Tobacco’s ESG pretentions all smoke and no fire – Aegon AM’s Beacham

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As another Stoptober draws to a close, Miranda Beacham, Head of ESG for equities and multi-asset at Aegon Asset Management, contends that tobacco companies have no place in sustainable funds, despite the industry’s ESG pretentions.

Stoptober was launched by the Department of Health in England in 2012, when it challenged people to go smoke free – with support – for 28 days. It has been gathering steam ever since and is part of the international movement to stop smoking. 

The reasons for these initiatives are clear. According to the World Health Organization, smoking kills 8 million people per year, including 1.3 million non-smokers who are inhaling second-hand smoke. Meanwhile, a study carried out by Action for Smoking and Health (ASH) estimates that smoking costs the economy in England £17bn per year, £2.4bn of which lands on the NHS, which is already stretched thinly.


Despite these statistics, there is a concerning view – largely propagated by the industry itself – that tobacco companies may be developing strong ESG credentials. Does that mean they deserve a place in sustainable funds? We don’t think so. 

Bold claims 

The tobacco industry has always boasted marketing savvy. Those old enough will remember the advertisements in the 1950s that showcased the ‘health benefits’ of smoking and the celebrity endorsements and sports sponsorships that followed. 


Well, earlier this year, the CEO of Philip Morris made a bold claim that his company was on its way to becoming an ESG stock[3]. How can that be? In theory, it’s because the company is pivoting away from cigarettes and towards vaping products, which now account for around one third of revenues. But are these new products the future of “sustainable” smoking? The industry itself seems conflicted on the answer. 

In the past few years there have been a number of studies, from the likes of King’s College London, on the health impacts of vaping. These have shown that vaping is indeed safer than smoking – but with cigarettes killing up to half of the smokers who fail to quit, that was never an especially high hurdle. There is, in particular, a lot of concern over the use of vaping by teenagers. Rather than an aid to stop smoking, critics claim it is simply replacing one addiction with another.  

The CEO of British American Tobacco has subsequently asked for a greater degree of regulation around vaping. This may seem unexpected; however, it makes commercial sense to give the industry greater certainty in the face of growing opposition. 


Fresh backlash 

A number of countries have already banned the sale of flavoured vaping devices, observing that they have been widely targeted at children. In fact, in April 2023, Juul reached a settlement of $462million with a number of states in the US for aggressively doing just that – marketing its devices to children. Additionally, Argentina, Thailand and India have completely banned e-cigarettes altogether for health reasons and the possibility of luring young people into an addiction. 

While these actions focus attention only on the health impact of these devices, which we may not fully understand yet, there are also numerous concerns over the environmental impact of vaping – particularly with single-use devices.


Moreover, there is also a very live debate over engagement with, or divestment from, “dirty” industries. There are merits in both approaches and a lot depends on the industry itself and its ability to change. Given the concerns outlined above, we believe tobacco has a long road to travel before it can be considered as having a net positive impact on global society. 

Ultimately, however, it is simply not possible for some industries to change to an extent that would meet the sustainable standards required by funds that are interested in outcomes for health and the environment, so you will not be finding any tobacco companies in any of our Sustainability-themed funds for the foreseeable future.

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