At the United Nations last month, 45 Australian funds controlling more than $1.3 trillion of the $2.7 trillion super sector were among 90 founding signatories of the Tobacco-Free Finance Pledge.
Leaders from finance and government, including former prime minister Malcolm Turnbull, attended a launch in New York, supporting a push to stop financing and profiting from tobacco.
Among the Australian super funds was First State Super, which quit tobacco six years ago.
“It all started in a staff cafeteria in Melbourne, when one of our members was meeting with one of our superannuation or retirement representatives,” First State’s chief executive Michael Dwyer told the UN event.
That member was oncologist Bronwyn King, who was horrified to learn part of her retirement nest egg was invested in an industry that contributes to seven million deaths per year.
“As a cancer doctor, I knew only too well the true impact of tobacco on patients and the community and I just couldn’t sit tight once I knew I held shares in tobacco stocks,” Dr King told ABC TV’s The Business.
In the eight years since that initial conversation Dr King has had many more with some of the world’s largest banks, insurers and sovereign wealth funds.
She founded Tobacco-Free Portfolios, which developed the pledge along with financial institutions including AMP Capital, global insurer AXA, BNP Paribas and investment bank Natixis.
“It’s great to have a new ally in the fight against tobacco. There’s more to be done, but I’m really optimistic that the pledge will bring good things,” she said.
Tobacco remains big business
No tobacco manufacturers are listed on the Australian share market but local investors may still be exposed through international shares in their superannuation or personal portfolios.
Increasingly an international pariah, tobacco is still very big business. According to Euromonitor International, the global retail value of the industry is more than $US785 billion.
In Australia, the market is dominated by three multinationals — British American Tobacco, Imperial and Philip Morris.
The Government’s latest National Drug Strategy Household Survey, conducted in 2016, revealed the rate of daily smokers over the age of 14 has fallen to 12.2 per cent.
However, Euromonitor found the retail value of tobacco in Australia is more than $17 billion and rising, as higher prices make up for falling sales volumes.
While strict smoking restrictions have made it harder to light up in Australia, parts of Asia and Africa remain potentially lucrative markets. However, analyst Tim Foulds does not see a bright future for big tobacco.
“In the long term the tobacco industry is in decline. It’s a very challenging environment in many markets around the world,” he said.
Major companies have made some moves into vaping and electronic cigarette products, but those innovations hold regulatory risks of their own.
In the United States, the Food and Drug Administration is cracking down on the marketing of e-cigarettes and in Australia similar products have barely made a dent in the tobacco market.
“Tobacco-infused, or nicotine-infused, vaping products are not available [in Australia] — they’re illegal in Australia,” said Mr Foulds.
‘Tobacco-free’ funds may still hold supermarket shares
The major tobacco retailers in Australia are some of our biggest and most widely-held publicly listed companies.
“In terms of distribution, supermarkets are the leading channel for tobacco in Australia — supermarkets have over 50 per cent of tobacco sales,” said Mr Foulds.
“We think that plain packaging has made an impact on that, because the knowledge and the personal service of a tobacconist is less important.”
Mainstream funds that declare they are tobacco-free are likely to still be exposed on the retail level through shares in Woolworths and Coles-owner Wesfarmers.
One example is AMP Capital, which recently divested $440 million of tobacco securities and helped develop the Tobacco-Free Pledge.
The investment manager told the ABC it will not sign new leases with companies whose main business is to make or sell tobacco products, but that does not include the supermarkets, as tobacco is only a part of their offering.
“We have communicated our policy to major supermarket chains and will continue to discuss their position on tobacco with them,” AMP Capital said.
Investors wanting to completely cut out tobacco exposure will need to take a closer look at their superannuation or other shareholdings.
“It’s about determining what is ethical for each individual,” said financial planner Michelle Brisbane, the chief executive of Ethical Investment Services.
“A retailer may, or does, have other functions in the community, so some clients will be happy with that and comfortable with having that in their portfolio, whereas others will say ‘no, I don’t want to have anything to do with anyone who even sells tobacco.'”
Alongside tobacco, the supermarkets’ exposure to pokies and Wesfarmers’ coal investments have been concerns for many of Ms Brisbane’s clients.
Next month, Wesfarmers shareholders will vote on the spin-off of Coles. In August, the WA conglomerate stuck a deal to sell its last coal assets.
In light of those changes, Ms Brisbane said Wesfarmers may be reconsidered for inclusion in some portfolios.
Some investors choose to withhold their money as a means of ethical investing but others use a shareholding to gain a seat at the table.
“Having shareholder engagement and buying shares in a company you don’t necessarily agree with their activities can be quite a good way to engage at a board level, and raise issues as a shareholder,” said Ms Brisbane.
Dr Bronwyn King agrees that engaging with companies that make up part of the tobacco supply chain, such as retailers or packaging firms, may be effective, but she has a strict policy of not talking with big tobacco.
“Engagement with the tobacco industry is futile because the only acceptable outcome would be that we sit down with the tobacco industry and ask them to cease their primary business.”