If your grocery store nags you into eating more broccoli, blame the woke shareholders.
If your grocery store nags you into eating more broccoli, blame the woke shareholders.
M any politically driven campaigns are open-ended. With one mission under way, another can easily be added on. “Socially responsible” investing (SRI), a movement that is nothing if not politically driven, is no exception.
A recent article from the Financial Times, “Tesco under Fire for Lack of Action on Obesity Crisis,” underlines that point. The story is mainly set in the U.K., but there are similar initiatives taking place over here.
Tesco has come under fire from a group of shareholders who claim that the UK’s largest supermarket chain is exacerbating the country’s obesity crisis.
The shareholders, which include asset manager Robeco, Jesuits in Britain and Guy’s and St Thomas’ Charity, are calling on Tesco to set targets for increasing the proportion of healthy products in its sales, arguing it has done less than its rivals.
A report published last year by the charity Access to Nutrition Initiative ranked Tesco behind M&S and Sainsbury’s [two other chains] for its reporting on areas including product formulation — changing ingredients to make them more healthy — and labelling. It added that all chains could do better and recommended they publish comprehensive strategies on diet, nutrition and health.
Look away from the Financial Times for a moment to check out Access to Nutrition Initiative (ATNI), a not-for-profit headquartered in the Netherlands, which (according to its website) is “proudly” funded by British and Dutch taxpayers, the Robert Wood Johnson Foundation, and the Bill & Melinda Gates Foundation. Much of ATNI’s work is, to its credit, in poorer parts of the world, but it also “intends to play its part in tackling the U.K.’s diet-driven health challenges by rating and tracking over time the contribution major U.K. food companies make to addressing them.”
Thus, we can read on ATNI’s website that in 2019 it teamed up with ShareAction, a U.K.-based charity, “to support its new [and separately funded] Healthy Markets campaign”:
As with other ShareAction initiatives, Healthy Markets works with institutional asset owners, pension schemes and individual savers concerned about the impacts their investments are having on society. Healthy Markets is building to a coalition of investors — which includes some of ATNI’s Investor Signatories — to press UK food and drinks companies to do all they can to improve their consumers’ diets.
That ought to be no part of those companies’ business — in every sense of that word — but there we are.
And what is ShareAction?
Turn to its website to learn that it is, in essence, yet another SRI organization. ShareAction wants a “responsible investment system . . . geared towards the long-term interests of savers, society, and the environment,” pretty-sounding words on a first reading, but ominous on a second.
A genuinely “responsible” investment system is one that maximizes (on a risk-adjusted basis) the economic return to those who have entrusted their savings to it, or who are relying on it to provide for their retirement. Whether that return is generated by short-term trading or investing for the long term ought to be irrelevant. What is more, it should not be up to money managers (other than of funds specifically and freely chosen by their clients for this purpose) to spend other people’s money on whatever someone (who?) has concluded is in the “long-term interests” of society and the environment. In a properly functioning democracy, there are other avenues for that, not that this seems to bother Tesco’s activist shareholders, who have (the Financial Times relates)
introduced a vote at Tesco’s annual meeting calling on the company, which controls about 27 per cent of the UK grocery market, to disclose what percentage of its food and non-alcoholic drink sales by volume are made up of healthier products, as defined by the UK Department of Health. . . .
The shareholders, who oversee £140bn in assets, along with 101 retail shareholders, called on Tesco to develop a strategy to significantly increase healthy food sales by 2030 and publish an annual review of progress from 2022 onwards.
They added that consumer trends to buy healthier products and government efforts to combat obesity could pose a financial risk to Tesco if it does not take action.
Stephen Power from Jesuits in Britain said a “handful of companies are continuing to fuel a deadly obesity crisis.”
You must have expected that the word “crisis” would make an appearance in a report such as this.
H. L. Mencken:
The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.
If the claim of crisis should come as no surprise, the unconcealed contempt for the capability of adults to decide things for themselves is startling. To assert that their buying choices and even, I assume, how much food they choose to heap onto their plates, are driven by the machinations of a “handful of companies” is remarkably insulting.
But perhaps this notion of the pathetically helpless individual is not so remarkable as all that. SRI is, after all, deeply intertwined with the concept of “stakeholder capitalism” — the idea that management’s primary duty is not just owed to shareholders, but to an often generously defined series of “stakeholders,” a word, not so coincidentally, that crops up in ATNI’s description of what it does, such as here:
The Global Access to Nutrition Index is ATNI’s flagship product. Published every two to three years, they provide companies, their investors and other stakeholders with a rating of the world’s largest food and beverage manufacturers in contributing to addressing obesity, diet-related chronic diseases and undernutrition. By comparing scores from one Index to the next, the companies themselves, and their stakeholders, can see whether and how they have improved over time. . . .
The Access to Nutrition Index was designed through an extensive, multi-stakeholder consultative process. This was done to ensure that the Index would be a useful tool for different stakeholder groups (including the World Health Organisation, academia, civil society organizations, industry and investors) and that it would reflect the latest thinking and practices related to the private sector’s role in nutrition.
To understand stakeholder capitalism, it is best to view it as an expression of corporatism. As I have noted before at NRO, in “The Dangers of ‘Stakeholder Capitalism’”:
[Corporatism] has taken different forms over the years — some more benign than others — but all of these forms are based on the belief that society should be organized by and for its principal interest groups — let’s call them “stakeholders” — intermediated by, and ultimately subordinate to, the state. The individual doesn’t get a look-in.
Under the circumstances, the spectacle of socially responsible investors doing their utmost to badger private companies into collaborating with government in an intrusive “war against obesity” makes perfect, if repellent, sense.
These investors are also playing a newer card, the proposition that failing to comply with their agenda increases “risk.” This is a trick they’ve borrowed from climate warriors (and the investors and regulators who support that crusade) to cudgel corporations into altering their behavior, even if that risk is largely illusory.
So in a talk to a conference organized by the European Central Bank (ECB), economist John Cochrane explained how the notion of risk is being abused to pressure financial institutions to, bit by bit, reduce the flow of capital to climate sinners:
The European Central Bank and other institutions are not just embarking on climate policy in general. They are embarking on the enforcement of one particular set of climate policies — policies to force banks and private companies to defund fossil fuel industries, even while alternatives are not available at scale, and to provide subsidized funding to an ill-defined set of “green” projects.
Let me quote from ECB executive board member Isabel Schnabel’s recent speech. I don’t mean to pick on her, but she expresses the climate agenda very well, and her speech bears the ECB imprimatur. She recommends that
“first, as prudential supervisor, we have an obligation to protect the safety and soundness of the banking sector. This includes making sure that banks properly assess the risks from carbon-intensive exposures. . . .”
Let me point out the unclothed emperor: climate change does not pose any financial risk at the one-, five-, or even ten-year horizon at which one can conceivably assess the risk to bank assets. Repeating the contrary in speeches does not make it so.
Tesco is interested in profit. If its customers’ tastes change, it will change the goods it sells in response. That is how the free market works. That said, Tesco’s critics are on somewhat firmer ground when they refer to the risk that the U.K. government might do even more to battle obesity. But it’s delusional to think that Britain’s misleadingly named Conservatives (in Parliament at least, they’re a party of coercive liberals) will stop ratcheting up their attempt to police the nation’s plates because of changed sales practices in one supermarket chain (or even several supermarket chains). In fact, Tesco would be far better placed than its smaller competitors to adapt to any new food legislation, something that may help explain its willingness (mentioned below) to play along with the menu vigilantes.
There is, possibly, one other risk to consider. As a result of tinkering with the makeup of food or drink to satisfy the government’s edicts, customers may simply turn away in disgust, but it is difficult to envisage what Tesco’s bosses could do to head that off.
Disgust? This is indeed a risk that cannot entirely be ignored. There was, famously, the sad case of Irn-Bru, an indescribable (interpret that adjective in any way you want) but popular Scottish soft drink that became even harder to drink after its manufacturers reduced its sugar content in the wake of the Tories introducing a tax on that dread white substance.
The company behind Irn-Bru has warned that profits will collapse this year due to customers turning away from its reduced-sugar drinks ranges, particularly in Scotland.
Bosses at AG Barr have warned that sales will drop by 10 per cent and profits will be down by up to 20 per cent compared with 2018.
The news sent shares plummeting 26 per cent to 645p in early trading on Tuesday as investors and analysts reacted with surprise.
In his talk to that ECB conference, Cochrane described the uses to which “disclosure” (“a pervasive regime essentially of shame, boycott, divest, and sanction”) of supposed climate risk could be put:
We know where “disclosure” leads. Now all companies that issue debt will be pressured to cut off disparaged investments and make whatever “green” investments the ECB is blessing.
When activist-shareholders demand that Tesco “disclose what percentage of its food and non-alcoholic drink sales by volume are made up of healthier products, as defined by the UK Department of Health,” their goal is not to arrange for investors to be furnished with data that will allow them to better weigh the chain’s risk profile. Rather, they want to exploit this information to prod Tesco into a course of action that has nothing to do with risk reduction and everything to do with trying to micromanage what people eat.
And when SRI’s enforcers are busy intervening in areas that ought — in any society that values individual autonomy — to be no business of the state or any other stranger, climate change is rarely far behind.
And so, turning back to the Jesuits’ Stephen Power, we find this: “Tesco has made progress on its non-meat options, a welcome step to limit its climate impact, but needs to step up on the health front.”
In the past, such concerns might have been dismissed as those of a tiny fringe. There have long been investors who would take a small (frequently very small) position in a company and then used that stake as an admission ticket to the annual general meeting, where, by shareholder resolution or even a speech from the floor, they would make their political or sociopolitical case. It normally fell on deaf ears. Most shareholders were interested in investment return, and that was all.
That was then. More and more large investment firms are now adopting a form of SRI known as ESG. This involves analyzing how portfolio companies (or potential portfolio companies) measure up against certain environmental (“E”), social (“S”), and governance (“G”) benchmarks. Where such asset-management businesses differ from an old-style socially conscious investor — a nun, say, speaking at an AGM — other than in their size, is in their claim that a socially responsible approach will not come at the expense of performance. On the contrary, they maintain that they will do well by doing what is (allegedly) good, in part (allegedly) because portfolios run on this basis will be less risky than their more traditionally managed equivalents.
Whether that is truly so is disputed — if not as disputed as it should be — but there’s no doubt that the influence of such investors on corporate behavior is growing. That is a function not only of the cash (and voting power) that they have at their disposal, but also because theirs are arguments to which C-suites are increasingly susceptible, not least because stakeholder capitalism offers a way to dodge the tougher discipline of having to put shareholder return first.
The Financial Times reports that Tesco has said:
It was “working hard to make it easy for our customers to make healthy choices” and set “very clear” targets on health and sustainability.
The company added that its reformulation programme had removed “more than 50 billion calories” since 2018, and that it offered healthier alternatives and gave away free fruit for children.
It also said it was aiming to increase sales of meat alternatives by 300 per cent by 2025, the first retailer to set such a target.
As mentioned above, such initiatives are happening in the United States, too.
Back to the Financial Times:
Last year, shareholders in Coca-Cola, PepsiCo and McDonald’s filed resolutions calling for the companies to report on the sugar and public health implications of their products. About one in 10 shareholders supported the proposals, according to Proxy Insight, the data provider.
Ah, “disclosure” again.
If I had to guess, the percentage of shareholders in those businesses backing such measures is only going to rise.
Fears over where the hijacking of corporate capital by SRI and stakeholder capitalism could lead are sometimes seen as overblown. The effort to “encourage” people to choose what they eat in, purportedly, a more socially responsible manner is a reminder that nothing could be further from the truth.