AMP Capital will divest from all tobacco securities in its portfolios as part of a new ethical framework that also excludes cluster munitions, landmines and biological weapons.
All of AMP Capital's external fund managers have been instructed to divest from tobacco products, the company announced yesterday.
The move will see approximately $440 million of tobacco manufacturing-related equity and fixed income holdings divested from AMP Capital's portfolios.
It will be the single largest divestment from tobacco in Australia to date, eclipsing the Future Fund's divestment of $222 million in tobacco exposures in December 2012.
The decision to exit tobacco manufacturing companies is the result of a new ethical framework developed by AMP Capital that will also result in the divestment from companies that manufacture cluster munitions, landmines and biological weapons (which will equate to $130 million of divestments for AMP Capital).
Speaking to InvestorDaily, AMP Capital head of ESG research Ian Woods said all of the affected investment products will still be able to meet their targets despite the decision to divest.
Mr Woods acknowledged that the largest tobacco companies had performed relatively strongly over the past three years – mainly as a result of the global "search for yield".
"But if you just look at the issues facing the tobacco industry in terms of constraints that governments are increasingly going to put on them, you'd have to say the growth prospects for those companies are limited and decreasing," Mr Woods said.
And while the decision to divest was ultimately made on ethical grounds, Mr Woods said from an "investment perspective" tobacco companies are facing some "serious headwinds" in the medium to long-term.
"Serious headwinds indicate they're probably not good long-term investments. Time will tell how that turns out, but with other alternatives in your investment universe you'd be looking elsewhere to try and find good long-term investments," he said.
AMP Capital's external managers were informed of the decision as long as 18 months ago, and they will have a further 12 months to fully divest from tobacco, cluster munitions, landmines and biological weapons, Mr Woods said.
While liquidity is not an issue (particularly for tobacco stocks), the long lead time will allow the external managers to manage their portfolios effectively, he said.
Non-specialist distributors of tobacco, such as Woolworths, will not fall within the ethical exclusion, Mr Woods said.
However, specialist tobacco distributors will be excluded from inclusion in AMP Capital portfolios under the framework.
As it stands, electronic cigarette manufacturers will not be excluded, Mr Woods said – but he acknowledged that could change if new evidence proves they are equally as harmful as cigarettes.
More than 30 Australian asset owners have divested from tobacco to date, largely due to lobbying by oncologist Dr Bronwyn King.
Ms King welcomed AMP Capital's decision to go "tobacco free".
"It really sends a clear message to the finance community – not just in Australia, but around the world – that tobacco-free is the new baseline standard that financial institutions should be aiming for," Ms King said.
More to come
The corporate watchdog has handed down additional conditions on a Sydney-based AFSL amid concerns about its compliance framework. ...
A new whitepaper has identified derivative-based overlay strategies as the latest growing equity strategy among investors. ...
International equity investors will begin to look towards smaller companies due to strong growth in availability according to one investment...