In the Wild West that is ESG terminology today, it is hard to know which issues to pay attention to.
Are certain “E” issues more important? Or perhaps there may be some “S” issues that should really be top of mind.
It is impossible to know without cutting through the haze of the three arbitrary E, S and G categories.
There is, however, a theme that can help us determine which issues deserve our attention – and which are woefully underplayed. That theme is human impact.
Thinking about ESG in terms of human impact allows us to understand how companies are treating us, which is ultimately what we as human beings care about.
Thinking about human impact this way can also have surprising results.
For example, the issue of breast milk substitutes (i.e. formula) ends up having a huge impact – much bigger than you might think.
In wealthy countries with abundant access to clean drinking water, some parents prefer to give their infants formula, because it relieves them of the burden of breastfeeding, or because, for whatever reason, breastfeeding is not an option.
In the lactation consulting community there is the saying that “fed is best,” meaning that as long as the baby is getting the calories that it needs, its caregivers are doing their jobs.
While lactation consultants do prefer that mothers breastfeed for a variety of health reasons, formula does have its place in the toolkit of those who want to care for healthy infants, especially when breastfeeding is not possible.
However, when mixed with unclean drinking water, the use of formula can become deadly for infants.
Therefore, in contexts where clean drinking water is not easily available, breastfeeding is much preferred.
The unbridled marketing and selling of breast milk substitutes in places that lack access to clean drinking water can therefore be considered unethical, as it encourages a significantly less healthy option for infants.
An estimated 800,000 infants around the world die annually because of the misuse of breastfeeding substitutes.
To put the magnitude of this issue in context, fewer than 100,000 people on average die annually because of all global military conflicts.
The misuse of breastfeeding substitutes therefore is, in my view, one of the most under-discussed ESG issues, given its human toll.
As much as ethical investors don’t like war, one could argue they should care about the issue of breast milk substitutes about eight times more.
Companies that improperly market and sell breastfeeding substitutes are providing a disservice to many people, and they should be held responsible.
There is a simple solution though. Some formula comes premixed with clean water, known as ready-to-feed or ready-to-use options.
Engaging with these companies to exclusively provide ready-to-feed options in markets that lack access to clean water would go a long way toward reducing human suffering.
Clearly, taking a human impact approach to measuring the relative impact of ESG issues can be useful.
It gives us a sense of the magnitude of different issues, so that we can focus more on the ones that have a larger impact.
Arguably, for those interested in making a positive impact when they invest, this is the only metric that really matters.
Taking this approach would allow us to focus on where people are suffering in large numbers and work to mitigate that suffering.
If we can reduce the misuse of breast milk substitutes, we would be making a massive impact on the lives of hundreds of thousands of infants all around the world.
James Katz is the founder and CEO of Humankind Investments.