UK’s NEST Pension to Quit Smoking

The UK’s National Employment Savings Trust (NEST) is going to cut smoking from its investment portfolio, the £6 billion ($6.7 billion) institution said Thursday, continuing a recurring industry trend as financial institutions look to cold-turkey the space.

“This announcement won’t come as a surprise to some,” said Mark Fawcett, chief investment officer of the defined contribution multiemployer plan, noting it has been raising issues with tobacco investments and the sector’s performance for “a couple of years.”

Fawcett also said tobacco companies are facing regulatory challenges from governments fed up with smoking, which makes it harder for growth in the area.

“In our opinion, tobacco is a struggling industry, which is being regulated out of existence,” he said, adding that it makes no sense to keep investing in the product when its business model looks “increasingly unsustainable.”

NEST, which plans to gradually dump all $45 million of its related holdings over the next two years, already has a tobacco-free policy applied to its environmental, social, and governance (ESG) emerging markets and commodities funds.

The organization’s actions follow that of various other pension funds, such as Swedish organizations AP1, AP2, and AP4; and the California Public Employees Retirement System.

Governments have also been cracking down on tobacco for years.

In 2005, the World Health Organization created the Framework Convention on Tobacco treaty, where signatories that include the UK agreed to cut worldwide tobacco demand.

Marketing, advertising, and selling of tobacco products have also seen increased tightening in developed markets.

New York, which is one of six states that carry a 21-year-old age limit for purchasing tobacco products, banned pharmacies and businesses that contain them from selling the items. The UK has also banned tobacco sales and marketing, and now bans even displaying the products anywhere.

Tobacco laws are also getting tougher for emerging markets, as India’s government has threatened these companies with penalties and Brazil recently banned all flavor additives to cigarettes and their ilk.

NEST’s managers are also on board with the decision. Sergei Strigo, Amundi Asset Management’s co-head of emerging markets fixed income, said the fund does not see any attractive risk reward in the tobacco sector.

“NEST’s decision to go tobacco-free is consistent with Amundi’s ESG view to cap tobacco companies in our lowest two ratings before exclusion,” Strigo said.

Amundi has managed the pension plan’s emerging market debt investments since 2016.

Tags: Divestment, ESG, Mark Fawcett, NEST, Pension, Tobacco