We’ve been talking a lot about sustainable investing here in the last few weeks – see my columns here and here. We’ve been asking exactly what sustainable means in the context of investment.
Our conclusion is that it is an investment that comes with a business model and a corporate governance policy that will allow it to continue to grow and create dividends for as long as you want to be invested in it – so say five to ten years.
On that basis, we aren’t keen on investing in tobacco firms. That’s a stance that looks more reasonable every day. Last week, Ed Miliband announced that, if had his way, a new punitive tax on tobacco profits would be introduced; this week comes news that France intends put in place policies that, says John Lichfield in the Independent, should “abolish cigarettes over the next four decades”.*
A media campaign warning that tobacco kills one in two smokers is already underway; there is to be a new levy on tobacco companies to fund the campaign message; cigarette packets are going to feature nasty pictures of diseased organs; brand names on packets are to be replaced with large-type health warnings; and those wanting to smoke in their car will be forbidden from doing so in front of children aged 12 and under.
“We can no longer accept the fact that the number of deaths caused by tobacco in France is the equivalent of an airliner crashing each day with 200 people on board.” That seems a enough reason for the policy to us, but it also gives a pretty clear demonstration of why we don’t want to hold tobacco companies in our retirement portfolios.
There is a view that dividend-seeking investors don’t have to worry about the potential collapse in cigarette profits in the West. That’s because fast rising sales in the emerging world will pick up the slack: who cares about a few tens of millions of French people giving up smoking if a couple of hundred million Asians and Africans are taking up smoking?
We aren’t convinced. The emerging world has had plenty of time to watch our tobacco related and very expensive healthcare crisis emerging. Why would they wait as long as we have to try and regulate it away? Various cities in China have already put in place pretty clear legislation preventing cigarette sales near schools and preventing smoking in shared workplaces. And in India, while it isn’t yet taken very seriously, smoking has long been banned in public places and some work places.
Look at it like that, and it is hard to see how tobacco works as a genuinely sustainable investment.
*This would be pretty impressive, given that around 30% of adults now smoke and as recently as the late 1960s some two thirds of French men smoked.