More than a quarter of adults in the Netherlands smoked in 2012, according to the World Bank. And the country’s pension funds are even more tobacco-friendly.
More than two-thirds (80 per cent) of major Dutch pension funds have investments in the tobacco industry, according to a report by the Dutch Association of Investors for Sustainable Development, which shared responses from 30 of the country’s 50 largest plans. In total, the pension funds represent 800 billion euros in assets under management.
Among all institutional investors — the report included insurers, asset managers and banks, as well as pension funds — 53 per cent don’t have a policy on tobacco. In the insurance sector, only nine per cent of respondents don’t have a policy, which compares to 73 per cent of pension funds.
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Of the remaining eight funds that do have some sort of exclusion policy, six have divested from tobacco. Nine of the 11 surveyed insurers and three of the 17 asset managers have also done so.
The pension fund PFZW, which represents workers in the health-care and social work sectors, divested from tobacco in 2013. In the report, its director, Peter Borgdorff, noted the fund had tried, with no success, to get tobacco companies to improve working conditions on their plantations for years. The fund also had concerns about tobacco’s effects on human health. The report noted the main question Borgdorff asked himself was, “How can we make people sick through our investments while our participants work to cure people?”
Of the 24 pension funds that do invest in tobacco, 10 include the environmental, social and governance performance of companies in their traditional financial analyses. The report noted those investors focus primarily on health risks and human rights violations around plantation workers’ rights. Four of the funds try to influence the behaviour of the companies they’ve invested in. The report noted that isn’t a very common tactic because companies aren’t likely to change their habits, as PFZW found.
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“The examples of engagement that had taken place were focusing on engagement on the development of e-cigarettes and on the question [of] what their health impact would be compared to regular tobacco products,” the report stated. “But institutional investors have more options than solely engaging tobacco companies themselves. Investors can also engage suppliers or sellers of tobacco products. An example is engagement with the goal to reduce the visibility of tobacco products in shops or to reduce the dependency on the tobacco industry. This is, however, not common practice at the moment.”
Just one pension fund said it uses its voting rights to pressure companies to improve environmental or social practices. In that case, its actions were in regard to the election of the board of directors. The plan’s reasons, however, didn’t relate to financial, health or ethical reasons.
The report also noted that, for purely financial reasons, tobacco isn’t as safe a bet as investors might think. While tobacco investments have produced good returns in the past, the number of smokers is declining worldwide, which may cause profits to fall. Lawsuits filed against tobacco companies for concealing the risks of smoking may also increase litigation risks, it pointed out.