As the global spotlight shines on population health and inequality, research by Jessica Attard, head of food and health at ShareAction, a registered charity that promotes responsible investing, and Liam Crosby, revealed that investors have the opportunity to simultaneously improve the resilience of their portfolios, reduce financial risk and strive for better health outcomes for all
Health is not only essential for individuals to shape their lives, it is also an asset for a thriving and prosperous global economy. At the macroeconomic and portfolio level, as well as at the sector and company level, poor health can have negative effects on financial performance. Businesses and their investors can both be impacted by health and have an impact on it.
Our understanding of the role businesses play in influencing health – through the quality of the work they provide, the products and services they manufacture, and through their impact on local communities – is increasing.
This increased understanding of the role businesses play, along with the unsustainable and growing costs of ill health, is driving increased government regulation across the world. Litigation is also increasing. Public expectations of businesses are changing and consumer trends are shifting towards health-conscious options.
They can also exploit opportunities to develop more resilient portfolios, generate a positive impact on real-world health, and meet growing demand from consumers and asset owners. Currently, the stewardship of healthcare investors is insufficient to do so effectively and leaves portfolios facing avoidable risks.
There are barriers to better health management, but investors can overcome them
Our research has shown that the way investors currently assess risk is insufficient to understand the full range of health risks. Part of the reason is how investors have historically interpreted their legal (fiduciary) obligations. Some investors believe that they should base the stewardship activity on a narrow definition of financial materiality. This prevents them from 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 investors’ fiduciary obligations so that there is no doubt that investors must take into account all ESG factors within their management, including health. . This work should continue and, in the meantime, investors should begin to evolve their practice accordingly.
We have found that health is not well understood or prioritized as a stewardship issue. Currently, capital allocation decisions do not take into account health-related factors, especially within regular funds.
As the engagement of investor-led companies in health topics increases, significant gaps remain. We understand that this is partly due to the fact that the financial case has not yet been sufficiently presented to investors on many health topics.
Our research also found 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 most impact.
Investors lack some of the information they need to make evidence-based claims to companies, especially when there are no commitments to collaborate. As an important starting point, investors should be equipped with a clear business case for why health is financially relevant to them. This should go hand in hand with guidance on evidence-based requests that could be made to target companies on specific health topics. Existing collaborative engagements have had an impact in the real world, so more opportunities for collaborative engagement on various health topics should be encouraged and supported.
We also found that companies’ information on health-related practices is not standardized or absent, including on topics such as nutrition, precarious work and air quality. ESG data providers also fail to cover health-related factors, leaving investors without comprehensive, high-quality data to guide their assessments and engagement activities.
This should not prevent investors from integrating health-related topics into their short-term investment commitments and practices. Indeed, investor commitments can be an important avenue for leading to standardized corporate disclosure on health-related topics. In the medium term, new corporate benchmarks on priority health-related topics should be developed and health data integrated into sustainability indices.
It’s time to change the status quo
Our research took place at a critical time for the health of the population. The Covid-19 pandemic has highlighted the economic importance of health, both for individual businesses and for the economy at large. It highlighted and exacerbated negative trends and pre-existing inequalities in population health. As we emerge from the pandemic, developing more resilient economies will require stronger action from businesses and investors on health.
The long-term economic costs of ill health are unsustainable and create an urgent need for increased investor stewardship on this issue. Where investors began to examine the overall impacts of companies on society, the impacts on health became among the most important. However, the current lack of priority given to the health of the population in the management of investments has allowed some companies to neglect their most important social impacts.
As investors strive to define the ‘S’ of ESG, there is an important opportunity to ensure that the impact of the company’s business on health is identified and addressed as a key issue. sustainability.
Investors have a clear interest in building healthy companies over the long term. Yet the current status quo on population health means that their investments risk jeopardizing this outcome. Investors now have the opportunity to take the lead in ensuring that the vast flows of capital they oversee can deliver a healthy future for all.
Our research has identified a set of health topics that could be of priority for further actions by investors in the health field. He also identified opportunities to remove systemic barriers that exist to enable better health stewardship. Tackling many of these issues will require actions from a range of stakeholders in different sectors.
As with climate change, strengthening investor stewardship for better health outcomes will be an iterative process over a long period of time. However, there are things that investors, policymakers and civil society can start doing now.
Here we present the suggested next steps.
Investment sector (asset owners and managers, data providers)
Give higher priority and consideration to health and improve the stewardship of it.
Asset managers and owners must consider the overall and systematic impacts of their investments on health.
Investors should assess the short and long term health risks at the company level. The risk may increase due to changes in public policies, consumption trends and inefficiencies in the workforce which reduce productivity
Investors should assess cumulative health risk at the portfolio level. The risk may increase due to ill health creating costs to society and hampering economic growth. This is especially important for very diversified long-term investors.
Investors should support the development of disclosure frameworks, datasets and benchmarks that help investors assess the health impacts of businesses, including when efforts are absent or nonexistent
Investors should increase their corporate engagement on health-related topics and support and participate in new and existing collaborative initiatives to address the health impacts of businesses. They could do this by:
- Strengthening engagement on topics where investor stewardship is already emerging, such as food and nutrition
- Lead engagement on other health related topics that have not been well covered before. These include ambient air pollution, alcohol harms and health-related lobbying.
- Participate in existing and new collaborative engagement initiatives on health-related topics.
ESG data providers should develop and integrate health indicators into their existing ESG assessments. This would provide a more comprehensive and holistic view of business and industry risks that would enable better evidence-based corporate governance.
Clarify that the fiduciary obligation of investors – as it currently exists – not only enables investors, but obliges them, to take into account the environmental and social impacts of companies, including their impacts on health. While we believe fiduciary duty currently requires investors to consider health risks, further clarification and an explicit reference to health would be beneficial to avoid any doubt. The effects of this would be:
- Better empower investors to incorporate a long-term systemic risk assessment of ill health into their management practices
- Better enable pension funds to have a broader view of what is in the best interests of their beneficiaries, prioritizing population health alongside financial returns
Civil society (NGOs, academics and donors interested in improving health)
Develop a work program that supports and empowers investors to put health first. This program should:
- Articulate the business case for health stewardship to help asset managers and asset owners prioritize the issue
- Build a movement of investors determined to integrate health into their stewardship activities
- Identify best practices among health investors, then disseminate and extend these practices to the entire industry
- Advocate for a public policy that supports and obliges investors to consider health risks
- Establish collaborative corporate engagements on health-related topics where it is possible to accelerate a positive impact on health. It should be based on company data and best practices that lead to real impact