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Big tobacco’s big profits

Why are tobacco companies’ profits still booming – despite government regulation and declining smoking rates?

http://www.aljazeera.com/programmes/countingthecost/2017/06/big-tobacco-big-profits-170603092904305.html

Smoking kills. So if you’re in an industry where your product is known to be damaging the health of people who buy it, then you should, in theory, go out of business.

But shares in companies listed in the Bloomberg tobacco producers index have risen 351 percent since 2009, making it one of the best investments of the past decade.

Graphic warning labels and taxes seem to have some effect on reducing the number of smokers but less so on industry profits which keep rising. And investors can’t quit buying the stocks because operating profits continue to go up.

Although some pension funds and life insurers have turned their back on the sector, it’s still not enough to hit big tobacco where it hurts.

Different tax regimes around the world mostly account for the difference in price of cigarettes. But governments are not as hooked as the consumers who buy cigarettes.

Consumers cough up for higher prices because they crave the drug in tobacco – nicotine. Without nicotine addiction, there would be no tobacco industry.

The tobacco industry knows this and has diversified to develop other nicotine products like E-cigarettes. The electronic cigarette market has grown from just $50m in 2005 to an estimated $7.5bn last year, according to Euromonitor. It’s all part of the unique economy of addiction.

New evidence suggests the dangers of cigarettes in the United States have increased despite the fall of smoking rates in recent years. A new study has found that so-called “light” cigarettes may be behind a spike in lung cancer cases, as Heidi Zhou-Castro reports.

Jeremias Paul from the World Health Organization joins Counting the Cost from Geneva to discuss the unique dynamics of the nicotine economy.

Paul thinks the tobacco industry should pay more taxes because they’re making a profit out of people’s addiction.

“If they cause death, they should be taxed to death. In the latest global adult tobacco survey, there was a reduction in tobacco use of about 20 percent, which essentially proves increasing taxes regenerates a lot of revenues but at the same time reduces consumption.”

ABP under pressure over €1.5bn tobacco investments

Employees of the Netherlands’ university medical centres (UMC) have called for their pension fund, ABP, to stop investing in the tobacco industry.

https://www.ipe.com/countries/netherlands/abp-under-pressure-over-15bn-tobacco-investments/10019240.article

Jos Aartsen, chairman of the academic hospital UMC Groningen, spoke out during a conference entitled ‘Aiming for a smoke free health care sector’, organised by the Royal Dutch Medical Association earlier this week.

Aartsen complained that employees of academic hospitals as participants in ABP were effectively obliged to invest in the tobacco industry.

“I stand here on behalf of 70,000 employees of the eight UMCs. We are ashamed of these investments,” said Aartsen, quoted on the UMC Groningen website. “Investing in tobacco is not what we want.”

The Dutch Federation of University Medical Centers confirmed that all eight Dutch academic hospitals supported Aartsen’s call.

Aartsen acknowledged that tobacco companies can produce yields for investors.

“But every year, 20,000 people die unnecessarily because of smoking,” he added. “The fact these deaths are happening is more important than the return on investment in tobacco.”

Aartsen argued that it was a matter of social and governance responsibility for ABP to exclude tobacco.

Other funds had already excluded tobacco investments, he added, including healthcare pension fund PFZW and sector pension funds for GPs and for medical specialists.

ABP currently invests €1.5bn in tobacco-related assets, a spokesperson for the fund said. She pointed out that tobacco was legal in the Netherlands and regulated by the Dutch government.

The pension fund said it screened tobacco companies for issues involving child labour or unethical marketing practices. It also said it was in dialogue with several stakeholder organisations.

In addition, ABP was working on an “inclusion policy”, the spokesperson said. The next few years will see companies consciously chosen for the portfolio based on the criteria of return, risk, cost, sustainability, and accountability.

University medical centres are currently employer members of ABP, although there have been attempts to transfer this sector to PFZW, which caters for regular hospital staff.

A study by the Dutch Heart Foundation and the Association of Investors in Sustainable Development in March showed that more than two-thirds of pension funds didn’t have a policy in place for tobacco investments, compared to 10% of insurers.

It suggested the difference was attributable to the fact that many insurers also sell healthcare policies and have adjusted their investment policies accordingly.

The metalworkers pension scheme PME has excluded from its portfolio any companies that get more than 75% of their revenues from tobacco sales.

The €22bn multi-sector pension fund PGB is working on a similar policy, following a survey suggesting that just 17% of its participants supported tobacco investments.

PFZW ceased investing in cigarette manufacturers in 2013.

Hampshire County Council slammed after £80 million pumped into British American Tobacco

CIVIC chiefs have been slammed after pumping £81 million into a tobacco company.

http://www.dailyecho.co.uk/News/15323523.Council_slammed_after_funds_pumped_into_tobacco_firm/

Hampshire County Council’s pension fund has invested the money into one of the biggest tobacco companies in the world, British American Tobacco (BAT).

The council top the list of UK authorities who have investments in tobacco.

However, some of the world’s largest investment organisations have called for UK authorities to pull out of tobacco investments.

One big name to sell its tobacco shares is the French insurance giant Axa.

The UK Sustainable Investment and Finance Association (UKSIF), said it was ‘silly’ for one part of the council to be trying to promote health while the pension fund was, indirectly, promoting smoking.

Simon Howard, chief executive of UKSIF said: “Many local authorities now have responsibility for tobacco control and smoking cessation activities.

“If Hampshire is one of the local authorities which has responsibility for stopping smoking then it also seems silly for their pension fund to own tobacco shares. They are perfectly able to sell these shares.”

The county council currently manage a pension fund of £5,213 million on behalf of more than 300 employers and public bodies, and around 155,000 current and former staff.

Defending their actions, a spokesperson from the authority said: “Social, environmental and ethical considerations are taken into account when assessing the financial potential and suitability of investments.

“The independent pension fund has a fiduciary duty, by law, to invest fund monies to achieve the best possible financial return.”

Pension fund panel and board member, Councillor Bruce Tennent (pictured), said the council couldn’t be an organisation that puts ethics above financial return.

Cllr Tennent, who has been on the board for seven years, said: “Yes, ethical considerations are taken into account.

“There are break-downs in high and low-risk investments and ethical and non-ethical investments. We can’t be a board who puts ethics above monetary interests.”

BAT has its UK base in Southampton and employs 1,200 at its Millbrook site which is its global centre for research and development department and is also home to IT, finance, and distribution departments.

The firm has been in the city for more than a century but ceased cigarette manufacture here more than a decade ago. However, it employs more staff now than at any time ins recent history.

BAT declined to comment on the issue and referred the Daily Echo to The Tobacco Manufacturers Association, who said the industry was a sound investment.

Giles Roca, director general of the organisation, said: “Fund managers are free and indeed required to make the best financial decisions for their investors.

“Many commentators would point to the tobacco industry’s strong financial performance in recent years as a reason why its shares are considered an attractive buy for pension funds.”

While acknowledging the need for the county council to get the best deal for their pensioners, public health charity Action on Smoking and Health (ASH) said that pension fund boards had to think seriously about balancing financial obligations with health promotions.

Director of policy, Hazel Cheeseman, said: “Increasingly fund managers around the world are seeing tobacco as neither acceptable nor sustainable.

“Over the long term we ask funds to think seriously about how they balance both their financial obligations and the obligations local councils have to promote health.”

This week the World Health Organization (WHO) called on governments to implement strong tobacco control measures as part of its

WHO director general Dr Margaret Chan said: “By taking robust tobacco control measures, governments can safeguard their countries’ futures by protecting tobacco users and non-users from these deadly products, generating revenues to fund health services.”

When asked to comment, several local and national cancer charities declined to do so.

UK councils under pressure over £1bn of tobacco investments

Major investors set example to local authorities with commitment to selling shares in cigarette makers

https://www.theguardian.com/business/2017/may/31/uk-councils-under-pressure-over-1bn-of-tobacco-investments

Some of the world’s largest investment firms have thrown their weight behind efforts to combat smoking, sparking renewed calls for UK local authorities to divest all their shares in the tobacco industry from their pension fund investments.

More than 50 companies managing $3.8tn (£3tn) of money, including pension funds and insurers, declared support for “tobacco control measures being taken around the world” – even though some of them still own shares in tobacco businesses.

In a joint statement, released to coincide with World No Tobacco Day, they said: “We in the investment community are becoming increasingly aware of the important role we can play in helping to address the health and societal impacts of tobacco.”

The firms cited studies suggesting that smoking costs the global economy more than $1tn a year, outstripping global revenues from tobacco taxes.

Signatories of the statement include Axa – the French insurance firm that sold its entire €1.8bn (£1.6bn) tobacco portfolio last year – and Calpers, the giant US fund with nearly $300bn of assets under management. Calpers has also divested itself of all its tobacco investments.

While some large investors have sold tobacco holdings, funds managing the pension investments of UK local authority staff still own at least £1bn of tobacco stocks, according to analysis by the Guardian.

The share register of British American Tobacco (BAT), owner of Benson & Hedges and Lucky Strike, includes 28 local government schemes, which together own a combined £700m stake in the company.

The council with the largest investment in BAT is Hampshire county council, with about £81m of pensioners’ money invested in the firm. BAT has an office in Southampton, but ceased production of cigarettes at the site in 2007.

Nottinghamshire Local Government Pension Fund is second with about £62m worth of shares and is also among the largest investors in Imperial Brands, which makes Embassy and Superkings. Cigarettes were produced in Nottingham until May last year.

Imperial counts 19 local authorities among its shareholders, with their investments adding up to nearly £290m.

In total, share registers disclose that local authorities own close to £1bn of shares in the two companies. Their total tobacco investment is likely to be higher if they are invested in separate funds that also count cigarette companies among their portfolio of shares.

One of the obstacles to council pension funds selling tobacco stocks is a legal argument that trustees are obliged to prioritise the need to maximise investment returns over anything else.

But guidance issued by the Department for Communities and Local Government said trustees did have some room for manoeuvre.

“Although schemes should make the pursuit of a financial return their predominant concern, they may also take purely non-financial considerations into account provided that doing so would not involve significant risk of financial detriment to the scheme and where they have good reason to think that scheme members would support their decision.”

Deborah Arnott, chief executive of the health charity Ash (Action on Smoking and Health), said this left the door open for selling tobacco stocks.

“Historically, investment in tobacco was seen as safe, promising good returns, but increasingly fund managers are realising investing in tobacco is neither acceptable nor sustainable,” she said.

“Local authority pension funds have a legal duty to get the best deal for their pensioners, but if big investment funds like Axa can disinvest then surely local authorities, which have a legal duty to promote the health of local people, can do the same.”

Dr Bronwyn King, an oncologist who was instrumental in persuading Axa to drop its tobacco investments, said local governments should give serious thought to divesting, particularly given the cost to the public purse of smoking-related illness.

“We call on all government-related pension funds and sovereign wealth funds to look again at their policy,” she said.

“The health sector across the world is unified on tobacco but that alone won’t be enough. If the finance sector continues to invest in tobacco and strives to profit from it, we’re working against each other.”

The statement by investors calling for tighter tobacco control was issued at a conference in Paris to mark the annual no-tobacco day, started by the World Health Organization. WHO has estimated that tobacco claims more than 7 million lives each year.

Thomas Buberl, chief executive of Axa, was among the speakers at the event, a year on from the company’s decision to sell all its tobacco stakes.

“As the Axa group strives to be a partner in society, it is clear that action must be taken to combat the enormous human costs of tobacco,” said Buberl.

“I am convinced we must work together if we want to bring about change. Therefore, we are very proud to be working with other major financial actors and key stakeholders in support of governments to take action on tobacco control.”

Big investors warn against tobacco investment on World No Tobacco Day, but smoking in Europe is still stubbornly high

Today marks the passing of the 30th World No Tobacco Day, designed to encourage smokers to abstain for a day in the hope that they might quit.

http://www.cityam.com/265672/big-investors-warn-against-tobacco-investment-world-no

Yet it seems the annual event is doing little to help people kick the habit, despite support from big investors such as Axa and Calpers who are using the day to encourage a reduction in tobacco investment.

According to a survey of EU citizens, published by the European Commission to coincide with World No Tobacco Day, there has been no decrease in the number of daily smokers since 2014 – and even an increase among 15- to 24-year-olds.

“The increase in youth smoking rates illustrates the urgency for member states to enforce the provisions of the Tobacco Products Directive, which forbid attractive cigarettes aimed at enticing young people,” said EU commissioner for health and food safety Vytenis Andriukaitis.

The directive, which came into force in May this year, forbids tobacco manufacturers from marketing products as flavoured and requires them to cover 65 per cent of the packaging in health warnings.

Yet the overall smoking rate in the EU has remained at 26 per cent since 2014 and has risen from 25 per cent to 29 per cent in people aged 15 to 24.

Smoking in the UK sits fairly well below the European average, with 17 per cent of the population taking a daily puff.

Greece, Bulgaria, France and Croatia all rank highly, with smoking rates in each country above 35 per cent. Yet in Sweden, only seven per cent of people will regularly smoke a tobacco product.

Axa, Calpers, Scor and AMP Capital are putting their weight behind the push to quit, sponsoring the world’s first global investor statement on the subject.

It aims to “make visible the strong support within the financial community” for the World Health Organisation’s (WHO) framework on tobacco control and encourage stakeholders to act against tobacco investment, Axa said.

Axa and AMP Capital divested from tobacco last year, while Calpers did so 17 years ago and has since widened its ban to include externally managed funds.

The substance kills more than seven million people each year according to WHO, which has coordinated World Tobacco Day since the first event in 1988, and costs households and taxpayers more than $1.4trn (£1.1trn) in healthcare expenditure and lost productivity.

Russian showpieces to be tobacco-free events

This year’s FIFA Confederations Cup and next year’s FIFA World Cup™ will be tobacco-free events. FIFA and the Local Organising Committee (LOC) confirmed this on Wednesday 31 May, as World No Tobacco Day is celebrated across the world in conjunction with the World Health Organisation (WHO).

http://www.fifa.com/confederationscup/news/y=2017/m=5/news=russian-showpieces-to-be-tobacco-free-events-2890503.html

This decision is based on FIFA´s long-standing commitment to counter the use of tobacco and its negative impacts, which started in 1986 when FIFA announced it would no longer accept advertising from the tobacco industry.

“FIFA has banned smoking at FIFA World Cups since 2002 in order to respect and protect people’s Human Rights as a part of FIFA´s social responsibility commitment,” said Federico Addiechi, FIFA’s Head of Sustainability & Diversity. “FIFA´s Tobacco-Free Policy for FIFA Tournaments ensures that those who choose to, may only use tobacco products in designated areas, if in existence, to ensure that it does not harm others. The policy protects the right of the majority of the population, who are non-smokers, to breathe clean air that is not contaminated by carcinogens and other harmful substances in tobacco smoke and e-cigarettes.”

“All our actions in preparing for the tournament are taken in strict compliance with the Sustainability Strategy,” said Milana Verkhunova, Director of Sustainable Development at the Russia 2018 LOC. “One of the objectives in this area is to create a tobacco-free environment at all World Cup stadiums and FIFA Fan Fests.

“Creating a tobacco-free environment at all World Cup stadiums and FIFA Fan Fests is a very important objective of the 2018 FIFA World Cup Sustainability Strategy”, said Milana Verkhunova, Director of Sustainability Department at the Russia 2018 LOC. “In order to fulfill this task, we actively interact with the World Health Organization, the Ministry of Health, the expert community, host cities, stadium operators, the World Cup ambassadors and fans, as well as with the Russian Football Union. We hope that by joint efforts we will be able to contribute to the reduction of tobacco consumption in Russia.”

Here, FIFA.com highlights the key dates in FIFA’s work towards smoke-free sporting events.

1986: FIFA announces it will no longer accept advertising from tobacco-industry sponsors.
1999: At the FIFA Women’s World Cup™ in the USA, FIFA supports an anti-smoking campaign launched by the U.S. Department of Health and Human Services (HHS).
2002: FIFA supports a smoke-free campaign launched by WHO and the HHS. World football’s governing body is consequently bestowed with the WHO Director General’s Award for an anti-smoking campaign.
2002: Korea/Japan becomes the first smoke-free FIFA World Cup, meaning it has no links whatsoever to tobacco. Every FIFA World Cup since has followed suit.
2010: FIFA, the LOC and other stakeholders develop and adopt the ‘Stadium Code of Conduct’, which describes the applicable measures and policies for stadium visitors and staff, including prohibition of smoking in the stands and around the pitch.
2011: FIFA provides input to the European Healthy Stadia Network for policy position and enforcement guidelines for UEFA, concerning a smoke-free UEFA EURO 2012.
2013/2014: The FIFA Confederations Cup and World Cup in Brazil take place as tobacco-free events.
2015: World No Tobacco Day celebrated as ‘World Smoke Free Day’ at the FIFA U-20 World Cup New Zealand 2015
2017/2018: The FIFA Confederations Cup and the FIFA World Cup in Russia will both be tobacco-free events.

House panel detains 6 Ilocos employees, orders Imee Marcos to appear in P66-M tobacco fund misuse probe

For refusing to answer questions during a congressional hearing on the alleged misuse of Ilocos Norte tobacco funds, six employees of the province’s Treasurer’s Office were cited in contempt and ordered detained at the House of Representatives on Monday, May 29.

http://www.interaksyon.com/house-panel-detains-6-ilocos-norte-employees-orders-imee-marcos-to-appear-in-p66-m-tobacco-fund-misuse-probe/

Ilocos Norte Governor Imee Marcos, who is being accused by Majority Floor Leader Rodolfo Fariñas of allegedly diverting P66.45 million in tobacco funds to buy motor vehicles, was also subpoenaed by the House Committee on Good Government and Public Accountability chaired by Surigao Del Sur Rep. Johnny Pimentel to appear in the next hearing after skipping two previous hearings.

Pedro Agacaoili, chairman of the office’s Bids and Awards Committee and head of the provincial and planning development office; Josephine Calajate, provincial treasurer; Edna Battulayan, accountant; provincial budget officer Evangeline Tabulog; and two other employees, Genedine Jambaro and Encarnacion Gaor, were brought to the House Sergeant-at-Arms’ office where they would be temporarily held.

During the inquiry on Monday, the six employees repeatedly told the House panel that they could not recall receiving millions in cash advances or authorizing the release of funds for the purchase of various vehicles.

Fariñas grilled the employees on the allegedly anomalous purchase of minicabs, buses, and trucks in 2011 and 2012 using the share of the province from tobacco funds.

The lawmaker chastised the employees for their allegedly “dismissive” answers and also warned that cases against them would pile up if they continue trying to get off the hook.

“Magpapalusot kayo, dadami lalo ang kaso n’yo,” said Fariñas.

According to Fariñas, the vehicles were purchased through cash advances from the province’s share from excise taxes derived from locally produced cigarettes or the special support fund under Republic Act No.7171 or the Act to Promote the Development of the Farmer in the Virgina Tobacco-Producing Provinces.

The lawmaker claimed the purchase of the vehicles had violated provisions of R.A. 7171 because the law mandates Virginia tobacco-producing provinces to use 15 percent of their share of excise taxes from locally produced cigarettes for projects that will help advance tobacco farmers’ self reliance through the establishment of cooperatives and livelihood, agro-industrial, and infrastructure projects.

Also, Fariñas claimed there was no public bidding in the purchase of the vehicles in violation of Republic Act 9814 or the Government Procurement Reform Act.

Marcos’ camp on Monday said the governor was on “medical sick leave.”

Fariñas and Marcos used to be allies under what was being pushed as the One Ilocos Norte bloc, but in 2015, they cut ties due to political differences.

Imee’s mother, Imelda Romualdez-Marcos, the former first lady and wife of the late president Ferdinand Marcos, represents the second district of Ilocos Norte. Fariñas represents the First District. Both officials are in their last terms in the House and will serve only until 2019.

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.