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Pension fund trustees hit back at criticism of tobacco investments

EUROPE - Trustees of pension funds could be failing in their duties if they excluded tobacco companies and other ethically questionable stocks from investment portfolios, professional trustees say, despite a report from a campaign group.

The report from campaigning organisations FairPensions and Action on Smoking and Health (ASH) says it is not necessarily true that investors have a legal duty to maximise financial returns through investments such as tobacco.

Christine Berry, policy officer at FairPensions, said: “It’s simply not true that the law requires pension funds to ignore their members’ ethical views.”

“It’s time to move on from this tired old myth: savers who care about where their money is being invested have the right to expect a considered response to their concerns.”

Yet Richard Butcher, managing director at independent trustee company Pitmans Trustees, told IPE: “It is very common to find pension schemes invested in tobacco companies and arms manufacturers.

“That’s because they make up a very significant part of the market, and, if you ignore them, then arguably the trustees would be negligent in their duties.”

Giles Payne, director at professional trustee company HR Trustees, said: “Ethical considerations do come into investment decision making, and all things being equal (…) then it’s totally justified to take the ethical route.

“But if it’s going to be detrimental, and it’s having a negative impact on being able to provide the financial benefit to your members, you would be open to scrutiny.”

Butcher pointed out that the 1995 Pensions Act contains a requirement for pension funds to set out their policy regarding ethical investment, which should form part of their Statement of Investment Principles.

He also mentioned the key court case Cowan v Scargill, which was brought in 1984 by trustees to the mineworkers’ pension scheme appointed by the National Union of Mineworkers.

In this case, the court upheld the employer-nominated trustees’ contention that excluding certain investments was a breach of fiduciary duty.

FairPensions and ASH argue that tobacco investments have come under increasing scrutiny for their ethical and financial shortcomings, and are no longer a financial safe haven.

“Shareholders in tobacco companies may be particularly concerned by the raft of regulations that are set to affect the industry over the next few years,” the groups said.

They said that, with some councils already omitting tobacco from their pension portfolios, pension funds could pull their investments if the move did not significantly damage returns.

The report singled out Camden Council as the council pension fund with the largest proportion of assets invested in tobacco, putting the figure at 3.7%.

Camden Council responded by saying most pension funds invested in tobacco via tracking funds, and that the FTSE 100 comprised 2% tobacco stocks.

Councillor Theo Blackwell, cabinet member for finance at the council, said: “As a council, we do not encourage people to use tobacco and actively carry out work to discourage its use.

“But, like every pension fund across the country, we have a legal responsibility to our members, and, in the case of local government pension funds, council taxpayers to secure the best investment returns available.”

The pension fund’s investments were carried out by experts operating within a framework to maximise returns, he said.

“No doubt,” he added, “some people will see this as a grim investment, but tobacco is a legal product, and, in a time of financial pressure for local authorities, pension funds should not become a further burden on local council taxpayers.”

The report also mentioned West Yorkshire Pension Fund as the council pension fund having the single largest value invested in tobacco stocks at £125m (€149m).

West Yorkshire Pension Fund countered this by saying it had a legal duty to maximise investment returns, and that the tobacco sector had produced very good returns relative to the market in recent years.

Chair of the fund, councillor Ian Greenwood, said: “The fund engages with its investments to encourage companies to be more socially responsible within the sphere of activity.

“When councillors are involved with a pension fund, they act as trustees, and their sole responsibility is to beneficiaries of the fund, and they should not have any political influence.”

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