Responsible investment in tobacco?

juni 2017

By: Kanchan Mishra and Margreet Simons 
As tobacco products pose many risks, foremost health-related, responsible investors need to consider the best strategy towards this sector. The life expectancy of a long-term smoker, on average, is about 10 years less than a non-smoker. According to the WHO, half of the people who smoke will die from smoking-related diseases - cancer, respiratory problems or vascular diseases. For the Netherlands, the mortality rate concerns 20,000 people a year. Worldwide, 6 million people die each year due to smoking.

Additionally, the tobacco industry is accused of using deceptive marketing techniques and concealing research on the negative effects of smoking. In a lawsuit against the tobacco sector in the Netherlands, tobacco manufacturers are even accused of criminal acts - attempted murder, manslaughter, grievous bodily harm, and falsification of documents - as they seduce children to start smoking. In internal documents, they refer to them as ‘replacement smokers’ and manipulate product tests carried out by controlling bodies.

Further, there are ESG issues related to the production of tobacco in tobacco growing regions in the Americas, South East Asia, and sub-Saharan Africa. Common abuses in the cultivation of tobacco are human rights violations such as child labour, environmental damage due to the use of pesticides, and deforestation to clear land for cultivation. Even more than other crops, tobacco production leads to soil depletion, which accelerates demand for new farmland.
In addition to ESG considerations, institutional investors run the risk that their investments in the tobacco sector in the long run will be worthless. The risk of such ‘stranded assets' has several causes: lower revenues due to a reduction of the number of smokers, increasing consumer claims because of the harmful effects of smoking, stricter regulations on manufacturing, packaging, advertising and public smoking, and rising taxes. The WHO Framework Convention on Tobacco Control, adopted in 2003 and up till now signed by more than 180 countries including the Netherlands, requires governments to take measures to reduce the number of smokers. In China, the largest consumer of tobacco products, since April 2015 the number of smokers decreased for the first time in 20 years due to increase in taxes. Australia leads the way with negative campaigning towards smoking by terrifying images on packages of the effects of smoking.

Due to the ESG and financial risks, tobacco investments are set to witness increased attention and criticism. In March 2017, the Dutch Association of Investors for Sustainable Development (VBDO) published a study on the policies of Dutch institutional investors with respect to the tobacco industry. The survey showed that 47% of the respondents have already developed policies such as exclusion on the tobacco industry. Insurers are leading, which can be explained by the fact that they face the hazardous effects of smoking on their health insurance costs. International investors who have divested from the tobacco sector are AXA GroupAMP Capital InvestorsGovernment Pension Fund Global of Norway, Swedish pension fund AP4, and many more. In the Netherlands, ACTIAMPGGM (pension fund for health care and social workers), and SPMS (pension fund for medical specialists) are some of the investors who have excluded tobacco stocks from their investment universe.

As the product tobacco itself is highly questionable, an ESG strategy cannot focus on engagement to adjust production conditions - as is the case with many other products. A comprehensive ESG strategy towards the tobacco sector should be focused on divestment and conversion to other business models. Investors, on the one hand could divest from tobacco producers and at the other hand develop programs for engagement with other parts of the tobacco industry value chain such as machinery providers, logistics, and retailers in order to guide them to diversify their offerings to other sectors.    

For more information or research opportunities on this topic, please contact: Kanchan Mishra ( or Margreet Simons (

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