A transition to more nutritious food items will deliver sustainable growth for systemically-important firm, co-filers argue.
A coalition of Nestlé shareholders has filed a resolution challenging the multinational food and drinks company to improve its impact on people’s health.
The proposal, co-ordinated by responsible investment NGO ShareAction, asks Nestlé to set a target to increase the proportion of its sales from healthier products and implement internationally recognised standards that define healthy food.
Research published last year found that 75% of the total value of Nestlé’s global product sales came from unhealthy foods. Additionally, a report published by Oxford University and activist group BiteBack noted that 70% of the company’s sales in the UK came from foods high in fat, salt and sugar.
“Investors are concerned about Nestlé’s overreliance on unhealthy foods because it exposes them to regulatory and reputational risks, in addition to hurting public health,” Thomas Abrams, Co-head of Health at ShareAction, told ESG Investor.
The NGO has been engaging with food companies on health and nutrition through its Healthy Markets Initiative, an investor-backed campaign building health considerations into investment decisions. They have engaged with Nestlé for two years.
“As the biggest food company in the world, Nestlé is systemically important, setting an example for the rest of the industry in terms of driving positive change and raising market standards,” said Maria Larsson Ortino, Senior Global ESG Manager at co-filer Legal & General Investment Management (LGIM).
Healthcare challenges and decreased productivity caused by unhealthy foods will have “significant negative consequences on clients’ assets across multiple sectors”, she added.
Mounting costs
In the US alone, health-related risks stemming from the current food system costs employers US$575 billion a year in lost productivity.
The Organisation for Economic Co-operation and Development has estimated that 8% of member countries’ health budgets will be spent on treating the consequences of obesity and related conditions over the next 30 years. The World Health Organization (WHO) predicts obesity-related costs could reach more than US$18 trillion a year by 2060.
The co-filers of the resolution are concerned that Nestlé’s ongoing reliance on unhealthy products will increase its exposure to these costs, alongside mounting regulatory and legal risk.
“With people living longer and more unhealthily, healthcare costs are only going to increase, and governments are going to need to regulate further to reduce the impact of poor health,” Abrams explained.
Investors want food companies to take better account of the likely future direction of policy, he continued. “They want to see companies better prepare their food portfolios and business models to be less heavily reliant on unhealthy food sales.”
There are already a number of regulations in effect. In 2018, the UK introduced a ‘sugar tax’, which is a levy applied to UK-produced or imported soft drinks that contain added sugar.
At the 75th World Health Assembly in 2022, member states adopted new recommendations for the prevention and management of obesity, endorsing the WHO Acceleration plan.
“Many investors are highly diversified universal owners. In one way or another, they are already picking up the bill for the externalities that certain food manufacturers are creating. The costs are showing up elsewhere on their portfolio,” Abrams added.
The investor co-filers of the Nestlé resolution collectively manage US$1.68 trillion in assets. These include Candriam, La Francaise Asset Management, VGZ, and the Guys and St Thomas’s Foundation.
Nestlé has said the company “will have to agree to disagree” with ShareAction and the investor co-filers. One of Nestlé’s arguments against the proposal was that it should not aim to limit growth in specific areas of its portfolio.
“A proportional target would require us to weaken valuable parts of our portfolio and create opportunities for competitors without yielding public health benefits,” Nestlé said.
“Our goal is to achieve success across all segments of our portfolio, ensuring that we address responsibly the diverse needs and preferences of our consumers. There continues to be space for enjoyment in moderation as part of a healthy and balanced diet.”
It also challenged the assertion that three-quarters of its sales come from unhealthy products, noting that, in the first year of its reporting, nutritious and specialised nutrition products made up 59% of sales (up from 57%).
Walk the walk
Food and beverage companies typically “talk a good game”, Abrams claimed, adding that the Nestlé resolution sought to cut through the talk to achieve tangible ambition and progress.
The resolution includes a request that any key performance indicators (KPIs) outlined in Nestlé’s annual reports should disclose and evaluate food and beverages by their healthfulness, as defined by a government-endorsed Nutrient Profiting Model. Such targets should also be timebound, LGIM’s Larsson Ortino said.
Last year, Nestlé pledged to sell more nutritious products by 2030. But investors pointed out that this target was in line with the company’s overall expected growth and included no commitment on the sales of unhealthy products. Additionally, the target included products lacking nutritional value, such as coffee.
By including products with little to no nutritional value in their KPIs, companies run the risk of painting a “misleading picture”, Larsson Ortino warned.
“In Nestlé’s case, the continued inclusion of specialised nutrition products, including baby foods, vitamin and mineral supplements and medical nutrition in Nestlé’s current target remains a concern,” she said.
The resolution will be voted on at Nestlé’s annual general meeting on 18 April.
“This [issue] is a ticking time bomb,” warned Greg Garrett, Executive Director of the Access to Nutrition Initiative (ATNI). The ATNI works with over 80 investors to improve investments towards healthier food systems. Its investor signatories include Amundi, LGIM, Schroders, and AXA Investments.
The ATNI published the ‘Investor Expectations on Nutrition, Diets and Health’ in 2020, which outlined four areas for investors to targets in their engagements with food companies to address nutrition challenges.
“[Obesity and the issues associated with this] has already negatively hampered GDP globally and is a real risk to long-term sustained profits. Investors are clearly a key lever in helping companies understand the need to transition and ensuring implementation is effective and swift,” Garrett said.
