BT Financial Group will dump investments in tobacco and “controversial” weapons – including cluster munitions, anti-personnel mines and biological and chemical weapons – from its flagship superannuation products as part of a revised responsible investment position statement.
Released today, the wealth manager’s new statement introduces an “exclusion framework” that prevents its “Lifestage” funds across a number of products from being invested in the shares of companies that contravene international treaties ratified by Australia or severely breach “accepted business standards”.
The move sees BTFG – a division of Westpac Group – join a growing chorus of fund managers to exclude big tobacco from investment mandates, resulting in the divestment of at least $8 billion from the industry globally in the past five years.
California Public Employees' Retirement System (or “CalPERS”) – the USA’s largest pension fund – was one of the first to act, in 2000. Closer to home, AMP Capital this year vowed to offload $440 million of tobacco exposures – Australia’s largest divestment to date. Bank of New Zealand quit tobacco in the same month. These add to more than 30 super funds in Australia to go tobacco-free since first-mover First State Super in 2012, according to Dr Bronwyn King, a radiation oncologist at The Peter MacCallum Cancer Centre.
Dr King – also CEO of Tobacco Free Portfolios, a not-for-profit she founded in 2010 – said tobacco exclusion policies were becoming more common for Australia’s asset managers, noting BTFG’s move meant around 50 per cent of assets managed by Australian super funds would be tobacco-free.
BTFG’s decision makes Westpac Group the first of the big four banks to quit tobacco across both its lending and superannuation investment portfolios, as the bank already had an existing policy since 2007 not to provide finance to tobacco companies. It also marks another step in BTFG’s efforts to manage environmental, social and governance – or ESG – risks and opportunities. Earlier this year, the group integrated sustainability scoring into its wealth platform, BT Panorama, to enable investors to compare a company’s ESG performance.
BTFG’s head of investment specialists, Adrian Trollor, said new exclusions will see some holdings being sold down, although the value was relatively small when compared to total funds under management.
“Notably, our active managers were already underweight compared to the benchmark index in many of the securities captured by the new framework – across both tobacco and controversial weapons stocks,” he said.
Dr King said the global finance sector was starting to see itself as “part of the solution” to curbing the problems caused by tobacco, which has been described by the World Health Organisation as “one of the biggest public health threats the world has ever faced”. In May this year, a group of asset investors responsible for around $3.8 trillion pledging support to “global action against the tobacco epidemic and its significant cost to society and development”.
According to WHO, tobacco use kills more than 7 million people every year, including 15,000 Australians, and costs economies more than US$1.4 trillion through healthcare expenditure and lost productivity.
A rationale for continued investment in tobacco is commonly linked to the "duty" of fund managers to seek the best returns – and tobacco stocks remain lucrative – or simply assessing tobacco companies just like any other company available for investment. A 2015 study estimated the anti-tobacco stance taken by CalPERS had cost it up to $3bn in returns (although, in December 2016, its investment committee voted to retain and, indeed, broaden its tobacco investment restrictions).
Dr King believes the tide is turning, as the risk to long term financial returns grows in step with the rise of regulatory, litigation, supply chain and reputation risks. These risks should accelerate as the 180 signatory countries to the UN-backed WHO Framework Convention on Tobacco Control start to get tougher in enforcing the treaty’s aims, she said.
“We will see several more big tobacco-free announcements before year’s end,” she said. “While financial institutions have a duty to make money, they can make money in a different way.”