Councils across England and Wales could have over £2 billion of pension funds invested in the tobacco industry. Alex Blackburne questions why, given the increasing number of competitive ethical funds available, there should be any excuse for such unsustainable investment.
Last month, an investigation by The Independent found that at least £1.3 billion was currently invested in the tobacco industry by the pension funds of councils across England and Wales.
With emphasis on ‘at least’, the newspaper claims that the “true figure is likely to top £2 billion”. This equates to a contribution of £13m from each of the 152 councils, though not all are culprits.
Councils in the West Yorkshire region are reported to have invested some £125m into an industry that directly and indirectly claimed the lives of 100 million people in the 20th century.
Another local authority – Cornwall Council – was rapped for its £24m contribution last summer, but defended its stance. “We aim to keep a balanced portfolio and investment in tobacco-related industries represents just 2% of the total fund value”.
Alex Folkes, a local councillor and deputy Liberal Democrat group leader in the area, translated this rather impassive declaration: “Only 2% of our investments are promoting death”. The blog post urged Cornwall to withdraw its investment in tobacco.
Speaking to Blue & Green Tomorrow, Folkes highlighted the contradictory nature of the council’s investment policy.
“Cornwall Council has a duty to try to help cut smoking rates across Cornwall”, he said. “If at the same time, we are investing via our pension fund in tobacco companies, then we’re fighting against ourselves.
“We’re doing exactly the wrong thing.”
When put on the spot about its investment policy, Folkes said that the Council explained how it had a “statutory duty” to allow the pension fund managers to invest in any sector, so long as the returns were good.
“If a pension fund holder found that we had invested in something but we could have had a better return somewhere else, then they can sue the pension trust”, he explained.
“I think that’s wrong because I know that there are ethical funds that outperform the stock market and investments as a whole.
“You can’t really tell, just because something’s an ethical fund, whether it’s going to do better or worse than the average.”
Such a philosophy ties in perfectly with the mantra of the vast majority of those in the ethical investment sector. The belief that there must be performance sacrifice in favour of moral is simply untrue, as countless IFAs and fund managers have testified to previously at Blue & Green Tomorrow.
A report by Action on Smoking and Health (ASH) and FairPensions added to The Independent’s findings, and buttressed Folkes’ point.
Christine Berry, policy officer at FairPensions, said, “It’s simply not true that the law requires pension funds to ignore their members’ ethical views.
“It’s time to move on from this tired old myth: savers who care about where their money is being invested have the right to expect a considered response to their concerns.”
In this light, the excuse for choosing unethical and unsustainable funds over ethical or sustainable ones starts to look very weak indeed. Although it’s not as simple as that for local government pension funds,
Folkes added that the investment managers do have a choice.
“As individuals, we can invest in whatever we want”, he continued. “We can say no to something either for moral reasons or simply on a whim, and we suffer the consequences as an individual.”
“The Council’s pension fund has to be a bit more broad-brush, but we can say that we won’t invest in funds that directly contradict the work we are doing as a council.
“In this case, we have a public health duty to campaign against people smoking, and the tobacco companies have a duty to their shareholders to encourage more people to smoke, because that’s how they sell more cigarettes.
“As long as this is the case, we shouldn’t be doing both within our pension fund.”
Cambridgeshire County Council was the latest to be criticised for investing £25m, or 1.9%, of the pension fund it oversees, in tobacco.
Cambridgeshire County Councillor Steve Count, said, “This is a complex area with certain legal and financial obligations that govern investment and maximising returns to benefit current and future pensioners and to minimise the cost of the scheme to council tax payers.”
Once again, trussing up the argument in red tape seems to make an adequate excuse.
“Due to this complexity we have asked for further independent advice and investigations into investment in the tobacco trade before any decision is made. We will also be asking our fund managers to be mindful of our current discussions when looking at investment.”
Camden Council was reported to have the highest proportion of investment in tobacco, with 3.7% of its pension fund invested in the industry. Councillor Theo Blackwell, cabinet member for finance, said, “As a council we do not encourage people to use tobacco and actively carry out work to discourage its use, but like every pension fund across the country we have a legal responsibility to our members and, in the case of local government pension funds, council tax payers to secure the best investment returns available.
“Investments made by the pension fund are carried out by experts within the financial sector, operating within a framework provided by the council to maximise returns as, ultimately, any deficit between the assets of the pension fund and its liabilities are met by council tax payers.
“No doubt some people will see this as a grim investment but tobacco is a legal product and, in a time of financial pressure for local authorities, pension funds should not become a further burden on local council tax payers.”
Blackwell’s words advocate healthy returns and unhealthy contradiction over ethics, so it appears another council is guilty of succumbing to the performance myth.
Tobacco is one of the most unethical industries around, along with sectors such as pornography, the arms trade and child labour. The World Health Organisation (WHO) claims that there are currently 5.4 million smoking-related deaths every year worldwide – a figure that is constantly rising; the figure is predicted to reach 1 billion by the end of the 21st century, if trends continue unchecked.
Statistics from Kantar Media show in which areas of the UK individuals are most likely to smoke, and the subsequent attitudes towards it.
The infographic shows that you’re more likely to be a smoker if you live in the North than you are if you live in the South, too.
It is depressing that global tobacco companies, such as British American Tobacco, have won awards for their sustainability policies. Apparently, producing the greatest single cause of preventable death is somehow sustainable.
Julian Parrott, partner at independent financial advisers, Ethical Futures, said that the councils’ investment in tobacco “runs contrary to attempts to improve health [and implement] smoking bans in council-run schools and premises”.
He added that there was legislation in place for trustees to have a say in what industries their pension invests in.
“Pension fund members have the opportunity to request that trustees of the funds develop and consider a Statement of Investment Principles (SIP) for their pension fund policy”, Parrott said.
“An SIP was enshrined in pension law in 2001 and gives the members a chance to lobby for policies that take account of environmental, social and governance issues when making investment decisions.
“Councils have often been leaders in adopting these polices, so it is surprising to see these statistics.”
The ASH and FairPensions report goes onto say that regardless of the unethical nature of the industry, the tobacco sector actually faces an uncertain future, stating that it could “disappear entirely” if global smoking numbers slowly decline.
“So far, tobacco companies have pulled off the trick of boosting profits in the face of falling sales and that has kept share prices high”, commented Martin Dockrell, director of policy and research at ASH. “But it can’t go on forever, and the problem is not just falling sales.
“All around the world, the big tobacco companies face a perfect storm of tougher regulation and higher taxes while more governments sue for billions of dollars in health care costs.”
The message to councils in England and Wales is very clear: seriously consider more ethical and sustainable investment to reduce the risk placed on trustees’ finances.
Continued and increasing growth in the sustainable investment sector means it is forecasted to have a bright, prosperous future.
As an individual, you can take charge of your finances by actively choosing where your savings and investments are held. Opting for sustainable investment is the wisest choice.
Your IFA should be able to answer any questions you have. If they are unable to answer or if you don’t have an IFA, fill in our online form and we’ll help connect you with a specialist ethical adviser.
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Infographics: Ben Willers. Photo: acidpix via Flickr