Click here to download this briefing paper as a pdf file. The online version links to references.
For IBFAN's briefing on FTSE4Good - click here.
1. Baby Milk Action recommends that people wishing to encourage baby food companies to improve their behaviour DO NOT invest in a FTSE4Good tracker as its company inclusion and assessment processes are flawed.
FTSE introduced new Breastmilk Substitutes (BMS) criteria for including companies in its FTSE4Good Index in September 2010. Under these criteria a company does not have to comply with the International Code of Marketing of Breastmilk Substitutes to be included, allowing Nestlé to be added to the Index in March 2011 while continuing with systematic violations of these minimum standards. For example, the leaflet and logo pictured claim that Nestlé formula ‘protects’, although babies fed on formula are more likely to become sick than breastfed babies and, in conditions of poverty, more likely to die.
FTSE Chief Executive, Mark Makepeace, wrote to the International Baby Food Action Network (IBFAN) on 17 June 2011 explaining why FTSE chose to change the standards to make it easier for companies to be included in the Index: “In the infant food sector we were not able to engage the companies as they were all being excluded from the index.”
Yet in 2007 and 2008 Nestlé was a participant and the ‘lead sponsor’ of a conference on Corporate Responsibility instruments organised “as a joint venture between Chatham House and FTSE Group” to “examine the latest thinking on the responsibilities of business” (note 1). In addition, Save the Children stated in its 2006 report A Generation On: Baby milk marketing still putting children’s lives at risk that five major baby food companies were “engaging in negotiations with FTSE”. Save the Children cited FTSE as the source of the data.
2. UNICEF: Nestlé violates the International Code of Marketing of Breastmilk Substitutes.
UNICEF UK said in March 2011: “The evidence available to us suggests that all breastmilk substitute manufacturers currently violate the International Code routinely. We are therefore following the inclusion of Nestle on the index carefully and will be looking for evidence that their marketing begins to comply with the Code.” A UNICEF HQ spokesperson told Dairyreporter (22 April 2011): “I can confirm that Nestle violates the code.”
3. The FTSE4Good assessment process is flawed in its concept
FTSE is arranging for an assessment of Nestlé to be conducted in two countries (note 2), but according to the FTSE Chief Executive: “we will not be asking the assessors to act as a judge with regards to specific allegations, but rather to assess whether the companies practices on the ground are in-line with their stated policies.”
Conducting the assessment against company’s stated policies rather than assessing violations against the Code is a serious flaw: on the basis of its own policies, Nestlé rejects 97% of the allegations of violations in IBFAN’s Breaking the Rules, Stretching the Rules 2010 report, saying it will take action on just four.
FTSE’s Breastmilk Substitutes Committee had the Breaking the Rules report in its hands when it decided to include Nestlé in the FTSE4Good Index.
A further flaw is no special weighting was given to the state of implementation of the Code and subsequent Resolutions when selecting the assessment countries. Two with exemplary legislation have been chosen. Indeed, Save the Children and its partners in the UK Food Group (including Christian Aid) once gave an award to one of these countries for its success in stopping violations that are commonplace elsewhere. As FTSE has told Nestlé in advance where the assessment will take place, it is even less likely to produce representative information.
According to the FTSE Chief Executive the countries were selected by a commercial auditing firm “with advice from those we are collaborating with”. Organisations with substantial investments in Nestlé (shares in excess of one million pounds, for example) are amongst those advising FTSE (note 3). If FTSE wishes to describe its process as “robust and independent”, as Mr. Makepeace did in his letter rejecting IBFAN’s concerns, it should prohibit organisations that directly profit from Nestlé malpractice from advising on the assessment rules as they have a conflict of interest. FTSE should also declare Nestlé sponsorship of its joint ventures with Chatham house and prohibit such links with companies having an interest in a FTSE4Good listing in future.
4. Nestlé is using FTSE4Good to undermine campaigns that hold it to account
Nestlé has cited its inclusion in the FTSE4Good Index when claiming to be in “full compliance” with the Code. FTSE has “followed up with the company” (note 4).
IBFAN has asked FTSE to publicly condemn Nestlé’s misrepresentation of what inclusion in the Index signifies.
Notes and supporting information
Note 1: FTSE states that it had to make it easier for baby food companies to join the FTSE4Good Index by changing its criteria in September 2010 because it could not engage with companies who were excluded. The event, left, was not only sponsored by Nestlé, but involved a Nestlé Vice President and FTSE's Head of Responsible Investment (responsible for FTSE4Good). Mr. Makepeace responded to Baby Milk Action's briefing by stating: "We would like to clarify that the event that was mentioned in your article was not held by FTSE, but was held and produced by Chatham House. FTSE partnered with Chatham House to develop the programme, but had no commercial involvement in the event, and neither contributed any funding to Chatham House, nor received any funding from any of the sponsors involved, including Nestlé."
FTSE has also explained the criteria were reviewed because only one company had been listed under the FTSE4Good Breastmilk Substitutes (BMS) criteria in force prior to September 2010 (Gerber - which was subsequently excluded when acquired by Nestlé) and the lack of companies complying was (according to FTSE) “something of concern to the FTSE4Good Breatmilk Substitutes Committee as they would like to see criteria where some companies are able to meet the standards. For most sectors approx half the companies are included.”
This was not the first time that FTSE had weakened its criteria. Save the Children's 2006 report A Generation On: Baby milk marketing still putting children’s lives at risk states: "In 2003, the ethical investment index FTSE4Good developed criteria to determine whether or not baby food companies should be included in the index. Before then, all baby food manufacturers were automatically excluded from the index because of evidence of Code violations. In order to qualify for entry on the FTSE4Good index [now], baby milk companies do not have to demonstrate full Code compliance, only that they have put management systems in place to reach, eventually, Code compliance." The report includes a table naming the companies that are “engaging in negotiations with FTSE”.
So FTSE began by requiring companies to abide by the Code and Resolutions to be listed, the normal approach taken by the Socially Responsible Investment (SRI). As companies have continued to violate the Code, FTSE has changed the rules to try to allow half the sector onto its list.
Note 2: The two countries selected by FTSE are India and Zambia. Nestlé was told of these countries in advance of the assessment because, FTSE explained to IBFAN, "In order for the audit to be effective there needs to be some coordination with the company; if for example all the sales and marketing team were away for a global company conference the week the assessors visit, it would not be satisfactory". Baby Milk Action pointed out this would give executives the opportunity to visit the countries in advance to prepare the way. Given FTSE's insistence on this approach, Baby Milk Action offered to provide examples of violations so that the assessors could investigate the management systems that had generated them through a document search at the company's offices. This offer was not taken up by FTSE and it instead asked for help in identifying specific health facilities that the assessors could visit. This seemed to be a pointless exercise as Nestlé was being forewarned of the countries giving it the opportunity to clean up in the health facilities and because the countries selected have exemplary legislation in place.
IBFAN's Regional Coordinators for Asia and Africa, and the International Code Documentation Centre (ICDC), which produces the Breaking the Rules monitoring reports wrote to FTSE pointing out, as Baby Milk Action had done, that India has the highest ranking in ICDC's table of the state of implementation of the Code and Resolutions and Zambia has the second highest. Industry analysts Euromonitor commented in a briefing entitled "Indian Market Constrained by Regulatory Barriers" on the failure of the industry to grow the market in India, stating: "The huge disparity in the retail value of milk formula sales between China and India is mainly due to the significant differences between their official regulatory regimes." India is perhaps unique in having a sanction of imprisonment for the Managing Director of a company found to break its Infant Milk Substitutes Act and empowers named civil society organisations, including members of IBFAN, to file charges (which has seen Johnson & Johnson pull out of the feeding bottle market in India following an illegal promotion campaign and Nestlé adding translations to its formula labels).
ICDC has also been to Zambia and trained Health Inspectors on monitoring. These and the factors given in the briefing show India and Zambia are good places to show the effectiveness of legislation for stopping violations, but not for investigating whether companies meet their obligations under the Code and Resolutions when not compelled too.
IBFAN suggested that FTSE select countries with legislation ranking of 3 or worse, but this has been rejected. FTSE has not given special weighting to the state of legislation in deciding the countries.
There is a provision in the FTSE4Good BMS criteria (management systems, point 9) that appears to be very powerful, but the BMS Committee did not act on this when deciding to include Nestlé in the Index. This states: "In addition for operations in higher risk countries companies must provide to the FTSE BMS Committee, on request, copies of any related marketing literature and product labelling and inform the Committee when there are material changes to promotional material and activities." Baby Milk Action made exactly this request when it registered a complaint with the Swiss authority under the OECD Guidelines for Multinational Enterprises (without success - click here), and was initially pleased to think Nestlé would be required to do provide labels and materials to the BMS Committee. For example, the Committee could have requested copies of Nestlé labels from the 120 countries where it has added logos claiming its formula 'protects' babies and the related marketing literature. Nestlé has so far refused to stop these claims, despite them being a clear violations of Article 9.2 of the Code (click here). The Committee could have evaluated Nestlé materials and made it a condition that all violations be stopped before Nestlé is listed. It did not.
Note 3: At least two organisations with substantial investments in Nestlé are amongst those providing advice to FTSE on the listing and assessment processes. This constitutes an unacceptable conflict of interest. If appropriate countries had been selected and the assessment been designed to be robust, they would document the 'routine' violations noted by UNICEF and others and Nestlé's position on the Index would surely become untenable. Investors that are profiting from Nestlé malpractice, and ignoring calls to disinvest, would have found it awkward if Nestlé was excluded from the Index again in September when the assessments are due to be reviewed by the FTSE BMS Marketing Committee.
One of the investors is the Central Finance Board (CFB) of the Methodist Church, which controversially invested over £1 million in Nestlé in 2007. For full details of events before and after the investment, with reference to source documents, see Baby Milk Action's archive site - click here. The CFB and the Joint Advisory Committee on the Ethics in Investment (JACEI) have since attempted to justify investing in Nestlé in reports that praise Nestlé executives for meeting with them. Yet, ethical investment organisations that refuse to invest in companies that violate the Code and Resolutions also meet with executives. Even a £1 million shareholding does not hold sway with executives who ignored a rebellion by 36% of shareholders to make their Chief Executive also Chairman in contravention of good corporate governance practices in 2005.
JACEI recently reported that Nestlé was being added to the FTSE4Good Index, but did not indicate this was because of FTSE had changed the criteria to allow companies that routinely violate the Code to be included.
Note 4: The inclusion of Nestlé in the FTSE4Good Index is causing confusion, being exploited by Nestlé and undermining methods that do hold the company to account.
For example, the United Reformed Church (URC) Assembly restated its support for the Nestlé boycott in July 2010. However, it said it would end its boycott if Nestlé met the FTSE4Good criteria and was added to the Index. A URC Officer has informed Baby Milk Action that the Church is obliged to act on the Resolution, even though FTSE weakened its criteria after the Assembly took its decision and Nestlé would still be excluded under the criteria in force at the time. If the URC does end its boycott even though Nestlé continues to systematically violate the Code, this will undoubtedly be exploited by Nestlé around the world to undermine the campaign to hold it to account, just as the FTSE4Good listing is being used.
The boycott has been instrumental in forcing changes on Nestlé, because it puts a financial cost on malpractice. With sufficient publicity and public support, campaign action forces changes. A few examples: Nestlé agreed to translate its formula labels when Mark Thomas picked up on Baby Milk Action's campaign for his television programme (watch here). A 9-year campaign saw Nestlé change on its policy on the labelling of complementary foods, making the announcement during a week of demonstrations in the UK, filmed by Swiss TV in 2003. Just last year, Nestlé said it had discontinued a leaflet claiming its formula is 'The new "Gold Standard" in infant nutrition' after receiving emails from thousands of boycott supporters. But other violations continue and Nestlé said it would only act on 4 of the 130 violations it counted in the Breaking the Rules report - that's just 3% and included the leaflet targeted in the email campaign (Danone, which is also a significant source of violations, said it had already taken action to stop 50% of violations in its profile and agreed to further action on other issues highlighted).
Nestlé has used its inclusion in the FTSE4Good index around the world when suggesting it is in 'full compliance' with the Code. For example, it cited its inclusion in the FTSE4Good Index when its baby food marketing was in the spotlight prior to its shareholder meeting in April 2011. In media reports the evidence of systematic violations revealed by the Breaking the Rules report was undermined by statements such as (Reuters): "Nestle's shares were included last month in the FTSE4Good index, whose selection criteria include appropriate marketing of breastmilk substitutes, especially in countries where children are deemed at higher risk of malnutrition and mortality from inappropriate feeding. 'We are the only infant formula manufacturer to be listed by the FTSE4Good Global Index,' [Nestle spokesman Robin] Tickle said."
In Australia Nestlé Corporate and External Relations Director made a presentation entitled 'An End to Controversy' speaking on "The infant formula controversy that has plagued Nestlé’s image for 40 years; What Nestlé has learned; It’s infant formula strategy used to end the controversy; The role of a neutral third party (such as FTSE4Good index)."
In May when Nestlé launched a global marketing campaign for its Babynes formula machine with claims and promotions that violate the Code, Nestlé rejected criticisms stating, for example, (in Nutraingredients): “We have the industry’s toughest system in place to enforce WHO Code compliance. Indeed, we are the only infant formula manufacturer listed by FTSE4Good, the London Stock Exchange’s Ethical Index.”
Click here to download Baby Milk Action's briefing paper.
Click here to email Nestlé over ongoing malpractice.