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British American Tobacco nabs 40 per cent market share in Bulgaria with its purchase of Bulgartabac brands

British American Tobacco (BAT) has agreed to buy some of Bulgarian cigarette maker Bulgartabac’s top brands in a deal worth more than €100m (£84.8m).

http://www.cityam.com/262852/british-american-tobacco-nabs-40-per-cent-market-share

The move to buy Victory, Eva Slim and GD brands will bring BAT’s market share in the country to 40 per cent from just 12 per cent previously. The deal will include retail and distribution assets in the country and the wider Adriatic region.

BAT, which has operated in Bulgaria for 25 years, said it is proud to be making the biggest investment in the country this year.

“We are committed to the Bulgarian market and are very excited about this investment in a country which is increasingly demonstrating that it has a very bright future. This significant investment demonstrates our confidence both in Bulgaria and our future growth here,” said Richard Widmann, general manager of BAT’s central European cluster.

Subject to regulatory approval, the deal will be complete by mid-2017, BAT said.

A spokesperson for BAT added the transaction aligns financially and strategically with the business objectives for the central European region. The group will grow its business in Bulgaria and further enhance its position in the Balkans, following its acquisition of TDR in 2015.

BNZ to bring in nuclear free, tobacco free investment policy

Bank of New Zealand has developed a responsible investment policy which excludes companies involved in the production of cluster munitions, anti-personnel mines, nuclear weapons and tobacco or tobacco products from its international equity holdings, it said.

http://business.scoop.co.nz/2017/03/23/bnz-to-bring-in-nuclear-free-tobacco-free-investment-policy/

“In the last 3.5 years our funds under management have grown from $1.5 billion to almost $4 billion today, so we’ve undertaken a comprehensive review of our investment business,” BNZ head of wealth and private bank Donna Nicolof said in a statement. In the past BNZ invested in commingled funds alongside other institutional investors.

“One of our key investment beliefs is that risk and return are equally important and we have made the decision to exclude companies involved in the manufacture of tobacco on the basis that there is no safe level of use and engagement with these companies is futile. The regulatory and litigation risks faced by this industry are significant,” Nicolof said.

The investment policy at BNZ, a subsidiary of National Australia Bank, spans all investments it makes on behalf of customers and includes the investments of the BNZ KiwiSaver Scheme.

The move follows investor uproar last year after media investigations found New Zealanders had unknowingly invested $152 million in arms manufacturers and big tobacco companies through their KiwiSaver funds.

Earlier today the opposition Green Party said the government needs to set a clear deadline for when all KiwiSaver providers should have divested from companies involved in the manufacture of cluster bombs, landmines, and nuclear weapons. According to a report by Radio New Zealand four default providers – Australia & New Zealand Banking Group, Kiwibank, Westpac Banking Corp and Mercer – still had passive investments in such companies through global index funds.

“It’s time for the government to get tough on investment companies that are dragging their feet on ethical investment,” said Green Party co-leader James Shaw.

AMP snuffs out tobacco investment

http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11821645

AMP Capital is to snuff out its investment in tobacco manufacturing companies including millions of dollars invested through its KiwiSaver funds.

The move is part of a decision to pull out of tobacco investments worth A$440 million across its global investment portfolio.

The asset manager will also pull its Australian investments out of cluster munitions, landmines, biological and chemical weapons companies.

The move follows on from its New Zealand arm which pulled out of these investments last year following reports by the New Zealand Herald and Radio New Zealand which highlighted KiwiSaver’s exposure to the controversial sectors.

AMP Capital chief executive Adam Tindall said it had excluded tobacco manufacturers under a new environmental, social and governance and socially responsible framework because their products were highly addictive, could not be consumed safely and impacted non users via second-hand smoke.

He said cluster munitions, landmines, biological and chemical weapons manufacturers were excluded because their products indiscriminately kill through normal use (including during peace time) and their use leaves a legacy of significant and specific danger for civilians.

“We are not prepared to deliver investment returns to customers at any cost to society.

This position has been affirmed through consultation with major institutional clients and engagement with retail customers.”

Divestment from the tobacco investments would occur progressively over 2017 the company said, with impacted investors notified prior to any changes being made.

“The managers of impacted portfolios will be instructed to progressively sell down their holdings of excluded securities in a reasonable manner. This may take up to 12 months from time of formal notification,” a spokeswoman said.

Last year the Herald identified AMP Capital’s KiwiSaver funds had $17,169,091 invested in tobacco companies in the year to March 31, 2015.

It also has investment funds outside of KiwiSaver which are likely to include tobacco investments.

The AMP spokeswoman said it was not giving a regional breakdown for its tobacco investment.

UN agency shelves vote on ties with Big Tobacco

The governing body of the International Labor Organization, which has taken millions of dollars in funding from Big Tobacco, has shelved a decision about whether to cut ties with the industry.

http://cumberlink.com/business/un-agency-shelves-vote-on-ties-with-big-tobacco/article_e5b47bd9-0f4a-5c55-8bff-c1043cb174c9.html

The ILO body voted Wednesday to delay until November a decision about whether to join other U.N. agencies that have pledged to fight tobacco-industry influence in policymaking.

The Geneva-based body is trying to calibrate its mandate to help ensure proper working conditions, particularly in an industry linked to child labor, amid a broader U.N. fight against the harmful health effects of tobacco use.

ILO has received over $15 million through two partnerships that aim to fight child labor in the industry with Japan Tobacco International and nonprofit group linked to some of the world’s biggest tobacco companies.

Copyright 2017 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

MPs investing in cigarette companies, oil giants and ‘tax avoiders’ through their pension scheme

Exclusive: The Parliamentary Contributory Pension Fund also invests in several US tech giants accused by MPs themselves of avoiding tax

http://www.independent.co.uk/news/uk/politics/mps-pension-scheme-investment-tobacco-cigarette-bat-fossil-fuels-tax-avoidance-a7607901.html

Pensions paid to British MPs are funded by the profits of cigarette companies, international oil giants and companies who MPs themselves have accused of avoiding tax, The Independent can reveal.

The Parliamentary Contributory Pension Fund (PCPF), whose investments have never been made public before, ploughed more money into British American Tobacco (BAT) and oil giant BP and than any other two companies over the past year. Millions of pounds were also put into oil company Shell and controversial mining firm Rio Tinto, the list of investments shows.

The figures show BAT and BP received roughly £5.59m in investment each from MPs in 2016.

Pension funds, which channel billions of pounds to all corners of the economy, have come under pressure from campaigners to stop profiting from industries that contribute towards environmental disaster, ill health and conflict.

The £621m MP pension fund’s top 20 holdings also includes three US tech companies – Amazon, Google and Apple – that have been accused by MPs themselves of avoiding tax. Another top 20 investment is WPP, the advertising giant at the centre of a 2012 shareholder revolt on the £12.93m pay packet for its CEO Martin Sorrell.

Green MP and party co-leader Caroline Lucas, who has been pressuring the fund to reveal what it invests in for years, said the investment strategy was “deeply questionable” and that that in the case of tobacco investments there was “no excuse” for profiting from “one of the greatest public health crises of our time”.

“After years of resistance, the Parliamentary Contributory Pension Fund has finally come clean and made public their top 20 holdings. This is a good first step but, as expected, the fund has a deeply questionable investment strategy investing in dirty energy and tobacco,” she told The Independent.

“The long-term financial risks associated with oil, coal and gas assets are well known, yet the trustees of the PCPF are refusing to even meet with fund members to discuss this issue.

“If we are to prevent the worst of climate change, then we must rapidly transition away from an economy run on fossil fuels by investing in the renewable energy that we have in abundance. It’s right that the MPs should lead the way on this transition.

“It is well within the scope of the fiduciary duty of pension fund trustees to account for non-financial factors – there is therefore no excuse for profiting from tobacco, an industry that is responsible for one of the greatest public health crises of our time.”

In 2014, former MP Brian Donohoe, chair of the fund’s trustee board, said tobacco investments would be “amoral” but that he did not think the fund should withdraw from investments in fossil fuels.

Health charity Ash told The Independent the revelations about tobacco investments were disturbing because they were fuelling “so much preventable illness and misery”.

“A large majority of MPs and peers understand the terrible damage that smoking does and support strong action to cut smoking rates,” said Deborah Arnott, the charity’s chief executive.

“I think they will be disturbed to see that the parliamentary pension fund is investing in an industry whose products still kill more than 100,000 people across the UK every year.

“I understand that fund trustees have a duty to get a good return from their investments, but this can be achieved without supporting an industry that causes so much preventable illness and misery.”

A number of local councils, which manage more than £230bn in pension fund investments, have led the way in divesting from fossil fuels and in imposing ethical investment policies. Authorities including Oxford City Council, Waltham Forest, and South Yorkshire have been among the first to move to divest from fossil fuels. The PCPF’s trustees, however, say it would not be lawful for them to make sweeping judgments about whether certain investments were ethical or not.

The Church of England has previously come under fire for investing in Google and said it would limit investments in fossil fuel producers.

The MP fund’s top investments as of March 2016 were £55m in UK government bonds; £5.9m in British American Tobacco; £5.9m in BP; and £4.9m apiece in Diageo, Vodafone, HSBC, Royal Dutch Shell and Reckitt Benckiser.

It also invests £3.7m in pharmaceutical company GSK; £3.1m apiece in US Treasury bonds, Lloyds Bank, and Nestle; and £2.5m in BT, JP Morgan Chase, and Google. Rio Tinto, Apple, Amazon, Hartford Financial Services and WPP net around £1.9m each from the fund. The remaining 80 per cent of the fund is invested in other smaller holdings.

ShareAction, which campaigns for responsible investments, told The Independent that the new information showed MPs like Ms Lucas were “fully justified” in their campaign to challenge the fund.

“It’s positive to see greater disclosure from the PCPF following a year of vigorous efforts by MPs to demand a more transparent approach from their scheme,” said Catherine Howarth, the group’s chief executive.

“Many MPs will be dispirited to learn that the scheme’s largest holdings are tobacco giant, BAT, and troubled oil giant, BP. In the week NEST revealed plans for a low-carbon global equities strategy, having outperformed the PCPF’s investment returns in the year gone, it would seem MPs are fully justified in challenging their trustees for answers on carbon and climate risk.”

It is understood that a group of MPs opposed to such investments are considering legal action against the pension fund if policies are not changed.

When approached for comment, the pension fund’s secretariat referred The Independent to the House of Commons media office. The media office provided a copy of the fund’s policy statement on ethical investing, which has been signed off by the board of trustees.

It says that “trustees [of the fund] are legally unable to exclude certain investments on ethical grounds” because “the rage of views” among its members means it would be “almost impossible for the trustees to conclude that scheme members would share a moral viewpoint on any one ethical issue”.

“This means that the trustees could not lawfully take a decision to exclude a certain type of investment from the PCPF’s investment portfolio on ethical grounds,” the policy statement continues.

“However, it is important to mention that the trustees do believe that environmental, social and corporate governance issues can have a material impact on the long-term performance of its investments.

“As such the fund is a signatory to the Financial Reporting Council’s Stewardship Code and as such expects its investment managers to take account of ESG considerations as part of their investment analysis and decision making process. Furthermore, the Trustees, and all of the Fund’s managers are also signatories to the FRC Stewardship Code.”

Business groups, once tobacco friendly, switch sides in fight

The local chamber of commerce is usually a reliable ally in battles against regulation. But when it comes to smoking rules, many business groups have decided they would rather switch than fight.

Even in states where tobacco has played an important role in the economy – including North Carolina, Kentucky and Missouri -chambers have endorsed cigarette tax hikes, raising the smoking age and other efforts to curb tobacco habits.

The shift has accelerated since 2016, driven by a growing awareness that smoking drives up healthcare costs for employers, business groups said.

Smoking restrictions often are part of broader wellness initiatives, such as promoting exercise and nutrition, aimed at improving health – and business.

“Smoking isn’t just killing us, it’s bankrupting us,” said Ashli Watts, a spokeswoman with the Chamber of Commerce for Kentucky, where one in four adults uses tobacco, the lung cancer rate is the nation’s highest and related healthcare and lost productivity costs nearly $5 billion a year.

“Companies do look at the health of a workforce,” Watts said. An unhealthy workforce “is a deterrent.”

In Kansas City, Missouri, the chamber joined the local Blue Cross and Blue Shield insurer in 2015 in launching a smoking cessation effort.

They hoped to persuade five communities to raise the legal tobacco age to 21 by 2018.

Within a month, two of the largest cities in the area had signed on, and now more than 20 communities with 1.4 million people have raised the age.

Pam Whiting, a spokeswoman for the Greater Kansas City Chamber of Commerce with members in Kansas and Missouri, said the group was “happily stunned” by the results.

“It is a real concern for our business members, for their employees and their bottom line,” she said.

In Indiana, where smoking costs an estimated $7 billion in healthcare and lost productivity, the state chamber is pushing for a $1-a-pack increase in the state cigarette tax, to raise the smoking age to 21 and for more spending on cessation.

“It’s not typical for a chamber to advocate for a tax increase,” said Kevin Brinegar, president and chief executive of the Indiana chamber. But, he added, the cost of smoking
“gives us a black eye.”

TOBACCO FIGHTS BACK

Cigarette makers are spending tens of millions to fight the efforts, according to a Reuters review of campaign spending data and interviews, healthcare groups and the
companies.

Brittany Adams, a spokeswoman for Camel cigarette maker Reynolds American Inc, said the local chambers’ efforts go against their core mission and could hurt businesses outside the tobacco industry.

“Chambers of commerce are supposed to protect the interests of businesses in their communities, and supporting these kinds of bills may negatively impact local wholesalers and retailers,” Adams said.

Last fall, the industry spent almost $100 million to fight cigarette tax ballot measures in several states. More than $70 million of that was spent in California, where voters approved Proposition 56, raising state taxes by $2 to $2.87 per pack.

Business groups in San Francisco and Los Angeles supported the measure. Tax increases failed in Colorado and North Dakota.

Although adult smoking rates in California are the second lowest in the country, its large population makes it the single biggest U.S. market with 8.5 percent of cigarette sales.

Marlboro cigarette maker Altria estimated tax hikes enacted in Pennsylvania and California would hurt industry sales volumes by about 1 percent this year.

Wall Street analysts say the bigger risk is that more states follow suit.

At least 215 states and municipalities – including Hawaii and California, as well as New York City, Chicago and Boston – have raised the age to 21, according to the Campaign for Tobacco-Free Kids.

A spokesman said Altria wants to see the battle return to Congress, where it believes it has gotten a better hearing. With the Tobacco Control Act of 2009, Congress set a national minimum smoking age of 18.

In 2015, an Institute of Medicine study concluded that raising the national minimum to 21 would prevent about 223,000 premature deaths among people born between 2000 and 2019.

A group of Democratic senators introduced a bill to raise the age nationally to 21, but it never got a vote.

“This is a complex issue, and Congress has established a thoughtful process to better understand it,” Altria spokesman David Sutton said.

Tobacco products already “are very heavily taxed,” Sutton said. He also said sales taxes were a particular burden on the poor and created incentives “for criminals to engage in contrabrand.”

The U.S. Chamber of Commerce has not taken a position on the bill in Congress to raise the smoking age, and, as a rule, it leaves local issues to local chambers, said chamber representative Blair Latoff Holmes.

In Kentucky, a recent survey found more than 90 percent of the state’s chamber members support bans on smoking in the workplace. But the chamber decided against pushing for a statewide ban because it believes the politics are stacked against it.

The industry has spent more than $3.7 million the last five years lobbying Kentucky state legislators, records show. And, in November, Republicans won control of the legislature with the support of many constituents who consider smoking a personal prerogative.

For now, the Kentucky chamber is putting its clout behind a doctor-sponsered bill that would ban tobacco products from schools. Currently, less than 40 percent of Kentucky school districts ban tobacco.

“Generation after generation of people in Kentucky have smoked,” said Watts, the chamber spokeswoman. “There are people who don’t know anyone who has ever quit.”

For graphic on rising taxes on tobacco products, click: bit.ly/2m0MMpr

(Reporting By Jilian Mincer; Editing by Michele Gershberg and Lisa Girion)

Of Course Trump’s Health Secretary Is a Friend of Big Tobacco

Tom Price has taken tobacco money and voted against rules on cigarettes.

http://www.motherjones.com/politics/2017/02/tom-price-hhs-tobacco

The man Donald Trump has chosen to direct health policy for the federal government has close ties to the tobacco industry he will soon be charged with regulating. Rep. Tom Price (R-Ga.), who will likely be confirmed as health and human services secretary by the end of the week, has repeatedly voted against bills that could harm big tobacco. At the same time, he’s received thousands of dollars in political contributions from the industry and held investments in tobacco companies—investments he says he didn’t know about.

Early in Barack Obama’s presidency, Congress renewed the State Children’s Health Insurance Program. In order to pay for the program, lawmakers raised cigarette taxes by 62 cents per pack and cigar taxes by 40 cents per cigar. Price blasted the new fees. “Today’s tax hike serves as a useful reminder that the president is comfortable raising taxes on hard-working Americans to feed his reckless agenda,” Price said in an April 2009 statement. “President Obama has done nothing to demonstrate that he is a responsible steward of taxpayer money. Yet, he is forcing the American people to burn through even more of their income in the name of more government.”

A few months later, Congress passed the Family Smoking Prevention and Tobacco Control Act, which empowered the Food and Drug Administration regulate tobacco products. (The Supreme Court had ruled in 2000 that the FDA did not have that authority under existing law.) The legislation has enabled the agency to ban certain flavored cigarettes that might entice young people to begin smoking. It also allows the FDA to require additional warnings on packages.

“How do you square reaping personal financial gain from the sales of an addictive product that kills millions of Americans every decade with also voting against measures to reduce the death toll inflicted by tobacco?”

Price joined most Republicans in voting against the FDA legislation. But thanks to that bill, as health secretary, he will now have immense influence over how the tobacco industry operates. (The FDA is part of the Department of Health and Human Services.) In 2011, the Obama administration proposed adding graphic warning labels—including images of diseased mouths and lungs—to the top half of cigarette packs. That regulation was tied up in legal challenges but was ultimately upheld by the Supreme Court in 2013. After several years of inaction by the administration, a collection of medical and public health groups, including the American Cancer Society, sued the government last fall in an attempt to force it to finalize the new label requirements. Once he’s in place at HHS, Price can ask the FDA to move forward with the new rules, weaken them, or abandon them altogether.

The conservative website Hot Air celebrated the latter possibility when Price’s nomination was announced in November. “Fortunately for all of us, most of the sore spots on the HHS and FDA regulatory front don’t require cooperation from Congress or the courts,” the site said, pointing to regulations on cigars and electronic cigarettes. “These are things which can essentially be tidied up with a stroke of the pen once Trump and Price are in office.”

Price has benefited from numerous tobacco industry donations during his political career. Back when he was a state legislator in Georgia in 1998, Philip Morris gave Price’s campaign $300. More recently, the PAC for Altria Group, parent company to Philip Morris, donated $18,000 to Price’s congressional campaigns. From 2008 to 2012, Price also received $19,000 from the PAC of RJ Reynolds, the company behind Camel and other cigarette brands.

Price’s office did not respond to a request for comment.

Sen. Al Franken (D-Minn) raised concerns about Price’s personal investments in tobacco companies during his confirmation hearing last month. According to Price’s financial disclosure forms, he sold off 768 shares in Altria and Philip Morris International for $37,000 in 2012. (Altria owns the American Phillip Morris brand. Phillip Morris International has been a separate company since 2008.) Franken started by asking Price to identify the “leading cause of preventable death” and then informed him that it was smoking.

“That hits home,” Price replied. “I lost my dad, who was a Lucky Strike smoker from World War II, to emphysema. He prided himself on the fact that he never smoked a cigarette with a filter for years and years.”

Franken expressed surprise that Price, a physician, would invest in products that lead to the deaths of about 480,000 people in the country each year. “Congressman Price, you’re a physician, which means you took the Hippocratic oath, a pledge to do no harm,” Franken said. “How do you square reaping personal financial gain from the sales of an addictive product that kills millions of Americans every decade with also voting against measures to reduce the death toll inflicted by tobacco?”

“It’s a curious observation,” Price responded, claiming that he had “no idea” about the stocks he owned; he suggested that they were purchased by a mutual fund or pension plan he had invested in. The tobacco investments were publicly disclosed in his financial report, and at other points in his hearing he acknowledged that he had the ability to direct his stock broker on other investments he held.

“I find it very hard to believe that you did not know that you had tobacco stocks,” Franken responded.

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Donald Trump’s inauguration fueled by tobacco, oil and drug company money

Other big-spending sponsors include insurers, auto makers, tech giants

https://www.publicintegrity.org/2017/01/31/20651/donald-trumps-inauguration-fueled-tobacco-oil-and-drug-company-money

Big corporations with money riding on President Donald Trump’s policies helped pick up the tab for Trump’s inaugural festivities earlier this month, new disclosures show.

The companies’ five-to-seven-figure contributions earned company representatives prime perks, including access to events featuring the newly inaugurated president, Vice President Mike Pence, the Trump and Pence families and prospective Cabinet members and administration officials.

Pfizer Inc. and Dow Chemical Co. both disclosed making $1 million contributions to Trump’s inaugural committee in December 2016.

Microsoft Corp., Exxon Mobil Corp., Amgen Inc. and Altria Client Services LLC reported giving $500,000 each, a contribution that would have earned tickets to a similar list of events.

According to Microsoft’s report, half its contribution was in cash and half in “in-kind contribution, products and services.”

Exxon Mobil Corp. reported making its contribution on Dec. 19, the week after Trump announced he would nominate Rex Tillerson, the company’s chairman and CEO, as secretary of state. Tillerson’s nomination is still pending.

General Motors Co. reported giving $200,000. Six companies reported $100,000 contributions: Verizon Communications Inc., Valero Energy Corp., MetLife Group Inc., Clean Energy Fuels Corp., Anthem, Inc., and Aetna Inc.

Aflac, Inc. reported giving $50,000 and Monsanto Co., Florida East Coast Industries, CVS Health and Brown Rudnick LLP reported giving $25,000.

According to inauguration donor packages previously obtained by the Center for Public Integrity, donors in the “$1,000,000+” tier were to receive four tickets to a “leadership luncheon” billed as “an exclusive event with select Cabinet appointees and House and Senate leadership to honor our most generous inaugural supporters.”

Donors in the $500,000 tiers also got access to a dinner with Pence and his wife, a candlelight dinner with Trump and Pence, and other festivities. Donors in lower tiers received more limited ticket packages to inaugural events.

The inauguration committee doesn’t have to file detailed reports listing contributors until 90 days after Trump’s Jan. 20 inauguration.

But companies that lobby the federal government are legally required to file so-called “lobbying contribution” reports twice a year, and contributions to inaugural committees must be disclosed. The reports only cover the second half of 2016, so any 2017 contributions companies made to the inaugural committee aren’t included.

Trump’s inaugural committee raised more than $100 million, according to a report in the New York Times earlier this month, far more than previous inaugural committees. Tens of millions of dollars in inaugural contributions have yet to be disclosed.

The White House press office did not immediately respond to a request for comment Tuesday night.

This article was co-published by the Buffalo News.

TOBACCO INDUSTRY INTERFERENCE IN HEALTH POLICY

Tobacco stocks have traditionally performed strongly as defensive equity assets, but some big investors are now starting to divest from the industry.

The French national pension reserve fund, Fonds de Réserve pour les Retraites (FRR), announced in December 2016 that it was going to exclude investments in the equities and bonds of tobacco-producing companies.

There is growing pressure on institutional investors and others to divest from tobacco, based on strong scientific evidence of the harm caused by smoking. In particular, the efforts of Tobacco Free Portfolios, a campaigning initiative set up by Dr. Bronwyn King, an Australian cancer specialist, have raised awareness of the issue. FRR executive director Olivier Rousseau admits it struck a chord with him: “Morally, it’s a very clear-cut situation; it is indefensible. This is only a harm-producing industry, so from a moral perspective, it was easy to say that we don’t want tobacco in the portfolio.”

But whereas there is a strong rationale for excluding tobacco stocks on moral grounds, applying hard-headed investment logic to it can be sobering for investors. “The returns for tobacco have been absolutely outstanding. Between June 2004 and September 2016, the MSCI World Tobacco index grew by a whopping 632 percent,” Rousseau says. “Whereas the MSCI World index went up 122 percent.” And according to the Credit Suisse Global Investment Returns Yearbook 2015, from the Credit Suisse Research Institute, the tobacco sector was, together with beverages, the star performer since 1900 with an annualized gain of 14.6 percent [see chart below]. We’ve all heard comments from CalPERS, which said that not having had tobacco in the portfolio over the last 15 years has cost it around $3 billion. Similarly the Norwegian GPFG [Government Pension Fund Global] says its tobacco exclusion, which started ten years ago, has cost it some $2 billion. The results may vary depending on the methodology used. If one compares total returns, the difference is bigger than if one assumes, as is the case in real-life portfolios, that the dividends of high-yielding sectors, such as tobacco, are actually pooled with all dividends and reinvested in all sectors pro rata to their index weightings. Anyhow, yes, it is a bad industry, but there is no denying that it has been a very profitable investment.”

However, tobacco may not be such a good investment in the future. One reason to expect lower future returns is tougher public health legislation on smoking. “Many countries have made a commitment to act against smoking, and France is party to a 2005 international agreement on this, which basically says that public institutions should not have tobacco investments,” Rousseau says. “You can argue about its enforceability, but it is clearly a commitment taken seriously by the countries that have signed it.”

“There is a significant probability that more developed countries will take more measures against tobacco in the future. France is the second country, after the U.K., to remove branding from packaging for tobacco since January 1 this year,” Rousseau says. “Taxes are always being increased on tobacco, and regulations are increasingly restricting smoking in public spaces. Just as we can see a shift away from using carbon-emitting energy sources, so there is a similar regulatory move away from tobacco consumption.”

As part of the food and beverage sector, tobacco has performed strongly as a lowvolatility, high-dividend and stable growth sector since the start of the global financial crisis in 2007. As such, tobacco stocks have been valued at high multiples, as one of the darlings of the low-volatility trend in portfolio management, but Rousseau says this is now changing. “There has been a formidable run for the low-volatility, stable-growth types of companies, but it is coming to an end. From last July, after the first few weeks of Brexit scares,” he says, “value stocks have come back with a vengeance. Since then the stablegrowth, ‘low vol’ companies, carrying high multiples, have done poorly relative to the overall market. This tendency has started, and we believe there is more to go, and this could be the case for some time to come.”

FRR’s executive board had to present the case for excluding tobacco to the supervisory board. “There was a good debate, because it was easy to see the moral argument against tobacco stocks,” Rousseau says. “And of course concerns about returns were expressed, so that argument was also discussed. We cannot promise the supervisory board that excluding tobacco companies will pay out in future, but we simply believe that the formidable returns of the past are not going to be repeated in the same fashion. In our view, that would be a very low probability scenario.”

Although many investors engage with companies in an effort to improve their ESG rating and see divestment as a last resort, Rousseau says that this approach is not possible with tobacco producers. “It is typically the only thing that they do, so you would be asking them to stop their activities altogether,” he says. “You either invest, or you divest. The middle-of-the-road approach would be to reduce your weighting, but that is ducking the issue, really. We understand that there is an element of risk to us, but the next decade will most probably not see the same performance as in the past.”

As a result of its decision to exclude tobacco stocks, FRR has joined CalPERS and CalSTRS, in addition to Norway’s GPFG, the Netherlands’ PGGM, a handful of Australian and New Zealand pension funds, AXA insurance group, and, most recently, Sweden’s AP4, in going tobacco-free. “As we understand it, there are still very few investors that have done this so far, and I think the return argument is something that has been very powerful,” Rousseau says.

At the same time as it announced its tobacco divestment, FRR said it will now also exclude companies in which thermal coal extraction, or coal-fired power generation, accounts for more than 20 percent of turnover. Rousseau added that FRR is shortly to reveal the three successful managers it has hired for a €5 billion ($5.34 billion) passive equity mandate with an ESG approach, expressed notably through a smart beta, low-carbon theme and, of course, tobacco exclusion. This mandate will make up 40 percent of FRR’s developed-market equities.