Why is the stuff that’s bad for you more often than not that which tastes the best? Like chocolate. I absolutely adore it and it’s rare that a day goes by that I don’t have it in some way, shape or form.
I know it is not good for me and I should probably be the size of a house by now, yet I can’t seem to say no for the sweet, creamy hit it gives me.
Trustees face a similar dilemma when it comes to their investment portfolios. Take tobacco stocks for instance; some trustees will believe such stocks are frowned upon from a moral stance and not sustainable in the long run, but will gorge on them for their portfolio because of the investment returns. Or to put the quandary another way, how can trustees maintain legal fiduciary duty by holding stocks such as tobacco, arms and alcohol and be socially responsible at the same time?
It’s an age old predicament evoking images of an angel on one shoulder and a devil on the other. It’s always been a murky area which is why the Law Commission is currently reviewing fiduciary duty and is expected to publish its eagerly-awaited findings in June.
But before then, advice published by a leading legal expert Nigel Giffin QC this week has helped shed light on the legal position when it comes to tobacco stocks, at least. Giffin has advised that local government pension funds cannot ditch tobacco holdings if there would be financial disadvantage in doing so. However, if a case can be made for substituting tobacco stocks for other company shares that deliver the same financial returns, there is no legal impediment to taking tobacco out.
For organisations such as Comic Relief or the Church of England it is imperative their investment strategy meets certain ESG criteria and so they screen out certain stocks (recent wobbles over Wonga and BAE/Diageo stocks aside!). So in order to achieve long-term investment returns they have to seek out other long-term investment opportunities as a replacement.
That means their investment strategies are already – in the words of Giffin – “influenced by wider social, ethical or environmental considerations, so long as that does not risk material financial detriment to the fund”.
And if they can do it then so can other funds. It just takes a bit more rooting around to uncover the opportunities that deliver the same long-term investment returns as tobacco. Easy for me to say I realise, but this new legal advice should be a call to asset managers to come up with competitive products to deliver returns on a par with sin stocks.
I believe this advice could also lead to British health workers challenging their pension funds over investing in tobacco firms and a reduction in overall holdings of tobacco by them and perhaps even the wider pensions industry.
While they’re at it, perhaps they would also kind enough to challenge me about eating so much chocolate. Here’s hoping.
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