UK Scheme Battles Criticism for £24M Tobacco Investment

(August 24, 2011) — Kent County Council has encountered criticism from campaign groups for investing £24 million of its pension fund portfolio in tobacco companies.

The scheme invests about £13.5 million in the Altria Group; £3.5 million in Imperial Tobacco; and £3.4 million in Japan Tobacco. Its total tobacco investment equals about 1% of its equity investments.

Critics have asserted that the council should avoid such companies. FairPensions, for example, a UK-based advocacy group that recently published a report on investors’ legal duties, has questioned the argument that pension funds have an obligation to maximize profit at any cost. “Kent County Council’s position reflects a common misinterpretation of investors’ legal duties. It is all too easy to dismiss ethical concerns by invoking a presumed duty to maximise profit. In fact, this duty is often over-played: pension funds are legally bound to defend their members’ interests but this does not equate to a duty to pursue profit at any cost,” said Christine Berry, the author of the report.

Additionally, the advocacy group emphasized the need for funds to avoid knee-jerk responses to concerns over the impact of their investments. “There is often an assumption that excluding any investments will be bad for returns. In fact, many funds have successfully implemented exclusions on the basis that this had no significant impact on returns. We would hope that Kent County Council’s response is based on an informed analysis of the potential financial impact of responding to the concerns raised,” added Berry.

The roughly £3.2 billion Kent Superannuation Fund has more than 20,000 pensioners and 26,000 active members including KCC staff, teachers and other local government workers.

Kent County Council is not alone in encountering criticism for supporting investment in tobacco. In July, doctors began pushing local government pension funds to leave their investments in tobacco companies, naming the investment as an “unethical” practice and a “destructive industry.”

“If it were my pension contributions being invested in an industry whose only product line killed people in the numbers that die from tobacco, I would be absolutely horrified,” NHS regional director of public health for the South-West Dr Gabriel Scally told The Observer newspaper. “As a doctor I think it would be completely unethical to have any part in it.”

According to the Guardian, Cornwall council has the highest amount invested, with £24.5 million in Imperial Tobacco, Altria Group and British American Tobacco. Devon County council has £20.8 million, while Gloucestershire holds £16.8 million and Dorset has £14.7 million.

About £1 billion in such investments are present in councils across England.

In January, Norway blocked 17 tobacco companies from its sovereign wealth fund, Europe’s biggest equity investor. The fund blacklisted Philip Morris, British American Tobacco, Imperial Tobacco, Altria, Reynolds American and Japan Tobacco, among other tobacco companies, after the Norwegian finance ministry ruled that the firms violated the fund’s ethical guidelines.

While not all funds agree with this, tobacco divestment is part of a larger push by institutional investors and those who advise them to realign portfolios along more ethical – and some say efficient — lines.