ShareAction research suggests rising materiality of health outcomes to long-term returns; proposes renewed assessment and engagement efforts.
Institutional investors require new assessment frameworks, increased collaboration and more data sources to address unnoticed but systemic health risks in their portfolios, according to UK-based responsible investment NGO ShareAction.
Investors have largely failed to recognise the negative impact of companies’ policies and activities on the health of their employees, customers and wider society beyond specific sectors such as healthcare or pharmaceuticals, it said in a new research paper based on interviews with 40 asset managers and owners.
But, said ShareAction, a greater focus on health-related risks at the company and portfolio level, allied to increased engagement activity, could improve overall health outcomes, boosting productivity and economic growth rates, supporting stable returns to long-term investors.
“Our research has shown this is a big opportunity space with both a social and financial up-side, especially for those asset managers who act first to fill the void. We’re calling on all investors to rapidly review their responsible investment policies to ensure health is a key lens through which they assess company sustainability,” said Jessica Attard, Head of Health at ShareAction.
The report, ‘Health: An Untapped Asset’, proposes a new assessment framework which splits the health risks posed by companies into three categories – workers, consumers and communities – drawing on how firms’ greenhouse gas emissions are categorised as Scope 1, 2 and 3.
ShareAction says this approach will help investors identify which sectors and assets are most likely to vulnerable to specific health risks. For example, risks to workers’ health are typically concentrated in sectors associated with low pay, security and flexibility, such as retail, logistics, construction, social care and food production.
Risks to consumer health are most associated with firms producing tobacco, alcohol, and food and beverages, with over-consumption contributing to heart disease, diabetes, and strokes, while risks to community heath include air pollution, antimicrobial resistance and sub-optimal housing, resulting from the activities of sectors such as transport, chemicals and property.
Last week, ShareAction published research suggesting that the revenues of global food and drinks manufacturers continue to rely heavily on unhealthy products, which account for more than 70% of the UK sales of 16 of the world’s largest manufacturers.
Health risks rising up investor agenda
A large number of healthcare-focused funds have been launched in recent years, but these typically focus on investment in the healthcare and allied industries, including pharmaceuticals, biotechnology and medical innovation and are not necessarily aligned to UN Sustainable Development Goal 3, which focuses on ensuring healthy lives and promoting well-being for all at all ages. Research from MSCI found that only 47 healthcare funds globally exhibit greater than 50% alignment with SDG 3.
The new ShareAction report points to stalling and declining life expectancy levels in developed economies, both overall and in specific demographic groups, as evidence of growing systemic health risks. It also cites estimates from the Confederation of British Industry of £300 billion in annual economic losses attributable to poor health.
ShareAction also notes that increasing levels of health-related legislation – such as sugar taxes and air quality laws – are now internalising what were previously considered external risks, resulting in a greater likelihood of losses to investors.
Interviews conducted for the research found that health risks are a low but rising priority in the stewardship activities of asset owners in the wake of the Covid-19 pandemic, with barriers to engagement including a lack of high-quality comparable data or evidence-based guidance on health-related risks to aid investors’ assessments.
As well as proposing its three-tier framework, ShareAction recommended that investors undertake company- and portfolio-level assessments of health risks, support the development of health-focused disclosure frameworks and “participate in new and existing collaborative initiatives to address companies’ health impacts”.
“Asset managers are seeing the first salvoes of campaigns to place health among the key issues for ESG investing and will need to respond,” said John Godfrey, Corporate Affairs Director at Legal and General. “The lessons of climate are that this could be a movement that will evolve quickly in a post-COVID world where public health and health inequality is more important than ever before.”