ESG in ‘23: Nutrition and quality of life

As we reflect on the complex challenges posed by 2022, and try to predict milestones on the 2023 ESG landscape, conversations around living standards are inescapable. With the cost of living crisis hitting hard in the UK, and central banks across the world having simultaneously hiked interest rates in response to inflation, we expect quality of life to sit firmly on the social agenda for many investors.

This point has recently been highlighted by Peter Michaelis, head of the Liontrust Sustainable Investment Team. As part of a new ESG Clarity series, Michaelis predicts that the market for healthier food and drink is more than a trend, but rather “a market experiencing structural long-term growth”. 

Failing global food systems

With a fifth of the world’s population expected to be overweight or obese by 2025, and the disease linked to multiple leading causes of death (including diabetes, heart disease and strokes), the OECD estimates that 8% of member countries’ health budgets will be spent treating the consequences of obesity and related conditions over the next 30 years. Indeed, Covid-19, which tends to present more severe symptoms in patients with obesity and related illnesses, has served to drive nutrition to the fore as suboptimal diet is cited as the leading cause of poor health worldwide.

On a broader ESG note, the world’s food systems contribute to one third of global greenhouse gas emissions. If we are to be net zero, we will need to adapt to a more sustainable diet. Ideally, this will include consuming fewer animal-based products and chemically-enhanced meals. Current food systems are both unhealthy and unsustainable, and as the high prevalence of obesity is having a significant impact on life satisfaction and expectancy, nutrition and prevention are issues that must be faced as we strive to progress towards the UN’s Sustainable Development Goals. 

Inaction costs

Looking at the business case more specifically, the growing economic costs of diet-related diseases could have direct and indirect risks for company bottom lines. Global government regulatory action is anticipated; food and beverage makers who aren’t ready may find themselves on the back foot. Additionally, companies seen to be approaching the matter insufficiently are vulnerable to reputational risk by customers and stakeholders.

Earlier this year, the UK government postponed restrictions on the marketing of HFSS foods in light of the ‘unprecedented global economic situation’, but there has been incremental growth in disclosure, as well as the percentage of  the UK grocery market commiting to increase healthier sales across at least some of their products. The legislative delay indicates that although economic conditions present challenges, they will not halt the trend altogether. Afterall, inaction is unaffordable; obesity and related problems cost the UK’s National Health Service £6.1bn in 2014-15, a sum expected to rise to £9.7bn a year by 2050. Poor worker health is estimated to cost US employers US$575 billion a year in lost productivity – around US$3,900 per employee.

Tackling the problem with effective stewardship

Corporate disclosure on health isn’t keeping pace with other ESG factors like climate, for example, presenting a challenge for investors to compare health impacts and efforts across portfolios. Through active engagement, institutional investors should enter into long term dialogue with the companies they invest in on behalf of clients and encourage them to to set more ambitious health and nutrition targets. They can also power up policy engagement work.

But ShareAction’s ‘Health: An Untapped Asset’ paper found that “investors have a blind-spot when it comes to health-related risks” and that “as a result, vast amounts of capital remain available to the most health-damaging industries, and corporate engagement often lacks in relation to health. The investment sector today is contributing to sub-optimal population health. If left unchecked, these costs will continue to rise and increasingly be internalised by companies – impacting shareholder returns.”

Harnessing opportunity

It seems, then, that there are lots of untapped opportunities here. As we transition to a more sustainable planet, there is a growing appetite for health-linked funds, particularly on the nutrition and prevention side (as opposed to treatment and pharmaceuticals). According to management consultancy firm McKinsey, better health could add US$12 trillion to global GDP by 2040, and taking an active approach can only help achieve this.

Until the playing field is levelled with mandatory reporting requirement, ShareAction suggests asset managers can begin by doing the following:

  • ​​Consider more holistically and systematically the health impacts of their investments.
  • Include health-related risk in assessments at a company, sector and portfolio-level; considering both short and longer term risks such as from regulation.
  • Support the development of disclosure frameworks, data sets and benchmarks that help to assess companies’ health impacts, where these are absent or lacking.
  • Increase their corporate engagement on health-related topics, including by participating in collaborative initiatives. Topics could include food and nutrition, good work, air quality, alcohol manufacture and health-related political lobbying. 

Get in touch to discuss how SI Engage can help you follow this advice with a simplified solution to data collection, reporting and engagement.

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