by Joanna Luxmore-Brown, Tobacco Control Manager, Sandwell Metropolitan Borough Council and
Dr John Middleton Vice President Faculty of Public Health, director of Public Health Sandwell (pictured below)
As responsibility for the promotion of public health in England returns to local authority control the appropriateness of investment in tobacco companies by Local Government Pension Scheme funds is increasingly being questioned (1) . The issue highlights important implications for world health, arising from an apparently insular matter in one country.
Recently, the British Medical Journal reported that 68 of the 78 local authority pension funds in England had direct investments in the tobacco industry, worth £1.64bn. When investments through pooled funds are taken into account, all 78 are likely to have some money wrapped up in the industry (2).
Health bodies have long called for local authority pension funds to divest themselves of their tobacco companies. English Local Authorities are now responsible for taking the lead in protecting health. It is now the responsibility of the town hall, not just the local hospital, to provide anti-smoking services.
Investing in the tobacco industry is a clear conflict of interest. The UK Faculty of Public Health believes “It is “untenable” for local authorities to be the “champion of improving public health, at the same time as profiting from tobacco.” (3)
English Councils believe that their fiduciary duty, as interpreted from case law, instructs them to obtain the best financial return for their members, regardless of ethics (3). However, the phrase ‘duty to maximise return’ does not appear in any UK statute or case law.
Pension fund trustees have a fiduciary duty to invest “in the best interests of members and beneficiaries.” This is based on the common law duty of loyalty, which exists to ensure that trustees avoid conflicts of interest and do not abuse their position to further their own ends. (4)
A survey by The Times of local councils which administer the pension funds and are responsible for helping to set investment principles for external fund managers, found that some were reviewing their tobacco investments and were taking legal advice (3).
To date, only Newcastle City Council has pledged to end its pension fund’s investment in tobacco firms, arguing such investment is incompatible with the council’s new responsibility for public health.
The English Local Authority Pension Fund Forum, which represents 55 local government pension funds, favours a long-term investment approach that encourages environmental as well as financial returns. It has not previously advised its members on tobacco investments, but has said that it is gathering information on the subject.
Industry figures warn decisions on local government pension scheme investment in tobacco cannot be driven by public policy concern and must be considered in isolation from public policy aims.
Industry analysts have differing opinions regarding tobacco investments. Some consider tobacco stocks a good investment, particularly during difficult economic times. Shares in British American Tobacco have risen by 433 per cent over the past decade. Imperial Tobacco has enjoyed a 188 per cent rise in its shares over the same period. In comparison, the FTSE 100 has risen by 70 per cent.
Cigarette sales are being maintained through a buoyant Far Eastern market (5). The profitability of cigarette sales in growing markets is higher to the company and the efficiency of production means that the net costs of cigarette production continues to fall. Cigarette production has fallen in Western Europe and been replaced by Eastern European and Far Eastern production (6).
As a share investment therefore, Big Tobacco continues to look favourable in the short term. Other fund managers recognise that smoking could disappear entirely with tougher regulations, higher taxes sales and falling sales, and therefore question whether tobacco is a prudent long term investment.
The United Kingdom is a signatory of the World Health Organisation Framework Convention on Tobacco Control (WHOFCTC) (7). This was developed in response to the globalisation of the tobacco epidemic and is an evidence-based treaty that reaffirms the right of all people to the highest standard of health.
The Convention represents a milestone for the promotion of public health and provides new legal dimensions for international health cooperation.
The right to the highest standard of living will not be achieved if pension funds continue to take the blood money of tobacco investment and their members don’t live to see the benefit.
The interpretation of the Pension fund trustees’ fiduciary duty to invest “in the best interests of members and beneficiaries” is a key one. If pension funds seek to maximise income through tobacco investment, they are promoting a strong tobacco industry. Pension fund members are council workers, many of whom will be smokers; and many will not live to see their pensions. So promoting a strong tobacco industry can hardly be seen to be in the best interests of English pension fund members.
On a global scale, pension fund and other investments in tobacco by the developed world present a perverse form of neo-colonialism – the growing export of addiction, disease and death to developing world markets with little tobacco control, profiting the wealthy, punishing the poor individuals and countries that can ill afford it. International disinvestment in tobacco companies is needed as part of the overall international fight to eliminate tobacco-related disease and death.
(2) Gornall, J (2013). Public health staff will have pensions invested in tobacco under transfer to local government schemes. BMJ 2013; 346:f680
(5) Ralph A: (£) Asian sales keep the fires burning under British American Tobacco.
(6) World Tobacco atlas. Who is getting the money spent on cigarettes?