Is tobacco-free the way to be for your investment portfolio?

It is increasingly possible to match your investments to your ethics and values, given the growth of available research and the spread of investment products that are tailored to various environmental and social screens.

Jason Mitchell, sustainability strategist, Man Group

Avoiding investment from tobacco companies is rapidly becoming one of the more prominent negative screens or divestment areas around the world. One group, Tobacco Free Portfolios, was founded by Melbourne radiation oncologist Dr Bronwyn King, who works at the Peter MacCallum Cancer Centre. She discovered that her superannuation fund was invested in tobacco, a position she found morally incompatible with her job as an oncologist. She successfully lobbied to have her superannuation fund divest from tobacco stocks, and sparked a movement that has grown around the world.

Tobacco Free Portfolios and others who believe that investment funds and superannuation funds should divest from tobacco cite a number of reasons why – the ethical consideration, risk of regulatory change that could see tobacco become less easy to sell in emerging markets, or risk of legal challenge in jurisdictions.

For investment managers, though, it can be a challenge, since some tobacco stocks have historically had strong investment returns. Global fund manager Man Group is one investment manager considering the impacts of divestment from tobacco as part of its broader approach to responsible investing.

The fund manager does not have a blanket policy of divestment from tobacco, but the firm is engaging on the issue. Late last year, Jason Mitchell, sustainability strategist, Man Group, talked with Dr Rachel Melsom, Director of Tobacco Free Portfoliom, for a podcast episode. In the podcast episode she explains why international policy provides a framework to understand the broader socio-economic implications of tobacco and the momentum behind recent investor announcements to go tobacco-free.

“When it comes to tobacco, I’ve been very involved with the PRI for a long time on this topic,” Jason says. “We’re trying to frame the case for tobacco free portfolios around the regulatory risk from a financial investment risk perspective. In the longer term, it’s around branding and write-down of goodwill. What we’re trying to do is to frame it around what tobacco represents in terms of financial markets.”

Jason has chaired the PRI hedge fund advisory committee since 2014, and is joining the PRI Academic Network Advisory Committee.

Man Group does maintain some exclusions on all its products – controversial arms and munitions. For tobacco, the company is led by institutional investors, such as superannuation funds, Jason says. The process that Man Group has undertaken speaks to the extent that alternative assert managers, such as hedge funds, have taken up the mantle of responsible investment.

“It’s incredibly interesting to see that within our firm, where around half the assets are in alternative strategies, we are spending so much time thinking about products and the right structures, which have traditionally been the domain of traditional asset managers,” he said. “We are having the conversations with clients and running education programs with managers, trying to refine the policy framework, and just thoughtfully thinking about these issues.”