Pension fund ABP addicted to tobacco shares

10 november 2016

Pension fund ABP addicted to tobacco shares

Pension fund ABP is stubbornly holding onto its shares in the tobacco industry. Even though it enjoys the backing of unscrupulous economic analysts, it should not be fixated on financial returns alone, but should instead focus more on the soft returns on its investment for society.

By Frits van Dam and Bas van Lier

Tobacco companies are such stable profit machines that even responsible investors who had moved away from tobacco shares are considering reinvesting in them. Recent profit figures from major tobacco companies show that declining sales and lost court cases have not affected profit margins. Tobacco manufacturers know that higher margins can be masked by increases in excise tax. Since tobacco is addictive, the four major producers that dominate the world market can get away with concealing price increases.

Financial analysts responded with joy, and without any scruples, laughing off the six million deaths caused annually around the world as a result of smoking. So too did institutional investors who are unwilling to relinquish their tobacco shares.

Dutch pension fund ABP, one of the world’s biggest pension funds with 2.8 million participants and invested assets worth a total of 372 billion euros (figure per 30 June 2016), is one such stubborn investor. The fund still has over 1 billion euros invested in the tobacco industry. Despite repeated appeals – even in the Dutch parliament – to dispose of its interest in this immoral industry, ABP has stubbornly clung onto its tobacco shares on account of the profits they generate.

A number of other pension funds have decided differently and disposed of their shares in tobacco. They include the major Dutch pension funds for employees in the care and welfare sector, medical specialists and family doctors. Internationally, more and more pension funds are also renouncing tobacco, in part under the influence of the Australian oncologist Bronwyn King and her foundation Tobacco Free Portfolios.

Extension of the government

ABP is a case apart, however, because it is the pension fund for government employees and those working in education. Although fully independent, it can be considered an extension of the government. After all, ABP is the pension fund for civil servants responsible for drawing up and implementing anti-smoking policy in the Netherlands, and for teachers whose task is to nurture and educate young people.

In a conversation with ABP’s chief executive officer Corien Wortmann earlier this year, the Youth Smoking Prevention Foundation pointed out that investing in tobacco companies means investing in an industry that deliberately makes highly addictive products that kill at least half of its consumers prematurely. In the Netherlands alone, some 20,000 smokers die each year from the effects of their addiction.

The response from the chief executive officer to the arguments put forward was astonishing.

‘You accurately point out a number of the dilemmas concerning smoking and the tobacco industry, and it is with good reason that we are talking with you,’ said Wortmann. ‘At the same time, we have to consider the interests of 2.8 million participants who want to see profit. Smoking is legal, and whether someone decides to smoke or not is their own choice. If the government were to ban smoking, then we would immediately halt our investments. But ABP is a big fund and we have other responsibilities on behalf of those would have invested their money with us.’

Overdue maintenance

Chest physician Wanda de Kanter, chairwoman of the Youth Smoking Prevention Foundation, is amazed that the ABP continues to invest in tobacco. She argues that ‘legal’ is not the same as ‘morally acceptable’. ‘We are working on overdue maintenance,’ she explains, ‘by eliminating an obsolete industry. There is simply no question of free choice because cigarettes are deliberately designed to be highly addictive. Cigarettes are ‘deadly by design’, as Stanford professor Robert Proctor put it. We know that 90 percent of all smokers start smoking before they reach the age of 18, at a time when the brain has not fully matured and people are unable to make fully considered decisions.’

That is precisely why it is all the more distressing that the pension funds of teachers are invested in the tobacco industry. Teachers who devote their careers to the futures of young people are unwittingly helping to sustain an industry that targets children and youths as ‘replacement smokers’, people who take the place of smokers who die from smoking or quit the habit. Moreover, teachers and other participants have no say in the matter. After all, participation in this pension fund is compulsory.

Save the Children

A noteworthy detail in this regard is that Corien Wortmann is not only chief executive officer of ABP but also chairwoman of the Supervisory Board of Save the Children in the Netherlands. This foundation ‘saves the lives, dreams and the future of children all over the world with medical care, education and better living conditions.’ Wortmann’s position with this foundation says something about her commitment to the future of children around the world.

Both positions are of course independent of each other, but even in her role at ABP, Wortmann has the power to make an important contribution to protecting children and improving their future. The tobacco industry vehemently denies it publically, but still does all it can to encourage children in the vulnerable years of puberty to start smoking. This happens not only in the Netherlands – 100 children start to smoke every day here – but increasingly in developing countries, where the industry encounters far fewer obstacles than it does here.

Using the funds received from ABP and other sources, the tobacco industry has in recent years invested heavily in places like Indonesia, where smoking addiction has now reached epidemic proportions and where the tobacco industry openly encourages children to smoke (see TabakNee). On top of that, tens of thousands of children in Africa and other parts of the world are exploited on tobacco plantations, where they are exposed to severe nicotine poisoning (see TabakNee).

Support for lobby

So powerful has the tobacco industry become, in part through funding from institutional investors like ABP, that this pernicious industry is able to deploy its extremely refined marketing strategy and conduct exhausting legal procedures.

It would be a powerful statement of social responsibility and ethical awareness if the ABP, in the face of the views of enthusiastic financial analysts, were to announce its withdrawal from the tobacco industry. It would show that sensible and committed people are not swayed by financial gain alone, but more by the soft returns on investment for society in the long term.

You could also put this more directly: Those who invest in tobacco are accomplices to murder.

Frits van Dam is secretary of the Youth Smoking Prevention Foundation and Bas van Lier is a freelance journalist