Published on 21 June 2017

SUSTAINABLE FINANCE

Smoking can be very harmful for your investments

Aviva recently sold over one billion euros worth in bonds and shares in tobacco companies. It is the latest in a global trend started by France's Axa one year ago that received renewed momentum with World No Tobacco Day held on 31 May. A coalition of asset owners with investments totalling $3.8 trillion have pledged to take action against the tobacco industry. In a joint statement, they publicly expressed support for anti-smoking measures taken by governments and called on them to be strengthened.


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Aviva is joining the tobacco divestment movement. The UK's largest life insurance company has pledged to sell €1 billion in bonds and shares in cigarette manufacturers. At the end of 2016, approximately 0.25% of its assets, including assets held on behalf of third parties, were invested in the tobacco industry. Aviva joins a broader movement that was officially formalised in May.

On World No Tobacco Day observed on 31 May 2017, a coalition of asset owners with investments totalling $3.8 trillion led by Axa released a joint statement in which they called on the world's governments to continue their efforts against smoking. With rising tobacco taxes, the widespread adoption of plain packaging and smoking bans in public spaces, the tobacco industry is presenting more and more financial risks.

"You feel good after."

Among the signatories is reinsurance company Scor, which has pulled investments out of five major tobacco companies including Philip Morris. “I get asked, why tobacco and not alcohol or sugar, for example?” says Scor's CEO Denis Kessler. “I always reply that there's no comparison. A glass of wine from time to time is part of life's pleasures. Cigarettes, from the first to the last, harm our health. The data is unequivocal. Tobacco has dramatic human, social and economic costs.”

California's CalPERS public employees’ pension fund has also divested from tobacco, withdrawing $550 million in investments in December 2016. Meanwhile, France’s Caisse des Dépôts (of which Novethic is a subsidiary) has officially formalised its divestment from the tobacco industry, a movement it began in the 2000s. Finally, Australian investment manager AMP Capital also recently decided to withdraw $328 million in tobacco investments. “Our message is clear: we can be successful without investing in this industry,” declared AMP Capital’s CEO Adam Tindall. 

Taking this step is still far from risk-free as tobacco remains a profitable and stable investment. The decision may seem difficult in the short term, but in the words of Axa's CEO Thomas Buberl, "You feel good after you do it.” “You have to take forward-looking actions,” he adds. One year ago, AXA became the first to divest, withdrawing €1.7 billion from the tobacco industry. It hoped at the time that its announcement would create a snowball effect and result in an “avalanche”.

Vigeo Eiris downgrades tobacco companies

We're not far off. In addition to the initiatives of asset owners, specialist rating agency Vigeo Eiris has decided to significantly lower the ratings of tobacco companies. They are now ineligible for inclusion in its “best-in-class” indexes. “The friction between the tobacco industry and the requirements of sustainable development is escalating: our ratings reflect both increasing societal aversion [to tobacco] and the risk connected to the future performance of this sector", explained Fouad Benseddik, Director of Institutional Relations at Vigeo Eiris.

“The concept of best in class is becoming meaningless for companies in this industry because they all produce products that kill their own customers,” says Dr Bronwyn King, CEO of Tobacco Free Portfolios, an NGO founded in Australia. Within Australia, 35 pension funds have already pulled around $2 billion from the tobacco industry. Dr King travelled to the French capital for World No Tobacco Day to praise the commitment from the financial sector.

“We as doctors cannot solve this problem on our own. Cooperation with governments and finance is crucial. Thank you France for being one of the pioneering nations in the fight against tobacco. You're still leading the pack but your competition is not far behind,” she told the key asset owners supporting the initiative. Every year, tobacco kills more than seven million people around the world—primarily in developing countries—and costs economies trillions of dollars.

Concepcion Alvarez @conce1


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