Animal testing: Where to draw the line

The very idea of considering environmental and social factors in investment decisions has been referenced as ethical, responsible, ESG, sustainable or, I’m sure, there are other ways to define the premise of essentially wanting to do more good than harm. This is fine, and we welcome any approach which considers both an investor’s financial and moral preferences. ‘Doing good’ means different things to different people, it is often an emotive subject with penchants driven by one’s own experiences. Running a model portfolio service requires a tacit sensitivity to all these preferences, but unfortunately, endeavouring to cater for all may mean catering for none, with this resultant opportunity set housing a tiny investable universe of companies with ‘flawless’ sustainability profiles.

The way we build our opportunity set, is by looking through the lens of investing for a more sustainable world.

Simply, investing in assets delivering notably more good than bad, and when combined, offers an acceptable risk/reward profile. But even this, can lead to intense debate. We have just conducted a case study on the animal testing exposure within our portfolios, something that I suspect we all would, in the perfect world, like to see at zero. So why do many of our funds have a 5 or 10% of revenue tolerance, as opposed to a zero-tolerance approach in their negative screening? 

To help us answer this, I’d like to outline the different types of animal testing, that one may find in an investment portfolio. There are three definitions that fall under the umbrella term ‘animal welfare’ that can be flagged by our third-party sustainability screener, Clarity AI. These are: animal testing, animal testing for cosmetic purposes, and animal cruelty.

This differential is important because international regulation dictates companies that manufacture medical devices, pharmaceuticals, and biotechnologies for human use must conduct animal testing before launching a new product and before being licensed for use. This means that to have a zero tolerance to animal testing would mean not investing in Novo Nordisk, producer of the groundbreaking obesity and diabetes drugs which returned over 70% for investors in the last 12 months.

Obesity is a serious chronic disease, which has been linked to type 2 diabetes, coronary heart disease, cancer, strokes and mental health problems such as depression and anxiety¹. It is growing exponentially and is a global issue. Anyone who knows me will know that my belief is that the fault lies in our broken food system, rather than an individual’s circumstances, willpower, or appetite. However, until we get serious regulation on ultra-processed foods akin to what we are seeing in South America², an appetite suppressant like Novo Nordisk’s ‘wegovy’ is a solution. Primarily, combatting the potency of foods, which are explicitly designed to increase our consumption. This has the potential to not only improve millions of lives but save those lives too. Consequently, reducing the burden on health services and building a healthier, happier population.

These are the sort of discussions and debates we have to have within a sustainability-focused mandate, and these questions are asked of our fund managers. Many of them have the view that these technological advancements will have such a profound impact on the wellness of society that some forms of animal testing, when it is required by law, are tolerated. The key is that we only look to invest in those companies that have strong animal welfare policies, have or are eradicating any testing that is not required by law and have strict guidelines to minimise harm. Any companies that are flagged by Clarity AI as not upholding these standards are being scrutinised by TAM and the fund house associated. Akin to our work on Nestle (more to come on this), we will continue our commitment to being responsible stewards of our clients’ capital.