The UK’s largest defined contribution (DC) master trust is giving up on the tobacco industry because it does not think it will be viable in the long term.

The National Employment Savings Trust (NEST) today announced it would be excluding tobacco from its entire portfolio, a process that it estimated would take up to two years.

The auto-enrolment provider’s exposure to tobacco was worth around £40m (€45m) today, it said.

In NEST’s view the tobacco sector was a dying industry, facing stricter worldwide regulation, increasingly aggressive legal action by governments, and falling global smoking rates.

“In our opinion, tobacco is a struggling industry which is being regulated out of existence,” said Mark Fawcett, CIO of the £6bn pension fund.

“We have not taken this decision lightly but we don’t think it makes sense to continue investing in an industry whose business model looks increasingly unsustainable.”

NEST has already excluded tobacco from its ESG emerging markets fund and commodities fund, and it said other external fund managers had agreed to support the divestment decision.

Sergei Strigo, co-head of emerging markets fixed income at Amundi, said: “We do not see attractive risk reward of the tobacco sector in the emerging market bond universe and the market share is fairly modest in the emerging market debt space.

“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.”

Amundi has run emerging market debt investments for NEST since 2016.

Other European pension investors have recently announced decisions to divest from tobacco.

Earlier this month Sweden’s AP2 said it was doing so as part of a decision to realign its approach with “the underlying purpose” of international conventions. The World Health Organisation Framework Convention on Tobacco Control targets a sharp reduction in tobacco consumption and the harmful effects of tobacco smoke.

Last month AP2’s compatriot, pension and insurance company Länsförsäkringar, said it had sold all its holdings in tobacco producers, saying they had become an increasingly poor investment choice and had negative social and environmental impacts.

In March Varma became the first Finnish pension provider to sign up to the Tobacco-Free Finance Pledge, an initiative founded by campaign group Tobacco Free Portfolios.