Fund Firms Resist Tobacco Divestment

Source from:  News.au 09/26/2016

Eighteen months after the launch of a global campaign to persuade money managers to black-list tobacco stocks, just one major European investor has answered the rallying cry.

Others are largely sticking with an industry that remains lucrative despite tightening restrictions on smoking and a series of lawsuits in the US, saying they are duty-bound to seek the best returns for their clients.

Even a United Nations-backed treaty which aims to cut tobacco consumption by almost a third within 10 years is failing to deter many investors in the likes of Philip Morris International, British American Tobacco, Japan Tobacco and Imperial Brands.

"We are firmly of the view that profits, cash and dividends from tobacco stocks have many years of strong growth ahead," said Stephen Lamacraft, fund manager at Woodford Investment Management.

Still, the Global Taskforce for Tobacco Free Portfolios, backed by the Union for International Cancer Control, has scored one big victory since it began campaigning in March 2015 for financial institutions and pension funds to divest an estimated $US60 billion from the industry.

In May this year, French insurer and fund manager Axa agreed to ditch its tobacco holdings, becoming the first major European investor to sign up to the campaign, although others had already opted out of tobacco before it was launched.

Axa said its role as a health insurer meant it could no longer justify investing in something that had such a "tragic" impact on public health.

At the time it held 200 million euros in tobacco stocks and about 1.6 billion euros in bonds issued by the cigarette makers.

Even then, the process is lengthy.

Axa has almost completed selling the shares but will keep the bonds until they mature.

Only in 2027 will the bulk - 97 per cent - be off its books.

Many other investors appear reluctant to discuss the issue.

Reuters contacted 24 large fund managers which hold tobacco stocks, and all but seven declined comment or did not respond.

According to the World Health Organisation (WHO), tobacco kills around six million people each year, including 600,000 non-smokers exposed to second-hand smoke. Many of the passive victims are children.

The Taskforce's global Project Manager, Melbourne-based Bronwyn King, has persuaded more than 30 Australian superannuation funds to ditch tobacco but the campaign faces a tougher challenge in Europe.

The same goes for the US, where one influential investor, the California Public Employees' Retirement System, is reviewing a 16-year investment ban on tobacco after a study estimated the policy had cost it $US2 billion to $US3 billion in returns.

Campaigners reject the fiduciary duty argument - that funds must seek the best returns for their clients. They note that about 180 countries have signed up to the WHO's Framework Convention on Tobacco Control, which aims to cut consumption by 30 per cent by 2025 through new regulations and tax increases that will make tobacco less affordable.

Currently just a handful of countries fully comply with the treaty, implying a significant future hit to the value of tobacco stocks when others follow suit.

"Over the longer term, (the treaty) has to decrease the validity of the product - you will have fewer people wanting or being able to buy tobacco and that has to impact the investment appeal of the producers," said Rachel Melsom, UK director of campaign group Tobacco Free Portfolios.

Philip Morris International, Imperial Brands and BAT declined to comment. Japan Tobacco did not immediately respond to a request for comment.

The tobacco industry sells about 5.6 trillion cigarettes a year to the world's one billion smokers, many of whom live in low and middle-income countries. Enditem