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Health campaign councils invest £167m in tobacco firms

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Council pension funds must adhere to rules on which types of firm they can invest in

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Councils across the East of England that are to take on a lead role in NHS anti-smoking campaigns, have invested more than £167m in tobacco firms.

The figure was revealed after a BBC Freedom of Information Act (FOIA) request made to county councils about their pension fund investments.

In the eastern region, Hertfordshire has the highest amount of money in tobacco firms with £44.6m invested.

Buckinghamshire has the lowest with £6m of investments.

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We will research carefully the issues brought up by the pension fund investing in tobacco companies”

End Quote David Finch Essex County Council

Anti-smoking group Ash (Action on Smoking and Health) said it was concerned at the investments.

Martin Dockrell, director of research and policy at Ash, told the BBC: “From 2013, local councils will have responsibility for leading local efforts to reduce the burden of death and disease from smoking, yet many of them are the largest tobacco shareholders in the area.

“Despite what some pension managers would have us believe there is no obligation to invest in the tobacco industry.”

The FOIA request shows Suffolk’s pension fund has invested £42.3m in tobacco companies including £18.3m in the giant British American Tobacco, the world’s second largest cigarette maker.

Norfolk has invested £25.9m in cigarette firms while Northamptonshire has invested £14m and Essex £9.1m.

Cambridgeshire figures show the county council administered pension fund, which also includes district council’s pensions, has invested £25.3m in tobacco firms.

Mr Dockrell said ethical investment rules means fund managers are permitted to say they will only “invest in tobacco when they can prove that there is no other investment that can match the value”.

‘Global business’

David Finch, deputy leader of Essex County Council, said: “We will research carefully the issues brought up by the pension fund investing in tobacco companies.

“We will take the findings to the pension investment board for it to make a decision on whether the fund continues to invest in tobacco firms, in the light of Essex County Council taking on public health duties next year.”

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Placing constraints on fund managers could [leave us not getting] the best return on our pension investments”

End Quote David Lloyd Hertfordshire County Council

Frank Downes, chairman of Buckinghamshire County Council Pension Fund Committee, said: “As with most local authorities we don’t invest directly ourselves, but we employ the expertise of fund managers to do so on our behalf.

“This is a global business and they invest in bonds, equities and other asset classes, but they are aware of sensitivities in local authority pension fund investments, hence our very low investment in this class.”

A spokesman for Norfolk County Council said: “While Norfolk Pension Fund is administered by the county council, this is on behalf of over 130 employers, 26,000 contributing employees, and 43,000 pensioners and deferred members.

“Administration of the fund is overseen by a pension committee, which is charged with overseeing strategies to obtain the best return on investment for members and employers while maintaining an appropriate level of investment risk.

‘Investment principles’

“Any change in investment policy would be a matter for the Pension Committee, but their decisions would have to be compatible with the duties placed upon them to ensure that the fund is properly managed to protect the interests of employers and members.”

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How common is pension fund investment in tobacco?

Ian Gwinnell is a pensions and investment expert who is the director of financial services company All Counties Financial.

He said pension funds investing in tobacco firms is commonplace although more and more people are choosing to take an ethical stance and avoid investing in certain types of companies.

He said: “A number of companies choose not to take a moral approach to investing but a few years ago there was an uproar about funds investing in these (tobacco) companies and as a result a number of ethical investment products were created.

“Tobacco firms don’t make a bad return – they are blue chip companies and their profit margins and turnover far exceed anything close to them.”

But he added investors tended to only ever put a small percentage into tobacco firms because it is important to build a diverse portfolio across a number of different industries.

David Lloyd, Hertfordshire County Council cabinet member for resources, said fund managers are expected to make “sound investment decisions”.

“[This is] to secure the best long-term returns for the pension fund,” he said.

“Placing constraints on the fund managers who act on the council’s behalf could put us in a position where we do not get the best return on our pension investments.”

A spokeswoman from Northamptonshire County Council said the £14m represented only 1% of the pension fund.

“The pension scheme is operated within a set of clear investment principles which includes guidance on socially responsible investment,” she said.

“However, it’s important to be aware that there is a legal duty to maximise income for the pension fund.”

Cambridgeshire county councillor Steve Count, who chairs the Cambridgeshire Local Government Pensions Fund Committee said: “I called for the Cambridgeshire Local Government Pension Fund to look into ethical investment.

“After careful consideration of the financial implications and legal advice the committee, made up of representatives of the 174 employers, decided not to remove our funds from the tobacco industry.

“If we had decided to alter our strategy we would run the risk of losing millions of pounds, that ultimately would have had to be paid for by tax payers.”

Suffolk county councillor Peter Bellfield, chairman of the Suffolk Pension Fund Committee, said: “We do acknowledge the issues around public health however, ultimately, restricting choice for the fund managers limits their abilities to do their jobs. Suffolk’s approach is entirely in line with many other areas around the UK.”

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