Financial Activism 101: Tobacco (Part 1)

How far we’ve come in 50 years! Very few still argue today that tobacco is safe for consumers. Tobacco use has been linked to diseases like lung cancer, stroke, heart disease, asthma, diabetes — even negative reproductive effects for pregnant women, such as ectopic pregnancy. For these, and other reasons, life expectancy is lower for regular tobacco users than for those who abstain.

You probably think we’re stating the obvious. How far we’ve come in 50 years!

The Quick Take:

Am I invested in tobacco?

Go to tobaccofreefunds.org.
Enter the name of your mutual fund or ETF.
Review the results.

Does it matter? Ask yourself:

Do I feel comfortable benefitting from a product that is harming others?
Do I feel differently about investment in companies that produce tobacco vs. companies that promote tobacco?
Do I believe investing in tobacco will support my financial goals?

I am invested in tobacco. What can I do?

Divest (sell your holdings), but make sure to consider the tax consequences.
Become an activist shareholder and try to persuade the companies you’re invested in to change their ways.

How do I know if I’m invested in tobacco?

You probably know the names of a few big tobacco brands — Marlboro, Camel — but if you’re like me, you don’t necessarily know the names of the publicly traded companies that actually own these brands, let alone companies that may own less well-known brands. Furthermore, research¹ links depiction of smoking in movies and on television to increased tobacco use among young people. So, how do you know if you (or a fund you’re considering) invest(s) in tobacco or a tobacco-promoting media company?

As You Sow to the rescue! As You Sow is an independent non-profit whose aim is to help investors use their power to promote corporate behavior that benefits people, planet, and profit. If you’re concerned about tobacco in your investments, As You Sow has just the tool for you: tobaccofreefunds.org. At tobaccofreefunds.org, put in the name or ticker of your fund to see its tobacco holdings. Here’s an example:

Why should I care?

It’s no surprise that tobacco is bad for you, but why does it matter if you’re invested in the tobacco industry? When you invest, your dollars express confidence in a company or industry. If you’re invested in a tobacco company, you benefit when that company does better — and it does better by selling more tobacco. At Change Finance, we ask ourselves two questions:

Do we feel comfortable benefitting from a product that we know harms people in this way?
Do we believe that this business has long-term staying power and growth potential?

The first question is a values question — can you reconcile your investment with your values? The second is a results question. Generations of investors have assumed that they should keep their personal ethics out of their investment decisions because factoring in values could hurt their financial returns. Do you believe that companies that make profit from selling harmful products can be successful long-term?

If your answer to either question is “no”, then you probably don’t want to invest in tobacco (unless…see Advanced Financial Activism). Not sure of your answers? The first is all about you — what are you comfortable with? Need a little help with the second? Join me in Part 2 as I think through whether tobacco is a good investment.

My fund holds tobacco. Now what?

So, you’ve screened your fund, you found it has tobacco holdings, and that makes you uncomfortable. Now what? Knowing what’s in your fund is the first step. Now you need to decide how much it matters to you. Does your fund take on some other big issue that you care more about? Are its holdings in tobacco so small you can live with them? Do you feel differently about investments in tobacco companies themselves versus investments in entertainment companies that depict smoking in their films?

You’ve decided to sell? Here’s what to do: If you’re holding this fund in a tax-advantaged account such as an IRA or 401K, you may be able to simply move the assets to another fund you like better. If the holding is in an account that is subject to taxation (most other accounts), you will need to consider the tax consequences of moving your assets. Selling when your fund is up likely means you’ll owe some tax on the gain while selling when it’s down might give you a loss that can offset other taxes. If you have one, it is always a good idea to consult your accountant or financial adviser before making significant changes in your portfolio.

Advanced Financial Activism

When I find something rotten in my portfolio, my instinct is usually “get rid of it.” That’s certainly a valid approach. But you may also want to consider whether you can be an agent for change. Sometimes holding investments in funds that have objectionable companies or in the companies themselves gives you the opportunity to encourage those companies to change their ways.

If you own tobacco in an ETF or mutual fund, can you persuade the fund to change its holdings? The fund manager’s contact information will be on the fund’s website. Call or email and tell them you’d like to see them remove tobacco from the portfolio and explain why. If you want to get even more activist, encourage your friends to do the same. If activism at work is your thing, your HR department can point you to who at the company manages your 401k plan. Ask them to screen plan offerings for tobacco (don’t forget to send them this guide!) and ask fund managers to consider removing tobacco.

Alternatively, you can try to encourage the problem company itself to change. In the case of tobacco, it is unlikely a tobacco company will stop selling tobacco products, but maybe the parent company could be induced to shed the brand? Or maybe an entertainment company could be persuaded to strengthen its policies on depiction of smoking in movies for kids.

If you hold shares directly you can vote for board members you believe will share your convictions and in support of shareholder resolutions that move the company in the right direction.

If your shares in are in a mutual fund or ETF that fund’s manager does the voting. You’ll want to do some research to see how that fund manager has voted in the past. Many fund managers will make this information available on their website (often on a form called the NP-X). All managers are required by law to provide their NP-X to shareholders upon request. Every form NP-X is filed with the SEC and available publicly on their website.

If they’re not voting the way you believe they should, call or email them. Just as you may call your elected officials to encourage them to take a stance you believe in or to thank them if they’ve done so, you can contact your fund’s manager to encourage them to vote the way you want them to.

Disclosures, Definitions, and Footnotes

1. The New York Times, Why Smoking in Films Harms Children, July 17, 2017.