On the Menu for Investors
A new class of weight-loss drugs is enticing investor interest, but has to be balanced against escalating societal and economic costs and food companies’ inaction on obesity.
One of the biggest stories in recent years has been the dramatic rise in obesity worldwide. According to the World Health Organisation (WHO), an estimated 2 out of every 5 adults worldwide are now considered overweight or obese, which could increase to 51% of the global population by 2035.
Investors are taking notice. Considered a public health crisis, obesity could trigger a 3% contraction in global GDP by 2035, representing a systemic risk to portfolios. Food-related companies also face policy and reputational risks as governments bring in laws to curb fat and sugar-laden goods, and as consumer preferences become healthier.
In 2020, the Access to Nutrition Initiative (ATNI) released investor expectations on nutrition, diets and health to support and spur greater investor engagement with companies to address global nutrition challenges and deliver on the UN Sustainable Development Goals.
“Preventing obesity through sustained market change must be a priority. ATNI’s Investor Expectations on Nutrition, Diets and Health and its 80-plus signatories is step one towards market transformation,” said Greg Garrett, CEO of ATNI. “We’re now working on step two which is aligning companies, investors, regulators and consumer groups around two very concrete goals for the food sector: increase overall proportion of sales from more nutritious foods and make those affordable; and market responsibly by never targeting children younger than 18 years of age with any marketing related to unhealthy foods.”
But engaging with companies on the issue hasn’t proven easy. The world’s largest food and beverage company, Nestlé, has been particularly difficult to communicate with, according to responsible investment NGO ShareAction, with shareholders having recently escalated to filing a resolution.
The move formed part of ShareAction’s Healthy Markets Initiative, supported by 40 investors with US$5 trillion in combined assets who are urging food retailers and manufacturers to drive healthier food options.
Engagement has been more fruitful with British food and beverage behemoth Unilever, which faced with the threat of a shareholder resolution, agreed to set a target to sell more healthy servings of food, according to ShareAction’s Co-head of Health Thomas Abrams. The group now also discloses the proportion of sales coming from healthy and unhealthy products using nutrient profile models.
However, it has been a challenge to get this information on product sales from Nestlé, despite two years of engagement. The proposal against the company, co-filed by investment heavyweight Legal and General Investment Management (LGIM), asked Nestlé to set a target to increase the proportion of healthier products sales and implement internationally recognised standards that define healthy food.
“The interconnected challenges of obesity, undernutrition and micronutrient deficiencies represent a heavy burden to economic development globally,” LGIM’s stewardship team said in a statement. “Their material cost is estimated at 5% of global income, or US$3.5 trillion per annum.”
Several governments around the world have implemented, or are considering implementing, regulation related to the labelling and advertising of unhealthy food products, their taxation, and more.
“We believe companies with high revenue exposure to unhealthy products are likely to face increasing regulation and limitations on marketing of unhealthy foods,” LGIM added.
Ten investors managing £154 billion collectively – including the UK’s largest workplace pension scheme NEST, PensionBee, and asset manager Cardano – have pre-declared their support for the Nestlé’s resolution, which will be voted on at the company’s annual general meeting on 18 April.
Policy engagement
The Healthy Market Initiative’s focus on food manufacturers switched from food retailers such as Tesco’s and Sainsbury’s after it realised it could make a bigger impact by targeting the direct source of products.
This is also the case for the Investor Coalition on Food Policy, which decided to target governments directly after it felt only incremental changes could be achieved through engagement with food retailers. Sophie Lawrence, Stewardship and Engagement Lead at Rathbone Greenbank, explained that the coalition started after a small group of investors recognised the long-term and systemic risks associated with rising levels of obesity and diet-related health issues, and their wider effects on the economy and companies.
The coalition began corporate engagement in 2021 but rapidly realized that without well-designed regulation, system-wide transformative change would not materialise. “This gave rise to the setup where we coordinated an investor letter in response to the UK National Food Strategy,” said Lawrence.
The ‘Farm to Fork’ review of England’s food system led by Henry Dimbleby, Co-founder of restaurant chain Leon, led to one recommendation of particular interest to the coalition: the mandatory reporting of health and sustainability metrics by food sector companies.
“The real challenge that we had, especially for large institutional players, was that companies’ reporting was piecemeal and wasn’t necessarily tied to the same metrics,” said Lawrence. “It was therefore difficult to benchmark and understand how these companies fared in comparison to one another. It felt like mandatory reporting would really be a step change, so that was the early focus of our work.”
The coalition started meeting ministers to discuss the issue in 2022, and the then-government was committed to mandatory company reporting on food data.
“That ambition has been rolled back, with the commitment moving from mandatory to voluntary reporting,” Lawrence deplored. In protest, Anna Taylor, Executive Director at the Food Foundation and secretariat for the coalition, stepped down from an expert group within the UK National Food Strategy programme.
The coalition, which now counts 30 investors members managing £6 trillion in assets, is however still keen to remain part of the programme.
“It’s an important stepping stone towards future mandatory reporting,” said Lawrence. “The UK National Food Strategy now mentions investors as stakeholders, which is a sign of the inroads that have been made.”
Going forward the group is looking to take its policy advocacy work globally and develop a project looking at corporate lobbying in the food sector.
Weight-loss opportunity
The new focus on lobbying recently sparked sustainable asset manager Montanaro to join the coalition. Kate Hewitt, ESG and Impact Specialist at Montanaro, explained that active advocacy and collaboration addressing systemic food issues rather than blaming individuals for their dietary choices was important for the group, which is also a member of the Healthy Markets Initiative.
“Global obesity has cascading effects on public health and sustainability,” she said. “As investors that aim to contribute positively to the world around us, we hope our engagement in initiatives like ShareAction’s Healthy Markets and The Investor Coalition on Food Policy will help to drive systemic change.”
Nutrition is a theme of Montanaro’s impact strategy Better World Fund. “An investment opportunity for the fund is the current innovation in weight management drugs that has captured the imagination of many – including investors,” Hewitt explained.
The global weight-loss drug market could represent as much as US$77 billion by 2030 (compared to US$2.4 billion in 2022), according to Morgan Stanley. Goldman Sachs is even more bullish in its predictions, estimating that the global market for anti-obesity medications could reach US$100 billion by 2030.
The craze can be attributed in part to the increasing effectiveness of a new class of drugs to achieve meaningful weight loss up to the mid-20% range, compared with a 3-11% body weight reduction with previous drugs. Led by glucagon-like peptide 1 (GLP-1) receptor agonists, the drugs stimulate key receptors in the gastrointestinal tract and brain to promote insulin synthesis and decrease feelings of hunger.
Hewitt said that Montanaro was looking to GLP-1 manufacturers and their supply chains for investment opportunities. “But the discussion is nuanced, as the high cost and variable accessibility of these drugs, especially in the US, create barriers that may prevent those in greatest need from obtaining them,” she added. “This challenges the ideals of health equity and affordability.”
Aiming to capitalise on the trend, asset manager Bellevue has also created a dedicated fund to invest in the sector. Christian Lach, Co-Portfolio Manager of the Bellevue Obesity Solutions Fund, explained that the vehicle’s creation was inspired by landmark trials from the American Heart Association last year on the effectiveness of GLP-1 on weight loss and additional health benefits.
“The obesity market has reached a turning point and the momentum has only just begun,” he said. “The market for safe, effective therapeutics is wide open, as only 2% of obese patients in the US receive medical treatment. From a political and societal perspective, there is a lot of tailwind for better solutions.”
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