Asian Equities | Unicharm

Company Overview

Unicharm is one of the world’s leading manufacturers of baby diapers and sanitary napkins, with leading market share in Japan and many fast-growing markets throughout Southeast Asia. The company is also the dominant player in Japan’s adult incontinence products and in the pet food markets.

We like Unicharm for its significant scale in purchasing raw materials, its marketing and distribution capabilities, and its strong consumer brands. While Unicharm’s high-quality products make childcare and nursing care easier and more convenient for its customers, the manufacturing and disposal of these products are closely linked to various environmental issues, including the production of greenhouse gas emissions and forest degradation.

Japan’s Ministry of Economy, Trade, and Industry noted that in 2018, Japan produced about 23.5 billion disposable diapers (15.1 billion for babies and 8.4 billion for adults), which weighs about 880,000 tonnes. According to the company, disposable diapers account for about one-eighth of total household trash, the majority of which is collected and incinerated as combustible waste, driving up carbon dioxide emissions that contribute to global warming.

ESG Consideration

Unicharm launched its disposable diaper recycling program in 2015 with the aim of creating a system capable of producing recycled pulp of the same quality as virgin material at a cost on par with incineration. The resulting recycling system applies a distinct ionization process to the pulp extracted from used diapers to sterilize the material and produce a safe and hygienic end product. In an important step towards the commercialization of this technology, in 2019, the company introduced a prototype disposable diaper made from pulp derived from used diapers.

Unicharm’s analysis shows that greenhouse gas emissions can be reduced by about 87% when this recycling system is used as a substitute to disposal through incineration. In terms of waste reduction and raw material conservation, according to the company, if adult diapers from 100 users were recycled over a one-year period, the volume of waste generated could be reduced by the equivalent of 23 two-tonne garbage trucks while saving the equivalent of 100 trees.

Potential environmental impacts of the disposable diaper recycling program:

reduction in emissions

87%

reduction in greenhouse gas emissions when this recycling system is used as a substitute to disposal through incineration.

waste reduction & raw material conservation

Adult diapers from

100 users

recycled over a one-year period

≈

× 23

Could reduce volume of waste generated by the equivalent of 23 two-tonne garbage trucks

≈

× 100

Could save the equivalent of 100 trees

For this process technology to be impactful, it must be implemented at scale. To this end, starting in 2016, Unicharm began collaborating with local government authorities and recycling firms to achieve full-scale separated collection and recycling of used diapers in Shibushi City, Kagoshima Prefecture. The longer-term goal is to build a recycling system that can be adopted widely across Unicharm’s domestic and international markets.

Final thoughts

We believe Unicharm’s disposable diaper recycling program reflects the company’s ability to identify future threats and turn them into opportunities that balance the interests of all stakeholders. This characteristic is common among our portfolio companies and will be critical in the company’s efforts to rise to the challenges posed by climate change while continuing to compound its per share intrinsic value over the long term.

Sources: Japan’s Ministry of Economy, Trade and Industry (METI). Yearbook of Current Production Statistics: Paper, Printing, Plastic, and Rubber Products Statistics 2018, Burgundy research, Unicharm Corporation filings.