June 24, 2007
New Eurosif Reports Identify ESG Challenges in the European Food and Insurance Sectors
by Anne Moore Odell
Eurosif's raises awareness of social and environmental issues across European companies in a series
of sector-by-sector reports, the two newest covering the insurance and food production sectors.
Consumer health and nutrition is just one of the key challenges pinpointed by the European Social
Investment Forum's (Eurosif) new report on
the European food production sector. With 1 billion adults worldwide overweight, the report points
to the risks and opportunities food producers face in providing healthier foods. Reports on the
food production and insurance sectors released last week by Eurosif join their earlier reports on
the hotel and tourism, chemical and automobile sectors.
Eurosif is a broad
coalition of European groups whose mission is "to address sustainability through financial
markets." Members include non-profit pension funds, financial service providers, academic
institutions, research associations, and NGOs. Their reports are written for a wide-ranging
audience from the general public to asset managers and pension fund trustees. The reports help
outline the risks companies face that might be outside of traditional financial analysis, but that
could still influence investments and long-term returns.
"Readers have commented on the
compact and clear format allowing them to rapidly grasp the key challenges for a given sector,"
said Sarah Clawson, Head of Communications at Eurosif. "Companies have used our sector reports to
improve their internal communications around ESG issues, as well."
The Food Producers Sector
Report focuses on the "downstream" activities of the food sector, which includes industrial
food processing and packaged foods. However, the report does not consider alcoholic beverages. The
report was researched and written in-house.
The report notes that four companies control
more than 50% of the global market capitalization of the top 30 global food companies. The top four
global food companies are Groupe Danone, Kraft, Nestle, and Unilever with all but Kraft being
European Union companies.
"Health and nutrition are key drivers of sales growth in the
food sector and offer significant pricing power and margin opportunity," the report states. Yet the
report also notes that people with higher-incomes purchase more expensive and healthier food
choices, whereas people with lower-incomes eat less expensive processed foods, which often have
more fat and sugar. This trend is one of the factors behind skyrocketing worldwide obesity.
"With 300 million adults clinically obese today and one in ten children considered to be
overweight, I think it's fair to say that consumer health is the number one concern for food
companies," Clawson told Socialfunds.com
Other key challenges faced by the food production
sector include the safety of food products, land use, water shortage, labor standards, and human
The Insurance Sector Report was
written with research provided by Bank Sarasin. The report states, "As the direct environmental and
social impact of the insurance sector is comparatively small, a comprehensive sustainability
management approach (including indirect impacts) is still lacking in most companies. However,
awareness of current environmental and social risks such as climate change has grown."
report divides insurance sector into life insurance and non-life insurance. There are more than
5,000 insurance companies working in Europe, the report says, with €6.4 trillion (Euros) under
The aging population found in most industrial countries is shaping the
insurance sector, as there is more demand for life and health insurances. European insurance sector
is facing stricter regulations and companies are establishing improved risk assessment and
management procedures. Insurance losses from natural catastrophes and political activities have
also been on the rise.
The report considers one of the insurance sector's key challenges
to be marketplace conduct, including lack of transparency and the large networks of independent
agents that most insurance companies work with.
"Bad market place conduct (lack of
transparency, misleading information, improper handling of complaints) can represent a risk in
terms of legal controversies, compensation payments or reputation, whereas high ethical business
standards and service quality will bring loyalty of clients" explained Marion de Marcillac, Head of
Research at Eurosif.
De Marcillac added, "Exclusion of high-risk client groups or low
income groups from insurance coverage can lead to public criticism and client complaints, whereas
the inclusion of specific risks can provide niche market opportunities for insurers."
integration of sustainability issues into the core insurance business is difficult because as the
report states, "In contrast with other industries, insurance companies are primarily affected by
the consequences of global environmental and social challenges, rather than directly causing them."
Climate change, geopolitical risks, and other long term issues could all create risks and
high claims for insurers. The report suggests that the insurance sector create research programs
and preventive measures to counter some of these environmental and social risks.
Concerning mainly life insurance companies, the report says that as important institutional
shareholders, insurers need to consider the environmental, social, and governance (ESG) records of
the companies they invest. ESG issues can affect companies' returns. The report points to the
company Storebrand who screens its entire
pension, insurance, and mutual fund products on social and environmental issues.
on the European paper and forestry, and the real estate sectors will be released from Eurosif the
first week of July.