Some shareholders in Unilever (LSE:ULVR) are expected to seek reassurances that the company’s environmental and anti-deforestation standards will be maintained after the planned spin-off and merger of its food business with U.S.-based McCormick (NYSE:MKC).
The $65 billion transaction, announced in March, will combine Unilever’s food division with McCormick to create a major global food company featuring brands such as Hellmann’s mayonnaise and Cholula hot sauce. The enlarged business will significantly increase McCormick’s scale and introduce a more complex global supply chain tied to agriculture, commodities and smallholder farming operations.
Investors Seek Commitments on Sustainable Sourcing
Given Unilever’s longstanding reputation for sustainability leadership, several investors are closely watching how the merged company intends to manage sourcing policies and environmental standards.
“We will be seeking assurances about the intention of the combined company to uphold and build upon best practice with regard to deforestation-free sourcing of commodities,” said Vemund Olsen, senior analyst at Norwegian asset manager Storebrand, which is among the top 100 shareholders in Unilever and also owns shares in McCormick, according to LSEG data.
Olsen said these standards include avoiding sourcing from deforested or converted land, maintaining a public complaints mechanism and ensuring complete traceability of commodities back to plantations.
A spokesperson for Frankfurt-based Union Investment, which is a top-40 shareholder in both companies according to LSEG data, said the firm would seek transparency “about how it integrates sustainable practices moving forward”.
U.S. Sustainability Disclosure Rules Less Demanding
Unlike Unilever, McCormick is not subject under U.S. regulations to the same level of detailed sustainability disclosure required in Europe. Although companies with substantial European operations are expected to comply with EU sustainability reporting standards, implementation could take several years, creating a transition period where disclosure levels depend largely on voluntary corporate commitments.
“If Unilever-McCormick decide to turn their backs (on sustainability), this could create significant risk for shareholders and the new entity,” said Cailin Dendas, environmental health program senior coordinator at shareholder advocacy group As You Sow.
“We saw this happen when Kellanova separated from Kellogg in 2023 and dropped its pesticide commitments, among other sustainability goals.”
Unilever Expected to Retain Influence After Deal Completion
Unilever is set to remain the largest shareholder in the combined company with an ownership stake of close to 10% and four board representatives. However, smaller investors are likely to have more limited direct influence over strategic decisions and governance.
Asked whether Unilever intends to use its ownership position to encourage McCormick to maintain similar sustainability standards, a company spokesperson told Reuters: “We are working closely with McCormick ahead of the completion of the transaction to support the transition of our Foods related sustainability programmes and commitments.”
McCormick Faces Pressure to Expand Sustainability Capabilities
Hannah Schalk, an analyst at ESG ratings provider Sustainalytics, described McCormick as carrying “medium-risk” sustainability exposure. She noted that the company’s sustainability reporting does not currently include a formal company-wide no-deforestation pledge and provides less detail regarding traceability, auditing and certification procedures.
Schalk also said McCormick may face challenges scaling its sustainability systems as its supply chain expands significantly following the merger.
McCormick has acknowledged in previous reporting that achieving emissions and sourcing targets depends partly on improving supplier engagement and data collection across its network.
“While we cannot comment on future targets at this time, we are already well underway on a comprehensive strategic update process for our sustainability program, and we’ll share more details on our approach as the process unfolds,” McCormick said in written comments.
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