Breakingviews: Ben & Jerry’s rocky ESG road bucks vanilla trends

The world’s most popular ice cream flavor is vanilla. Corporate boards increasingly prefer it, too, judging by their changing tastes for environmental, social and governance matters. Companies are agonizing over whether to speak out on issues such as fossil fuels and LBGTQ rights as an “anti-woke” backlash gathers steam and invites unwanted controversy. And yet Ben & Jerry’s, which dishes out purpose-driven pints of Empower Mint and Save Our Swirled, represents a clear case of how ESG and financial aims can go together as well as chocolate and peanut butter.

Unilever said last month that it plans to scoop Ben & Jerry’s and a freezer full of other treats with $8.5 billion of sales last year into a bowl of their own. The separation is part of a simplification strategy designed to put greater emphasis on brands such as Dove soap and Hellman’s mayonnaise, but the conglomerate’s association with Ben & Jerry’s also has gotten stickier. Ben & Jerry’s went so far as to sue its parent company in 2022 for offloading the ice cream maker’s Israeli arm after Ben & Jerry’s decided to stop selling its products in occupied Palestinian territories.

The clash provides chunky evidence of how times have changed since Unilever bought Ben & Jerry’s almost a quarter-century ago, agreeing as part of the $330 million deal to back the acquired company’s socially conscious ethos. An early adopter itself in championing sustainability, Unilever vowed, among other things, to let Ben & Jerry’s have its own board; to send 7.5% of the division’s pretax profit to its philanthropic foundation; to buy milk from Vermont family farmers who eschewed pumping growth hormones into cows; and to fund efforts to support minority-owned businesses. Many of the specific commitments were revised over the years, but often hewed to their spirit. For example, the formula for the foundation’s funding was rewritten to use the volume of ice cream sold and the producer price index instead, which led to contributions of more than $5 million in each of 2022 and 2023.

Unilever is not alone grappling with how to fine-tune ESG approaches, as investors, customers and politicians retaliate against corporate causes. A Texas school fund just yanked $8.5 billion out of BlackRock to comply with state law that prohibits investing with companies that boycott oil and gas producers, which the giant asset manager says it is not doing. Anheuser-Busch InBev’s Bud Light lost its spot as the top-selling U.S. beer last summer following a protest over a promotion with a transgender social-media star. Walt Disney has been embroiled in a nasty public battle with Florida’s Republican governor over the state’s limitations on discussing gender and sexual orientation in classrooms. Corporate diversity initiatives are under siege and being scaled back or rebranded. ESG funds suffered their first quarterly net exodus during the last three months of 2023, according to Morningstar.

And yet for all the attention paid nowadays to socially and environmentally minded corporate initiatives, they have been as essential an ingredient in Ben & Jerry’s as milk. Back when it was better known as corporate social responsibility, Ben Cohen and Jerry Greenfield called it caring capitalism. There was a big premium put on the company, including its ideologies, in 2000 when it became the target of a heated bidding war.

Unilever expected to generate enough financial uplift to justify paying more than double the valuation imputed by public-market investors. Since then, Ben & Jerry’s has grown into one of the Dutch giant’s brands producing at least 1 billion euros of sales a year, implying an increase from almost $240 million to over $1 billion. This average annual growth rate of more than 6% outpaced Unilever’s overall pace of about 2% during the same span. The underlying operating profit margin for its broader ice cream business, however, tumbled to 10.8% last year from 13.9% in 2021.

Fully integrating advocacy into a business model, as opposed to jumping on a bandwagon to woo customers or investors, is no guarantee of success. Black Rifle Coffee, a brewer whose stated mission is to serve “people who love America” and which donates a portion of every purchase to military-veteran causes, grew its top line by 31% last year and swung to adjusted EBITDA profitability from a loss in 2022. At the same time, it has lost more than half its initial $1.7 billion valuation since going public in February 2022 by way of a shell-company acquisition. The USA Mutuals vice fund, which largely backs industries such as alcohol and gambling, has generated half the total return for shareholders as the S&P 500 Index since it started in 2002.

Consumers for the most part do seem to appreciate conscientious-sounding companies. Products making ESG-related claims, such as “eco-friendly” or “fair trade,” on the packaging increased retail sales an average of 6.4% a year between 2018 and 2022 while ones without such pronouncements expanded at just a 4.7% rate, according to a study by consultancy McKinsey and market researcher NielsenIQ.

Returns for ESG-inclined investors have been mixed, partly because the criteria are so messy and varied. For example, since Vanguard in late 2018 rolled out its U.S. stock ETF that screens for certain environmental, social and governance standards, it has kept pace with the S&P 500 Index. Using the EU’s Sustainable Finance Disclosure Regulation framework, a basket of 15 private funds from 2020 has so far delivered a median internal rate of return, net of fees, of about 16%, slightly ahead of a comparable pool of more than 500 private equity funds, according to research outfit Preqin. Biotech entrepreneur and former presidential wannabe Vivek Ramaswamy has railed against “woke” investment practices, but his Strive U.S. Energy ETF, which backs oil producers, has barely kept up with the main broader market benchmark.

Combined, these figures suggest that, at worst, caring capitalism is no worse than investing dispassionately. For conglomerates such as Unilever, however, there is also an understandable risk of blowback across brands. It wouldn’t want to sell less Axe body spray, say, because of a vocal Ben & Jerry’s position on a contentious subject like the Middle East. And when Unilever bought the U.S.-based company, the iPhone had not yet been invented let alone powerful message-spreaders like X and WhatsApp.

Ben & Jerry’s intends to preserve all three of its primary objectives – churning out topnotch ice cream, generating profitable growth and making the world a better place – regardless of how it gets carved out of Unilever. Doing so in an anti-ESG environment would be a strong development in the broader mission.