Looking at a selection of major, UK-listed, food-sector companies – manufacturers Unilever, Associated British Foods, Premier Foods, Bakkavor, Cranswick and Hilton Food Group, plus retailers Tesco, Sainbury’s, Morrisons and Marks and Spencer – the changes in their market capitalisation (+12.5%) tracked in line with all other companies (+12.6%) in the run up to the Covid-19 ‘crash’.

They then diverged. First, they were not hit as hard in the initial fall in market caps between January and March 2020 (-17.6% versus -28.6%), and secondly, from March to July, they ‘recovered’ faster (+20.3% versus +10.1%). “I don’t think that’s at all surprising given that ‘food’ is a relatively stable category,” says Cole.

The link between ESG and better financial performance has been hotly debated for years, but Covid-19 has stoked the fires. As Nigel Green, the CEO and founder of financial consultants deVere Group suggests, the global public health crisis has acted as a wake-up call, prompting a growing collective awareness of mutual responsibility that “fits perfectly into the narrative of ESG investing”. 

Will Nicholson, project lead for investor metrics at UK charity The Food Foundation, says the data so far doesn’t support the “survival of the sustainablest” rhetoric for downstream food companies. “That could be because we are still in the eye of the storm or it could be because the current ESG lens doesn’t really capture what food companies need to do to transition to a world of nutritious, sustainable, affordable and equitable food. Or a bit of both of course.”

That there is heightened interest in ESG isn’t in doubt. What food companies will want to know, though, is which bits of this rather baggy set of factors are investors really honing in on – and how far they are looking to dig? 

“I haven’t seen a major change in terms of a shift from ‘no interest in ESG’ to ‘interest in ESG',” explains Christy Spees, an expert in sustainable food systems with US shareholder advocacy group As You Sow. “What there has been is a shift in the priorities in the ESG community.”

The ‘S’ in ESG, for example, is firmly in the spotlight. Social factors have historically been sidelined because they can be notoriously hard to measure: it’s far easier to show carbon emissions or waste tonnages than it is a company’s culture or any positive impact it has on a local community.

However, investors are asking questions. “The crisis has highlighted the role of business in society and expectations are heightened as a result,” explains Carlota Esguevillas, of UK-based sustainability consultants Simply Sustainable. 

The ability to put food on people’s plates has certainly been a tick in the ESG box for food manufacturers and retailers – especially those that bent towards helping vulnerable sections of the community at the height of the pandemic, whilst protecting and rewarding their own workers. 

And, as the virus spread, so too did interest in issues including food provenance and the safety of workers to staff benefits. Cracks began to appear in some places. The meat supply chain in particular has been struggling with supply issues and sick workers at processing plants in Europe and the US. “The working conditions are not suddenly bad,” says Spees. “They’ve been bad [for a long time].”  

A poll by US think tank Rethink Priorities and the Humane Society of the United States recently showed 50% of Americans feel the meat industry doesn’t care about the welfare of its workers. Meanwhile, 65% believe it doesn’t care about the treatment of animals either. 

“Covid-19 is shining a light for consumers to start evaluating their own choices and whether or not they want to continue to buy meat,” Josh Balk, vice president of farm animal protection for the Humane Society, told Bloomberg in June.

Investors are watching these trends closely – and not just through the ‘S’ lens of ESG. 

People “see the link between climate change and what they eat... and that doesn't look good for pork or beef", says Holger Frey from RobecoSAM, a Zurich-based investment firm focused on sustainability. "It will be really important for investors to understand how sustainable the entire meat value chain is."

As well as the risks within supply chains, investors will also be looking for opportunities for “value creation”, says Pendragon Stuart, of UK-based sustainability consultancy Sancroft International. 

For example, in the first six months of this year the sustainable protein sector attracted $1.1bn, or double the investment it did in the whole of 2019, according to FAIRR, a network of global investors aiming to create awareness over ESG issues with $20tn in assets. 

The Good Food Institute, the US non-profit that advocates for plant-based alternatives to meat, dairy and eggs, notes that as the meat supply chain tackled severe disruption issues, Impossible Foods was expanding into 777 more grocery stores around the US. 

However, the changes to consumer habits go further than meat. Covid-19 and the protests around systemic racism have caused some shoppers to re-evaluate how they buy brands. 

Research by global communications firm Edelman in June showed 21% of UK consumers and 27% of Americans have “punished” brands they feel haven’t responded well to the crisis. They are more prepared than ever to boycott brands, say bad things about them and switch to a competitor. 

People now want brands to take action, solve problems and advocate for change, Edelman’s report concluded. What’s more, only price beats trust in what motivates people to buy a brand these days. 

And, one way to garner trust is to improve transparency and disclosures. “Do we have enough information to be able to make intelligent investment decisions?” wonders Maria Lettini, executive director at FAIRR. “I don’t know if we did during Covid-19.”

Debate over how to better monitor ESG is intensifying, with investors talking about the need for more precise and consistent information. Asset managers are asking for “standardised standards” says Matthew McLuckie, director of investor relations at UK-based financial think tank Planet Tracker. “They can’t benchmark at the moment.” There is also a chance that more companies will start disclosing more information relating to ESG, warts and all, either voluntarily or as part of new regulations. 

In the UK, the government is planning for all large asset owners – along with listed companies – to provide disclosures in line with the Task Force on Climate-Related Disclosures (TCFD) by 2022. 

These are designed to help organisations identify and disclose information needed by investors, lenders and insurance underwriters to assess and price climate-related risks and opportunities. “Resilience is the new buzzword in ESG,” says Mark Driscoll, founder of Tasting the Future, a UK consultancy. “Asset and wealth managers will need to seriously consider ESG risks and opportunities highlighted by the current crisis.”

That is easier said than done. Not all investors know what, specifically, within ESG they need to be paying attention to. 

Stuart at Sancroft says rather than just “hope for the best”, it’s up to food companies to investigate and highlight their material risks and the specific actions they are taking to protect returns. Food companies tend to have a “high exposure” to ESG issues, says Simply Sustainable’s Esguevillas. 

Investors will be scrutinising key material topics such as raw material sourcing and supply chain, carbon footprint, packaging and waste, water stress and nutrition and health; disclosure on these topics is, she adds, “essential”.

Health is a focus, given that excess weight puts people at greater risk of serious illness or death from Covid-19. The UK government last month launched a new obesity strategy. Investors will want to understand companies’ exposure to any new rules and how their portfolios measure up.

Current levels of disclosure are very poor. “We don’t know a huge amount about what products retailers and manufacturers are selling,” says Louisa Hodge from the food and health team at UK-based responsible investment charity ShareAction. 

A report published by ShareAction last month argues the major UK food manufacturers’ portfolios are skewed towards unhealthy products. A review of the supermarkets published earlier this year raised similar concerns. 

Investors ShareAction is working with are now putting pressure on supermarkets to disclose the proportion of their sales made up by healthy food and drink products and set ambitious targets to increase these over time. 

Some may find claims to be doing business with purpose may not exactly square with product ranges heavy in salt, sugar and fat, or if a company's suppliers are destroying rainforests or management is treating workers badly. 

Food companies can therefore expect some hard pandemic-driven probing. “Investor understanding of some of the issues is maturing,” says Frey. “I think we are reaching a new level of detail."