Stockholm (NordSIP) – Despite the total delisting and exclusion of the tobacco industry from the United Nations Global Compact, mandated in September following recommendations from the World Health Organisation and which trod into effect Sunday (October 15), several large pension funds in Denmark will continue to invest in tobacco shares, the Danish daily Politiken reported Monday. Despite some of these funds having signed the preambles of the UNGC, and the activity of investments in tobacco being in direct contravention of UN Sustainable Development Goal #3 (“Ensure healthy lives and promote wellbeing for all at all ages”) – the Global Compact now equating tobacco investment with arms manufacturing as part of its integrity policy – the argument put forth is that returns on tobacco investments still healthily contribute to Danish pension savings.
In an investigative piece, journalists Helene Navne, Michael Olsen and researcher Christoffer Mejer Nielsen interviewed several of the largest Danish pension funds and found a contradiction between their being signatories to the Global Compact and their interpretation of the perfect legality of such investments, bearing in mind their often limited scope in relative investment terms. PensionDanmark, a UNGC signatory, for instance, had investments in tobacco shares worth almost DKK1bn in the first half of 2017, which still amounted to just 1.1 per cent of PensionDanmark’s combined investments. “The Global Compact exclusions do not make us regard tobacco companies in a fundamentally different way, in the sense that they operate within the legal frameworks of each individual country,” PensionDanmark CEO Jens-Christian Stougaard explained.
ATP and Nordea, who are also Global Compact signatories, walk a similar line: “With give or take 5 million shareholders, ATP cannot avoid making investment decisions some members might oppose or disagree with,” ATP deputy managing director Ole Buhl said (Buhl is also responsible for ATP’s ESG policy). This doesn’t, however, prevent these companies from holding a “critical purview” or exercising active management in the companies they are invested in, he said. They can, for example, sell their shares at short notice if a company “behaves in untoward fashion or refuses to negotiate.”
It is not a black and white issue (of course). Institutional investors can be – and are – just as well involved with investments, sometimes proactive ones, entirely in line with the UNGC and the SDGs, such as PensionDanmark’s and PKA’s combined (together with Lægernes Pension) EUR468mn commitment to the recently launched Africa Infrastructure Fund. Conflicting imperatives in an infinitely complex investment universe are a central factor in sifting through whether a fund does or does not invest in a responsible manner. As communications director Mikkel Friis-Thomsen of PFA Pension, the largest pensions company in Denmark (not to be confused with PKA), explains, PFA was so impressed upon by the UNGC exclusion of the tobacco industry that it is now in the process of reassessing its investments entirely: “We already decided early in 2017 to offer a fund that doesn’t list tobacco,” he told Politiken. “This is an offer to clients who want to decide for themselves how their savings should be invested.”
Still, this risks sounding like business PR gobbledygook. Arguably, as ReDefine Director Sony Kapoor suggests, pension funds remain obsessed with traditional methods in the garb of a supposedly diversified portfolio but still favour old-style guaranteed returns – such as those from the tobacco industry – an approach, he claims, which amounts to a maximisation of risk and minimization of returns, considering the far more sustainable opportunities across global asset classes.
The broader issue is, of course, philosophical. There is no doubt tobacco contributes to death, cancer, ill health, pollution, and a host of other ailments, which is what spurs the ethical drive to legislate against it. On the other hand, the tobacco industry enjoys the legal right to sell its product on the marketplace, and most importantly, the individual enjoys the democratic right to choose whether to consume it or not. Where pension funds invest in tobacco, the part of their argument that it contributes to the returns on pensioners’ savings irrespective of what individuals do is surely a separate one from the broader issue of the evils of tobacco. Conversely, the fact that pension funds, which arguably bear a greater social responsibility than, say, hedge funds, continue to invest in tobacco, can be seen as part of the social legitimation of its negative impact.
According to surveys conducted by Politiken.dk, tobacco investment actually appears to have increased among Danish pension funds – and the value of tobacco shares have risen considerably in recent years, presenting a dilemma giving pause for thought, Politiken writes, among some of the pension funds who are not (yet) signatories to the UN Global Compact. Sampension, the manager of pension schemes for government employees, which recently announced an expansion of its practical commitment to Corporate and Social Responsibility, is actively considering scrapping its tobacco shares, alongside pension funds JØP and DIP, according to Politiken.
“We currently have no plans to de-list investments in such shares, but we are naturally following developments and remaining orientated on the developments in the area in connection with out work on responsible investments, in tandem with considerations as to how far our investments in controversial weaponry should be approached differently,” said Kirstine Lund Christiansen, director of the Danish pension funds’ social responsibility organization.
MP Pension, for its part, has scheduled two shareholder meetings on the issue for March 2018. “It’s a dilemma,” says CEO Jens Munch Holst. “On the one hand, tobacco can cause deadly disease. On the other, it is legal to produce it, and it is completely legal to choose to smoke.”
The dilemma will remain. The question for Danish and Western societies – and investors – is, rather, when the normative threshold will have been crossed to the point where there would be no returns from tobacco investments. And that goes to the very core of democracy – if not sustainability.
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