Over a month ago Pension Funds Insider reported that various UK local government schemes invest in the tobacco industry. This week the BBC has added yet another scheme to the list. Are the schemes set to face a backlash for their unethical investments?

A recent article in The Guardian, and the accompanying angry comments of the British public that came with it, make it clear that there is a rising demand to hold to account those who invest the UK's public money in an industry whose companies have been branded as traders in death.

Pension Funds Insider recently revealed that Cornwall, Devon, Gloucestershire, Dorset, Hampshire, Croydon, Wandsworth, Brent, and the Highland scheme all have a financial interest in the tobacco industry and that this was just the tip of the iceberg. The BBC has also reported that Kent county council pension fund has tobacco holdings.

At the same time local governments invest in initiatives which aim to get their residents to stop smoking or deal with the harmful effects of smoking.

According to the BBC Kent county council responded to accusations of unethical practice by arguing that it had a fiduciary obligation to maximise profits. The same reasoning was put to Pension Funds Insider by a number of schemes, amongst which one of them - Croydon - said it had no policy against investing in tobacco because it is not acceptable for local authorities to do so.

Our trustees have am obligation to get the highest returns on our investments so we can not exclude anything that is profitable, a manager of the scheme said at the time.

Malboro-producer the Altria Group, British American Tobacco, Imperial Tobacco, Japan Tobacco, Philip Morris and Reynolds American are all firms which the schemes invest in, despite concerns from various parties such as health workers, council residents and charitable organisations.

Maximising profit an over-played argument?

One organisation, Fairpensions, which promotes responsible investment by pension funds and fund managers, has questioned the argument that schemes have an obligation to maximise profit at any cost.

Christine Berry, author of Protecting Our Best Interests: Rediscovering Fiduciary Duty, a report published by the charity, said: Kent county councils position reflects a common misinterpretation of investors legal duties. It is all too easy to dismiss ethical concerns by invoking a presumed duty to maximise profit. In fact, this duty is often over-played: pension funds are legally bound to defend their members interests but this does not equate to a duty to pursue profit at any cost.

She went on to say that the general interest in getting the best possible pension should not be seen as the only interest at play. In this case, relevant considerations could include members ethical concerns or the cost of smoking to the taxpayer.

To put local government schemes at ease about dropping their investment, FairPensions said that the assumption that excluding a certain investment would be bad for returns was not always true. In fact, it said, many funds have successfully implemented exclusions on the basis that this had no significant impact on returns.

24.08.2011

azeevalkink@wilmington.co.uk