Antibiotics: Investors’ Blindspot 

Resistance to antibiotics is a looming systemic risk for investors, but too few have the bandwidth or awareness to take it on.   

Anti-microbial resistance (AMR) could kill us before the climate crisis does, Professor Dame Sally Davies recently warned, calling for civil disobedience in the form of Extinction Rebellion-style protests to raise awareness of the issue. 

Davies is also the UK’s special envoy on antimicrobial resistance. Her graphic and crisp messages about AMR – whereby microorganisms, such as bacteria or parasites, become resistant to antimicrobial treatments such as antibiotics – have been catalytic in encouraging UK investors to act.  

Abigail Herron, Global Head of ESG and Strategic Partnerships at UK-based Aviva Investors, credits a 2015 BBC documentary on the rise of antibiotic-resistant superbugs that featured Davies for opening her eyes to the scale and severity of the problem.

“Before that I had a vague notion that it was patients being overprescribed antibiotics, rather than the overuse of antibiotics in the farmyard on livestock,” she explains. “I had a very sharp learning curve, and it just really struck me that it was this massive elephant in the room that no-one was talking about or appreciated the severity of.” 

In 2016, the final report from the UK Review on Antimicrobial Resistance, chaired by Lord Jim O’Neill, estimated that 10 million people could die each year by 2050 as a result of AMR-related illnesses. The related economic loss could amount to a staggering US$100 trillion.  

“No-one was talking about these very huge macro- and micro-economic implications for food retailers, food producers, the pharmaceutical and biotech industry, health industry, life insurance industry – all these sectors that we’ve [Aviva Investors] got significant exposure to and obviously our parent company offers life and health insurance too,” Herron notes.  

Despite pockets of effort to drive awareness and action on the issue, misinformation and ignorance of AMR remains rife. In 2022, for example, then-Health Secretary Thérèse Coffey was roundly criticised for telling civil servants that she had given leftover antibiotics to a poorly friend. The British Medical Association described her actions as both dangerous and unlawful.  

Since Aviva Investors hosted its first event on AMR risk in 2015, investors have begun to recognise the importance of the issue – but only superficially, Herron argues. “They don’t think it is as being as significant a risk as climate change or biodiversity loss, or how the three are interconnected. It’s definitely not as well known.” 

Policy and systemic risk  

But for investors and NGOs working closely on the issue, AMR risk is just as predominant and systemic as climate change or biodiversity loss. 

For Suzi van Es, Investor Engagement Manager at the Access to Medicine Foundation, AMR has major financial consequences on all sectors and industries. It was a public health threat before Covid-19, but the pandemic acted as an incubator for rising levels of resistance.  

“Some investments and sectors at greater risk, including pharmaceutical, agriculture and utilities,” she says. “We are seeing overuse [antibiotic] and misuse in healthcare, farming coupled with poor manufacturing and business practices each quietly driving up rising levels of resistance, making the framing of AMR as the silent pandemic, particularly apt. 

Based in the Netherlands, the Access to Medicine Foundation has played a key role in building the architecture to help investors tackle AMR risk. Its AMR Benchmark compares and analyses how pharmaceutical companies are responding to the crisis. The foundation also co-founded the Investor Action on AMR (IAAMR) initiative, alongside the UK Department of Health and Social Care and investment network FAIRR Initiative. Since its launch in 2020, the IAAMR has drawn in 17 investors, representing over a combined US$10 trillion in assets.  

“Members commit to adopting an AMR lens in investment decisions, or engaging with companies and undertaking specific challenges to combat the global threat of drug-resistant superbugs across humans, animals and the environment,” explains Dr. Emma Berntman, Senior Engagement Specialist at FAIRR. “Investor partners’ challenges include, for example, exploring the materiality of AMR on long-term financial returns and advocating for regulatory action to address market failures, whilst incentivising responsible antibiotic development and manufacturing.”   

As a member of the IAAMR, Aviva Investors has been particularly committed to the issue. In 2020, the firm funded Herron’s master’s degree, through which she could explore why AMR was an investment issue, and how investors could tackle it and influence the debate.  

“The primary conclusion I came to is that engagement with companies is important,” Herron recalls. “But the area where we can pack the biggest punch is in supporting public policy reform, because no one company has got it within their gift to fix the market failure of AMR itself.”

A key issue is that pharmaceutical companies have no incentive to spend billions on novel antibiotics to counter AMR, as the only way to prevent antibiotic overuse is by not selling too many.

“That’s why we haven’t really found any new antibiotics – because the economics are completely broken,” Herron explains. “We’ve been calling for measures to fix the supply-side problem by creating pull incentives to get new antibiotics to market.”

Equally, small biotech companies that find new antibiotics often go bust and are unable to bring new drugs to the market, as the margins they make are too slim. “It’s such a precarious niche of the pharmaceutical industry,” Herron adds. 

Trial and error

In the midst of all this chaos, England’s National Health Service (NHS) may have actually found an innovative approach, which Herron describes as a “world-leading”. 

The health service is currently trialling a ‘Netflix-like’ subscription model, whereby pharmaceutical companies receive upfront payments for their new antibiotics, rather than being paid on the basis of prescription volumes. This, Herron explains, removes any financial motivation for antibiotic overuse.  

“It’s year four of the trial,” explains Herron. “And it’s going really well. It’s something that other G7 member states have also committed to fund. There’s just a gap between the commitments they made in the G7 Finance Ministers Accord [in 2021] and the actual money taps being turned on. We’re hoping that changes in the near future.”  

Meanwhile, members of the US Congress have been trying to pass the Pasteur Act, which would establish a subscription model to encourage innovative antimicrobial drug development aimed at treating drug-resistant infections. “It looked like the Act might be passed last Christmas. But it didn’t happen, alas, just yet,” Herron deplores.  

After hosting the G7 last year, Japan is now also making some trials, while similar experiences also exist in France and Germany.

“But really, the leader on this is NHS England in no small part because Chancellor of the Exchequer Jeremy Hunt is a huge champion of AMR since his time as Health Secretary, and he seems to understand the financial implications,” Herron insists.

Other countries currently leading the charge in this area include Sweden and China. The Public Health Agency of Sweden, for instance, has been piloting a new reimbursement model that sets a minimum guaranteed annual revenue for selected originator antibiotics, in return for a guaranteed supply volume. 

“China is an interesting one to look at – it is the largest producer and user of antibiotics globally, and also ranks among the countries with the highest incidence of AMR,” says van Es. “It could open opportunities to bring new antibiotics to other markets in Asia, and has the public health infrastructure and advanced digital data and technologies to enable access at scale.”

China also uses a technology-based centralised distribution system for tracking prescriptions, which provides opportunities for good stewardship, van Es suggested. 

According to FAIRR’s Berntman, however, the EU so far has taken the strongest actions to curb antibiotic use.

“In January 2022, the strictest regulation globally came into force when the EU banned antibiotics for routine use or to compensate for poor animal welfare practices, preventing companies from selling them for prevention and growth promotion,” she says. “Companies unprepared for such changes leave themselves exposed to regulatory risk and could be materially impacted, subsequently affecting investor profit.”  

The new rules are likely to be particularly consequential for the farming and food sectors, given an estimated 70% of global antibiotic use occurs in animal agriculture. “Antibiotics are used to treat and prevent the spread of disease and, in countries where regulation permits, for growth promotion,” says Berntman. “Reducing antibiotic use in animal agriculture will help to limit the growing AMR burden and safeguard human and animal health.” 

Shareholder engagement 

Last year, stakeholders – including Herron – gathered for the sixth Global Leaders Group on Antimicrobial Resistance, chaired by Barbados Prime Minister Mia Mottley. This September, the UN General Assembly annual meeting is due to include the first stock-take of national action plans on AMR. 

Despite rising levels of awareness globally, more could be done at the international level, van Es argues. “[The issue] is missing from multilateral agreements like the Sustainable Development Goals (SDGs) and the EU’s Sustainable Financial Disclosure Regulation (SFDR),” she says. “There is appetite for clear targets or an equivalent Paris [Agreement]-watershed moment, but time is no longer on our side.”  

At an individual company level, engagement is set to continue this year with AMR shareholder proposals. Maria Ortino, Global ESG Manager at Legal and General Investment Management (LGIM), says the firm has supported such proposals filed at McDonald’s, pre-declared its votes on these resolutions, and engaged with the corporation.   

LGIM also signed a collaborative investor letter under the leadership of the Interfaith Center on Corporate Responsibility, asking McDonald’s to publish targets related to the reduced use of medically important antibiotics for routine disease prevention in its global beef supplies – something the company had said it would do by the end of 2020. 

“Given insufficient progress on these issues, we decided it was time to further escalate our concerns,” says Ortino. “In autumn 2022, we were approached by The Shareholder Commons to co-file a shareholder proposal asking McDonald’s to apply World Health Organization guidelines, and filed the proposal in December with other investors, including Amundi.”

Shortly after, McDonald’s released new antibiotic reduction targets – two years after the initial deadline. “However, we did not deem at the time – nor now – that this was sufficient progress within the company’s AMR activities,” Ortino adds. As such, LGIM continues to work with the company – individually, as well as collaboratively with other shareholders. 

Another reason why raising awareness on AMR has proven so difficult, is because it comes at a time when investors feel overburdened with other ESG risks, Herron contends. 

“The fatigue is real. Everyone’s super stretched,” she says. “But you don’t need to reinvent the wheel and make people get their heads around a whole new topic to create an effective investment approach to AMR. You can hook AMR into all your existing nature and climate activity because of the interplay that exists between them, and our recent research on confronting a permacrisis shows how.”

This is already happening within the IAAMR, with members making headway on grappling with the issue, positioning AMR risk in their biodiversity and climate workstreams, van Es reports. 

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