The hidden costs of sugar - the power of investor engagement

Rathbone Greenbank’s engagement programmes with food and beverage producers have always looked to understand and evaluate the effects of industry practice on health, social equality and the environment. 

Kate Elliot Senior Ethical Researcher 

Our jointly published guidance for investors provides a toolkit to help identify those companies demonstrating best practice and also reminds investors of the power they have as shareholders to continually push for improvements in these industries.

For a number of years, Rathbone Greenbank has examined the financial and ethical impacts of over- and undernutrition on wellbeing, engaging with investors and food producers to raise awareness, increase transparency and improve performance. Our engagement assesses the effects of increased regulation and taxation as well as the risks and opportunities presented by growing consumer interest in healthy eating. This helps to identify those companies and industries best placed to respond to, and benefit from, changing investor and consumer demands. Comparing sugar levels in fizzy drinks against health organisation recommendations is one example where the risks of overconsumption and opportunities for mitigation are clear.

Obesity is not just a risk for individual companies or industries. The total economic impact of obesity, diabetes and other non-communicable diseases is put at $2 trillion each year, equivalent to 2.8% of global GDP. This is roughly equal to the economic impact of smoking and accounts for up to 20% of national health budgets. An additional risk to social equality is reflected in the disproportionate impact on those at the lower end of the wealth spectrum, who often face a double jeopardy of overconsumption and malnutrition. Obesity levels among adults, for example, increased in every region of both the developed and developing worlds between 2010 and 2014. 

Comparisons between sugar and tobacco are evident: both are highly addictive substances with few positive consumer benefits and explicit links to chronic health disorders. But while the tobacco industry is limited to developing less harmful products, food producers have the potential to deliver enhanced nutritional benefits in a variety of ways. For example, Nestlé is fortifying foods to address micronutrient deficiencies while Unilever has established comprehensive targets for increasing nutritional content across its product portfolio, with reference to standards it could be held accountable to.

Kate Elliot, senior ethical researcher

But while there’s reasonable consensus on the differences between good and bad practice in nutrition, information regarding the relative positioning of companies is harder to come by. In 2016, Rathbone Greenbank partnered with Schroders to conduct roundtable discussions with food and beverage producers, retailers, stakeholders, academics and public health organisations in order to develop a comprehensive investor briefing. A broad range of topics was discussed, including product reformulation, portion size and policy reform. The result was a balanced framework to enable investors to measure company performance against expectations in five key areas: governance, strategy, implementation, public policy positions and lobbying, and evidence of progress. 

Governance identifies whether a company is reviewing nutritional risk and developing policies to combat it, whether there’s board-level oversight and whether or not executive remuneration is tied to meeting relevant targets. Strategy assesses how prepared companies are for opportunities presented by regulatory changes and consumer trends.

Implementation evaluates the extent to which companies are translating policies and strategies into positive actions, particularly with regard to existing product reformulation, investment in innovation and marketing across diverse media.

Tactical product marketing is especially responsible for influencing poor dietary choices among children, so assessing producer and retailer responses in this area should encourage those with inconsistent records to emulate market leaders.

Assessing companies’ positions on public policy and lobbying helps investors to gauge levels of corporate transparency and the degree to which companies are behaving consistently. For example, between 2011 and 2015, Coca-Cola and PepsiCo provided funding to around 100 public health organisations in the US while simultaneously lobbying against almost every proposed public health intervention.

Demonstrating progress is a key performance indicator for investors, but there are pitfalls where company data lacks clarity or transparency is limited to notable examples of best practice. The investor briefing suggests a cross-business range of performance indicators to encourage greater reporting consistency. For sugar, that might mean measuring content across product ranges, monitoring reduction targets or even recording how much sugar is purchased each year for food production. The briefing helps stakeholders, consumers and investors alike identify leaders in healthy nutrition, but it also serves to help poor performers raise their operational profiles. Ultimately, the aim of identifying and reducing investment risks is to improve health outcomes.

When the investor guide was published in December 2016, signatories included a coalition of investors with approximately £1 trillion of assets under management. The significance of this commitment, combined with the impending implementation of the UK’s Soft Drinks Industry Levy, is already being felt. In March 2017, A.G. Barr announced that it would halve the sugar content in its flagship brand, Irn-Bru — a positive indication of how companies are responding to the urgent need to reformulate their product ranges.