Engagement with alcohol producers yields more than ruling them out

11/12/2018

• Initiatives by governments and stakeholders to reduce the harmful use of alcohol are essential steps to build a more sustainable world • NN Investment Partners believes that engaging with alcohol producers is a better approach than excluding them from portfolios and therefore developed objectives on responsible drinking marketing, human rights, carbon footprint and water scarcity • ‘Premiumisation trend’ gives beverage producers significant opportunity to improve profitability

Consumption of alcohol causes three million deaths a year globally, according to the World Health Organisation. It is closely linked to heart, cancer and liver diseases and drinkers cause injury to themselves and others as a result of drink-driving, accidents and assaults. Instead of excluding alcohol beverage producers from portfolios, NN Investment Partners (NN IP) believes engaging with them brings about positive social impacts – and generates higher profits.

There are already various taxation and pricing policies enacted by governments to reduce alcohol consumption as well as advertising and marketing bans. The companies themselves run campaigns too to promote responsible drinking.

The more that consumers are educated by governments and stakeholders, the more aware they will be of the potential severe damage of harmful use of alcohol. NN IP recognises that the inevitable reduction in demand for alcohol represents a threat to beverage companies’ profits, and measures such as increased regulation and taxes also increases their costs.

However, while these pressures are slashing appetites for alcohol products, they are also driving demand for higher quality and low alcohol beverages. This so-called premiumisation trend provides alcoholic beverage producers with a significant opportunity to improve their profitability. The negative pressures on alcohol consumption is also being driven by the increasing focus on personal health awareness. Consumers are more likely to choose healthier alternatives to alcohol, such as water or fresh juice. For beer brewers, no- or-low alcohol beer products fit the healthcare trend well and even provide great potential to acquire consumers who are abstinent from alcohol.

NN IP believes that engaging with alcohol producers is a better approach than excluding them from portfolios. This engagement includes lobbying them to proactively promote responsible drinking through their advertising and marketing campaigns. Furthermore, positive social outcomes can also be achieved by getting producers to tackle a culture in which female promoters are exploited and even sexually harassed, and to encourage them to make greater use of renewable energy sources, use water sources sustainably, better-source crops and use more eco-friendly packaging to reduce their carbon footprints.

Jod Hsu, Investment Analyst, Food & Beverages, at NN Investment Partners, comments: “The initiatives by governments and stakeholders to reduce the harmful use of alcohol are essential steps to build up a more sustainable world. Though these measures will inevitably present certain threats to the industry, it is pleasing to see that many alcohol producers are still willing to work with governments to promote the concept of responsible drinking. 

“Since it is an irreversible trend to reduce harmful use of alcohol, well-prepared companies are better positioned to benefit in the long-term. Also, NN IP, as a responsible investor, will continue to engage with them, for we believe that alcohol producers who promote responsible drinking, show respect for the human rights of workers, reduce their carbon footprint and use scarce water resources more efficiently, thereby helping to minimise the harmful use of alcohol for a better world. At the same time, we also believe that those companies will provide us with the best investment opportunities.”

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About the author

Jod Hsu

Jod Hsu

Investment Analyst, Credit

Experience since 2007

Business Experience

2013-to date Jod is Investment Analyst at NN Investment Partners. He is responsible for credit analysis and on-going monitoring of investment grade issues related to Capital Goods.

2010-2012 Portfolio Process Analyst at ING IM, responsible for supporting daily investment activities for the Credits boutique (Investment Grade and High Yield).

2009-2010 Corporate Audit Service Intern at ING Direc

2007-2009 Financial Auditor for Deloitte Taiwan

Qualifications

CFA

MBA in Financial Management from Rotterdam School of Management, Erasmus University in 2010

BA in Business Administration (major in Accounting) from National Taiwan University in 2005

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