More than £1.7bn has been directly invested in tobacco company stocks by healthcare providers, fire authorities and schools via UK council pension funds, the Guardian can reveal.
Council retirement schemes in the UK are major investors in firms including British American Tobacco, Imperial Brands and Philip Morris, according to data compiled from more than 100 freedom of information requests.
Several councils said that their pension trustees could not dispose of their tobacco stocks because of a legal obligation to maximise retirement income. However, anti-smoking campaigners said this argument “no longer has any credibility”.
Government guidelines say trustees can take ethical, social or environmental concerns into account, as long as the fund’s finances do not suffer. And several investment professionals contested the idea that selling tobacco stocks would crimp returns, pointing to the long-term risks threatening the industry.
The schemes, which manage £211bn between them, have £1.7bn of direct tobacco investments, as well as a further £1.1bn via pooled investments, where money is grouped with other clients’ cash as part of larger funds managed.
Council pension fund trustees have no control over pooled funds, a common type of investment that makes up around 40% of the UK’s £3.5tn in institutional assets.
The council pension funds received dividend income of around £63m, according to FOI requests, although in practice the figure is likely to be higher because some councils provided incomplete information.
West Yorkshire Pension Fund is the largest direct investor in tobacco, with £284m held in major purveyors of cigarettes, including £180m in British American Tobacco. It did not disclose its passive investments in the industry.
Public Health England’s figures showed that the region’s biggest cities, Bradford and Leeds, have above-average levels of smoking-related mortality, estimated respectively at 350 and 332 deaths per 100,000 of the population over 35 in 2014-16. The average rate for England is 272.
West Yorkshire Pension Fund manages the retirement money of staff working for dozens of schools, the West Yorkshire fire authority and local leisure organisations.
Lothian Pension Fund is the second biggest tobacco investor with £110m of holdings. Its rate of smoking-related deaths is even higher, at 392 per 100,000 of the population.
Liverpool has one of the highest levels of smoking-attributable deaths, with 442 per 100,000 population. But the Merseyside Pension Fund remains an avid tobacco investor, with £64m of holdings in the industry, the eighth most out of more than 100 pension funds surveyed.
Employers in its scheme – and that of the East Riding of Yorkshire, which has £69m in tobacco securities – include City Healthcare Partnership. The organisation provides cancer screening, end-of-life care for cancer sufferers and stopping smoking services. A spokesperson explained that only a few of its staff are in these schemes because they were recruited from the council and kept their council-administered pensions.
Nottinghamshire pension fund has £95m of direct investments in tobacco and its scheme members include Nottinghamshire Fire Safety, which is owned by the local fire authority.
Smoking was the cause of more than a third of house fire fatalities in 2016/17, according to figures from the Home Office.
Hampshire, which has £77m of direct holdings, said it was legally bound “to invest fund monies to achieve the best possible financial return, and does not restrict investment managers from choosing certain stocks”.
Nottinghamshire council said it preferred a “strategy of engagement” with companies on matters of environmental, social and governance issues.
But experts questioned whether it was even possible to engage with tobacco companies on smoking-related harm, while analysis suggested funds can still perform well without tobacco investments.
The MSCI World Tobacco Index, which tracks the industry’s investment returns compared with other industries, showed that global stocks have matched or outperformed tobacco in four of the past six years.
A separate study by financial data analysis firm FTSE Russell showed that over the past 10 years returns from a portfolio tracking the FTSE Developed Index would have been very little different if it had excluded tobacco stocks.
Several local authority funds, including the Greater Manchester Pension Fund, the UK’s largest local authority scheme, which manages more than £20bn of assets, have already taken the decision to exit tobacco for ethical and social reasons, as have some of the world’s largest fund managers.
Helena Viñes Fiestas, the head of sustainability at BNP Paribas Asset Management, which has moved to disinvest in tobacco investment, said there was no conflict between ethics and financial returns given a recent downturn in tobacco firms’ fortunes.
“We believe this industry is at a crossroads and where it provided reliable returns, now uncertainty has come in,” she said. “There are other companies within the consumer staples [sector] that are performing really well that you can replace tobacco with.”
Tobacco firms count on emerging economies for much of their growth as smoking rates decline in wealthier economies. Viñes Fiestas said tobacco’s prospects were limited by tightening regulation in the developing world, partly due to the World Health Organization’s framework convention on tobacco control.
Viñes Fiestas added that there was no point in councils promising to engage with tobacco companies on ethical issues. “The problem is the product itself and there’s no responsible way of using it.”
Fund managers holding $3.8tn of assets last year called for an end to tobacco investment and sold their own holdings.
Deborah Arnott, the chief executive of health charity Action on Smoking and Health, said: “Local authority pension funds usually argue they invest in tobacco because they have a legal duty to get the best deal for their pensioners.
“But this argument, which was always dubious, no longer has any credibility at all, as tobacco stocks are turning into a bad investment financially as well as morally. Local authority pension funds need to follow the lead taken by Greater Manchester, do their sums and get out of tobacco.”
The combined annual cost of smoking-related illness to the NHS is estimated at more than £3bn, while the overall societal cost could be as high as £12.9bn, according to anti-smoking health group ASH.
The Tobacco Manufacturers’ Association said its members paid £9.5bn of excise duty in 2016.
