Matter and AP Pension launch new partnership on sustainable pension savings.

4 reasons why your pension shouldn’t be invested in tobacco

Around much of the developed world, the overwhelming negative impacts of tobacco are increasingly well recognised. Governments across the world have recognised the importance of addressing the tobacco epidemic by committing tighter tobacco regulation. Additionally, tobacco control is seen as such a crucial global issue, that increasing international tobacco control is a target under UN Sustainable Development Goal number 3, Good Health and Well-Being.

In contrast, much of the global finance industry still invests in and profits from tobacco. Our recent screening of 13 of the largest Danish pension providers showed that on average they were invested in 19 tobacco companies. These include the five biggest tobacco companies in the world.

The purpose of this blog series: Exclude, please is to increase the awareness of Danish pension savers as to where their pension savings are actually being invested, and why we at Matter and Skandia see it as so important that we do not invest in tobacco.

The arguments against tobacco investing are overwhelming. Some, such as the impact of tobacco on health, are well understood, while for other areas awareness still needs to be increased, such as the harm tobacco production and consumption does to the environment.

Read the arguments and see if you still feel like investing your pension in tobacco.

  1. Seven million people die every year due to tobacco use

The health impacts of smoking tobacco are increasingly well recognised. Cigarette smoking harms nearly every organ of the body, causes many diseases, and reduces the health of smokers in general. There is no safe level of exposure to tobacco. The scale of the negative impact of tobacco is causing an estimated seven million deaths per year globally, according to Tobacco Free Portfolios, an organisation that campaigns in favour of tobacco divestment. According to the Centers for Disease Control and Prevention (CDC), smoking causes more deaths each year in the U.S. than HIV, drug overdoses, alcohol use, motor vehicle injuries and firearm-related incidents combined. Estimates show smoking increases the risk for coronary heart disease by 2 to 4 times, and increases the risk of developing lung cancer by 25 times.

The tobacco industry paints itself as just another perfectly legal, legitimate industry selling products that fully informed customers choose to smoke. The reality, however, is somewhat different. Until recently, the biggest tobacco companies denied that its product is addictive. Internally, the industry has known that the crucial selling point of its product has been the chemical dependence of its customers. Without nicotine, there is no tobacco industry.

In terms of making a fully informed decision, the reality is that young people from low socio-economic backgrounds, and developing countries make up much of the smoking population. The decline of smoking rates in the west has meant a marketing push, especially towards young people, in the developing world, where awareness of the negative health impacts of smoking is not widespread. A combination of lack of education, cycles of poverty, and targeted marketing means that many are not making, nor are empowered to make, informed decisions.

In the end, the financial industry cannot support an industry that is on track to kill one billion people this century, many of whom are either stuck in a cycle of addiction, or do not have the necessary information to understand the ramifications of their decisions.

  1. You are paying the bill

The tobacco industry is not held accountable for the 7 million deaths caused by their products each year. They externalise the costs of dealing with their products to governments, private healthcare providers, and the wider global economy.

Smoking imposes a heavy economic burden throughout the world, particularly in Europe and North America. A 2014 study led by the CDC found that of every $10 spent on healthcare in the U.S., almost 90 cents is due to smoking. Using health and medical spending surveys, researchers calculated that 8.7% of all healthcare spending, or $170 billion a year, is for illness caused by tobacco smoke, and public programs like Medicare and Medicaid paid for most of these costs.

In an attempt to estimate the global economic costs of the tobacco epidemic, a recent study from the World Health Organisation (WHO) and American Cancer Society used data from 152 countries representing 97% of the world’s smokers in Africa, the Americas, the Eastern Mediterranean, Europe, South- east Asia and the Western Pacific. The study found that smoking cost the world economy more than US$1.4 trillion in 2012, and sucked up a twentieth of healthcare spending, with almost 40 per cent of the burden falling on developing countries.

  1. Tobacco production damages the environment

An issue which is currently under recognised is the tobacco industry’s impact on the environment. In 2011, around 4.2 million hectares of land were devoted to tobacco growing, representing roughly 1% of the total arable land globally. At least 200,000 hectares are still being devoted tobacco agriculture annually. Deforestation for tobacco growing has many serious environmental consequences, including water pollution, loss of biodiversity, and increases in CO2. Chemicals such as pesticides are used in the growth of tobacco, which may affect drinking water sources, and deplete soil nutrients.

The manufacturing process produces millions of tonnes of solid waste annually, much of it non-recyclable. Post-consumption, cigarette butts are the most commonly discarded piece of waste globally, and cigarette packaging amounts to about 1.8 million tonnes of packaging waste annually.

The harmful impact of the tobacco industry in terms of deforestation, climate change, and the waste it produces is vast and growing. In a world facing a crisis to control climate change and environmental degradation, we at Matter believe we have a responsibility to divest from tobacco companies that contribute to worsening the situation.

  1. Tobacco companies accept child labour

Many of the world’s most popular brands of cigarettes may contain tobacco produced by child workers. Over the last five years, the organisation Human Rights Watch have investigated labour conditions and human rights problems in some of the largest tobacco producing nations on earth. No tobacco company they worked with prohibits children from all working with direct contact with tobacco. Many children spoken to in the study complained of symptoms associated with nicotine poisoning or over-exposure.

Their results, along with researchers and NGOs suggest that hazardous child labour, labour rights abuses, and other serious human rights problems persist throughout tobacco companies’ global supply chains.

So why do pension companies still invest in tobacco companies?

Given all we know about the negative impact of tobacco across a wide range of areas, you would expect they would have already divested? Although some big names have indeed divested, for the majority, unfortunately, this is not yet the case.

Pension companies argue that they have a fiduciary duty to act in their clients’ best interests and that, in the past, tobacco shares have performed well, and that divesting from tobacco shares entirely would seriously hurt returns. It is indeed true that over the last 15 years, the tobacco industry has been one of the strongest performing industries, but this is unlikely to repeat, as growing national and international pressure is likely to put increasing regulatory pressure on tobacco companies.

There is also an argument that says actively engaging with tobacco companies in an attempt to improve their practices is a better method than divestment. This is called "Active Ownership" (read more about it in our blog post here) Engaging with companies in order to change their behaviour can be a powerful tool in other industries, but it does not work with tobacco. Attempts to engage are largely futile because meaningful progress could only be made if tobacco companies cease or change their primary product offering, which they are unlikely to do.

Exclusion of tobacco is the most impactful tool

In reality, divestment is the most powerful way in which pension companies and investors can make a difference. We recognise that the divestment movement against the tobacco industry is yet to have a material financial impact on it. Nonetheless, there is an imperceptible but crucially important power in play when we divest. The widespread narrative against tobacco in public and governmental arenas did not happen overnight. It was the product of shining a light on the enormous and wide-ranging negative impact of the tobacco industry. By divesting, a similar thing is happening. Every time an investor publicly divests for any of the reasons outlined above, the public and political narrative against the tobacco industry grows an imperceptible, but cumulatively important step forward.

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