- UK shareholders approve London HQ move
- Joins a raft of UK companies demanding government action on deforestation
Shareholders have cleared the way for Unilever (ULVR) to ditch its hybrid corporate structure in favour of a single London-based affair. The move is still subject to UK High Court hearings, but the unification is expected to take place on 29 November, two days after its Dutch entity ceases trading.
It does not seem that long ago since Unilever’s erstwhile chief executive, Paul Polman, was looking to unify the Anglo-Dutch group by moving its headquarters to Rotterdam.
For those opposed to the UK’s exit from the European Union (EU) it was proof positive that we were then about to witness an exodus of top-tier UK companies with significant commercial interests in Europe. The truth is that neither proposal had anything to do with Brexit. The planned move to the Netherlands was partly to ward off hostile M&A approaches due to the country’s stiffregulatory regime, while the eventual turnaround in favour of London was the result of shareholder pressure, as Unilever would lose mandated institutional support if it was no longer a FTSE 100 constituent.
There is one potential stumbling block. The group may be subject to an €11bn (£10bn) exit levy over the deal. The proposed legislation linked to an exit tax was dreamt up by the country’s Green Left political party, which presumably does not set great store in inward investment. It is to be levied on any companies planning to relocate from the Netherlands in favour of low-tax jurisdictions, but it would also act as a major disincentive for any businesses looking to set up shop there.
A retrospective charge like this is more in keeping with what you might expect in Venezuela. The levy is being assessed by the Netherlands’ Council of State as to whether it is in accordance with Dutch and European law, although early reports suggest that the Green Left’s levy may fall foul of the rule of law, to say nothing of common sense.
It is slightly ironic that Unilever now finds itself seemingly at odds with the Green Left given the strides that the consumer goods multinational has made on environmental issues during the tenure of Mr Polman and that of his successor Alan Jope.
Given the breadth of its product range and the complexity of its supply chains, you would imagine that Unilever is not ideally placed to meet environmental, social and governance (ESG) criteria linked to recycling rates, CO2 emissions and water usage. But the group has managed to halve its energy emissions over the past decade, while successfully driving down its waste management impact by a third over the same period.
Last year, the group achieved one of the highest ESG evaluation scores awarded by ratings agency S&P: 89 out of 100 in its evaluation, where 100 indicates the lowest risk possible. Unilever also received 'best in class' ESG status from MSCI in terms of product carbon footprint and corporate governance.
And earlier this month Unilever joined 20 of the largest UK food companies in calling on the government to implement tougher legislative measures to ban produce sourced from both legally and illegally deforested land. Given the criticism the group has faced down the years because of its status as one of the world’s major users of palm oil, the approach to government might seem a bit like turkeys voting for Christmas. But it reflects a cold commercial reality beyond the usual platitudes trotted out about the stakeholder economy.
If shareholders were up in arms about the group losing institutional support through a move to Rotterdam, they certainly would not be enamoured with the prospect of losing it through a failure to adequately meet criteria set out on ESG mandates. By the end of this year, EU legislation will compel investment companies to publish their policies on the integration of sustainability risks in their investment decision-making process – companies can no longer afford to dodge the issue.
Ethical issues aside, the main consideration for Unilever is the extent to which it will need to adapt its brand-driven business model as consumer behaviour evolves in the digital age. But for many, the group’s ability to finance an impressive record of dividend growth is central to the investment case. And although dividend cover as a proportion of earnings has come under pressure in recent times, this could simply reflect increased scale, ergo proportionally fewer opportunities to reinvest earnings for growth. Under such circumstances it is perfectly justifiable to return a higher proportion of earnings to shareholders, as long as you do not harm any stakeholders in the process.
