Out-of-home businesses have largely avoided investor scrutiny of their health commitments to-date, but that is set to change. Nick Hughes reports.
Is the healthiness of food sold by businesses of any concern to their investors? The answer, increasingly, is yes according to ShareAction the NGO whose stated aim is to unleash the positive potential of the investment system.
The organisation has scored some big wins in the past year with first Tesco and more recently Unilever committing to increase the proportion of sales made up of healthier food and drink products following shareholder resolutions coordinated by ShareAction and supported by coalitions of investors.
ShareAction’s focus is soon to extend to the out-of-home sector which to-date has been subject to less investor scrutiny than food retail or manufacturing. Louisa Hughes, food and health engagement manager at ShareAction, tells Footprint the organisation is still in a scoping phase to establish key “target companies” and “asks”, but stresses that out-of-home is “a really important sector” and one in which “investors have holdings in many companies and are keen to ensure they're working in the right direction on health”.
From an ESG perspective, Hughes highlights how health has not historically been high on the list of investors’ engagement priorities compared with climate – which “is front and centre for a lot of asset managers and owners [who] have limited capacity to engage on lots of different topics”.
Health, however, is “really rising up the agenda” helped by organisations like ShareAction providing data and supporting investors in what they are asking companies to do. In 2019, ShareAction launched its healthier markets campaign through which it coordinates investors to engage companies on the subject of nutrition via AGMs, letters and roundtables and, ultimately, by filing shareholder resolutions.
It also supports benchmarking of nutrition performance, most recently partnering with the Access to Nutrition Initiative (ATNI) to compare the performance of 11 major UK food and drink retailers across eight topics and 126 indicators covering areas such as product formulation, in-store promotion, pricing and placement, and labelling.
The results weren’t impressive – the average score was just 3.3 out of 10 – however retailers did win praise for taking the issue of nutrition seriously with nine out of 11 willing to share additional information not in the public domain.
Getting robust data out of foodservice businesses could be altogether more challenging. Previous efforts by the likes of Public Health England to generate data for its sugar reduction programme have resulted in frustration over incomplete and inconsistent data sets. Hughes suggests a lack of data is part of the reason why there’s “a lot less engagement” on health from investors in foodservice operators. “That will be a challenge for us,” she admits, but it won’t deter them from trying. “It’s a sector we're looking at [….] because of the huge impact that it has on people's health. The amount of food that people buy and eat from those companies forms a huge part of people's diets, so it's really important if you want to change food environments that they are also part of that process.”
Previous attempts to compare foodservice progress on key health indicators with retailers and manufacturers have tended to show the sector in a negative light. The Food Foundation’s latest Plating up Progress report found limited progress on companies committing to and delivering increased sales of healthy and sustainable food in the restaurant, catering and wholesale sectors. It found for instance that just four out of the 18 companies assessed – Compass, Sodexo, ISS and Greggs – had a commitment in place to increase sales of vegetables. “A lot has been done on plant forward or plant-based menus,” said the Food Foundation’s Will Nicholson, who leads the Plating up Progress project. “But what we don't have is a really clear understanding of what that means. What [companies are] not doing is converting that into impact or outcomes.”
One of the main drivers of investor activism on health and nutrition is the threat of government regulation and the consequent risk to business performance where product portfolios are skewed towards unhealthy products. The recent decision by the UK government to delay the introduction of a law banning volume promotions of foods high in fat, salt and sugar (HFSS) could have served to decrease the sense of urgency among businesses, and their investors, to improve performance on nutrition.
Hughes, however, points to the decision by both Tesco and Sainsbury’s to voluntarily apply the new rules from October as evidence that companies are moving in the right direction regardless of government mandates. The fact that Tesco has publicly committed to increase the share of sales derived from healthier food and drink products from 58% to 65% by 2025 on the back of last year’s shareholder resolution will surely have played a part.
Still, Morrisons has come out and said it will continue to use volume promotions and Hughes acknowledges that to drive sector-wide change “having the regulation there is a really important next step” that ensures “a level playing field”.
Morrisons was recently taken over by US private equity group CD&R in a £7bn deal. Hughes says the fact that Tesco and Sainsbury’s are both publicly listed companies answerable to investors “could definitely be a factor” in the retailers coming out top of the ATNI index. However she points to a relatively strong performance by privately owned Aldi and Lidl as evidence that there are other factors – including commercial and reputational – pushing businesses to do more on health.
Investor pressure builds
From the investment community, the pressure for change continues to grow. In December, a coalition of investors led by Rathbone Greenbank Investments and representing £3.8tn in assets under management or under advice called onthe UK government to introduce mandatory reporting of nutrition and sustainability metrics for the food sector. The group argued that a lack of published data on food industry practices is “hindering the ability of investors and other stakeholders to compare performance across the sector and accurately understand what progress is being made”.
Looking ahead, shareholder resolutions such as those filed with Tesco and Unilever are likely to be adopted more frequently as a tactic to drive health improvement across the wider food sector according to Hughes; though these are best used as an “escalation tool” and are not “the first lever that investors would want to use”, she notes.
Beyond health, the FAIRR investor network, established by the Jeremy Coller Foundation, has been effective in raising awareness of the ESG risks brought about by intensive livestock production. In April 2021, FAIRR declaredthat a two-year global investor engagement with fast food giants including McDonald’s and Yum! Brands had resulted in companies ramping up their climate commitments by setting science-based targets to reduce their emissions.
It goes to show how investors can hold significant sway over business strategy – albeit many campaigners would like food companies to go much further and faster to decarbonise or improve the health profile of their products.
Foodservice businesses have largely avoided the gaze of investors where health is concerned but that is set to change. The sector’s biggest players would be well advised to start preparing for their turn in the spotlight.