Tobacco is as bad for the wallet as it is the planet

by Adrienne Lawler
September 1, 2019

The Rise of the Tobacco Exclusion
Dr Rachel Melsom, Director, Europe, Tobacco Free Portfolios
Ms Clare Payne, Director of Communications, Tobacco Free Portfolios,

How finance is making the world better by doing that which was once shunned – reducing the investible universe

The boardroom agendas of businesses across the globe are strikingly similar despite each believing in their own distinct market proposition. What makes an issue a priority on agendas is subject to fads, the influence of others and external forces, sometimes unexpected and sometimes entirely predictable. Attempts to influence the agenda range from the overt, such as protestors with placards, to public stunts, a tonne of coal delivered to the front door of a bank for example, to the illegal such as hacking internal email systems to deliver messages to staff. Others take a less confrontational route, writing letters, speaking to local members or advocating patiently for change. Increasingly, change is happening.

One issue that has made a surprising entry as a priority on agendas of the finance sector is that of tobacco-free finance, it has moved from an issue mainly considered by pension funds, to one increasingly implemented by corporate and retail banking, insurance companies and asset management. Public health professionals, with a lifetime of experience in combatting tobacco, have celebrated the attention the issue of tobacco, and more specifically financial investment in tobacco, is now receiving across the finance sector globally.

Whose problem is it anyway?

Tobacco has long been considered a health problem. It’s now well over 50 years since the US Surgeon General announced the unequivocal link between poor health outcomes and tobacco use – and even then, it was considered a late announcement. We know that tobacco use results in premature death and devastating health impacts from lung cancer, to heart disease, the loss of limbs, eye sight, even respiratory problems in our children. Despite this knowledge the facts might still startle: 7 million people will die this yeari (that is equivalent to 9.5% of the entire current UK

population) and 1 billion people this centuryii, because of tobacco. This, despite the persistent and gallant efforts of doctors, public health experts and more recently governments across the globe. The fight against tobacco companies has been relentless, the wins both big and small – but mostly just costly. And it remains costly – to the tune of $1 trillion p.a. to societyiii.

An ally that has long been missing in global tobacco control is that of the business community, namely the finance sector. Tobacco after all is a business, with a business model based on the privatisation of profits and the externalisation of costs. These companies have thrived through continued financial investment enabling their expansion and influence, moving from established to emerging markets, capturing new customers in an attempt to continue to generate returns, not forgetting that revenue streams require replacement customers for the 7 million deaths.

Even when investors think they are not invested in tobacco they may discover that some ‘sustainable’ screens still include tobacco. A ‘best of sector’ methodology has meant that investment options routinely include tobacco companies irrespective of how the financial product is branded. The global financial system is undoubtedly complex, and untangling the biggest financial players can take time, but as we are seeing, it can be done – with fiduciary duty intact and investment returns still favourable.

A paper titled, Tobacco: Review the Growing Financial Risksiv, based on scenario analysis and research by Maastricht University School of Business and Economics highlights the importance of undertaking a review sooner rather than later.

A new investment framework

It is now commonly accepted that positively influencing tobacco companies through the otherwise broadly practiced engagement approach is futile, as the core product is the problem, and the only acceptable outcome of engagement being to cease the primary business.

With the preceding factor understood, a review framework of three questions provides a robust investment critique for tobacco:

  1. Can the product that the company makes be used safely? 

    With respect to tobacco, the answer is an unequivocal ‘no’. The only safe amount of tobacco for human consumption is zero. Even smoking an average of less than one cigarette per day increases the risk of death from lung cancer nine-fold compared to non-smokersv. When used precisely as intended, tobacco will result in the early death of two out of three smokersvi. The evidence demonstrating the categorical and unconditional danger of smoking tobacco is irrefutable.
  1. Is there a UN Treaty regarding the issue? 

    For tobacco, the answer is ‘yes’. There is the UN Tobacco Control Treaty, the WHO FCTCvii.
  2. Can investors use engagement with the company as a tool to effect change?As it pertains to tobacco, the answer is ‘no’.

When these questions and answers are considered collectively, a clear framework emerges, as indeed practiced by ABP pension fund, when they defined their framework to review all their invesments in 2018viii.

As such, applying an exclusion to investment in tobacco companies can be viewed as both a rational and pragmatic option for investment professionals.

Viewing this in conjunction with the financial impact of increased litigation, regulation, health awareness and decreasing social acceptability, it is clear that tobacco should not be considered a sustainable investment.

Tobacco industry interference in global health advancement

Tobacco-free investment has grown steadily and this has not gone unnoticed by big tobacco. Philip Morris International and The Foundation for a Smoke-Free World, an organisation wholly funded by the global tobacco giant Phillip Morris International, have recently adopted the tactic of securing prominent individuals and companies from the field of sustainability and responsible investment to advocate for their business approach, with a particular focus on influencing the investment community.

This follows a long history of tobacco industry interference. Big tobacco companies have continued to actively fight against public health policies designed to protect people from the harms of tobacco. They have continued to produce, promote and market products they know will result in the premature death of up to two thirds of usersix, and they have continued to seek new customers, exploiting weak economies and preventing the implementation of protective regulation. This issue

has been so pervasive to progress on public health that Michael Bloomberg has pledged almost US$1 billion to help governments implement and defend their national tobacco control measures.

Removing tobacco stock from investment portfolios can make a difference, on mulptiple levels. Increasingly, evidence is clear that portfolios can be adjusted with little to no impact on financial returns. In addition, many firms are finding that excluding a stock such as tobacco is considered attractive to customers and prospective investors who expect that finance is invested for good rather than harm. This action reinforces the efforts of both health sector and governments to denormalise the product and the industry.

But haven’t big tobacco re-oriented to be part of the solution?

Attempts by big tobacco to present themselves as part of the solution through new products are longstanding, appear persuasive and may seem to be addressing legitimate concerns, but an astute finance sector teeming with analysts can detect contradictory behaviour.

Tobacco companies may claim they want a ‘smoke-free future’, yet they continue to promote and launch new tobacco products. Just this year, Philip Morris launched ‘The Year of Unsmoke’ however also launched a new cigarette brand in Indonesia with high nicotine and high tar levels, using billboards covered with iconic images of London to attract customers and sell the product.

Tobacco companies may state they are committed to reducing their environmental footprint, yet cigarette butts stand as the most littered item in the world and cigarette filters are the number one plastic found in our oceansx. The costs for addressing this catastrophic environmental impact appear to be absent from tobacco company balance sheets.

Tobacco companies speak of their commitment to the United Nations’ Sustainable Development Goals, yet their very existence impedes achievement of, and directly undermines, 14 of the 17 goals. Each day Philip Morris International manufactures more than two billion cigarettes and tobacco companies inflict approximately US$1 trillion of costs annually on health systems around the world. This cost is borne by Governments and tax paying communities, but now these communities are saying ‘enough’, and have called on the finance sector to play their part in creating change, for good.

Momentum for tobacco-free investment grows

Tobacco already stands as the most commonly requested exclusion in financial market. Increasingly tobacco-free financial products and indexes are coming to market to meet this demand. Excluding tobacco is proving to be good for business.

Momentum around tobacco-free investment has grown notably in the last five years. In January 2018, ABP, the world’s 5th largest pension fund, based in the Netherlands, announced a new policy excluding investment in tobaccoxi based on the framework detailed above. It was a signal of the year ahead with the Tobacco-Free Finance Pledgexii led by Tobacco Free Portfolios and launched at the UN in New York during the General Assembly in September 2018. The Pledge to date has 115 signatories, representing US$ 9.8 Tn in AUM, Corporate loan book and premiums.

The Pledge was sponsored by the French and Australian Governments and supported in person by Dr Tedros Ghebreyesus, Director-General of the WHO, Dr Vera Luiza da Costa e Silva, Head of the Secretariat UN Tobacco Control Treaty , French and Dutch Health Ministers, and global finance leaders from across Europe, USA, Australia and Canada, who all stood side-by-side in a public demonstration of the finance sector’s willingness to play their part in helping solve a global health issue of monumental proportions.

Financial institutions across the pension sector including ABP, NEST, PME, PMT, Ontario Teachers, AP1, AP2 and AP4, as well as sovereign wealth funds such as Irish Soverign Investment Fund, FRR, and Norges, banks including BNP Paribas, ING, ABN AMRO, Natixis and asset managers such as Storebrand, Robeco, BNP Paribas, Kempen to name but a few, are implementing, or have completed exclusions for tobacco. These public decisions have given confidence that excluding tobacco is the right thing to do.

The power to lead

As environmental, social and governance practices become a criterion for which investment might be received or withheld, leaders across the finance sector are using their power to do what they can to address some of the most pressing issues of our time – and tobacco is undoubtedly one of them. The words of educator and writer, Anna Lappe, remind us that, “Every time you spend money, you’re casting a vote for the world you want.”

i World Health Organization. Tobacco. Fact sheets 2019. Available at:

ii World Health Organization. WHO report on the Global Tobacco Epidemic, 2008 – The MPOWER package. WHO, 2008. Available at:


v increased-risk-earlier-death

vi Banks et al, Tobacco smoking and all-cause mortality in a large Australian cohort study: findings from a mature epidemic with current low smoking prevalence. BMC Medicine (2015) 13:38 <>

vii World Health Organization. WHO Framework Convention on Tobacco Control. WHO, 2003. Available at:

viii nuclear-assets/ nuclear-assets/10022647.fullarticle

ix Banks et al, Tobacco smoking and all-cause mortality in a large Australian cohort study: ndings from a mature epidemic with current low smoking prevalence. BMC Medicine (2015) 13:38 < content/pdf/s12916-015-0281-z.pdf>


xi assets/ assets/10022647.fullarticle


Contact: Dr Rachel Melsom: [email protected]

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