UK - A county council is reintroducing tobacco companies in its portfolio because trustees fear they could be sued for failing to get the "best financial return".
Industry experts believe the move marks a radical sea-change in the socially responsible investment debate with one suggesting many trustees now see it as “a dead duck”.
The £530m Shropshire County Council Pension Fund, which has excluded the tobacco sector for around 30 years, has decided to re-include following advice from its investment consultant, Frank Russell.
It told the scheme that its excluding tobacco stocks from the fund had been at considerable cost to the fund.
Shropshire County Council Pension Fund treasury and pensions manager, Phil Guy, said: “The onus on whether the fund invests in tobacco stocks or not is now with the investment managers we hire, and they will take that view on all the normal investment criteria.”
Guy pointed out that excluding tobacco had also meant that the fund had not been able to invest in pooled funds.
Hammond Suddards Edge partner Francois Barker said excluding stocks could leave a fund open to challenge.
He said: “Many trustees take the view that SRI is a dead duck because their legal duty is not to invest ethically but to get the best financial return.
“Trustees therefore will either not have a policy on SRI or have one only to the extent that it is consistent with achieving the best financial returns.”
Investment consultants agreed and pointed out that trustees who exclude firms from their investment universe may be working against their primary duties.
Mercer Investment Consulting European partner and head of the UK investment consulting practice Andrew Kirton said: “Many trustees who have looked at socially responsible investment very quickly get to the question of whether and to what extent they can actually exclude investments because of a socially responsible viewpoint.”
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