Interactive Investor

Tobacco giant hits out at funds with ESG exclusions

23rd August 2021 12:31

Kyle Caldwell from interactive investor

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Philip Morris International chair says screening out companies or sectors ‘doesn’t resolve the problem’. 

André Calantzopoulos, executive chair of Philip Morris International (NYSE:PM), has criticised ethical and sustainable funds that put exclusions in place.

Calantzopoulos told The Sunday Times that funds screening out companies or sectors based on strict ethical criteria “doesn’t resolve the problem”.

He said: “It’s very easy to say, ‘I exclude’, but excluding doesn’t resolve the problem. I had questions - ‘Why don’t you sell your cigarette business?’ Selling my cigarette business, or selling a coal plant to some other company in China or somewhere else, has not resolved the problem. We’ve just moved the problem.”

Calantzopoulos’ comments come at a time when Philip Morris International is hoping to secure shareholder approval in mid-September to buy inhaler maker Ventura (LSE:VEC), which listed on the FTSE 250 index. 

US-listed Philip Morris International, the maker of Marlboro cigarettes, said its proposed purchase of Ventura is part of “expanding into products beyond tobacco and nicotine”. It added that this is “part of a natural evolution into a broader healthcare and wellness company”.

The firm is aiming to be a predominantly smoke-free company by 2025, with more than half its net revenues coming from smoke-free products. 

Fund managers that have a ‘negative screening approach’ weed out companies operating in a range of ‘sinful’ sectors such as armaments, animal testing, tobacco, alcohol, pornography, fossil fuels, or in countries with controversial human rights records.

Some funds use negative screen in isolation, but others mix ‘positive screening’ with ‘negative screening’. Positive screening is a strategy that seeks to do good by searching out companies that are taking positive action, whether through improving or limiting damage to the environment, engaging with local communities or improving conditions for workers.

Other funds adopt a ‘best-in-class’ approach and won’t rule out unethical sectors. Instead, some funds focus on firms with a better environmental or social track record than others in their peer group.

The Liontrust Sustainable Investment team, for example, focus on finding companies positively exposed to long-term transformative themes, but “limit or completely avoid an investment in companies exposed to activities that cause damage to society and the environment”.  

In the case of tobacco, the funds exclude companies that derive more than 5% of turnover from the manufacture or sale of tobacco products

Peter Michaelis, head of sustainable investment at Liontrust, says: “Tobacco is fundamentally in conflict with the concept of sustainable development because of the health impacts of smoking, the cost of treating individuals, and the effects of passive smoking.”

The Royal London Sustainable fund range completely avoids tobacco firms. Last month, interactive investor interviewed Mike Fox, who manages Royal London Sustainable Leaders. Fox explained the two tests he uses to find sustainable companies that have an edge over their competitors.

He said: “When we judge a company, first of all we look at its products and services. Some good examples are healthcare and technology versus oil and gas. Healthcare and technology, we would say, have products and services that do help environmental and social issues. We would argue that oil and gas, for example, is problematic. So we would tend to choose the more sustainable sectors to invest in.

“Then, as another test, we would also look at their ESG standards, how they are managing their environmental, social and corporate governance issues.” 

Both Liontrust and Royal London have a number of investments on interactive investor’s ACE 40 list of ethical funds, trusts and exchange-traded funds (ETFs): Liontrust UK Ethical, Liontrust Sustainable Future Europe Growth, Liontrust Sustainable Future Corporate Bond, Royal London Sustainable Leaders, Royal London Ethical Bond, Royal London Sustainable Dividend, and Royal London Sustainable World.

To help investors through the ESG maze, we have grouped funds into three categories: avoids, considers and embraces. Click on the links for more information, including the definitions. 

Also check out interactive investor’s ethical hub for the full list of funds, investment trusts and ETFs, sorted by geographical focus and asset type, and badged as having an ethical or sustainable aspect.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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