How can financial markets help tackle the unhealthy food crisis?

Unhealthy diets now pose a greater risk to mortality and morbidity than the combined effects of alcohol, drugs, tobacco, and unsafe sex.

The failures of the food system leave around 150 million children under the age of five stunted, several billion deficient in essential vitamins and minerals, and more than two billion people worldwide overweight or obese.

The annual estimated total cost of food is approximately $20 trillion, with more than half of this total “hidden” as negative externalities to human life and the environment. What’s more, on average, OECD member countries are expected to spend over 8% of their health budgets treating the consequences of being overweight between 2020 and 2050.

Most of western Europe and North America now obtain more than half their calories from packaged foods rather than fresh food. Meanwhile, preventable diseases related to the increasing consumption of processed foods is increasing fastest in emerging markets. Modern food retail and grocery outlets selling packaged processed foods in low- and middle-income markets has ranged from from 40% to 300% growth in the last five years, depending on the country.

Packaged processed foods present a major problem and a significant opportunity. A major problem because 69% of all sales from food manufacturers globally are derived from unhealthy food products, which are a major part of this pandemic. A significant opportunity because of the rapid growth of this segment of the food industry and their global proliferation even into peri-urban and rural areas. So, what can be done to ensure that these packaged foods are healthier moving forward?

Enter institutional investors as a key part of the solution. Institutional investors are a powerful group already leading transformational change in other sectors through Environmental, Social, and Governance (ESG) investing. ESG investing helps align financial returns with benefits for society and the planet. The value of global ESG-driven assets tripled between 2012 and 2020 to $40.5 trillion.

Today they represent nearly half of the world’s financial assets under management. What’s more, a recent Kroll study shows that companies which are leaders in applying ESG strategies earned an average annual return of 12.9%, compared to an average 8.6% annual return earned by laggard companies. This represents a 50% premium in terms of relative performance by top-rated ESG companies.

Investor interest in nutrition is mounting. Access to Nutrition Initiative (ATNI) has established a coalition of 84 institutional investors – ATNI’s Investors in Nutrition and Health – who manage approximately $20 trillion in assets. Each has signed the Investor Expectations on Nutrition, Diets, and Health, and several are working with ATNI to set 2030 targets for the world’s largest food manufacturers on responsible marketing and healthiness of food portfolios. The top 10 investors of this coalition are: Amundi, PIMCO, LGIM, T. Rowe Price, UBS, Axa Investments, Schroders, Pictet Group, Aberdeen Standard Life Investments, and Columbia Threadneedle Investments.

The next critical step is to embed nutrition explicitly within ESG investing practice. This will allow financial markets to incentivize healthier food production and responsible marketing. ATNI is working on this agenda by benchmarking food companies on nutrition, helping to align the sector on defining and measuring healthy foods, organizing collaborative engagement with shareholders, completing seminal research on the double materiality of nutrition, and helping set 2030 targets for food companies.

There have been concrete successes through this approach. For example, in 2022 and 2023, ATNI-coordinated collaborative engagement shifted practice among a dozen of the world’s largest food manufacturers leading to 23 confirmed updates from the companies that improve the availability of healthy foods. Several companies committed to reviewing and publishing their definition of “healthy” and to benchmark that definition against existing and government-endorsed nutrient profiling models. Other companies committed to publicly disclose the percentage of revenue derived from healthy products and update and publish progress against their targets to reduce sugar, salt and fat in their products.

A specific example of positive change due to this type of engagement is Unilever’s March 2022 announcement to benchmark and publish its product portfolio against government-endorsed nutrient profiling models. This was driven by shareholder action and engagement using ATNI’s data on Unilever’s nutrition performance over the last few years.

In summary, institutional investing is an underutilized and yet critical part of the solution to providing much healthier and more sustainable diets for all. ATNI is proud to collaborate with the World Economic Forum and other partners to drive forward systemic change among the food industry.