Compass Group: ESG halo slips?

Marcus Rashford’s campaigns on food for poor children had, until now, served mostly to embarrass the government. But on 11 January the footballer turned his attention to Chartwells, a contractor tasked by the government with providing free school meals. When Mr Rashford tweeted a picture of a smattering of food with the comment “3 days of food for 1 family….Just not good enough”, it led to an outpouring of rage.

Mr Rashford’s post has been retweeted some 30,000 times within three days, with even the prime minister responding on social media. Boris Johnson has promised action, describing the episode as “disgraceful”.

This tells us a great deal about the effects of celebrity campaigning in the social media age. But it also suggests that companies who trade on their strong ESG credentials – such as Chartwells owner Compass Group (CPG) - may be setting themselves up for a fall.

The catering group has, unsurprisingly, had a difficult year. Shares are still a long way off their pre-pandemic levels, having tumbled sharply in late February 2020. This amply reflects the company’s recent history, including a 77.8 per cent fall in underlying earnings for FY2020.

Yet some silver linings have persisted, and among these are the company’s ESG credentials. The “Corporate responsibility” section of Compass Group’s website makes for a wholesome read, noting: “We have the opportunity to enhance the wellbeing of millions and deliver services to make everyone’s day that little bit brighter. And we are committed to doing all this responsibly.”

The company’s stated “social purpose strategy” is built around three priorities of people, safety and sustainability, and Compass Group supports the United Nations’ Sustainable Development Goals.

Separately it has gained plaudits during the pandemic for looking after DIY investors. In May, following a period in which many UK-listed companies had raised funds by placing new shares with institutional investors, Compass Group became the first name to deliberately include retail investors in its fundraising efforts, using PrimaryBid. At the time the catering group noted that it “values its retail investor base”.

Another ESG favourite takes a fall

All this has helped bolster the company's image, lending it a level of support and significant backing from asset managers. The well regarded Liontrust Sustainable Future UK Growth fund (GB00BL1NPJ81) had 3.3 per cent of its assets in the stock at the end of November, making Compass Group one of its top 10 holdings, while the smaller Liontrust UK Ethical fund ( GB00B8HCSD36) had a 4.3 per cent allocation.

Trojan Ethical Income (GB00BKTW4V58) had a 3.2 per cent position at the end of December. The share was also a top 10 holding for Threadneedle UK Sustainable Equity (GB00BZ21SS97) at the end of November, while Ninety One UK Sustainable Equity (GB00BF5HDB22), which launched in late 2018, has some exposure. An impact report issued by the Ninety One fund at the end of 2019 had described the company’s healthy eating initiatives as “commendable”.

Fund managers have stressed their engagement with company management on the issue. A Liontrust spokesman said they had been “very concerned” about the reports and images of free school meal provisions, adding: “We have been engaging with Compass about the food parcels, the processes used to put them together, who verifies that they are providing a balanced diet and what action needs to be taken to ensure the food parcels meet the needs of the children.” Matt Evans, manager of the Ninety One UK Sustainable Equity fund, said the current focus was on supporting Compass Group’s management team in its own investigations.

“Active engagement with clear engagement plans is an integral part of our investment process and our understanding of the companies we invest in - enabling us to seek ongoing improvement in all areas of these businesses. This is a serious matter which we will be monitoring closely,” he added.

Troy Asset Management, the firm behind Trojan Ethical Income, has also been engaging with the company, as has Columbia Threadneedle.

Living to fight another day

Chartwells has put out a number of statements, looking to correct some misunderstandings about certain images circulated on social media but also promising to address any food shortages and take other measures to make amends.

As far as Compass Group goes, the business may be able to put such episodes behind it in time. Its ESG-oriented backers have tended towards engagement with company management rather than ditching the stock. The shares also showed little sign of a major sell-off in the wake of the initial outrage, though this may partly reflect the depressed levels at which they have traded since the pandemic took hold.

Yet with reputational capital hard to build and easy to lose, the incident may serve as a lesson for ESG-friendly companies to take extra care with their actions. As with Boohoo (BOO) and Kingspan (KGP), it will also help to keep plenty of ESG investors on their toes.