“Health is wealth”: ATNI and Planet Tracker call on investors to reward companies for healthy food portfolios

03 Jul 2024 --- The Access to Nutrition Initiative (ATNI) and Planet Tracker have published a report that builds a “business case for investing in nutrition.” The organizations find an association between companies with healthier food product portfolios and higher profitability and valuation compared to their “unhealthy peers,” which they stress creates opportunities for investors.

ATNI and Planet Tracker, a non-profit think tank focused on sustainable finance, compared the food portfolio of 20 global food manufacturers with their profits and market valuations. 

“This report is part of a small but critical and growing body of evidence showing that food companies should improve the healthiness of their portfolios and disclosures. By not doing so, they increase their risk and miss the opportunity to improve societal outcomes,” says Greg S. Garrett, executive director of ATNI. 

Both organizations caution that improved company disclosures and additional analysis will be required to more fully answer the question of whether investors are missing economic opportunities by not intentionally investing in companies with healthier food portfolios. 

“Nutrition represents both an investment opportunity and an investment risk, and our analysis — which is based on a sample representing 10% of the market by revenues — suggests that the issue of nutrition would be given a higher priority if there was greater corporate disclosure regarding nutrition,” urges the report. 

Poor disclosure impacts markets’ ability to assess the benefits of producing healthier food products. It has prevented a more detailed examination of the relationship between profits, valuations and a company’s portfolio’s nutritional profile. 

The authors call on companies to disclose critical nutritional information to improve their cost of capital. They suggest that investors seek to mitigate risks by demanding disclosures and pressing environmental, social and governance (ESG) data providers to include nutrition in their assessment frameworks. 

The report asserts that nutrition would be given a higher priority if there was greater corporate disclosure regarding nutrition.Healthy food portfolios  
According to ATNI and Planet Tracker, most food manufacturers do not disclose information on the healthiness of their global food portfolios. Their report “Materiality of Nutrition — Are financial markets missing the value of healthy food?” uses ATNI’s Global Access to Nutrition Index data to estimate each company’s Health Star Rating (HSR) scores. 

HSR is based on the 2004 UK Nutrient Profiling model, which considers energy, saturated fat, sodium and sugar and “positive” aspects of food, such as fruit and vegetable content, fiber, calcium and protein. 

ATNI employs this system to evaluate the nutrient profile or healthiness of food categories. The system rates products from 0.5 stars (least healthy) to 5 stars (most healthy). The organization uses the threshold of 3.5 stars to classify products as “generally healthier.” 

The organizations compared the HSR data with financial and valuation data for 20 of the largest quoted food manufacturing companies. Moreover, they analyzed company annual reports and earning call transcripts for several companies to determine to which extent companies and investors discuss the healthiness of food product portfolios. 

Of the 20 companies, 13 see nutrition as a strategic opportunity, but only seven “regard nutrition as a sufficiently material issue to warrant raising in the context of their earnings calls discussions with analysts.”

Health-wealth wins  
The portfolios’ healthiness and earnings before taxable income (EBIT) correlations are significantly variable. The report adds that stratification is key to identifying investments that generate health and wealth. 

The report distinguishes between company size (small or large), portfolio focus (narrow or broad) and portfolio healthiness (healthy or unhealthy). 

Health Star Rating considers energy, saturated fat, sodium and sugar and “positive” aspects of food.Companies with broader, healthier food portfolios have higher EBIT margins (15.2%) than their peers (13.4%). However, in companies with narrow food portfolios, those with an unhealthy portfolio have a higher margin (16.7%) than those with healthy portfolios (10.4%). The authors caution that this result is influenced by two companies with solid brands and significant revenues — Coca-Cola and Keurig Dr. Pepper. 

The findings suggest no strong association between unhealthy food and high EBIT. In contrast, smaller companies with broad food portfolios have “the greatest chances of producing a positive association between healthy food (higher HSR) and EBIT.” 

“The results suggest that with the right approach, health-wealth wins can be achieved that benefit society, companies and investors,” reads the report. 

Changing food environment 
Amid growing costs of unhealthy foods to society and upcoming regulations, the report authors caution that companies focusing on producing a narrow range of unhealthy food products are increasingly at risk. 

They highlight that companies grasping opportunities for healthier food products will perform better in the long term as consumers, policymakers, civil society and the private sector increasingly focus on creating a healthier and more sustainable food system. 

For example, policymakers increasingly introduce regulations to improve the food environment, such as health taxes, marketing restrictions, salt content limits and mandatory front-of-package labeling. 

Moreover, the authors point to growing risks for investors if they hold shares in a highly valued company mainly producing unhealthy food products. “Market values may not reflect the potential impact of future regulation.” 

Policymakers aim to introduce regulations that improve the food environment, such as mandatory labeling.Therefore, they see a financial case for investors to encourage companies to increase the healthiness of their food product portfolios. 

“Unhealthy food products are costing society and employers, but the issue is being overlooked by financial institutions. Regulations present an increasing threat to companies profiting from producing unhealthy foods, but poor disclosure is hiding the risks,” explains Peter Elwin, head of the Food and Land Use program at Planet Tracker.

“Our analysis shows that there could be investment opportunities associated with producing healthy food, so there’s an incentive for investors to ask for change.”

Investor call to action 
The report calls on investors to encourage companies to improve the healthiness of their food product portfolios “before regulation forces changes on them.” 

It further suggests that investors press companies for consistent, more detailed, nutrition-related disclosures, set proportional nutrition-related targets and publish key performance indicators to monitor progress. 

Moreover, the organizations urge investors to incorporate an assessment of the healthiness of particular companies’ portfolios in their investment analysis. They also ask investors to engage with food companies to encourage a greater focus on nutrition as an opportunity and to ensure companies address nutrition-related risks. 

The report calls on investors to encourage companies to improve the healthiness of their food product portfolios.The authors also ask investors to join forces to encourage regulators and policymakers to implement compulsory disclosure regimes relating to nutrition and introduce rules and incentives to encourage companies. 

They further ask them to engage with ESG data providers to ensure they include nutrition as a metric in their frameworks and scoring. 

Study limitations 
At the same time, the organizations concede that the report has several limitations. It uses a small sample size, as HSR scores are only available for a few public companies. Stratifying the sample further reduces the size. For example, in the category of small companies with a broad food portfolio, the researchers compare the EBIT of five smaller companies with a high HSR rate to that of only one company with a lower HSR. 

They further caution: “Our analysis does not prove that healthier food portfolios are a driver of higher profits, merely that there appears to be an association between HSR and EBIT which could be driven by an unidentified third factor.” 

ATNI and Planet Tracker suggest expanding the sample size to at least 100 companies and conducting additional multiple regression work to ensure a more comprehensive approach and better address the correlation versus causation issue. 

As regulation will increasingly put companies producing the most unhealthy foods at risk, they note that further research may consider financial forecasting under various regulation scenarios to identify the impact on sales and profits of unhealthy foods. 

By Jolanda van Hal