On the go: Nest is to sell all its tobacco shares, the master trust has announced, as it warned of impending regulatory backlash against the sector.
Tobacco plays a minor role in Nest’s default target date funds, which currently hold 12 stocks valued at £40m and accounting for 0.5 per cent of its investments.
Stricter worldwide regulation against tobacco products, increasingly aggressive legal action by governments against the tobacco industry and falling global smoking rates has led the defined contribution provider to conclude that tobacco is a poor investment for its more than 8 million members.
Explaining the decision, Mark Fawcett, Nest’s chief investment officer, said: “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.”
Nest’s strategy on environmental, social and governance issues to date has leaned towards engagement with companies rather than divestment. The only other sin stocks it excludes from its portfolio are armaments, including land mines, and biological weapons, but not alcohol or fossil fuels stocks.
Diandra Soobiah, Nest’s head of responsible investment, explained: “We are not excluding fossil fuels because we believe a number of these companies can be part of the solution and help the world transition to a low-carbon economy.”
She added: “From a governance perspective, some of these sin stocks tend to score quite well. We believe it is really important that we have a seat at the table and keep on voting and engaging with them.”
Time to ask more questions on ESG
Regulatory developments, together with a general rise in public awareness of issues such as climate change, have helped move environmental, social and governance considerations up pension scheme agendas, but will greenwashing, lack of transparency and poor understanding hinder trustee efforts?
“ESG is absolutely integral to our default fund and is a fundamental part of our decision making process,” she said.
Commenting, Raj Shah, head of DC investment at Hymans Robertson, said: “It’s great to see that Nest has continued to include ESG factors into its DC default fund. This is an issue that all DB and DC pension schemes will have to address this year in some way, as from 1 October they will be required to include details of their ESG policies, particularly in relation to climate change within their statement of investment principles.”
Interested in LGPS? Register now to attend the Pensions Expert Local Government Pension Scheme Forum on 12th September 2019 live.ft.com/LGPS
