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Unilever faces shareholder heat on health impacts

Poster child of sustainability said to have a ‘crucial blind spot’, with consumer health becoming an increasingly material financial risk for food companies.

(Thursday 20th January, London) An international coalition of institutional investors and individuals have filed a shareholder resolution at Unilever, urging the company to adopt ambitious targets to increase the share of healthy foods in its sales.

The resolution is being co-filed by eleven institutional investors representing $215 billion in assets. They include pan-European asset manager Candriam, Dutch asset manager ACTIAM, US healthcare provider Trinity Health, and the UK’s Guy’s & St Thomas’ Foundation, CCLA, and Greater Manchester Pension Fund. The co-filing group also includes over 100 individuals co-ordinated by ShareAction, including Unilever customers, parents, medical professionals and health campaigners.

A leader in sustainable business

Unilever is widely seen as a leader in sustainable business. It aims to achieve net zero emissions in its supply chain by 2039 and to ensure all workers supplying the company receive a living wage by 2030. Chief Executive Alan Jope recently stated that his goal is “to prove incontrovertibly that sustainable business does drive superior financial performance”.

Ignacio Vazquez, Senior Manager of Healthy Markets at ShareAction, said:

“Unilever has long been a sustainability leader. Some even criticise it for being too focussed on ESG. Yet the health profile of the food and drink products it sells remains a blind spot. This is surprising, as the rapid growth of regulation means that health is a critical ESG issue presenting a real financial threat to its business.

By voicing their support for this resolution, Unilever’s investors can help to drive change at the heart of one of the biggest foods and drink manufacturers in the world while also shielding themselves from regulatory and reputational risks.”

Unilever’s Foods and Refreshments’ Division, which produces household brands such as Hellman’s mayonnaise and Ben & Jerry’s ice cream, generates €19.1 billion annually – approximately 40 per cent of the group’s total sales.

The Access to Nutrition Initiative, the leading benchmarking organisation for food companies and their investors, last year found that just 17 per cent of Unilever’s food and beverage sales were derived from healthier products. This was a smaller proportion than many of its competitors, including Danone (61 per cent), Nestlé (43 per cent), Kraft Heinz (36 per cent), General Mills (29 per cent) and Kellogg (26 per cent).

Unilever reported in 2020 that, using the company’s own definitions, 61 per cent of its food and drink sales were derived from products with “High Nutritional Standards”, but investors question its metrics.

Amy Browne, Stewardship Lead at CCLA, said:

“We have always believed that healthy markets are underpinned by healthy communities. The growing epidemic of obesity and diet related ill-health is concerning from both a moral and a fiduciary perspective. Furthermore, until Unilever reports against government-endorsed models, the risk to the business from changing health-related legislation remains a complete unknown. As a recognised sustainability leader, we are hopeful that the company will recognise the merits of our asks.”

Health: the next frontier of shareholder activism

Health is emerging as the next frontier in shareholder activism, driven by the rising social and economic costs of ill-health and the growth of associated regulation. Obesity rates have tripled since 1975, costing the global economy $2 trillion or 2.8 per cent of GDP each year, similar to the economic impact of smoking.

An article by Chief Executive of the Health Foundation, Jennifer Dixon, recently argued that poor health trends “cannot be the result of a gradual loss of individual willpower to make healthy choices… Rather, it reflects the changing context within which individuals make choices, such as the greater availability and marketing of cheap, unhealthy food.”

In response, regulators in many of Unilever’s largest markets are fast tracking an array of policy measures aimed at reducing sales of less healthy food and drink products, while products high in sugar and calories are already being taxed in 50 jurisdictions worldwide – more than have carbon taxes.

The investors argue that Unilever’s “dominant focus on sales in product categories such as ice cream and frozen desserts” carries “significant exposure to regulatory risk worldwide”, while missing opportunities for growth in healthier products and categories.

As such, the resolution urges Unilever to:

  • Disclose the current proportion of sales linked to healthier products - as defined by government-endorsed nutrient profiling models,
  • Set targets to “significantly increase” that share by 2030, and
  • Publish an annual review of progress.

Investors co-ordinated by ShareAction made similar requests at Unilever’s 2021 AGM, but the company has not made any significant commitments or progress since. The resolution represents a marked escalation in the investors’ engagement. And it follows a similar investor-led call for action on all major food companies endorsed by 53 organisations with $12.4 trillion in assets during the recent Tokyo’s Nutrition for Growth Summit.

Dr Mike Nutt, individual co-filer, said:

“Whilst working as a GP in the poorer districts of Sheffield, I was constantly struck by the relationship of poor health to poor nutrition. We are experiencing an epidemic of obesity, which is disproportionately affecting the poorer sectors of our society, due to the increased prevalence of cheap, processed foods.

Obesity impacts on so many chronic health conditions and is the main cause of type two diabetes, a condition which is growing exponentially in western populations including the UK.”

Olivia Ralston, individual co-filer, said:

“I am a parent of three children. We do a pretty good job of eating as healthily as we can, and I don't have anything against treats in moderation, but I want to teach my children good habits. It’s a constant battle to keep their junk food intake low. Everyone knows that the unhealthiest foods are the cheapest and most plentiful, and that there's a direct link to obesity and disease.

Food companies should be proactively taking steps to address this and they're not. I am a believer in the power of business and markets, but it's not right that food companies are making big profits while contributing to illness, disease and costs for the NHS.”

Kieron Boyle, Chief Executive of Guy's & St Thomas' Foundation, said:

"As a long-term investor focused on both financial return and health impact, we want to see leading organisations like Unilever raising their game in response to changing regulations and consumer demands for healthier food. Action at Unilever has the potential to send ripples through the food industry, and help address the risks that poor nutrition and obesity bring to people’s health and to the economy."

Amelia Overd, Manager, Investment Management, and Co‑owner of Castlefield Investment Partners LLP, said:

Unilever is a sustainability leader in many areas and we hope that the Board will choose to formulate a clear action plan for greater disclosure around its sales of healthier products and to increase their share of this market.

Regulatory trends, as well as consumer demand, mean that food businesses must consider health as an increasingly material risk factor. Investors need companies to use standardised health metrics to determine their exposure to regulatory risk and their position relative to competitors on this issue.

Sophie Deleuze, Lead ESG Analyst, Stewardship, Candriam, said:

“We commend Unilever’s strategic commitments and close collaboration on tackling nutrition and health issues. However, despite the company’s efforts, questions remain as to whether its policies are delivering sufficient progress to improve the healthiness of its sales portfolio in the eyes of regulators. We encourage them to take further action and lead the industry.

When a company the size of Unilever takes significant steps forward, it will send ripples through the whole food manufacturing industry, and we believe will deliver meaningful, positive change. It will also ensure the company is better placed to navigate any potential regulatory intervention.”

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