Archive for February, 2013

Putin signs law to curb smoking, tobacco sales in Russia | Reuters

Putin signs law to curb smoking, tobacco sales in Russia | Reuters.

Tobacco control is accelerating around the world as governments everywhere realise the huge costs to their societies from smoking.  Russia is the latest state to bring in much tougher laws to restrict smoking.  This is the second largest tobacco market in the world.  The good times are coming to an end for the international tobacco companies.  At what point will local authority pension funds realise that divestment soon is a sound policy as the markets for this deadly product become ever tighter?

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Shares in tobacco firms vulnerable if UK local authorities pull millions of pounds in investment | Mail Online

Shares in tobacco firms vulnerable if UK local authorities pull millions of pounds in investment | Mail Online.

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The Dark Arts of Big Tobacco

Local Government pension funds typically have policies that advocate engagement with the companies in which they invest in order to address any perceived shortcoming in corporate behaviour.  Often this involves consideration of their corporate social responsibility activities.

A fascinating and worrying piece of research (open access) from the USA has just been published which shows how Big Tobacco has been instrumental in the creation of Tea Party politics in that country. The paper demonstrates how tobacco companies used third party organisations and front groups to seek to undermine tobacco control efforts, while remaining hidden in the shadows themselves.

You can read the full paper here:

They are still using these tactics in the US, UK and Europe.

The Framework Convention on Tobacco Control guidelines require that UK local government pension funds do not engage with tobacco companies Corporate Social Responsibility activities:

“The tobacco industry conducts activities described as socially responsible to
distance its image from the lethal nature of the product it produces and sells
or to interfere with the setting and implementation of public health policies.
Activities that are described as “socially responsible” by the tobacco industry,
aiming at the promotion of tobacco consumption, is a marketing as well as
a public relations strategy that falls within the Convention’s definition of
advertising, promotion and sponsorship.
The corporate social responsibility of the tobacco industry is, according to
WHO, an inherent contradiction, as industry’s core functions are in conflict
with the goals of public health policies with respect to tobacco control.”


Perhaps this new paper will give pause for thought to pension fund managers and indeed local authorities more generally who are engaged with tobacco company CSR activities.



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The Framework Convention Alliance – Building on BRICS’ commitment to strengthen FCTC implementation

The Framework Convention Alliance – Building on BRICS’ commitment to strengthen FCTC implementation.

In January the BRICS countries (Brazil, Russia, INDIA, China and South Africa) met to discuss emerging health threats, chief among these being non-communicable diseases such as cancer and chronic lung disease.  In doing so they recognised that smoking is a key driver of these diseases, and recommitted themselves to implementing the Framework Convention on Tobacco Control (FCTC).  What might this mean for pension fund managers?  These countries comprise 3 billion people, some 40% of the world population, so what they do counts.

In Europe and Australasia, the tobacco markets are rapidly becoming ‘dark’, meaning the ability of tobacco companies to market their products is disappearing step by step.  These regions have led the world in the last two decades in implementing effective tobacco control.  Just this week New Zealand announced cross-party support to introduce standardised packaging, following the lead of Australia.

During this same period the tobacco companies have expanded into other markets by buying up local companies and using aggressive marketing techniques, long since banned in Europe, as part of free market globalisation.  They continue to see emerging markets as their future.

The FCTC and the renewed BRICS commitment offer hope that developing countries will be able to speed through the tobacco transition.  In the UK it took 50 years from the discovery that smoking causes lung cancer in the 1950’s until Government really clamped down hard on tobacco company activities.  With tobacco control knowledge transfer via the world wide web and the World Health Organisation, and the force of the FCTC, developing countries can suffocate the tobacco companies much more quickly than was the case in the West.

That can only put pressure on the share prices and dividends of the companies.  Imperial is already under pressure due in large part to a high level of exposure to the declining European market.  Philip Morris and BAT have much higher exposure in the rest of the world, with PMI particularly vulnerable to plain packaging laws, due to its premium brands.

Of course the BRICS  will need to protect policy from the pernicious influence of the tobacco companies, which is still all too prevalent in much of the  world.  But if the BRICS countries can achieve the sort of tobacco control policy successes seen in California, the UK and Australia in the next few years, many other countries will surely follow suit.

In doing so, they will prevent British, American and Japanese tobacco companies inducing ever more cancer, lung and cardiovascular disease in their populations.  And give fund managers a lot more to think about!



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Council pension fund invested in tobacco group | This is Scunthorpe

Council pension fund invested in tobacco group | This is Scunthorpe.

East Yorkshire fund urged to divest by Council leader of North Lincolnshire.

The council is quoted as saying the pension fund and the council are separate entities.  I have noticed this line from a few councils lately.  They also say they have to invest the fund in the best interests of the schemes beneficiaries.

What if the beneficiaries don’t want to be invested in tobacco?  Why don’t they ask the pension fund members whether they are happy investing in companies that sell products that kill 1175 East Riding people a year and cost the local economy vastly more than the income the council receives from tobacco stocks?

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Judicial review a real risk for LA pension funds?

At a conference last week I was asked if local authorities that maintain their pension fund investments are at risk of judicial review.  My immediate response was to turn the question around, and suggest that local authorities choosing to divest from tobacco would face little risk of judicial review if they have considered all the relevant laws and facts that apply, and formed a reasonable view that tobacco investments are not compatible with their new public health duties.

However, I want to return to that question, because on reflection they clearly are at risk and here’s why.  Many local authority pension committees have considered whether they should divest, with only two concluding that they should. This contrasts with pension funds in many other parts of the world which have similar common law on fiduciary duty, but which have successfully divested, often on the back of very considered and detailed reports exploring the full range of issues

Every English report I have seen has failed completely to:

1) seek the views of the Directors of Public Health for the area;

2) provide any consideration whatsoever of the Framework Convention on Tobacco Control (FCTC); and

3) provide any legal advice on the relative status of the FCTC versus pension law.

In short, therefore, the committees have not been provided with  comprehensive reports detailing all the factors they should take into account in reaching a decision.  To my mind the failure to consider the FCTC is of particular note and concern.  This Treaty is binding on local government, and the Guidelines to the Parties on compliance state explicitly that the Parties should not invest in tobacco companies.  Those guidelines apply to councils and all who serve them, whether councillors, officers or outside advisers.

When the courts consider an application for judicial review they have to decide whether the decision made by the local authority is not only unreasonable, but so unreasonable that no reasonable body could have reached that decision.  I submit that committees taking a decision on this issue that have not received advice on the implications of the FCTC, and arguably the views of the Directors of Public Health, are leaving themselves wide open to judicial review.

It appears that committees at the moment are largely holding to the view that they have to maximise returns and therefore stay invested in tobacco.  They appear to fear legal challenge if they depart from that line.  It appears to me that whatever they decide, if they do not receive briefings on all relevant matters, then they are at risk.

Kicking the habit: why more income managers are falling out of love with tobacco giants – Citywire

Kicking the habit: why more income managers are falling out of love with tobacco giants – Citywire.

This is a really good analysis piece focusing on Imperial Tobacco and BAT in particular, and suggesting strongly that the tobacco sector is now “over valued and over owned” by income fund managers.

The FTSE 100 has been surging ahead but Imperial has been left behind.

Time for public sector pension fund managers to get out?


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