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Big meals’s unhealthy merchandise depart bitter style for ESG traders

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John Harvey Kellogg and his youthful brother William invented one of many first breakfast cereals within the Eighteen Nineties as a well being meals to help digestion, however John was livid when William created a model with added sugar.

More than a century later, William’s firm, now often known as Kellogg, continues to be on the centre of a battle between flavour and well being. As governments and traders press meals firms together with Kellogg to make their merchandise extra nutritious, the US group has in flip taken authorized motion towards the UK authorities over an try to limit advertising of a few of its cereals due to their sugar content material.

The lawsuit is the most recent signal of the tensions as governments and traders search to deal with a worldwide weight problems downside that has been exacerbated by the Covid-19 disaster, at the same time as inflation squeezes shoppers’ wallets and intensifies foodmakers’ battle for market share.

“For shareholders like LGIM, nutrition and in particular obesity have become systemic risks for companies we hold across multiple sectors,” stated Maria Larsson Ortino, international environmental, social and governance (ESG) supervisor at Legal and General Investment Management, one among Europe’s largest asset managers.

“We are actively engaging with those companies that have high revenue exposure to unhealthy products, as we believe they are likely to face the dual headwinds of increasing regulation and limitations on marketing of unhealthy foods.”

Nutrition has climbed the agenda as traders interpret ESG ideas extra broadly, transferring past local weather to social issues, stated Bruno Monteyne, an analyst at Bernstein.

Obesity has nearly tripled since 1975 and packaged and “ultra-processed” meals have acquired a big slice of the blame. US-based public well being group Vital Strategies final 12 months known as for tobacco-style warnings on the well being dangers of extremely processed meals. Chile has already launched black warning labels formed like cease indicators on packaged meals and drinks excessive in sugar, salt or saturated fats (HFSS).

Investor teams have campaigned on vitamin for a number of years: the US-based Interfaith Centre on Corporate Responsibility, bringing collectively traders with greater than $4tn in belongings, has been partaking with meals and drinks makers on the problem since 2014.

But Covid-19, which tends to be extra extreme in sufferers with weight problems and associated circumstances corresponding to diabetes, upped the ante.

In the previous 12 months, multinationals together with PepsiCo, Coca-Cola, Kraft Heinz, Kellogg and Nestlé have been hit with shareholder resolutions on vitamin. Unilever this 12 months pledged to overtake its vitamin disclosures and set new targets after being focused by the UK investor group ShareAction.

The concern isn’t just that meals and beverage makers contribute to social harms like weight problems however that they might discover themselves on the again foot as governments take a extra lively strategy.

Over the previous decade, dozens of nations, together with Mexico, South Africa, the UK and elements of the US, launched taxes on high-sugar delicate drinks, a transfer that reduce sugar consumption by these drinks and pushed producers to reformulate their merchandise.

The UK had deliberate contemporary restrictions on the advertising of HFSS meals from October, banning buy-one-get-one-free offers, free delicate drink refills and the promoting of junk meals on tv and on-line.

Global meals teams have responded with new variations of their merchandise. Mars, for instance, final month launched lower-sugar, higher-fibre variations of its Snickers, Mars, Galaxy and Bounty bars within the UK.

Kellogg is amongst these firms to have been hit with shareholder resolutions on vitamin © Bettmann Archive/Getty Images

But Kellogg, maker of Coco Pops, Frosties and Froot Loops, launched a judicial overview, arguing that the HFSS standards didn’t bear in mind the milk with which its merchandise are often consumed. A judgment has not but been issued.

Kellogg stated: “We’ve turned to the courts to seek an improvement to the formula, so that it reflects how people eat our food in real life. Of course, we will continue our efforts to engage with the government as we have always done.”

Kellogg’s motion raised eyebrows amongst traders. Marie Payne, accountable funding officer at Dutch asset supervisor Actiam, stated: “I was actually quite disappointed. I found it quite incredible . . . The fact that cereal is taken with milk does not make the underlying product healthy.”

UK’s most sugary breakfast cereals with child-friendly packaging

Yet meals teams received a victory of kinds final month when the UK authorities postponed a lot of the guidelines — aside from new laws on the areas of unhealthy meals in outlets — for a 12 months, citing pressures on the price of dwelling.

The delay has raised questions over whether or not the dietary credentials of branded meals will stay excessive on the agenda at a time when international meals poverty is skyrocketing.

“Wellness has a resurgence from time to time but then it dies away again because of something like inflation,” stated Steve Wreford, a portfolio supervisor at Lazard Asset Management. “Large companies have been around for a lot longer than a typical government and they have learned to move slowly in these areas [such as nutrition] because of legislative volatility.”

Sébastien Thévoux-Chabuel, a fund supervisor at French asset supervisor Comgest, stated: “There’s a real risk that nutrition may be a bit of a luxury at a time of commodity shortages, rising inflation and a cost of living crisis . . . More people may end up turning to unhealthier products because they are cheap and they have no other choice.”


Tonnes of sugar Kellogg says it has faraway from its merchandise since 2011

When it involves demand, some traders see well being and wellness as a development squarely aimed toward wealthier shoppers. Organic and “natural” companies are usually greater margin.

“You can make premium products and invest in broader wellness trends or you can be mass market,” stated Wreford. “A handful of companies, like Costco, are able to bridge both.”

But governments wish to enhance vitamin throughout the board, and Monteyne argued that whereas financial circumstances would possibly delay regulatory measures, they’d not halt the development.

“Telling people what to eat is inherently difficult politically and inflation will make it harder, which is very unfortunate, in my view,” he stated.

“You could have a bit of timing delay [to legislation] but the underlying trends are going to be there . . . Ultimately it will come because the costs to the healthcare system [from obesity] will be greater than the political costs.”

Obesity and associated issues price the UK’s National Health Service £6.1bn in 2014-15, a sum anticipated to rise to £9.7bn a 12 months by 2050.

Chile has launched black warning labels formed like cease indicators on packaged meals and drinks excessive in sugar, salt or saturated fats © Esteban Felix/AP

Two of the UK’s “big four” supermarkets, J Sainsbury and Tesco, stated they’d push forward with eradicating buy-one-get-one-free offers on unhealthy meals this 12 months regardless of the federal government’s delay.

For meals manufacturers, an necessary danger is that eradicating salt, sugar or fats will make some merchandise much less tasty and scale back a model’s aggressive benefit, the place regulation doesn’t create a degree taking part in area.

Reduced-sugar Nestlé and Cadbury sweets launched prior to now 5 years failed to draw shoppers, however Premier Foods says its lower-sugar, higher-fibre variations of Mr Kipling truffles and pies are promoting nicely. Kellogg says it has eliminated 11,000 tonnes of sugar from its merchandise since 2011.

The cereal maker stated that 4 of its 5 best-selling manufacturers within the UK don’t rely as HFSS, including: “Across the globe we continue to evolve our portfolio . . . including options with less sugar, sodium and saturated fat as well as innovating foods with more fibre, protein and micronutrients.”

For the second, traders are nonetheless pushing for fundamental disclosures on well being. “Part of the challenge for investors is knowing how healthy are the underlying portfolios of the consumer goods groups, and measurement here is opaque,” stated Jessica Ground, international head of ESG at Capital Group, the $2.7tn asset supervisor that could be a top-10 shareholder in Kellogg and Nestlé.

She acknowledged that makes an attempt to make merchandise more healthy would add to spiralling manufacturing prices.

“We are trying to understand what they are doing to reform existing products and introduce new products in the face of an increasing demand for healthier food,” she stated. “All of this costs money, takes time and could put pressure on margins.”

Source: www.ft.com

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