Why ESG activists have now set their target on 'big food'
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The Kit Kat bar is an iconic snack food.
It perennially ranks among the top five candy bars sold in the United States, with sales approaching $300 million annually.
Large swathes of America can sing along to the company’s inimitable commercial jingle, launched in 1988: “Gimme a break! Gimme a break! Break me off a piece of that Kit Kat bar.”
Yet, despite its near-universal popularity, Kit-Kat has now come under the crosshairs of the meddling investors operating under the ESG umbrella—that’s “environmental, social, and governance” to you and me.
To date, such efforts have focused mainly on questions like gender equality or the environment, but academics and activists are now pushing to add “nutrition” to the causes that dominate the ESG investing strategy.
This month saw a particularly notable early effort in this campaign.
A group of institutional investors managing some $3 trillion in assets descended on the annual meeting of food giant Nestlé, which owns the global Kit Kat brand. (The candy is marketed under license to Hershey’s in the U.S.)
The investors demanded that “the company needs to rebalance its sales towards healthier products.”
The 2023 pressure campaign at Nestlé isn’t unique.
ShareAction, the umbrella nonprofit that organized this year’s Nestlé effort, made a similar pitch to the company last year, alongside efforts at other companies including Kellogg’s (maker of Froot Loops cereal and Cheez-It snacks), Kraft Heinz (maker of Kool-Aid beverage and Oscar Mayer bologna), and Unilever (maker of Hellmann’s mayonnaise and Ben & Jerry’s ice cream).
Such campaigns are likely to continue and evolve, especially since the Unilever campaign bore fruit.
The company negotiated with ShareAction to develop and publish a new metric measuring the nutritional value of its food portfolio.
Such “ranking metrics” are a favored tool of the ESG crowd, as they allow activists to browbeat companies that fall behind in activists’ preferred metrics—and to further extend those metrics once they’ve won corporate compliance.
Should ordinary Americans worry about such ESG activism? To be sure, too many of us are obese.
But as long as there is market demand for sweets and other junk foods—and there is—the market will doubtless supply it, even if some large publicly traded companies jettison such products from their portfolios. (America’s largest candy maker, Mars, is a privately held corporation and off-limits from ESG.)
And there are broader problems, both democratic and economic, with delegating nutrition and other policy decisions to activists at places like ShareAction and a small number of institutional investors – rather than the corporations themselves, constrained by ordinary lawmaking.
The specific concept of ESG investing traces to a December 2004 report commissioned by the United Nations that sought to “connect” financial and corporate activities with social policies.
Aided by buy-in from a host of big banks around the globe, the New York Stock Exchange and other major global markets quickly adopted ESG principles following the UN protocol.
If that sounds rather far removed from the lawmaking process here in America, that’s because it is. And that’s precisely the point.
No one would argue that nutrition is not a worthy concern for policymakers—as are pollution, human rights, and many of the other social and environmental causes under the ESG umbrella.
But these issues should be addressed by elected officials responding to their constituents’ competing demands, not social justice warriors.
Enacting new laws is hard – reaching some sort of consensus even harder.
ESG shareholder activism skirts these issues, along with ordinary lawmaking—part of a broader process I explore in my 2020 book, The Unelected: How an Unaccountable Elite Is Governing America.
With the rise of ESG investing, important policymaking is increasingly driven by annual letters penned by folks like Larry Fink, the chairman of the world’s largest asset manager, BlackRock.
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Corporate choices are then driven by big funds’ downstream engagement officers with backgrounds in law and policy – but almost never finance or shareholder return.
The number of players here is small: just three fund families, including BlackRock, hold the largest shareholder stake in 95% of large publicly traded companies.
The costs of the big funds’ policy adventurism fall on ordinary investors and pensioners.
Last year, ESG funds returned more than two percentage points less than ordinary funds’.
That may not sound like much, but over time it compromises many Americans’ retirement security.
Such concerns underlay the letter sent last month to many large institutional investors by the attorneys general of 21 states voicing their concern about the implications of “woke investing.”
Perhaps getting skittish, BlackRock announced last week that Dalia Blass, BlackRock’s public face defending the company’s ESG efforts to government actors, was leaving the company.
But these worries have fallen on deaf ears in the Biden administration, which promulgated new regulations last year promoting ESG in Americans’ retirement plans.
Indeed, President Biden issued his first and to date only veto of his presidency when he blocked a Congressional resolution that would override the new ESG rules. (I am a plaintiff in litigation challenging the rule.)
One day, if we don’t change course, the ESG bill is certain to come due.
Until then, I’ll make my children eat their fruits and veggies, but also allow them to indulge in the occasional Kit Kat bar.
And as to the new effort to add nutrition to ESG policy making, I’ll stick to Kit Kat’s legendary television tagline: “Gimme a break!”
James R. Copland is a senior fellow with and director of legal policy for the Manhattan Institute.
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