Certified B-Corporation status can be resource-intensive, potentially diverting time and resources from other areas of the business. While the recertification process takes place every three years, there are ongoing impact tracking and disclosure requirements that will have to have committed resources.

• Pressure to Balance Profit and Purpose: Maintaining the balance between profit and purpose can be challenging, especially when facing investor expectations for outsized financial performance. Aligning expectations between company management and potential investors prior to closing a fundraising can help alleviate this pressure in the future.

Being a Certified B-Corporation presents a unique set of opportunities and challenges in the capital-raising process. While the certification can attract like-minded investors and differentiate a company in a crowded market, it also requires a careful balance of profit and purpose. By effectively leveraging their commitment to social and environmental responsibility, Certified B-Corporations can navigate the complexities of raising capital, securing the resources they need to grow and deepen their impact.

A proud Benefit Corporation, the team at Keene Advisors is well-versed in understanding the unique benefits and challenges of raising capital as a Certified B-Corporation. We became a Certified B Corporation in 2016 and were recognized as Best for the World in 2017 and again in 2018 and 2019. It is part of our stated mission to partner with other innovative socially-responsible companies in their quest to grow. Read more about our Areas of Expertise and Contact Us today for a complimentary consultation.

Disclaimer:

This commentary is intended for general informational purposes only. Keene Advisors does not render or offer to render personalized financial, investment, tax, legal or accounting advice through this report. The information provided herein is not directed at any investor or category of investors and is provided solely as general information. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action. Keene Advisors does not provide securities related services or recommendations to retail investors. Nothing in this report should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.

Leveraging UN Sustainable Development Goals for Corporate Sustainability Planning

In an era where sustainability has transitioned from a buzzword into a business imperative, companies worldwide are seeking frameworks and strategies to integrate sustainable practices into their core operations. The United Nations Sustainable Development Goals (SDGs) offer a comprehensive roadmap for addressing global challenges such as climate change, inequality, and environmental degradation. For businesses, the SDGs not only represent an opportunity to contribute to global efforts but also provide a strategic framework for developing robust sustainability plans that can drive innovation, enhance brand reputation, and open new markets.

Understanding the SDGs in a Business Context

The SDGs comprise 17 goals with 169 targets that cover a broad spectrum of economic, social, and environmental objectives:

While the scope of the SDGs is quite broad, it also means that companies are likely to find areas of alignment between their business operations and several of the goals. Identifying these alignments is the first step in leveraging the SDGs for sustainability planning.

 Steps for Integrating SDGs into Corporate Sustainability

1. Conduct a Materiality Assessment: Begin by narrowing down the list by assessing which SDGs are most relevant to your business operations, supply chains, and stakeholder expectations. This involves conducting a materiality assessment to identify the economic, environmental, and social issues that are significant to your company and your stakeholders. The outcome of this assessment will help prioritize the SDGs that your sustainability plan should focus on.

2. Set Clear, Measurable Targets: Once you've identified the relevant SDGs, the next step is to set specific, measurable, achievable, relevant, and time-bound (SMART) targets. These targets should align with the broader objectives of the chosen SDGs but be tailored to reflect your company’s capacity, resources, and strategic direction.

3. Integrate SDGs into Business Strategy: Integrating the SDGs into your business strategy involves embedding sustainability into the core of your business operations and decision-making processes. This could mean innovating new products or services that contribute to the SDGs, improving efficiencies to reduce environmental impacts, or implementing social initiatives that benefit communities and employees.

4. Collaborate and Partner: Achieving the SDGs requires collaboration across sectors and industries. Companies can enhance their impact by partnering with governments, non-profits, and other businesses to launch joint initiatives, share best practices, and leverage collective resources. These partnerships can amplify efforts and contribute to the achievement of the SDGs on a larger scale.

5. Report and Communicate Progress: Transparency is key to sustainability efforts. Companies should report their progress towards achieving their SDG-related targets regularly. This not only helps in maintaining accountability but also strengthens stakeholder trust and enhances the company’s reputation. Utilizing frameworks like the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB) can help in reporting progress in a structured and recognized manner.

Benefits of Aligning with the SDGs

• Reputation and Brand Loyalty: Companies that actively contribute to the SDGs can improve their brand image, attracting customers and investors who prioritize sustainability

• Innovation and Market Opportunities: The SDGs can inspire innovation, leading to the development of new products and services that meet emerging market needs

• Risk Management: Addressing sustainability risks aligned with the SDGs can protect companies against environmental, social, and governance (ESG) risks

• Attracting Talent: Companies committed to sustainability are more likely to attract and retain employees who value purposeful work

• Attracting Mission Aligned Capital: Companies committed to sustainability are more likely to attract values-aligned investors

Public Accountability

While many companies have declared sustainability initiatives, far fewer have publicly aligned their sustainability initiatives to the UN SDGs, reducing the ability to quantify impact and measure accountability. Tangible examples of some of the largest companies in the world who are leading the way in aligning with the UN SDGs include:

Nike

Nike has publicly declared their commitment to several SDGs, including:

• Good Health and Well-being (SDG 3): Nike aims to encourage physical activity and healthy lifestyles among children and communities worldwide. The company supports various sports and physical education programs to foster a culture of health and wellness

• Gender Equality (SDG 5): The company has initiatives aimed at promoting gender equality, including support for female athletes, and gender diversity in its workforce

• Responsible Consumption and Production (SDG 12): Nike focuses on creating products in ways that minimize environmental impact. This includes increasing the use of sustainable materials, reducing waste in the production process, and promoting circular economy principles such as designing products for longevity and recyclability

• Climate Action (SDG 13): Nike has been proactive in reducing its carbon footprint through initiatives like using renewable energy in its facilities, improving energy efficiency, and promoting low-carbon transportation

• Partnerships for the Goals (SDG 17): Nike partners with governments, NGOs, and collaborates with other businesses to amplify its impact on sustainable development

Updates are published annually in Nike’s Impact Report.

Meta

Meta’s efforts to work toward the UN’s Sustainable Development Goals are presented in detail on the company’s website. Some of the highlights include:

• Good Health and Well-being (SDG 3): Aligned with thousands of regional partners, Meta's technology facilitated the registration of more than 100 million people worldwide for blood donation notifications, contributing to a 19% increase in donations from first-time donors at partner sites

• Gender Equality (SDG 5): Meta has actively supported women-owned small businesses and worked to build entrepreneurial and digital skills among women globally. Programs like #SheMeansBusiness have equipped over 1 million women in 28 countries with training and mentorship to grow their businesses on Meta's platforms​

• Decent Work and Economic Growth (SDG 8): Meta's projects that their personalized advertising has supported economic growth for over 200 million small businesses and 10 million advertisers worldwide

• Industry, Innovation, and Infrastructure (SDG 9): Meta collaborates globally to increase access to affordable, reliable, high-speed internet, especially in unconnected and under-connected regions

• Climate Action (SDG 13): Meta has publicly committed to a zero-carbon economy and has maintained net zero GHG emissions in its global operations for the past three years. The company is also committed to becoming water positive by 2030, restoring more water to the environment than it consumes for its global operations

LEGO

While LEGO is a privately held company, they have publicly declared alignment with UN SDGs that make the greatest impact on the lives of children:

• Quality Education (SDG 4): LEGO promotes the integration of children’s play in early childhood development efforts and directs 25% of the LEGO Group’s profits towards providing children access to programs that encourage learning through play

• Responsible Consumption & Production (SDG 12): LEGO is reducing single-use plastics from their packaging, is incorporating more sustainable materials into the production of their core products, and reducing the carbon footprint of bringing their products to market

More of LEGO’s reporting on sustainability efforts can be found in their Impact Report.

Double Bottom-Line

When companies design transparent, measurable policies that work toward the UN’s Sustainable Development Goals, they can contribute to global challenges while simultaneously driving growth, innovation, and competitive advantage. The journey towards sustainability is a continuous process that evolves rapidly, but by leveraging the SDGs, companies can ensure their efforts are both impactful and aligned with global priorities, paving the way for a sustainable future.

Keene Advisors, a Benefit Corporation, offers a wide variety of strategic and financial consulting to help companies navigate their corporate directives, including sustainability mandates. Contact us today for a complimentary consultation.

Disclaimer: The content of this publication has not been approved by the United Nations and does not reflect the views of the United Nations or its officials or Member States. This commentary is intended for general informational purposes only. Keene Advisors does not render or offer to render personalized financial, investment, tax, legal or accounting advice through this report. The information provided herein is not directed at any investor or category of investors and is provided solely as general information. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action. Keene Advisors does not provide securities related services or recommendations to retail investors. Nothing in this report should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.

The Rise of Benefit and Certified B-Corporations

A Journey Towards Sustainable Business

In recent years, the business world has seen a significant shift towards sustainability and social responsibility, with Benefit Corporations and Certified B-Corporations leading the charge. These entities stand out not just for their profitability but for their commitment to broader social and environmental goals. This article delves into the differences between Benefit Corporations and Certified B-Corps, discusses the history and unique characteristics of Certified B-Corporations, and examines why B-Corporation Certification has grown in popularity. 

Benefit Corporations and Certified B-Corporations: Different Structures with Diverging Levels of Rigor

Benefit Corporations and Certified B-Corporations often get conflated, but they represent distinct concepts within the realm of socially responsible business. A Benefit Corporation is a legal status in the U.S. that allows for-profit companies to prioritize social and environmental goals. This legal framework changes how a company can be held accountable by shareholders, broadening the company’s fiduciary duty to include non-financial interests. Benefit Corporations publish an annual “Benefit Report” that assesses their social and environmental performance, but there are rarely consequences for noncompliance.

On the other hand, a Certified B-Corporation is a distinction granted by the nonprofit B Lab to companies that meet rigorous standards of social and environmental performance, accountability, and transparency. A company does not need to be incorporated as a Benefit Corporation to become a Certified B-Corporation. The B Lab Certification process is rigorous and must be renewed every three years. Companies are required to meet high standards relating to social and environmental performance and adhere to transparency and accountability expectations.

Since Benefit Corporations and Certified C-Corporations both represent a declaration and commitment to socially responsible business practices, they are often referred to collectively as “B-Corporations.” However, the intensive nature of receiving and maintaining the Certified B-Corporation distinction is generally more rigorous and what we will focus on with the rest of this discussion.

The Origins of Certified B-Corporations

The concept of B-Corporation Certification emerged in the mid-2000s as a response to growing concerns about environmental sustainability and social inequality. Three friends—Jay Coen Gilbert, Bart Houlahan, and Andrew Kassoy—founded B Lab, the organization behind B-Corp Certification, in 2006. They recognized a need for a certification that would not only identify companies striving for more than just profit but also help consumers, investors, and policymakers to support these businesses. The first group of 82 Certified B-Corporations was announced in 2007, marking the beginning of a global movement towards ethical business practices.

Characteristics of B-Corporations

B-Corporations are characterized by their commitment to creating public benefits in addition to shareholder value. This includes:

• Environmental sustainability: Implementing practices that reduce waste, conserve energy, and decrease carbon footprints

• Social equity: Ensuring fair wages, benefits, and working conditions for employees, and often engaging in community development and philanthropy

• Transparency: Regularly reporting on their social and environmental impact with as much rigor as financial performance

The Growing Popularity of B-Corp Certification

The popularity of B-Corp Certification has surged for several reasons:

• Consumer Demand

  Today's consumers are more conscious of their purchasing decisions' social and environmental impacts. They increasingly prefer products and services from companies that demonstrate a commitment to positive change. B-Corp Certification helps consumers identify these companies more easily
  

• Investor Interest

  Investors are progressively recognizing the value of sustainable and responsible business practices. Many believe that companies focusing on social and environmental goals are better positioned for long-term success. As well, there has been an increasing number of declared “Impact Investors” who may specifically look to support businesses like Certified B-Corporations that align with their values and investment goals
  

• Societal Impact

  The challenges of climate change, social inequality, and environmental destruction have prompted a reevaluation of traditional business models. B-Corporations offer a framework for companies to contribute positively to society, encouraging a shift towards more sustainable and equitable economic systems
  

• A Network of Support

  Certified B-Corporations benefit from being part of a global community of like-minded businesses. This network provides opportunities for collaboration, sharing best practices, and mutual support, further encouraging companies to pursue or maintain certification

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Examples of B-Corporations

Selected Private Companies

Company	Industry	Certified Since
	Consumer Retail	December 2011
	Consumer Retail	December 2015
	Distribution	November 2015
	Healthcare	June 2016
	Farmer-owned Cooperative	October 2020
	Food	March 2021
	Fashion	October 2021
	Services	October 2010

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Selected Public Companies

Valuation as of 12/31/23

Company Name (Certified Subsidiary)	Industry	Ticker	Market Capitalization ($M)	Enterprise Value ($M)	NTM EV / Revenue (x)	NTM EV / EBITDA (x)	NTM P/E (x)
Nestle (Nespresso)	Consumer	NESN	$260,170	$316,108	3.30x	15.28x	19.13x
Sanofi (Consumer Healthcare N. America)	Healthcare	SAN	$124,254	$138,994	2.72x	8.92x	11.13x
Unilever (Ben & Jerry’s)	Consumer	ULVR	$122,054	$151,405	2.24x	11.33x	16.19x
Estee Lauder Companies (Aveno)	Consumer	EL	$52,335	$60,383	3.75x	24.20x	50.49x
Danone (many subsidiaries)	Consumer	BN	$41,561	$54,016	1.76x	10.37x	16.63x
GAP (Athleta)	Consumer	GPS	$7,346	$11,543	0.80x	10.37x	17.50x
Natura & Co	Consumer	NTCO	$4,807	$5,138	0.77x	6.86x	64.77x
L’Occitane Group	Consumer	HK:973	$4,204	$4,992	1.74x	9.28x	n/a
Lemonade Insurance	Financial	LMND	$928	$11,543	1.91x	-5.65x	-5.66x
Vital Farms	Consumer	VITL	$614	$533	1.09x	12.19x	32.02x
Groupe Bonduelle	Consumer	BON	$388	$875	0.32x	4.76x	8.18x
Grove Collaborative	Consumer	GROV	$66	$80	0.32x	24.05x	-3.45x

Source: Tikr, Bcorporation.net

Challenges and Criticisms

Despite their growing popularity, Certified B-Corporations face challenges and criticisms. Some argue that the certification process is too rigorous and costly for smaller businesses. Others question whether Certified companies always live up to their commitments. However, the ongoing evolution of the certification criteria and the transparent nature of B-Corporation assessments aim to address these concerns.

Conclusion

The rise of Certified B-Corporations reflects a broader trend towards sustainability and social responsibility in the business world. By prioritizing environmental stewardship, social equity, and transparency, B-Corporations are not only redefining success in business but also contributing to a more sustainable and equitable world. As more companies join this movement, B-Corporations will continue to play a crucial role in shaping the future of business.

Disclaimer: This commentary is intended for general informational purposes only. Keene Advisors does not render or offer to render personalized financial, investment, tax, legal or accounting advice through this report. The information provided herein is not directed at any investor or category of investors and is provided solely as general information. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action. Keene Advisors does not provide securities related services or recommendations to retail investors. Nothing in this report should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.

Leveraged Buyout (LBO) Primer

A leveraged buyout (“LBO”) is an acquisition of a company (the “Target”) by an investor or group of investors (the “Buyout Investors”), who use debt to fund a significant portion of the purchase price. The assets of the Target are used as collateral, and the cash flow of the Target is used to pay interest and principal on the debt.  Buyout Investors typically borrow between 50-75% of the total purchase price and invest 25-50% of equity to finance the remaining portion of the purchase price. 

Buyout Investors compete against corporations and other Buyout Investors for acquisition opportunities.  Typically corporations have a lower cost of borrowing and much lower cost of equity capital. As a result, Buyout Investors are best positioned to deploy capital when interest rates are low, the lending environment is favorable (higher leverage, less restrictive covenants, etc.), and valuations are moderate. 

Overview of Vital Farms’ Initial Public Offering

Vital Farms, a Certified B Corporation that offers a range of pasture-raised food products nationwide, completed an initial public offering (IPO) on August 4th, 2020.

The company boosted its opening stock price, initially planned between $15 and $17, to $22, and the underwriters exercised in full their option to purchase additional shares. Vital Farms’ IPO comes at a time when the ongoing coronavirus pandemic has caused a slowdown in IPO activity, with a 19% decline in deal volume and 8% decline in proceeds in the first half of the year compared to the same period in 2019.

Vital Farms had previously raised an estimated $40.9 million from private investors, including SJF Ventures, Arborview Capital, Sunrise Strategic Partners and Manna Tree Partners. A $25 million round raised in 2018 valued the company at approximately $136 million.

Vital Farms is a leading U.S. brand of pasture-raised eggs and butter by retail dollar sales. Its pasture-raised products, including shell eggs, butter, hard-boiled eggs, ghee and liquid whole eggs, are sold in approximately 13,000 stores nationwide. The company is focused on the humane treatment of farm animals and sustainable farming practices, as well as the long-term benefits of each of its stakeholders, including farmers, customers, communities, the environment, crewmembers and stockholders.

At the close of its first day of trading, Vital Farms stock was up nearly 60%, with stock selling at $35, up from its initial price of $22.

KKR’s Strategic Deal with Coty: Case Study

The consumer discretionary sector is facing its toughest challenge as businesses remain shuttered due to the coronavirus. In the wake of the COVID-19 pandemic, a growing number of companies have filed for bankruptcy in 2020. Recent high-profile bankruptcy filings include J-Crew, Neiman Marcus, J.C. Penney, and Pier 1 Imports. Without material action or intervention, more companies in this sector can be expected to file for bankruptcy.

With the backdrop of uncertainty stemming from the COVID-19 pandemic, private equity firms stand ready to deploy their capital during this market dislocation. According to data from Preqin, private equity firms are sitting on a record level of dry powder, having amassed a total $1.45 trillion in cash to invest at the end of 2019. Private equity firms have been actively seeking deals in the struggling consumer discretionary sector, which includes travel and leisure, gaming, consumer retail, luxury goods, etc.

One example of such an opportune investment was the recent strategic deal private equity firm KKR entered with the global beauty firm Coty Inc. (the “Company” or “Coty”). On May11, 2020, Coty announced a strategic partnership with KKR. As part of the strategic partnership, KKR initially invested $750 million in Coty through the sale of convertible preferred shares to KKR. Additionally, Coty and KKR signed a Memorandum of Understanding (“MOU”) for the sale of a majority in Coty’s Professional and Retail Hair Businesses, which includes the Wella, Clairol, OPI and ghd brands (together, “SpinCo”) at an enterprise value of $4.3 billion. On June 1, 2020, Coty announced that it has entered into a definitive agreement with KKR for the sale of a majority in SpinCo.

Revolver Utilization Trends

In Uncertain Times, Companies Aggressively Draw on Credit Lines

In light of the current uncertainty in global markets stemming from the COVID-19 pandemic, U.S. companies have proactively strengthened their cash positions and preserved financial flexibility by drawing down on their committed revolving credit facilities. 

Historically, these revolving credit facilities go largely undrawn and are usually used to support general working capital needs or serve as a backup line of credit for corporate cash emergencies. However, according to S&P Global, total revolving credit facilities drawdowns since March 5 now stand at $275 billion, via 630 borrowers based on publicly available information. And these figures are likely higher given publicly traded companies are not required to report the drawdowns immediately and privately held companies are generally not required to report the drawdowns at all.

The Consumer Discretionary sector comprised the majority of the revolving credit facilities drawdowns during that period, representing approximately 43% of the $275 billion. Drilling deeper into the Consumer Discretionary sector, auto manufacturers borrowed the largest amount at approximately $31 billion (representing 27% of the Consumer Discretionary sector and 12% of total sectors during that period). On March 24, General Motors Co. notified its lenders that it would draw down $16 billion across three revolving credit facilities. A few days earlier, Ford Motor Co. announced it was borrowing $15.4 billion on two revolving credit facilities.

Source: S&P Global Market Intelligence

Implications

With the full economic impact of COVID-19 on the global economy still unknown and companies weighing their liquidity options under their revolving credit facilities, management teams will need to consider the following issues if drawing on these facilities:

Financial Covenants: Although “covenant-lite” credit facilities have become more common in the U.S. in recent years, revolving credit facilities versus term loan credit facilities generally still have either a springing financial maintenance covenant or the standard financial maintenance covenant. As such, borrowers will need to assess the impact of COVID-19 on their ability to comply with their financial covenants at the time of the borrowing (assuming test thresholds are met for springing financial maintenance covenant structures). And since testing of financial covenants are measured over the last four fiscal quarters, the negative impact of COVID-19 will likely get captured through 2021 for the borrower. 

Representations and Warranties: Before a borrower can draw on their revolving credit facility, a condition precedent to the drawing commonly includes a bringdown of the representations and warranties in the credit agreement. And it is common for credit agreements to contain a representation and warranty that there have been no event that has occurred that resulted in a material adverse effect (“MAE”) on the assets, business or financial condition of the borrower. And for more lender friendly structures, the MAE may also include a forward-looking construct that contains a representation and warranty that there have been no event that has occurred that resulted or could reasonably be expected to result in a MAE on the assets, business or financial condition of the borrower. The definition / construct of MAE’s are usually heavily negotiated between lenders and a borrower, so will vary greatly from credit agreement to credit agreement. It is important for a borrower to review those details carefully as they consider drawing on their revolving credit facility.

Lessons in Navigating Crisis