Undoing the dark realities of tobacco

Tobacco is one of the greatest threats to human life we have ever faced, yet it’s been normalised and accepted for hundreds of years. The financial services industry has the chance to step up, and join a fight that is showing real results.

Tobacco control measures around the world are having an impact. WHO data shows that in 2000, around a third of the global population aged 15 years and older were users of some form of tobacco products. By 2015, this rate had declined to about a quarter.

If tobacco control measures are maintained, the rate of tobacco users should decline to about a fifth of the global population by 2025⁹.

But the headline numbers mask some tragic detail.

One of the most concerning public health implications of tobacco is its effect on the poorest communities in the world.

Tobacco use is growing fastest in low income countries as population growth combines with tobacco industry marketing¹⁰. Some 80% of the world’s smokers live in low- and middle-income countries, with usage concentrated in the poorest communities.

Poorer smokers spend more of their income on tobacco than wealthier smokers and suffer most from tobacco-related illness¹¹.

Health systems facing unprecedented pressure due to the COVID-19 pandemic are also suffering as countries continue to fight diseases caused and worsened by smoking.

The World Bank estimates the total economic damage of smoking – medical costs and productivity losses from death and disability – at more than US$1.4 trillion per year, or 1.8% of global GDP¹².

Child labour is also a problem in the tobacco industry. The International Labour Organisation believes that child labour in tobacco production in some poorer countries “is rampant”.

Research conducted in Malawi revealed that 57% of all children in two tobacco producing districts were involved in child labour and among tobacco growing families, 63% of children were engaged in child labour¹³.

The environment is also a victim of the tobacco industry. Cigarette filters are made of a type of plastic and of the 18 billion bought per day, only a third make it into the waste management system. The rest are tossed. Cigarette butts are among the world’s most discarded plastic items, polluting oceans worldwide¹⁴.

We found the unique characteristics and health implications associated with tobacco products no longer met our minimum standards for investment under our Ethical Framework, leading to our divestment of A$440million in tobacco-related securities from our managed portfolios.”

– Adam Kirkman, head of ESG, AMP Capital

Dr King’s Tobacco-Free Finance Pledge goes beyond traditional investment tools like the integration of environment, social and governance (ESG) factors, company engagement and impact investing.

Signatories to the Pledge acknowledge the view that tobacco cannot be handled under regular ESG principles for three reasons.

Firstly, there is no safe level of tobacco consumption15. Second, tobacco is the subject of a UN treaty – The Framework Convention on Tobacco Control (FCTC) – that is legally binding on the 181 countries that are Parties to the Treaty to implement tobacco control measures.

Finally, engagement with the tobacco industry is futile, partly because success would mean the industry stopping the operation of its primary business model.

The Pledge, launched at UN Headquarters in New York in September 2018 is working.

Tobacco shares were once one of the world’s best performing sectors, with the MSCI World Tobacco Index returning 1,437% from the end of 1999 through 2015, according to data from Bloomberg¹⁶. But in the three years to June 2020, the index has declined 13.25% per year¹⁷.

Alongside tougher regulation and higher taxes, industry watchers put down the poor investment returns to increasing regulation, litigation and divestments by the global pension funds, banks and insurers that support the tobacco-free finance movement¹⁸.

From AMP Capital’s perspective, the move to tobacco-free portfolios has made good financial sense given those returns, but it was not originally about investment performance. Rather, AMP Capital took the view that ethical issues including ‘degrees of harm’ and type of engagement it undertakes with other industries is not capable of resolving the unique and inherent dangers associated with tobacco products.

Footnotes:

¹ https://twitter.com/TFP_TobaccoFree/status/1265886699608928256
² https://bmcmedicine.biomedcentral.com/track/pdf/10.1186/s12916-015-0281-z
^{3,4, 6,7} https://www.who.int/news-room/fact-sheets/detail/tobacco
⁵ https://apps.who.int/iris/bitstream/handle/10665/43818/9789241596282_eng.pdf?sequence=1
⁸ https://www.ampcapital.com/au/en/capabilities/responsible-investment/ethical-framework
⁹ https://www.who.int/publications/i/item/who-global-report-on-trends-in-prevalence-of-tobacco-use-2000-2025-third-edition
¹⁰ https://www.who.int/tobacco/mpower/mpower_report_tobacco_crisis_2008.pdf
^11,12 https://www.worldbank.org/en/topic/tobacco
¹³ https://www.ilo.org/wcmsp5/groups/public/---ed_norm/---relconf/documents/meetingdocument/wcms_545944.pdf
¹⁴ https://www.nationalgeographic.com/environment/2019/08/cigarettes-story-of-plastic/
¹⁵ https://www.bbc.com/news/health-31600118
^16,18 https://www.bloomberg.com/news/articles/2019-03-13/tobacco-stocks-lose-world-beating-status-as-pension-funds-exit
¹⁷ https://www.msci.com/documents/10199/60e06c7e-e189-4193-b7d4-fcee21c3c2fa