Investing in a low sugar future

Sugar free investment

Rising levels of obesity have become a global concern in recent years, bringing an increase in non-communicable diseases such as heart attacks, strokes, diabetes and cancer. Heightened sugar intake from increasingly unhealthy diets must shoulder some of the blame.

As the food and beverage companies responsible have come under scrutiny from consumers and governments, investors too have begun to recognise the power they have to drive positive change. 

Matt Crossman, engagement manager at Rathbone Greenbank Investments, an ethical investment company, talks to us about how they are engaging with companies to reduce the amount of sugar in their products and, in turn, our diets. 

Can you tell us a bit more about your recent focus on sugar? 

Sugar is a good example of how we’re trying to consider what are traditionally thought of as non-financial issues and show how they may be material to our investment portfolios in the future. For example, climate risk was something of a niche issue in the investment world 20 years ago, but is now increasingly mainstream. 

We try to be one step ahead of the market and anticipate which risks need to be addressed. When we saw the emerging public health crisis around obesity rates in the UK, we started to look at sugar and health and obesity.

Was your focus on sugar due to increased regulation, like the sugar tax, and consumer trends?

We actually started our engagement in earnest about six months before the sugar tax was announced – in truth, we didn’t think it was going to happen. With the government at the time, it was very, very hard to predict anything and none of the signals suggested that such regulation was likely to be forthcoming. 

We were looking at the issue from a more fundamental level – observing the obesity crisis affecting society and its impact on the NHS. There’s a narrative around obese people being shamed in the media for lack of personal responsibility or for not exercising enough. At a superficial level, that rings true, but our analysis countered that simplistic thinking. While people have free choice in terms of their diets, they have to exercise that choice within a world shaped by the food industry – and in many ways, the environment around us is designed to encourage us to eat more and more unhealthy foods. From product placement in TV programmes, to the ‘two-for-one promotions’ on unhealthy treats, we don’t exercise our personal responsibility in a neutral environment. 

And the fact that unhealthy options tend to be the cheapest?

There’s been a lot of work done in the US showing that, sadly, at lower income levels the cheapest way to get calories is through fast food. That’s compounded by the fact that highly processed food is cheaper to produce and has a much longer shelf life. Time poverty is another contributing factor to poor diet. If you need to work two jobs you’re very rarely going to be able to come home and spend an hour cooking a nutritious meal. 

We’ve also created an environment where food companies have been able to market high fat high sugar food to children, who aren’t mature enough to make balanced decisions about their diets. Thankfully, many of these adverts are being restricted in the UK, following Canada’s example. I’ve recently become a new parent, and I’m petrified of raising a child in this environment. You get perhaps two opportunities a day to give a healthy food message to your kids, not even that for busy parents. The number of unhealthy eating messages they get is terrifying. If you don’t believe me, go to the shops and see how long it takes to encounter a healthy option without it being promoted to you. Just looking at the layout of food retail stores, it’s clear what makes money. 

You might also borrow your child’s phone for an hour and see what adverts come their way on Instagram. The technology around us is being used to push us into unhealthy lifestyles. Marketing has its place, but far more needs to be done to make sure it’s done in a responsible manner.  

How has the sugar tax affected investment?

It’s important to look at the purpose of the sugar tax. The point isn’t necessarily to generate millions in tax revenue, but to drive product reformulation. So, while the main issue for investors is the increased tax burden suffered by companies with a high number of sugary products, a responsible company would never be hit by the tax.

Sadly, with this issue we’re not at the starting gate yet. We don’t know how unhealthy a given company’s product portfolio actually is. We’ve had to do a lot of work to try to define what ‘unhealthy’ actually means in the investment context. So the next phase for us is to participate in efforts to benchmark 50 European food companies and try to give them a health rating across their entire product range. Because it’s all very well a company saying that they offer healthy alternatives but, if that only represents 1% of their revenue, then that’s not good enough.

So incentivise change through naming and shaming?

I prefer the term ‘name and fame’, because I believe positivity gets more done. During 2016, Rathbone Greenbank partnered with Schroders to create an investor report. We identified five key areas to nudge companies to improve in: governance, strategy, implementation, public policy position and lobbying, and demonstrating progress. So, you’ve committed to promoting healthy foods but what actual percentage of your revenue are you directing towards research and development, how many products have you reformulated?

And crucially what is the alignment between what you’re saying and what your industry body is saying, because they often try to hide behind that. Publicly, we won’t oppose sugar taxes, but we’ll still give money to our trade association to lobby on our behalf against them.

That’s been a key thing for us: we prefer companies that are concentrating on all five key areas and have a strategic approach to reformulation. 

Do you think that is a possibility with the NHS and the healthcare costs associated with non-communicable diseases linked to sugar?

Is it likely? I don’t know. Is there a possibility? Absolutely. I could absolutely see New York state suing a cola manufacturer for the equivalent cost of however many cases of diabetes they have to treat based on the fact that they knowingly sold and promoted their products for over 20 years. I don’t know if there’s anything like that desire at a regulatory level yet. 

In every economy, we’re seeing the rise of non-communicable diseases like obesity, hypertension and cancer. We’ve exported the western diet to places that have historically had healthier diets. I think I’m right in saying that we don’t consume more calories than in the 1970s. So why are we becoming more obese? The food industry pushes that a calorie is a calorie, whereas the emerging scientific understanding is that sugar is worse for you than any other source of calories because of the way it is metabolised. But saying a calorie is a calorie fits into their narrative and allows them to carry on business as usual while blaming obese people for their lack of exercise. But maybe I’m just being cynical after engaging with companies for 14 years!

So is sugar the next big tobacco?

What changed the tobacco industry was state attorneys in the US suing the tobacco industry for healthcare costs. There are parallels, but the sugar issue is more complex. If your granddad smoked a particular brand of cigarettes for 30 years and that was his brand, you’ve got causality there and you can say that brand caused his cancer. However, the sugar in our diet comes from multiple sources.

Equally, where you can’t see a sustainably positive future for a tobacco company, there is room for delicious, exciting food that is healthy. For us, as ethical investors, it’s not about saying ‘this is evil’ as much as saying we could have a thriving, healthy, nutritious and creative food industry. And the first brand to successfully achieve that balance with mass appeal will be very attractive to investors. 

And ultimately the incentive for that comes from regulation and improved consumer choices?

Realistically, if you leave it to the market, they’re not going to do anything. But if you create incentives through regulation, that moves people. Progressive taxation is a great idea when dealing with public health crises. It creates a lever for behavioural change. The impact the sugar tax has had on soft drinks has been amazing. Companies that we have had no dialogue with are suddenly talking about it, are reformulating and have not seen any impact on sales. I hope to see the sugar tax extended to cover other high sugar food groups in the future.


Written by Max Thrower.