As the global spotlight falls on population health and inequalities, research by Jessica Attard, head of food and health at ShareAction, a registered charity that promotes Responsible Investment, and Liam Crosby, has found that investors have an opportunity to simultaneously improve the resilience of their portfolios, reduce financial risk, and drive toward better health outcomes for all
Health is not only critical to individuals in shaping their lives, but it is also an asset to a thriving and prosperous global economy. At both a macro-economic and portfolio-level, as well as a sectoral and company-specific level, poor health can have negative effects on financial performance. Companies, and their investors, can both be impacted by health, and impact on it.
Our understanding of the role that companies play in influencing health ‒ through the quality of work they provide, the products and services they produce, and through their impact on local communities – is increasing.
This increased understanding of the role that companies play, alongside unsustainable and increasing costs of ill-health is causing government regulation to increase across the world. Litigation is increasing too. The public’s expectation of companies is evolving, and consumer trends are driving toward health-conscious options.
They can also harness opportunities to develop more resilient portfolios, drive real-world positive health impact, and respond to growing consumer and asset owner demand. Currently, investor stewardship on health is insufficient to do so effectively, and leaves portfolios facing avoidable risk.
There are barriers to enhanced stewardship on health, but investors can overcome them
Our research has shown that the way investors currently assess risk is insufficient to capture the full breadth of health-related risks. This is partly because of the way investors have historically interpreted their legal (fiduciary) duties. Some investors believe they must base stewardship activity on a narrow definition of financial materiality. This precludes them taking a broader and more holistic approach to risk assessments. It also limits the extent to which they consider longer-term risks.
Work by NGOs and legislators is underway to clarify the fiduciary duties of investors so there can be no doubt that investors should consider the full breadth of ESG factors within their stewardship, including health. This work should continue, and in the meantime, investors should start to evolve their practice accordingly.
We have found that health is not well understood or prioritised as a stewardship theme. Currently, capital allocation decisions don’t include consideration of health-related factors, particularly within mainstream funds.
While investor-led company engagement on health topics is growing, significant gaps remain. We understand that this is partly because the financial case has not yet been made sufficiently to investors on many health topics.
Our research has also revealed that the lack of health-related data and benchmarks makes it difficult for investors to assess risk and target engagement where it will have the greatest impact.
Investors lack some of the information they need to make evidence-informed asks of companies particularly where collaborative engagements do not exist. As an important starting point, investors should be equipped with a clear business case for why health is of financial relevance to them. This should go hand in hand with guidance on what evidence-informed asks could be made of target companies on specific health topics. Existing collaborative engagements have resulted in real-world impact, so more opportunities for collaborative engagement on various health themes should be encouraged and supported.
We also found that company disclosures on health-related practice is unstandardised or absent, including on topics such as nutrition, insecure work, and air quality. ESG data providers don’t cover health-related factors well either, leaving investors without high-quality, comprehensive data to guide their assessments and engagement activity.
This should not prevent investors from incorporating health-related topics into their engagements and investment practice in the short-term. Indeed, investor engagements can be an important route to driving standardised company disclosure on health-related topics. In the medium-term, new company benchmarks on priority health-related topics should be developed, and health data incorporated into sustainability indexes.
Time to change the status quo
Our research has taken place at a crucial time for population health. The Covid-19 pandemic has highlighted the economic importance of health – both for individual companies and for the wider economy. It has illuminated and exacerbated pre-existing negative population health trends and inequalities. As we emerge from the pandemic, developing more resilient economies will require stronger action by companies and investors on health.
The long-term economic costs of poor health are unsustainable and create an urgent need to increase investor stewardship on this theme. Where investors have begun to look at the overall impacts that companies have on society, health impacts have emerged as some of the most important. Yet the current lack of prioritisation given to population health within investment stewardship has allowed some companies to overlook their most significant social impacts.
As investors grapple with defining the ‘S’ of ESG, there is an important opportunity to ensure that the impact of corporate activity on health is identified and addressed as a key sustainability theme.
Investors have a clear interest in creating healthy societies over the long-term. Yet, the current status quo on population health means their investments risk undermining this outcome. Investors now have an opportunity to take a lead to ensure the vast capital flows they oversee can deliver a healthy future for everyone.
Our research has identified a set of health topics that could be priorities for further investor action on health. It has also identified opportunities to address the systemic barriers that exist to enable enhanced health-related stewardship. Addressing many of these will require actions from a range of stakeholders across different sectors.
As with climate change, strengthening investor stewardship for better health outcomes will be an iterative process over an extended period. However, there are things that investors, policymakers and civil society can begin to do now.
Here, we present suggested next steps.
Investment sector (asset owners and managers, data providers)
Give greater priority and consideration to health and enhance stewardship in relation to it.
Asset managers and owners should consider the overall and systematic health impacts of their investments.
Investors should assess short- and longer-term company-level risk related to health. Risk may increase due to changing public policy, consumer trends, and workforce inefficiency which reduces productivity
Investors should assess cumulative portfolio-level health-related risk. Risk may increase due to poor health creating costs to society and dampening economic growth. This is particularly important for highly diversified, long-term investors
Investors should support the development of disclosure frameworks, data sets and benchmarks that help investors assess companies’ health impacts, including where efforts are absent or lacking
Investors should increase their corporate engagement on health-related topics and support and participate in new and existing collaborative initiatives to address companies’ health impacts. They could do this by:
- Strengthening engagement on topics where investor stewardship is already emerging, such as food and nutrition
- Conducting engagement on other health-related topics that haven’t previously been well covered. These include ambient air pollution, alcohol harm, and health-related lobbying
- Taking part in existing and new collaborative engagement initiatives on health topics.
ESG data providers should develop and incorporate health indicators into their existing ESG assessments. This would provide a more rounded and holistic view of company and sectoral risk that would allow better evidence-based corporate governance.
Clarify that investors’ fiduciary duty – as it currently stands – not only permits investors, but requires them, to consider the environmental and social impacts of companies, including their impacts on health. While we believe that fiduciary duty currently requires investors to consider health-related risk, further clarification and explicit reference to health would be beneficial to avoid any doubt. The effects of this would be to:
- Better empower investors to integrate an assessment of long-term systemic risks from poor health into their stewardship practices
- Better enable pension funds to take a broader view of what is in their beneficiaries’ best interests, giving priority to population health alongside financial returns
Civil society (NGOs, academics and funders with an interest in improving health)
Develop a programme of work that supports and empowers investors to prioritise health. This programme should:
- Articulate the business case for health stewardship to help asset managers and asset owners give greater priority to the issue
- Build a movement of investors committed to incorporating health into their stewardship activities
- Identify good practices among investors in relation to health, then spread and scale these practices across the industry
- Advocate for public policy that supports and mandates investors to consider health-related risks
- Establish collaborative company engagements on health-relevant topics, where there is an opportunity to drive accelerated positive health impact. This should be based on company-data and best practice which drive toward real-world impact