10.18 The investment of public funds in tobacco - the case for divestment

Last updated: July 2022

Suggested citation: Greenhalgh, EM & Hanley-Jones, S. 10.18 The investment of public funds in tobacco—the case for divestment. In Greenhalgh, EM, Scollo, MM and Winstanley, MH [editors].  Tobacco in Australia: Facts and issues. Melbourne: Cancer Council Victoria; 2022. Available from:   https://www.tobaccoinaustralia.org.au/chapter-10-tobacco-industry/10-18-the-investment-of-public-funds-in-tobacco


Growth of the tobacco market will inevitably lead to more deaths and investment in tobacco companies is an important facilitator of growth.1 Pension funds (known as ‘superannuation funds’ in Australia) can positively and significantly affect the prices of the shares in which they invest, and are major investors in  stock markets in Australia and globally.2 Australian government policies require all employed Australians to contribute to pension funds, therefore most Australians have some investment in the share market.2 A 2018 analysis of Australian pension funds revealed tobacco exposure ranging from 0.108 per cent to 1.28 per cent of total assets, equating to at least AU$2.484 billion (and potentially 10 times that amount) of Australian workers’ money invested in tobacco companies.3

Throughout the 1990s, tobacco control advocates increasingly questioned the investment of public funds and pensions in tobacco company stocks, and called for public institutions to divest such stocks. These calls occurred in the context of a growing concern regarding socially responsible investment, as well as mounting litigation against major tobacco companies, which allowed the issue to be taken seriously.4 , 5 Analyses of tobacco industry documents have highlighted the industry’s concerns that a divestment movement could hinder its social capital and lead to further stigmatisation, and revealed its efforts to obstruct such a movement; in the US, Philip Morris succeeded in stymying divestment at medically prestigious universities,6 and in combating divestment by more financially significant government funds.5

Health experts have argued that investing in the tobacco industry is a clear conflict of interest, and that it is untenable for local authorities to champion public health while profiting from tobacco.7 Ethical dilemmas and concerns about international obligations have led some Australian states and territories to be proactive in tobacco divestment. Australian Capital Territory, New South Wales and South Australia, as well as the City of Melbourne, have divested their public investment in the tobacco industry.8 In 2013, the Australian Government’s Future Fund implemented a tobacco-free policy. In 2012, First State Super became the first mainstream Australian superannuation fund to implement a tobacco-free investment policy, and as at August 2022, there were 54 Australian Signatories to Tobacco Free Portfolios ‘The Pledge’—a tobacco-free finance pledge taken by financial institutions who commit to tobacco-free finance policies. Medibank (Australia’s largest health insurer), as well as many other superannuation funds, banks, insurers and asset managers, have also excluded investment in tobacco.9

The New Zealand Superannuation Fund was the first Sovereign Wealth in the world to excluded investment in tobacco, having done so in 2007.10 Elsewhere, the Norwegian Government Pension Fund—one of the largest in the world—ceased investing in tobacco in 2010. The country’s finance minister stressed the importance of the fund’s ethical guidelines reflecting ‘at all times what can be considered to be the commonly held values of the owners of the fund’ (i.e., the Norwegian people).11 Paris-based global insurance agency AXA adopted a tobacco-free investment policy in 2016, and in 2017, BNP Paribas, Europe’s largest bank, announced a tobacco-free policy spanning lending, investment and insurance.12

In 2018, the Tobacco-Free Finance Pledge was launched at United Nations’ Headquarters in an event co-sponsored by the governments of Australia and France. There are now, as at July 2022, 191 Signatories of the Pledge, major global financial institutions with combined assets under management of more than US$16 trillion.13 In June 2020, USS Investment Management—the largest UK pension plan with over US$81B AUM (as of late 2019)—announced its tobacco-free position. This followed a detailed review of the long-term financial factors associated with investing in certain sectors. They concluded that the traditional financial models used by the market as a whole to predict the future performance in tobacco had not taken specific risks into account. These included changing political and regulatory attitudes and increased regulation that USS Investment Management consider will damage the prospects of businesses involved in these sectors in the years to come.14

Arguments for divestment:

The issue of investment in tobacco industry stocks was once framed by divestment advocates in terms of social policy (i.e., the questionable logic of investing in a product that drastically increases healthcare costs and lowers productivity) and in ethical terms (i.e., the morality of investing in a highly addictive product that causes enormous harms to its users). Opponents have previously argued that investing in tobacco stocks is sound fiscal policy; however advocates have flipped these arguments by highlighting the uncertainty of the industry’s finances in the face of mounting legal battles and tighter regulations.4 , 15  

Some cite the argument that fiduciary duty—the legal obligation of those who manage superannuation funds to invest in the best interest of members—is a barrier to moving to tobacco-free investments. Investments in tobacco stocks are most frequently justified on the grounds that pension funds’ fiduciary duty (i.e., legal obligations to pension fund members) requires them to maximise returns, without consideration of ethical issues.16 In Australia, superannuation funds are governed primarily by the Superannuation Industry (Supervision) Act 1993 (SIS Act). The Act states that the funds must act ‘in the best interests of the beneficiaries’, which has conventionally been interpreted to mean their best financial interests. However, some public health experts have argued that this interpretation may be overly simplistic, and that ethical concerns could be accommodated without compromising the performance of the fund.16 Others have pointed out that Trustees may view this covenant as an obligation to invest in tobacco stocks when they are performing well, and have suggested that it be refined to allow divestment from tobacco companies whilst being satisfied that fiduciary duties are being fulfilled.17   The long-term best interests of members may also not align with short-term investment returns; issues with treaty obligations, conflicts of interests, ongoing litigation, and mounting regulations.12     

These suggestions align with a growing movement in recent years for pension funds to consider the environmental, social and governance (ESG) metrics of the companies in which they invest. Investors are increasingly excluding companies that violate human rights, for example, in favour of those that behave responsibly and ethically. Initially, there was some confusion among investors regarding the extent to which fiduciary duties allow for these kinds of consideration.18 However, a 2007 comprehensive analysis suggested that ESG factors can often sit comfortably with fiduciary duties to invest prudently, provided certain conditions are met.18 An Australian review that considered the legal position of superannuation trustees who invest ethically concluded that while the SIS Act should be primarily concerned with the provision of adequate benefits for retirees, the issue of how resources are invested should also be taken into account by governments. The author argues that, taking into consideration statutory and general law on ethical investment, the SIS Act can be interpreted to allow trustees to consider non-financial concerns.19 In addition, in 2015, the UN-backed Principles for Responsible Investment launched the publication Fiduciary Duty in the 21 st Century. The report concluded that investors that fail to incorporate ESG issues are failing their fiduciary duties and are increasingly likely to be subject to legal challenge.20

Following years of indifference and opposition, the Australian superannuation industry has become more accepting of ESG considerations over time and can be considered world leading in terms of tobacco-free investment.18 The Association of Superannuation Funds of Australia has advised that the main requirements for a fund desiring to invest ethically are:unreduced expected return; effective diversification; implementability (i.e. the policy can be implemented without introducing unacceptable risk exposures and burdensome administrative procedures); member acceptance and documentation . If each of these requirements is met, the fiduciary obligations of the fund would appear to be satisfied.21

Further, and perhaps most importantly in regards to fiduciary duties, there does not appear to have been a financial trade-off for funds that have divested from tobacco. Replacing tobacco with investments that have similar characteristics (for example, other ‘defensive stocks’ like healthcare, food and beverage) has allowed similar returns.22 Historically, tobacco has been viewed as a sound investment; one that was low risk and high profit. However, in recent years the tobacco sector has not performed well financially.  In 2018, tobacco was the worst performing sector on the market.23 There is a growing body of research globally that demonstrates that ‘sustainable’, ‘ESG’ and/or Socially Responsible Investments outperform investment strategies without such considerations. The 18th annual Responsible Investment Benchmark Report Australia prepared by the Responsible Investment Association Australasia (RIAA) in 2019, reinforced that a responsible approach to investing—one that systematically considers environmental, social and corporate governance (ESG) and/or ethical factors across the entire portfolio—represents a significant part of the Australian finance sector and is becoming the expected minimum standard of good investment practice in Australia.24 Interest in responsible investment in Australia is at an all-time high. The responsible investment market in Australia has continued an upward trajectory, with associated assets under management growing in 2020 to $1,281 billion —40% of the total market. In 2020, responsible investing performed on par with, or better than, the market, despite the impact of COVID-19 on economies worldwide.25

Investing in tobacco undermines the FCTC and the National Tobacco Strategy

Australia became a Party to the WHO Framework Convention on Tobacco Control (FCTC) on February 27, 2005. Article 5.3 states, ‘Government institutions and their bodies should not have any financial interest in the tobacco industry, unless they are responsible for managing a Party’s ownership interest in a State-owned tobacco industry’ (4.7). Thus, each of the more than 180 Parties to the FCTC has legal obligations to protect public health policies regarding tobacco control from vested interests of the tobacco industry. The guidelines recognise the ‘fundamental and irreconcilable conflict between the tobacco industry’s interests and public health policy interests’ and provide recommendations to protect tobacco control policies from tobacco industry interference to the greatest extent possible, which include:

  • Raise awareness about the addictive and harmful nature of tobacco products and about tobacco industry interference with Parties’ tobacco control policies.
  • Establish measures to limit interactions with the tobacco industry and ensure the transparency of those interactions that occur.
  • Reject partnerships and non-binding or non-enforceable agreements with the tobacco industry.
  • Avoid conflicts of interest for government officials and employees.
  • Require that information provided by the tobacco industry be transparent and accurate.
  • De-normalise and, to the extent possible, regulate activities described as ‘socially responsible’ by the tobacco industry, including but not limited to activities described as ‘corporate social responsibility’.
  • Do not give preferential treatment to the tobacco industry.26

Recommendation 7.2 states that ‘Parties that do not have a State-owned tobacco industry should not invest in the tobacco industry and related ventures’,26 which Parties should consider in relation to pension funds. These considerations could form part of a broader policy on contact with the tobacco industry, or it may be preferable to treat the issue of pensions separately, given the complexity of fiduciary duties.27 Norway, for example, has addressed the Article 5.3 recommendation to avoid conflicts of interest by announcing in 2010 that it would be divesting government pension funds from the tobacco industry.11

The Australian National Tobacco Strategy 2012–18, agreed to by all nine Australian Federal, state and territory governments, commits them to developing policies and regulatory options to implement Article 5.3,26 and to prevent tobacco industry interference in public health policies.28 Thus, investing in tobacco undermines both international and local obligations. The draft National Tobacco Strategy 2022–2030 will similarly commit Australian governments to a strong stance on Article 5.3.29

Investing in tobacco is socially irresponsible and against the public interest

An argument that is sometimes raised in favour of tobacco investment is that tobacco is a legal product, and therefore a legal investment.12 However, tobacco is a unique product in that it kills as many as two-thirds of its long-term users when used as intended.30 Tobacco, along with other legal products, has been excluded from some investment portfolios due to treaty conflicts, its history of unethical conduct, and social irresponsibility.12 The WHO has highlighted the irreconcilable conflict of interest between the tobacco industry and public health.28 Tobacco is an enormously harmful, addictive product; Australian smokers lose an average of 12 years of life.31 The tobacco industry has used its enormous resources for decades to aggressively undermine tobacco control strategies,32 including targeting its products at children.33 As high-income countries have implemented restrictions on marketing to children, these efforts have simply been moved to developing countries.33 , 34 Its significant contribution to poverty and disease worldwide has led to suggestions that there is a moral imperative not to benefit financially from tobacco holdings,34 and that investment in tobacco is inconsistent with public values.35 It may also be unsound social policy to derive public income from tobacco,4 when its use leads to lost productivity and high healthcare costs, as well as higher levels of financial stress for individuals and families (see Chapter 17, Section 2).

Investing in tobacco supports child labour

In addition, almost no cigarette can be guaranteed to be free from child labour. 36 It is estimated that 33 million people are engaged in tobacco growing and processing worldwide, of which 1.3 million are estimated to be children. 37 In a report issued in March 2017, the International Labor Organisation (ILO) stated that ‘in tobacco growing communities, child labor is rampant’. 38 In November 2018, the ILO announced that they will no longer rely on tobacco-industry funding for its projects to end child labour. ‘The ILO decision sends a strong message that the tobacco industry can no longer exploit this United Nations’ agency to promote its discredited charity. The tobacco industry’s handouts on child labour have not solved the more fundamental problems that force children to the fields and trap farmers in poverty, such as low tobacco leaf prices and harmful working conditions,’ said Dr. Ulysses Dorotheo, executive director of the  Southeast Asia Tobacco Control Alliance.39 A 2021 report by STOP labelled the tobacco industry’s corporate social responsibility (CSR) in child labour ‘an inherent contradiction’. Foundations financed by the tobacco industry such as Eliminating Child Labour in Tobacco Growing (ECLT) are a violation of tobacco sponsorship and divert attention away from the true impact of child labour in tobacco production, while also obscuring genuine solutions, undermining diversification strategies, drowning out the voices of stakeholders and allowing the tobacco industry to escape culpability.37 For more on tobacco farming and child labour see Section 10.14.2.

10.18.1 Tobacco Free Portfolios

Tobacco Free Portfolios40 was founded in 2010 by Australian oncologist Dr Bronwyn King AO, when she learned that her industry superannuation fund was investing in tobacco. The initial aim was to encourage Australian superannuation funds to remove tobacco from investment portfolios; the work later expanded to engage the entire global finance sector. Tobacco Free Portfolios then expanded into a team including medical doctors, ethics experts and sustainable finance professionals, located in three financial markets. The team works across more than twenty countries, engaging with finance leaders–spanning banking, insurance, pension funds, sovereign wealth funds, asset management and rating agencies. The aim is to put the issue of tobacco-free investment on the agenda of the financial sector.

The Tobacco Free Portfolios team has played an integral role in persuading leading financial institutions in multiple countries to implement tobacco-free policies, influencing a shift of over US $18 billion away from investment in tobacco companies. Tobacco exclusions are increasingly being considered a fundamental step in order to integrate sustainability, responsibility and transparency into mainstream business.

In order to extend the reach of its work, in 2018, Tobacco Free Portfolios founded the Tobacco-Free Finance Pledge in collaboration with the United Nations’ Environment Programme Finance Initiative, the UN Environment’s Principles for Sustainable Insurance, the UN-supported Principles for Responsible Investment, AXA, BNP Paribas, Natixis and AMP Capital. The Pledge was launched at United Nations Headquarters in New York during the UN General Assembly. The Pledge highlights the leadership of financial institutions that have implemented tobacco-free finance policies and encourages others to do the same. The Pledge also encourages the financial sector to address priorities outlined in the UN's Sustainable Development Goals and the World Health Organization Framework Convention on Tobacco Control. As of August 2022, The Pledge had 192 Signatories, 54 of which are Australian signatories, and 50 Supporters from more than 21 countries representing over US$16 trillion of assets under management.13


Relevant news and research

For recent news items and research on this topic, click  here. ( Last updated November 2023)



1. Cancer Research UK, Preventing lung cancer: Isolating the Tobacco industry.  London: Cancer Research UK; 2002. Available from: http://archive.tobacco.org/news/168800.html.

2. Huynh W, Mallik G, and Hettihewa S. The impact of macroeconomic variables, demographic structure and compulsory superannuation on share prices: The case of Australia. Journal of International Business Studies, 2006; 37(5):687–98. Available from: http://dx.doi.org/10.1057/palgrave.jibs.8400220

3. King B, Payne C, and Stone E. Tobacco-free investment: Harnessing the power of the finance industry in comprehensive Tobacco control. QUT Law Review, 2018; 17(2):161–74. Available from: http://lr.law.qut.edu.au/article/view/699

4. Wander N and Malone RE. Keeping public institutions invested in tobacco. Journal of Business Ethics, 2007; 73(2):161–76. Available from: http://link.springer.com/article/10.1007/s10551-006-9188-0

5. Wander N and Malone RE. Fiscal versus social responsibility: How Philip Morris shaped the public funds divestment debate. Tobacco Control, 2006; 15(3):231–41. Available from: http://tc.bmjjournals.com/cgi/content/abstract/15/3/231

6. Wander N and Malone RE. Selling off or selling out? Medical schools and ethical leadership in tobacco stock divestment. Academic Medicine, 2004; 79(11):1017–26. Available from: http://journals.lww.com/academicmedicine/Abstract/2004/11000/Selling_Off_or_Selling_Out__Medical_Schools_and.2.aspx

7. Luxmore-Brown J and Middleton J. Sell up or cough up: Pension funds and tobacco. Better Health for All, 2013. Available from: http://betterhealthforall.org/2013/05/24/sell-up-or-cough-up-pension-funds-and-tobacco/

8. ACOSH. Tobacco free investments.  2018. Last update: Viewed Available from: https://www.acosh.org/what-we-do/investment-in-tobacco/.

9. Davey M. Medibank moves $170m to tobacco-free investment fund The Guardian, 2016. Available from: https://www.theguardian.com/australia-news/2016/oct/24/medibank-moves-170m-to-tobacco-free-investment-fund

10. New Zealand Superannuation Fund. Exclusions. 2007. Available from: https://www.nzsuperfund.co.nz/how-we-invest-responsible-investment/exclusions

11. Ward A. Norway fund shuns tobacco companies. Financial Times, 2010. Available from: http://www.ft.com/intl/cms/s/0/9ef17b66-052a-11df-a85e-00144feabdc0.html#axzz3bs04ZCpo

12. Action on Smoking and Health Australia. Ending investment in Tobacco. 2015. Available from: http://www.ashaust.org.au/lv4/lv4action_investment-htm/

13. No author listed. The pledge. Tobacco Free Portfolios 2022. Available from: https://tobaccofreeportfolios.org/the-pledge/

14. No author listed. USS to make first divestments after long-term investment review. USS, 2020. Available from: https://employers.uss.co.uk/news/all-news/2020/06/uss-to-make-first-divestments-after-long-term-investment-review

15. Schueth S. Tobacco: No more excuses for pension funds. Pensions & Investments, 1997. Available from: https://www.industrydocumentslibrary.ucsf.edu/tobacco/docs/fyjl0067

16. Action on Smoking and Health. Local authority pension funds and investments in the tobacco industry.  2012. Last update: Viewed Available from: http://shareaction.org/resources/local-authority-pension-funds-and-investments-in-the-tobacco-industry/.

17. King B. Submission regarding the Australian government’s discussion paper, 28 November 2013: ‘Better regulation and governance, enhanced transparency and improved competition in superannuation’. 2014. Available from: http://static.treasury.gov.au/uploads/sites/1/2017/06/King_Bronwyn_Dr.pdf

18. Richardson BJ. Do the fiduciary duties of pension funds hinder socially responsible investment? Banking and Finance Law Review, Forthcoming, 2007. Available from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=970236

19. Leigh A. " Caveat investor": The ethical investment of superannuation in Australia. Australian Business Law Review, 1997; 25:341–50.

20. No author listed. Fiduciary duty in the 21st Century. Fiduciary Duty, 2020. Available from: https://www.fiduciaryduty21.org/

21. Association of Superannuation Funds of Australia (ASFA). Development of ASFA policy on ‘ethical investment’, Sydney: ASFA; 2000.  Available from: http://citeseerx.ist.psu.edu/viewdoc/download?doi=

22. Noble G. Turning their backs on tobacco. Superfunds, October 2013. Available from: http://search.informit.com.au/documentSummary;dn=651932954396777;res=IELBUS

23. Faurschou J. Tobacco shares hardest hit in 2018. Investors Chronicle, 2018. Available from: https://www.investorschronicle.co.uk/shares/2018/12/12/tobacco-shares-hardest-hit-in-2018/

24. Thompson R and Bayes S. Responsible investment benchmark report Australia 2019. Sydney: Responsible Investment Association Australasia, 2019. Available from: https://responsibleinvestment.org/wp-content/uploads/2019/07/RIAA-RI-Benchmark-Report-Australia-2019-2.pdf.

25. Banhalmi-Zakar Z, Boele N, and Bayes S. Responsible investment benchmark report 2021 Australia. Responsible Investment Association Australasia, 2021. Available from: https://responsibleinvestment.org/wp-content/uploads/2021/09/Responsible-Investment-Benchmark-Report-Australia-2021.pdf

26. World Health Organization. Guidelines for implementation of Article 5.3 of the WHO Framework Convention on Tobacco Control 2013. Available from: https://fctc.who.int/publications/m/item/guidelines-for-implementation-of-article-5.3

27. Action on Smoking and Health, Developing policy on contact with the Tobacco industry.   2015. Available from: http://ash.org.uk/files/documents/ASH_944.pdf.

28. Intergovernmental Committee on Drugs, National Tobacco strategy 2012-2018. Commonwealth of Australia; 2012. Available from: http://www.nationaldrugstrategy.gov.au/internet/drugstrategy/publishing.nsf/Content/national_ts_2012_2018.

29. Australian Government. National Tobacco strategy 2022-2030 - draft for consultation. Canberra: Department of Health, 2022. Available from: https://consultations.health.gov.au/atodb/national-tobacco-strategy-2022-2030/.

30. Banks E, Joshy G, Weber MF, Liu B, Grenfell R, et al. Tobacco smoking and all-cause mortality in a large Australian cohort study: Findings from a mature epidemic with current low smoking prevalence. BMC Medicine, 2015; 13:38. Available from: http://www.ncbi.nlm.nih.gov/pubmed/25857449

31. Peto R, Lopez AD, Pan H, Boreham J, and Thun M. Mortality from smoking in developed countries 1950 - 2020. 2015. Available from: http://gas.ctsu.ox.ac.uk/tobacco/contents.htm

32. World Health Organization. Tobacco industry interference with tobacco control. World Health Organization, Geneva: WHO, 2009. Available from: http://apps.who.int/iris/handle/10665/70894.

33. World Health Organization. 3 out of every 4 children are exposed to tobacco advertising. 28 May 2013. Available from: http://www.searo.who.int/mediacentre/releases/2013/pr1558/en/index.html

34. Ad hoc Committee on Tobacco Investment, Proposal to adopt a policy excluding investments in tobacco companies. University of Pennsylvania; 2013. Available from: http://www.phil.upenn.edu/~weisberg/Tobacco-Final.pdf.

35. No authors listed. Australia pension fund reviewing tobacco stake. Medical Xpress, 2012. Available from: http://medicalxpress.com/news/2012-10-australia-pension-fund-tobacco-stake.html

36. Graen L. Tobacco industry confronted with child labour. Blog Tobacco Control, 2015. Available from: https://blogs.bmj.com/tc/2015/01/27/tobacco-industry-confronted-with-child-labour/

37. STOP (Stopping Tobacco Organizations and Products). The Tobacco industry: A hindrance to the elimination of child labor. Expose Tobacco, 2021. Available from: https://files.ggtc.world/uploads/2021-06-11/17-45-16-623415/CHILD%20LABOUR%20FS.pdf

38. International Labour Office. ILO cooperation with the tobacco industry in the pursuit of the organization’s social mandate Governing Body, 2017. Available from: http://www.ilo.org/wcmsp5/groups/public/---ed_norm/---relconf/documents/meetingdocument/wcms_545944.pdf

39. Lei Ravelo J. After 3 deferments, ILO finally decides on tobacco industry-funded projects. Devex, 2018. Available from: https://www.devex.com/news/after-3-deferments-ilo-finally-decides-on-tobacco-industry-funded-projects-93820

40. Tobacco Free Portfolios. Imagine a tobacco-free world: Let’s start with tobacco-free finance.  2020. Last update: Viewed Available from: https://tobaccofreeportfolios.org/.