The tobacco sector is seeing the support of institutional investors quickly ebb as more pension and insurance funds disinvest from companies who make a large part of their income from tobacco products. Scottish Widows, the emblematic British pension and investments company owned by Lloyds Banking Group is the latest after announcing it is to sell off shares and bonds its funds hold in tobacco firms worth around £1 billion.
The majority of the disinvestment process is expected to take place over the next three months and will affect around half its total investments, which hold shares and bonds issued by tobacco companies. The current holdings are held through both passive index trackers and active funds.
The investment manager’s new rules state that it will not hold investments in firms that generate over 10% of sales from tobacco. The threshold is designed to not exclude companies such as supermarkets and other retailers that sell relatively small volumes of tobacco products.
Scottish Widows will also no longer invest in companies which generate more than 5% of revenues from thermal coal or tar sands. The previous threshold had been set at 10%. That will see another £500 million of investments sold off, taking the total to £1.5 billion and affecting the investments of over a million of the investment company’s customers.
Maria Nazarova-Doyle, head of pension investments at Scottish Widows, says that the company is now part of a group of global investment portfolios worth $12 trillion that filter out tobacco investment. She said the decision was based on the belief it was imperative the investments manager divests from “practices that threaten the long-term health of people and our planet”.
The trickiest element to the divestment is how Scottish Widows continues to use passive index trackers in its funds. Trackers are designed to mimic the performance of a particular index, like the FTSE 100, by buying shares in all of its constituents at the same weighting as they have in the index.
However, the company has worked with the indices provider FTSE Russell to create a new index that filters out companies that no longer meet the requirements of its new investment ethos. The new index will be reflected by around £20 billion of passive investments BlackRock manages on behalf of Scottish Widows.
Other major insurance, pension and general investment fund providers including ING, Société Générale, BNP Paribas and Axa have already taken the same step Scottish Widows is now. All those mentioned are signatories to the “Tobacco-Free Finance Pledge” initiative led by the pressure group Tobacco Free Portfolios and supported by the UN. Nest, the UK’s largest workplace pensions provider, also doesn’t invest in tobacco companies.
