Healthier food for healthier consumers

01-08-2013 | Engage | Peter van der Werf, Michiel van Esch

Obesity rates and related chronic diseases have risen at an alarming rate, straining healthcare systems. To help address this problem, RobecoSAM’s Governance & Active Ownership team launched an engagement initiative to encourage food producers and retailers to offer healthier products. Engagement Specialist Michiel van Esch and Analyst Peter van der Werf discuss some of the key findings from the past year of shareholder dialogue, and looks ahead to the improvements they anticipate in the coming years.

Obesity puts a spotlight on food companies
The obesity epidemic has garnered considerable media attention while food producers have come under increasing regulatory pressure and stakeholder scrutiny. Though obesity is caused by a combination of factors: an unbalanced diet, a lack of physical activity and genetics, food companies have borne the brunt of the blame as many stakeholders link obesity to the widespread availability of unhealthy processed foods and sugary drinks. Whether such blame is justified or not, food companies that fail to respond to regulatory and consumer pressures aimed at tackling obesity face reputational risks and a negative impact on sales. But by being fully transparent about their products’ ingredients and nutritional value, companies can enable health conscious consumers to make better informed decisions about their food choices. In fact, companies can play an important role in providing consumers with healthier food options while benefitting from market opportunities related to the desire for a healthier lifestyle.

Solutions begin with awareness
We kicked off our engagement efforts by determining whether companies recognize obesity – and childhood obesity in particular – as a challenge that requires their attention. Even before we initiated our engagement program, we found that all targeted companies publicly acknowledged the obesity challenge in their sustainability reports, annual reports or websites. What’s more, all companies we approached were already taking steps towards developing healthier food products. Examples include Coca-Cola, which has been innovating with natural sweeteners and Unilever, which has been gradually reducing the amount of fat, sugar and other unhealthy ingredients from its products.

Our discussions with companies revealed that in many cases, management is keenly aware that health concerns may reduce demand for products considered to be unhealthy. More importantly, companies understand that reducing fats, sugars and salts without compromising on taste can create a competitive advantage. An interesting observation, however, is that although nutritional improvements to food products could be implemented faster, some producers indicated that abrupt changes to taste, composition or consistency of certain foods could actually hurt demand. In such cases, improvements to a food product’s nutritional value must be introduced gradually.

"Companies can play an important role in providing consumers with healthier food options while benefitting from market opportunities related to the desire for a healthier lifestyle."

Engagement focus on company-wide obesity strategy
As most companies recognized the importance of developing healthier products, we focused our engagement efforts on broader objectives such as encouraging food producers to establish and disclose a company-wide strategy to tackle obesity, set quantitative targets for developing healthier products, and commit to responsible marketing practices. Some companies are already taking steps in this direction. H.J. Heinz is developing an internal database to enable it to quantify and report on its global progress toward reducing unhealthy fat and calories and increasing nutrients such as calcium and fiber. We applaud such an initiative as it goes beyond focusing on a small a selection of the company’s healthiest products and truly allows the company to measure its progress on developing healthier foods across all product lines.

One challenge, however, is that food companies’ product portfolios change frequently, making it difficult for them to set and measure firm-wide targets. In addition, food producers offer a wide range of products that may impact consumer health in different ways. Therefore, it is important that food retailers and producers clearly communicate on their overall obesity policy, which product categories are covered by such a policy, and their progress towards achieving their targets.

"Most companies are taking some steps in the right direction, but there is a grey area between box ticking and a true commitment to improving the nutritional quality of food products."

What next? Marketing practices offer room for improvement
Our preliminary assessment is that companies appear to be aware of growing concerns related to obesity and their role in providing consumers with healthier choices. Most companies are taking some steps in the right direction, but there is a grey area between box ticking and a true commitment to improving the nutritional quality of food products.

But how are companies promoting their product lines? Children, in particular, are easily influenced by advertising, especially when popular cartoon characters and toys are used as a marketing tool. To address this concern, the EU has challenged food companies to refrain from advertising products that do not meet minimum nutritional standards to audiences primarily consisting of children below the age of 12. This pledge also bans food advertising in primary schools. Although such voluntary commitments are a good starting point for establishing responsible advertising standards, they are limited to the EU and only address marketing to children. It is also important to assess companies’ global marketing practices.

By adopting responsible marketing practices, companies have the opportunity to demonstrate their true commitment to tackling obesity, thereby avoiding reputational risks that can affect long term shareholder returns. Therefore, for the remainder of our engagement efforts over the next year and a half, we will focus on just that: the scope and relevance of companies’ strategies for tackling obesity and their commitment to responsible marketing practices.

michiel-van-eschMichiel van Esch
Engagement Specialist RobecoSAM Governance & Active Ownership

peter-van-der-werfPeter van der Werf
Engagement Specialist