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Rachel Melsom: How finance is making the world better by doing that which was once shunned – reducing the investible universe

31 Oct 2019

Rachel Melsom is the UK & Europe director at Tobacco Free Portfolios.

What makes an issue a priority on agendas is subject to fads, the influence of others and external forces, sometimes unexpected and sometimes entirely predictable. Attempts to influence the agenda range from the overt, such as protestors with placards, to public stunts, such as a tonne of coal delivered to the front door of a bank, to the illegal in hacking internal email systems to deliver messages to staff. Others take a less confrontational route, writing letters, speaking to local members or advocating patiently for change. Increasingly, change is happening.

One issue that has made a surprising entry as a priority on agendas of the finance sector is that of tobacco-free finance. It has moved from an issue mainly considered by pension funds, to one increasingly implemented by corporate and retail banking, insurance companies and asset management. Public health professionals have celebrated the attention the issue of tobacco, and more specifically financial investment in tobacco, is now receiving across the finance sector globally.

WHOSE PROBLEM IS IT ANYWAY?

Tobacco has long been considered a health problem. Despite this knowledge the facts might still startle: 7 million people will die this year (that is equivalent to 9.5% of the current UK population) and 1 billion people this century, because of tobacco. And it remains costly – to the tune of $1trn (£810.5bn) a year to society.

An ally that has long been missing in global tobacco control is that of the business community, namely the finance sector. Tobacco after all is a business, with a business model based on the privatisation of profits and the externalisation of costs. These companies have thrived through continued financial investment enabling their expansion and influence, moving from established to emerging markets, capturing new customers in an attempt to continue to generate returns, not forgetting that revenue streams require replacement customers for the 7 million deaths.

Even when investors think they are not invested in tobacco they may discover that some ‘sustainable’ screens still include tobacco. A ‘best of sector’ methodology has meant that investment options routinely include tobacco companies irrespective of how the financial product is branded. The global financial system is undoubtedly complex, and untangling the biggest financial players can take time, but as we are seeing, it can be done – with fiduciary duty intact and investment returns still favourable.

A NEW INVESTMENT FRAMEWORK

It is now commonly accepted that positively influencing tobacco companies through the otherwise broadly practiced engagement approach is futile, as the core product is the problem, and the only acceptable outcome of engagement being to cease the primary business.

With the financial impact of increased litigation, regulation, health awareness and decreasing social acceptability, it is clear that tobacco should not be considered a sustainable investment.

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