Healthy Profits Part 1 - A check up into our exposure to the theme of health

Poor health represents a financial risk to investors, and is a broad topic area, extending from the risk of changing regulations (e.g. sugar tax) and the potential impact on an unprepared company, to reductions in productivity caused by poor workplace health. 

We wanted to examine this theme to identify ways in which our investments are delivering strong returns while supporting improvements to health - i.e. healthy profits! 

Shareaction have established Long-term Investors in People's Health (LIPH), an initiative that supports investors to consider the theme of health within their portfolios. This sets out three areas for investors to consider: worker health, consumer health, and community health. 

We have looked at each of these three areas, to explore some examples of why these areas may present a financial risk and what is being done to protect our investments.

Worker Health

According to Shareaction, "the quality of work, working conditions and benefits provided by employers are a key determinant of health. Important factors include paying a Living Wage, offering secure contracts, provision of adequate and equitable parental leave, offering sick pay packages that support people to recover and stay well, and in some countries, health insurance. Well-designed jobs that give workers control and autonomy are also important for health."

Case study - voting at CVS (WPF holding approx. £0.75m)

Hermes EOS carry out voting and engagement for our portfolios at the Brunel pool, where our holding in CVS (A US pharmacy retailer) sits. 

EOS recommended support for a shareholder proposal seeking a third-party assessment of CVS's adherence, above and beyond legal compliance, to its stated commitment to workers' freedom of association and collective bargaining rights. EOS also supported a shareholder proposal calling for paid sick leave benefits for all employees, for a second consecutive proxy season.

It is good business practice to offer paid sick leave to all employees, and this would be in line with the company's purpose, "to help people on their path to better health".

Consumer Health

Shareaction state that "as much as a third of all deaths worldwide are attributable to overconsumption of certain products - including alcohol, tobacco and food and drinks products. Health is heavily influenced by the actions of companies in these industries. With nearly one in five children now starting school either overweight or obese, the sales of high fat, high sugar products are in the spotlight." 

There is increasing regulation for more healthy products, as well as consumer demand.  Companies who are not proactively making positive changes to the health credentials of their products risk being left behind, posing a financial risk to investors.

Case study - Nestlé (WPF holding approx. £10m)

Nestlé is a Swiss multinational food and drink company, which owns a large number of household name brands, and at the time of writing is the largest food and drink company in our portfolio.  We were keen to understand how much Nestlé are doing to future-proof their business model and ensure optimal health of their products, so we contacted our managers to find out more. 

We were interested to learn that Nestlé have been rebalancing their product portfolio towards more healthy products.  This is done in two main ways - firstly through acquisition and divestment of various brands in favour of a healthier overall product mix, and also through setting health-related targets and making changes to existing products.  This could be achieved via fortification of products with micronutrients, reducing sugar, increasing whole grains, and rolling our more plant-based products, which have the addition benefit of vastly reduced carbon emissions!

Since 2015 Nestle have reduced the sugar content in their confectionery by 10% and have taken 700 tonnes of sugar and 2.5 billion calories out of our beverages in their UK and Ireland. They have used 516 million fewer teaspoons/2,052 fewer tonnes of sugar in their cereals between 2010 and 2020.

We also enquired about Nestlé's preparedness for changing regulations.  Our managers felt that Nestlé were adopting a forward-thinking strategy and making appropriately ambitious changes.  These ranged from increasingly transparent nutritional info (which will support consumers in making healthier choices), as well as updating their advertising strategy around less healthy products. 

This topic is high on the agenda for shareholders of Nestle, and pressure is being exerted on the company to move faster towards healthier products, showing the clear importance of this issue.We will be interested to see how our managers continue to engage with Nestlé, and what developments are on the menu going forward.

Community Health

According to Shareaction, "companies can influence the health of wider communities through polluting effects, or through their supply chains. The global cost of health damage because of poor air quality is estimated to equate to 6.1 per cent of global GDP."  Clearly, companies can have wide-reaching effects and the negative implications of this can be detrimental to the economy.

Case study - FAIRR Restaurant Antibiotics engagement (WPF holding approx. £0.7m)

WPF are members of FAIRR, a collaborative investor network that raises awareness of the risks and opportunities in the global food sector. 

FAIRR are currently carrying out an engagement with an objective of better disclosure around how companies are mitigating antimicrobial resistance (AMR) risk in their animal protein supply chains, something which impacts public health and is a clear financial risk.  This engagement is targeting 12 North American companies, all of which operate internationally. 

At the time of writing, WPF had exposure to four of these companies (Domino's Pizza, McDonalds, Starbucks, and Yum! Brands, at a total value of £0.7m). We look forward to seeing how this engagement progresses.

Conclusion

The initiatives and case studies highlighted above underscore the relationship between corporate practices and the broader societal well-being. By focusing on the health of workers, consumers, and communities, companies not only mitigate financial risks but also contribute to a healthier society, which in turn, supports sustainable economic growth. This alignment of financial success with the promotion of health is a testament to the fact that healthy profits do not have to come at the expense of well-being. Instead, they can be a powerful mechanism for achieving a more prosperous and healthier future for all.