Nest, the UK’s largest master trust pension, has confirmed it will disinvest from all tobacco stocks over the next two years.
It currently has a £40m exposure to this industry through its multi-billion workplace pension scheme. The provider said it thinks the sector will not be able to deliver sufficient returns for its 8m members in future.
The more negative outlook is due to a number of factors, including stricter regulations against tobacco products, increasingly aggressive legal action by governments against the industry, and falling smoking rates across the globe.
Nest’s chief investment officer says: “This announcement won’t come as a surprise to some. We’ve been highlighting our specific concerns around tobacco investments and its performance for a couple of years now.
“Tobacco companies are facing legal challenges across the world from governments taking action against an industry causing serious harm to their citizens.
“The harsher regulatory environment stops tobacco companies from attracting new customers and increasing their market share of existing smokers. In our opinion, tobacco is a struggling industry which is being regulated out of existence.
“We have not taken this decision lightly but we don’t think it makes sense to continue investing in an industry whose business model looks increasingly unsustainable.”
The decision to go tobacco-free is supported by Nest’s fund managers who have agreed to make the necessary changes across Nest’s portfolio.
Amundi’s co-head of emerging market fixed income Sergei Strigo says: “We do not see attractive risk reward of the tobacco sector in the emerging market bond universe and the market share is fairly modest in the emerging market debt space. Nest’s decision to go tobacco-free is consistent with Amundi’s ESG view to cap tobacco companies in our lowest two ratings before exclusion.”
Nest already has a tobacco-free policy applied to its ESG Emerging Markets fund and Commodities fund. This announcement will extend the screening out of tobacco across all of Nest’s Retirement Date Funds and other fund choices.