This briefing published by ShareAction in 2019, provides investors with an introduction to childhood obesity and the potential investment risks and opportunities created for their portfolios. The report focuses primarily on the obesity crisis in the UK and the manufacturers and retailers operating in this market.

Childhood obesity is a growing public health crisis, across the world almost 400 million children and young people are obese or overweight. This issue affects socio-economically disadvantaged children 2-3 times more, creating widening health inequalities between the rich and the poor. Aside from direct health impacts, an obese population is hugely expensive, due to direct healthcare costs and secondary costs to society and business of an unhealthy workforce. In the UK alone, it costs the healthcare system £6.1 billion and society and business £27 billion annually, these figures are only expected to rise.

The focus of solutions to obesity has moved from encouraging exercise, to promoting healthier, less calorie dense diets. Growing evidence suggests that this is achieved most effectively by improving our physical, social and informational environment rather than reliance on deliberate personal choices. Consequently, the food and drink industry has come under increasing scrutiny from Governments in recent years and is targeted as a key player in tackling this growing public health crisis.

The report discusses increasing regulations imposed on the food and beverage industry and its retailers in the past five years. This includes the 2016 UK Government’s Obesity Plan and the Soft Drinks Industry Levy. Similar sugar taxes are being utilised in more than forty places around the world. Further, currently voluntary governmental programmes are likely to become regulated in the near future if voluntary schemes are less effective.

Trends in the food and beverage market are shifting towards healthier products driven by consumer demand and increasing taxes and regulations on unhealthy options. This presents investors with significant opportunities and risks:

• Many manufacturers are responding by investing heavily in innovations to reduce sugar content of their products, breakthroughs could deliver a significant market advantage.
• Conversely, those who do not adapt and innovate risk being left behind with returns hit by a combination of increasing regulation, damage to brand image and increasing risk of litigation if they are seen to be acting irresponsibly.

Major target companies for investor engagement are identified and presented. Potential positive actions of these companies are presented:

• Reformulation of products
• Improved labelling
• Enhancing food choice architecture within retailers
• Responsible advertising and marketing

The report sets out a framework for analysing the risk profile of individual companies, using work carried out by Schroders & Rathbone Greenbank Investments’:

• Governance: whether effective governance mechanisms exist for assessing company risk at board level.
• Strategy: whether clear goals to adapt to consumer and regulatory trends have been set.
• Implementation: whether detailed plans for achieving these exist.
• Public policy position: how transparent companies are on their engagement and lobbying efforts, and if these are consistent with guidance on public health.
• Demonstrating progress: how transparent they are when reporting information relating to their activities.

1. Obesity is a social justice issue, less access to healthy food choices in lower socio-economic groups is creating growing health inequalities.
2. Market trends are shifting toward healthier food and beverage options driven by increasing policy, regulation and consumer attention.
3. Opportunities for investors lie in companies innovating technology for new healthier products. Such companies are likely to provide long term returns and any major breakthroughs could see a significant immediate gain.
4. Risk for investors lie in companies that do not adapt to shifting consumer demand and increasing regulations. These companies are at risk of losses due declining demand for products, increasing regulations and the possibility of future litigation.
5. The childhood obesity crises provides and opportunity for impactful investment where investing in improving the food environment of children will provide real social impact alongside financial returns.
6. It is in the interest of investors to encourage companies to develop comprehensive reporting methodologies in order to increase transparency of their actions across their entire product portfolio. Such inconsistency of actions, combined with a lack of a common metric and means of reporting progress, makes it very difficult to compare companies on a like-for-like basis.
7. There is a real competitive opportunity for innovative companies to produce and promote food that is both healthier and fulfills consumers’ expectations. Such companies can capitalise on growing demand for healthy products and stay ahead of further legislative changes.
8. There are clear financial, reputational, and operational risks for those food and beverage manufacturers and retailers that fail to act.