Nest quits smoking

• Mark Fawcett: “We don’t see any future benefits for our members investing in the tobacco industry.”

The largest UK pension master trust has confirmed it will be going tobacco-free across its investments.

The decision by Nest is based on the expected future performance of the tobacco industry. Key factors such as stricter worldwide regulation against tobacco products, increasingly aggressive legal action by governments against the tobacco industry and falling global smoking rates has led Nest to conclude tobacco is a poor investment for its more than 8 million members.

Nest estimates it will take up to two years to go tobacco-free – the scheme’s exposure to tobacco is worth today approximately £40 million. 

Mark Fawcett, Nest’s CIO, said:
“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.

“We’ve already spoken with our fund managers and the fraction of a percent of tobacco investments we currently have will be gone within two years.”

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. Commenting on the announcement Sergei Strigo, Amundi’s Co-Head of EM fixed income, said:
 
“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.
 
“We have seen a significant interest in investments with an Environment, Social and Governance (ESG) anchor and Nest’s announcement today shows the organisation’s determination to take the lead and set an example in this area.”

Speaking on the announcement, Dean Walker, a Nest member based in Portsmouth, said:

"I like having a pension. It’s reassuring to know my pension is being looked after and someone is helping set me up financially for when I retire. 

“I’m a new dad and I'll certainly be encouraging my daughter not to smoke when she grows up. Everyone knows it’s not good for you and can cause cancers, which I feel very strongly against. 

“I think what Nest are doing is a great idea and I hope more companies follow suit.” 

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.