Consumer Staples Sector: How Risks Are Evolving

Potential investor risk is one way to consider the elements comprising many ESG scores. Through that lens, one could further consider risks as material or immaterial. But to make that determination, you first need to identify the various risks. In this insight article we continue our review of different sectors through FactSet’s Truvalue Dynamic Materiality scores and how they can change through time for the Consumer Staples sector.

Dynamic Materiality scores indicate topics brought up most frequently across external documents such as news articles, industry reports, NGOs, watchdog groups, and social media. Tracking frequently discussed topics can point to those subjects or risks investors are concerned about and how those subject rise and fall in importance over time.

A rising risk should draw investor attention to find out what is causing a certain topic to be discussed more frequently. In this article, we specifically look at material topics for six Consumer Staples subsectors—non-alcoholic beverages, household products, personal products, food manufacturers, food retail and distributors, and tobacco—including how they have changed and what is trending now.

FactSet’s Truvalue tabulates Dynamic Materiality scores from daily scraping of more than 100,000 documents to identify topics (risks) investors might be focused on. These scores are updated daily and are not reliant on annual or biannual corporate reporting. The topic mentions are aligned with 26 SASB materiality categories.

Source: FactSet

One aspect that is readily apparent when looking at the various Consumer Staples subsectors is that they each have unique combinations of issues the market tends to focus on. Let’s consider them in turn.

Non-Alcoholic Beverages

For eight leading North American non-alcoholic beverage companies, the top 10 materiality factors are illustrated through time in the chart below. The Y-axis in the charts indicates the percentage of material topics being discussed at a particular point in time. Some issues may not ever come up for a company or an industry. Presenting material topics—though ESG in original intent—as issues or risks can lead investors to see which issues or risks are rising and fading across an industry and, perhaps more importantly, to consider when an issue might again change in importance.

For the non-alcoholic beverages companies, business ethics (medium blue line) and product life cycle management (dashed green line) have been the dominant issues for the past four years. Product life cycle has grown in importance during the past two years, probably because of calls for more holistic recycling practices. Supply chain management (grey line) was seemingly only impacted slightly during the peaks of the general supply chain issues in 2022. Interestingly greenhouse gases (orange line) has generally remained a lower topic of interest through the period. Looking at the chart, too, we didn’t see a blip in any of the topics in the early 2022 period due to the Russian invasion of Ukraine. Stocks in this sample set are CELH, COCO, COKE, KDP, KO, MNST, PEP, and PRMW.

Source: FactSet

Household Products

In the chart below, among 11 household products companies we don’t see any dominant issues consistently commanding commentary. Product life-cycle management (green dashed line) is again as a top issue followed by a quickly rising topic of product quality and safety. Supply chain management (violet line) and the management of legal and regulatory issues (brown line) appear to be declining topics of interest. Though still below 10% of references, the physical impact of climate change (dotted green) and business model resilience (brighter blue) have both received a bit more attention over the past two years. The stocks in this sample are CENT, CHD, CL, CLX, ENR, KMB, NWL, PG, REYN, TUP, and WDFC.

Source: FactSet

Personal Products

Subjects that have been of most interest among 11 personal products company include business ethics (gold line), product life cycle management (dashed lighter blue), and supply chain management (purple line). Investors may want to investigate further why supply chain management and business ethics have risen significantly in the past year. Are there risks in palm oil or other ingredient supply chains? Are there testing subject issues?

Source: FactSet

Business model resilience (brighter blue line) was a topic of great interest four years ago for the personal products subsector but has steadily diminished in importance since. Stocks in our personal products subsector sample include COTY, EL, ELF, EPC, HELE, HLF, HNST, NUS, REV, SBH, and USNA.

The Spotlight Tool

One way to explore which stories FactSet’s Truvalue system is finding mention of these important subjects is with the Spotlight tool. The sample output below over the past 12 months shows which stories were tagged as relevant to the supply chain and business ethics issues for our personal products sample. The full Spotlight report will include the URL of the stories so an investor can go directly to the sources.

Interestingly, there are far fewer stories for the personal sector on these topics than you will find with other sub-sectors and indeed, fewer stories in general. This suggests that overall ESG topics are less talked about for these stocks and perhaps less important in general than those surrounding for example manufacturers or raw material providers. In addition, with fewer stories in the corpus, the change in only a few sources adding to the list or dropping out of, for example, the trailing 12 months reference list, will have an outsized impact on the percentage of stories in a particular area.

Source: FactSet

Food Manufacturers

The key materiality items for a sample of 12 food manufacturers over the past five years are shown below. The main topics of interest for this subgroup have remained consistent over time: customer welfare (orange line), product quality and safety (dotted green line), and supply chain management (pale blue line). Greenhouse gas emissions (brown line) is rising and may be one to watch particularly if addressing some emissions via changes in agricultural practices become more common. The stocks in the food manufacturing sample are ADM, CAG, CPB, FLO, GIS, HRL, HSY, INGR, K, KHC, LW, MDLZ, MKC, SJM, and TSN.

Source: FactSet

Food Retail & Distributors

The issues most commented on for 12 food retail and distribution companies are shown below. This subsector’s top subjects are fairly well distributed with no one issue capturing a particular interest currently (>15%). Supply chain issues (purple line) were clearly a rising topic during the Covid pandemic in 2021 but have since declined as a potential area of risk.

At the same time, greenhouse gases (dark orange line) and the physical impact on climate change (dotted brown) have been topics of rising focus, perhaps because of shipping emissions or packaging choices. Interestingly labor-related topics have not been a focus despite general discussions on minimum or basic income, past driver supply issues in trucking, or unionization efforts in some retail distribution businesses.

The 12 stocks in our food retail & distributors sample are ANDE, CASY, CHEF, GO, KR, PFGC, SFN, SPTN, SYY, UNFI, USFD, and WMK.

Source: FactSet

Tobacco

We lastly look at four firms in the tobacco subsector and their materiality topics over time. This subsector is unique in that the main subject of discussion has predominantly been customer welfare (dark orange line) for several years. For issues of rising importance, the only one we would highlight is selling practices and labeling. This subject seems likely to be related to customer welfare, but any increment could leave investors more concerned about health and safety. The four companies in our tobacco subsector are MO, PM, UVV, and VGR.

Source: FactSet

How Two Topics Are Evolving Across the Consumer Staples Sector

We also view both the relative importance and evolution of specific topics across each of the subsectors in the Consumer Staples sector such as supply chain management, shown below. The data suggests that supply chain management is an above average risk focus for food manufacturing (gold line) while a relatively lower concern for tobacco (dotted blue) and household products (brighter blue). The overall sector is shown in black. In terms of recent changes to highlight, the alcoholic beverages subsector (blue solid) has seen supply chain management fall off sharply as an issue picked up in Truvalue’s collected data.

Source: FactSet

Conclusion

We believe FactSet’s Truvalue analysis of materiality topics over time—while based in an ESG context—can also be viewed as a study of evolving risk factors and an indication of the issues most important for a company or industry. Avoiding risks should be beneficial to portfolio performance. Our Spotlight reports, too, can expedite discovery of what is being said and by whom.

The data show that important issues tend to vary considerably across the range of businesses in the Consumer Staples sector and, for any given sector, can change over time. By monitoring data about the top industry issues, investors can identify which topics to hone in on and can understand which topics are rising and falling in importance.

This is the third of our planned series of articles about the trends in various sector material topics. View our previous topics:

• Transportation Sector Material Topics Thru Time
• Industrial Sector Material Topics Thru Time

Summer Xiao also contributed to this Insight.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.