Sugar - an increasing risk to health and wellness

On 18 August 2016, the UK government published its long-awaited childhood obesity strategy. Succeeding the voluntary and largely unsuccessful Public Health Responsibility Deal of 2011, this new strategy calls for all food producers to aim for a 20% cut in sugar levels in products popular with children by 2020, as well as providing more detail on the proposed levy on sugar in soft drinks.

In response, the scientific community, NGOs and high-profile health campaigners expressed disappointment at the strategy’s provisions. So what was the source of their disappointment, and why is sugar consumption now regarded as such an important global health issue?

According to the World Health Organization, non-communicable diseases (NCDs) accounted for 68% of deaths globally in 2012. Poor diet and physical inactivity are among the most common causes of NCDs and are also risk factors for obesity.

Increasingly, attention has moved from concerns over levels of fat and salt in our diets to sugar consumption with the WHO also noting the contributory impact of sugar in cases of diabetes, heart disease and even cancer. As such, sugar has become a central target in the fight to address global overnutrition – and not just where it is used in snack foods. High levels of sugar are found in bread, cooking sauces and supposedly healthy products such as yoghurts.

What are the impacts in the UK? In launching its strategy, the government stated that NHS spending on overweight or obesity-related health problems reached some £5.1bn in 2014/15 – more than was invested in the police, fire service and judicial system combined. The problem is particularly acute at early stages of development with nearly one-third of children aged between two and 15 classified as either overweight or obese.

The crisis is not just confined to the UK.  It is global in nature and has already prompted regulatory action abroad. Other forms of sugar taxes have been proposed or implemented in Denmark, France, Mexico, Norway and South Africa, with varying degrees of success.

One of the concerns for investors is the effect on the profits of producers and retailers should restrictions on the use of sugar as an ingredient become more stringent. The potential impacts on companies were recognised in a report published by Schroders, a fellow signatory to the Principles for Responsible Investment.

At Rathbone Greenbank, we’ve been tracking the emerging risks and opportunities from health and wellness trends for many years and, in early 2016, joined with Schroders in a collaborative engagement project aimed at bringing about a productive dialogue with the UK’s leading food and beverage producers and retailers.

Beginning with UK beverage companies, we learned about ongoing government efforts to encourage voluntary adoption of more responsible behaviour with regard to sugar content in their products. These discussions covered product reformulation, changes in portion sizes and the important issue of advertising and product marketing.

We then took these initial findings to five companies in the food retail and production sectors and again sought to find out what best practice could look like. We heard much about the government’s childhood obesity strategy and how it was expected to significantly move the debate forward.

The results of our work are currently being combined into a formal set of investor expectations which will then be sent to companies and academics for review. The aim of this document is to support investor engagement on the risks and opportunities posed by increasing sugar consumption.

By building a framework for gathering information and setting baseline expectations for companies to follow, we hope to raise the profile of sugar-related health concerns and seek to identify leaders and laggards in the relevant sectors. We are also aiming to encourage more consistent reporting of sugar-related risk by companies.

Those parties disappointed by the childhood obesity strategy in its current form point out that it ignored two major recommendations from Public Health England: reducing price-cutting promotions for the least healthy foods and restricting the advertising of such products during family TV programmes. The strategy also retains a voluntary approach to regulation in all areas except the levy on the soft drinks industry – the so-called ‘sugar tax’.

Our engagement project will continue as our guidance is drafted and refined. The next phase will be direct engagement with those companies identified as being most at risk where we look forward to providing further encouragement towards greater responsibility in corporate behaviour.