With World No Tobacco Day this Sunday 31 May, Tobacco Free Portolios discusses the risks associated with pension funds investing in tobacco
When risks are about more than losses
Covid-19 calls on us all to prioritise the common good over self and private interests; this also applies to the way we invest and think about money. Whilst Covid-19 was at first deemed a health problem and a health crisis, we have quickly seen the interrelated nature of our societies and an expanded notion of risk to include other factors such as the risk of losing the social licence to operate and the risk of breaching public trust. As financial institutions and providers turn their attention to coping with Covid-19, they should be mindful to ensure existing investments aren’t contributing to the problem. The World Health Organization director-general, Dr Tedros Adhanom Ghebreyesus, has highlighted the growing number of studies and reports linking severe and fatal impacts of Covid-19 with those who smoke.
The role of finance in society
It is now commonly accepted that investing for good does not have to mean financial sacrifice. AP4’s annual report has recently published the return contribution of their sustainability decisions 2015-2019. The business-based decision to remove tobacco made the largest positive return contribution. Regardless, it’s not just about the bottom line, making good investment decisions can save lives. The UN Tobacco Control Treaty highlights in Article 5.3, that governments should cease financial support of and investment in tobacco companies as a crucial piece of tobacco control. This directive matters as tobacco is the world’s number one cause of preventable death, and the single most deadly consumer product in history. Individuals with everyday financial products, and in particular through their pensions, have found themselves unwittingly contributing to this problem.
The range of risks associated with tobacco
Risks associated with ongoing financing of tobacco are multiple, including: Regulatory risk: 181 countries are actively implementing the UN Tobacco Control Treaty; Litigation risk: In 2019 Quebec’s Court of Appeal upheld the award for damages of CA$15 billion health-related costs and Brazil announced its case against Big Tobacco in May 2019; Supply chain risk: Practically no cigarette can be guaranteed to be free of child labour.
In addition, children get Green Tobacco Sickness causing ill health and nicotine addiction; Reputational risk and Human Rights: The Danish Institute for Human Rights has stated: “Tobacco is deeply harmful to human health, and there can be no doubt that the production and marketing of tobacco is irreconcilable with the human right to health”; Environmental Risk: The European Parliament paved the way for a ban on single use plastic, to reduce pollution in the oceans in accordance with Sustainable Development Goal (SDG) 14 ‘Life below water’. Less well known is that cigarette butts are the biggest man-made contaminant of the ocean and can take over a decade to decompose. Over 4.5 trillion cigarette butts are discarded every year. Detritus from vaping products also adds to the increasing volume of environmentally damaging waste.
Tobacco-free finance
The good news is that momentum around tobacco-free finance has grown steadily. The Tobacco-Free Finance Pledge, launched in September 2018 at the United Nations, was developed by Tobacco Free Portfolios in collaboration with the UN Principles for Sustainable Insurance, UNEP Finance Initiative, the UN-backed Principles for Responsible Investment, AXA, BNP Paribas, Natixis and AMP Capital. The pledge currently has 129 signatories - leaders in insurance, banking, pension funds and asset management, representing over US$8 trillion in asset under management and over US$2 trillion in corporate loan book. They are guiding us all to a healthier, more sustainable and more financially secure future.
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