February 2013

OPINION: All up in smoke

cigarette smokeBonds yields are in the toilet, in industrialised nations at least, and so I was unsurprised when a friendly (equity) fund manager recently said that investing in bonds is a mug’s game. A better way to get secure income, he said, was to dance with the devil. Invest in tobacco companies, watch the dividends come rolling in and, well, smile, I suppose. It’s traditional to tout tobacco companies as great income stocks when times are tough. And – however much ink may have been spilt recently on talking up the “new” new normal, in which everyone is going to be excitedly risk-on – times are still tough. Tobacco companies do well when there’s a squeeze because the worse things get, the more smokers smoke, because they are addicted to nicotine. This also helps to explain why, as a general rule, smoking is more prevalent among the poor than the rich. But now that the regulatory noose is tightening around tobacco companies’ necks, the financial case for investing in fags is less clear than perhaps ever before. A report released last year by ASH (Action on Smoking and Health) and Fair Pensions, a UK charity that campaigns for responsible investment, seeks to debunk both the (frequently disinterred) idea that UK local authority pension funds have a fiduciary duty to invest in tobacco companies and the notion that tobacco companies represent a low-risk, high-profit investment. The report suggests that tobacco is an industry with a disappearing future, noting that 170 countries are parties to the Framework Convention on Tobacco Control and as such committed to introducing price and tax measures to reduce demand for tobacco. In fact, the report implies, the bad news for tobacco companies has been stacking up at quite a rate. Law suits relating to healthcare costs arising from smoking have been brought against tobacco companies in countries as diverse as Poland and Nigeria. China, which accounts for over 40% of the total global tobacco market and was once the great white hope of the tobacco industry, introduced a range of measures to tackle tobacco use in 2011, including a ban on smoking in public places. The tobacco industry has conceded that plain packaging, introduced in Australia in December 2012, will damage profits. These kinds of points help to bolster the argument that incorporating environmental, social and governance criteria into investment strategies makes financial as well as ethical sense. As we all know, it is an argument that is gaining ground. A new survey of 115 European asset owners from Novethic, the French socially responsible investment research centre, confirms this – 61% had a formalised responsible investment policy in 2012 compared with 42% in 2011. When it comes to tobacco, however, I would like to make a simpler argument: we should not invest in tobacco companies because they are evil. They are, in fact, pure evil. While it is possible to argue that other sectors that typically form the object of investment exclusions – alcohol, pornography, weapons – are not that bad in certain circumstances or have their uses, this is not true of tobacco. People only consume tobacco because they are addicted to it, tobacco only ever causes harm and it frequently causes death. In the EU, tobacco advertising is banned. Smoking is banned in public places. Isn’t it time that pension funds and publicly offered investment funds were banned from investing in tobacco companies?
When I escaped the evil weed many years ago, a stop-smoking therapist suggested to me that I call up Gallaher Limited and ask to have the benefits of its products explained to me. I never did, but apparently they obfuscate then cut you off: there are no benefits. I encourage you to look at the Philip Morris International website. It is a festival of hypocrisy. We work with growers and suppliers to promote sustainable tobacco farming. What? Any fund that gives these people money should have to splash a big warning on the front of its prospectus that says: this fund invests in death. Surely? ©2013 funds europe

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