Investing in a healthier food system
‘Health and Wellbeing’ is one of Rathbone Greenbank’s (Greenbank) eight sustainable development themes that guide the way we invest for the long-term. In this article, Greenbank explains what the risks and opportunities are for investors as the food system undergoes massive, consumer-led changes, and outlines how shareholders can drive positive change at scale.
In a year that has brought health and wellness to the very top of the public policy agenda, obesity remains one of the most pressing health issues facing our society.
Not only has obesity proven to be a major factor in the risk of hospitalisation from Covid-19, but it is an issue that affects millions of people, with NHS figures showing that over a quarter (28%) of adults in England are now obese. Treating obesity-related diseases now accounts for almost 10% of national health expenditure, yet the UK Government estimates that at least half of all UK grocery sales come from products that are high in fat, sugar or salt: demonstrating that the current food system is at odds with the needs of consumers. As a result, food giants are facing pressure to act.
Alongside this, demand for sustainable alternatives such as meat-free proteins, as well as products from greener supply chains, is rapidly increasing. These changing consumer demands pose significant risks to the food sector, but they also create an opportunity for investors to engage with these companies to drive the necessary changes needed to create a more sustainable food system.
Pressure to change: the risks of rising obesity rates
"Increased sick leave associated with obesity and poor nutrition lowers the productivity of the global workforce, costing around £54 billion each year in lost earnings and profit in the UK alone."
With rising demand for healthy food coming from government and consumers alike, food producers and retailers that fail to adapt to this changing need face clear and significant risks.
As government scrutiny increases, so does the risk of regulatory intervention impacting food companies and their bottom line - whether that be from increased taxes on high fat and sugar products, to bans on how retailers can market and sell certain foods.
Furthermore, the reputational risk of being seen to be behind consumer expectations and government policy on this high profile and emotive issue could pose a real threat to food and beverage companies in terms of sales, recruitment, and even litigation costs.
More widely, the impact of growing obesity rates poses indirect systemic risks not just to the food industry, but to every sector. Increased sick leave associated with obesity and poor nutrition lowers the productivity of the global workforce, costing around £54 billion each year in lost earnings and profit in the UK alone.
New investment opportunities
In light of these risks, it is not surprising that driving change towards a healthy, sustainable food system is of growing concern to the investment community.
At Greenbank, we’re also seeing an increasing recognition of the wealth of opportunities in this area. As consumer attitudes change, demand for companies that can provide a healthier, more sustainable alternative to the current food system is increasing - bringing with it a host of exciting new investment opportunities.
Companies that can recognise this shift in attitude and be agile in their response - whether that’s introducing new plant-based product lines, or reformulating existing products to be healthier - will see an advantage in sales and reputational kudos over those that lag behind.
How can investors drive change?
For impact-driven investors, engaging with major food companies can be a powerful mechanism for driving wider changes in consumer behaviour and ultimately public health. As the main grocery suppliers to much of the nation, food and drink giants are in a key position to influence consumer habits, deciding what to supply, what to market and what to discount.
Investor action is already leading many corporations to respond to this call and transform their operations. In a recent landmark case - the UK’s first nutrition-based shareholder resolution at a FTSE100 company - Greenbank supported the campaign group ShareAction in co-filing a shareholder proposal calling on Tesco to disclose and set targets on the share of total food and drinks sales made up of healthier products.
"Tesco responded to this investor engagement, pledging to increase the share of healthy products it sells from 58% to 65% by 2025 in its UK and ROI stores."
Tesco responded to this investor engagement, pledging to increase the share of healthy products it sells from 58% to 65% by 2025 in its UK and ROI stores, alongside other commitments such as increasing the sales of plant-based meat alternatives by 300% by 2025.
This is an impactful change that goes vastly beyond Tesco’s doors. As the UK’s leading grocery retailer, holding 27% of the market share, the changes it makes to providing access to affordable, healthy food could make a real impact on the nation’s diet, helping to tackle the obesity health crisis.
As well as supporting action with individual companies, Greenbank is also working to drive forward the debate on investing in a healthier and more sustainable food system. At the end of 2020, Greenbank collaborated with the Food Foundation on its ‘Plating Up Progress’ report, aiming to change food policy and business practice to ensure everyone can afford and access a healthy diet. As part of this report, Greenbank contributed to the debate around the need for government policy to facilitate change, alongside the need for companies to set clear targets and improve reporting.
Future-proofing the food system
Transforming the food system to meet consumer needs and tackle the nation’s obesity levels is no mean feat, and one that will take time, effort, and involvement from all players across the sector. However, within this, investors are, and will continue to be, a critical part in driving forward this change.
For investors that are inspired to take action, the good news is that there are many like- minded individuals working together on this issue. Organisations such as the Food Foundation and ShareAction help to raise awareness, connect investors and support shareholder action, encouraging greater investor engagement and ultimately aiming to have a greater impact on society.