Advantage Capital Strategies identifies industries that have detrimental environmental, social, and economic effects and takes action to mitigate risk both through screening and advocating for change
The Tobacco Industry Explained
The tobacco sector includes companies that produce and market cigarettes and other nicotine-containing products such as cigars, pipe tobacco, and smokeless tobacco. Many of these companies also produce electronic smoking products that use heated tobacco units, also known as “e-cigarettes.” Large tobacco companies often produce multiple brands of tobacco products; for example, the publicly-listed Philip Morris International owns brands such as Marlboro and Parliament. As of 2016, the global value of the tobacco industry was US $816 billion  .
According to the World Health Organization (WHO), tobacco use is an epidemic, one of the biggest public health threats the world has ever faced . Tobacco products are harmful to the health of those who use them and even those who do not, and they are also harmful economically and environmentally.
The Economic Rationale for Divestment
Smoking trends vary worldwide for many reasons, including what regulations governments impose on tobacco products and when these regulations were first introduced. Northern Europe and North America are in what the WHO terms the fourth and final stage of smoking trends, meaning smoking prevalence is on the decline . In 1964, the United States Surgeon General declared that there was a direct correlation between smoking and cancer; since then, smoking rates have steadily decreased. However, smoking is still a major health concern, and exposure to tobacco continues to be the leading risk factor for all-cause disability-adjusted life-years (DALYs) in Canada . Disability-adjusted life years refer to years of healthy life lost due to disease or disability.
It is estimated that the total economic cost of smoking, accounting for both health expenditures and productivity losses together, is equivalent to 1.8% of the world’s annual gross domestic product . Developing countries are impacted to a greater extent, bearing about 40% of this cost .
In Canada, cigarette sales have declined steadily on a per capita basis since 2001, with 2016 sales totaling about 28.6 billion units of cigarettes . In the US, about 249 billion cigarettes were sold in 2017 as compared to 258 billion sold in 2016, which represents a 3.5% decrease in sales . However, in countries such as China that are at earlier stages of smoking trends, the rate of tobacco use among adult men remains extremely high. This is also because there are fewer regulations imposed on tobacco products, and cigarettes remain very affordable . It will inevitably take time and effort for many countries to reduce smoking prevalence.
The Social Rationale for Divestment
Tobacco use affects the health of direct users as well as those who are exposed to second-hand smoke. The WHO estimates that tobacco is responsible for the deaths of more than 7 million people each year, and up to half of all people who use tobacco will be killed by it . Those who smoke are at increased risk of developing heart disease, stroke, and lung cancer, among other debilitating and life-threatening health conditions . It is estimated that smoking one cigarette reduces your life span by 11 minutes, and smokers have a life expectancy of at least 10 years less than non-smokers .
However, the impacts of smoking extend beyond loss of life. Tobacco use leads to disability and long-term health problems, which in turn accounts for billions of dollars in lost productivity and health-care expenditure . The direct costs of smoking-related illness include hospital stays and medications; the indirect costs refer to the value of lost productivity in current and future years due to disability and mortality . Both of these costs contribute to the economic burden of smoking-related illnesses.
The most recent Canadian findings indicate that 3.7% of all healthcare expenditure is due to smoking-related illness, and globally that number is even higher, with smoking-related illness accounting for 5.7% of global health expenditure .
There are also health impacts associated with the harvesting of tobacco. Green tobacco sickness (GTS) affects tobacco harvesters and is caused when workers handle raw tobacco, which is toxic when it comes in contact with unprotected skin. It is estimated that anywhere from 8.2 to 47% of tobacco harvesters suffer from GTS . According to the WHO, children are particularly vulnerable to GTS, which is of concern as oftentimes children from poor families are employed in the tobacco fields as an extra source of family revenue .
The Environmental Rationale for Divestment
According to the WHO, tobacco cultivation and curing are some of the most environmentally destructive agricultural practices in low- and middle-income countries . Although there are economic benefits provided to the farmers who grow and harvest tobacco, the WHO states that these benefits are offset by the long-term environmental impacts of tobacco farming, which damages the agricultural and environmental integrity of the surrounding area, often irreversibly .
Furthermore, tobacco plantations are also directly associated with deforestation. Forest clearing often occurs to make space for tobacco plants, and wood is also needed to cure tobacco leaves. The WHO estimates that in China, tobacco farming alone is responsible for 18% of national deforestation .
The manufacture of tobacco products such as cigarettes is a resource intensive process, using large amounts of energy and water. It is estimated that tobacco companies use as much energy to produce their products as would be required to assemble approximately 2 million vehicles . The manufacture of tobacco products also generates a large amount of waste, some of which is evident in our communities: about 30-40% of all litter picked up during annual international coastal and urban clean-ups are cigarette butts . Importantly, the costs of cleaning up end-product waste are not borne by the tobacco product manufacturers or distributors but rather by local communities and governments.
According to the United Nations Environmental Programme, the tobacco industry would not be profitable if they had to pay for the environmental impacts of their manufacturing . The chemicals that leach out of discarded cigarette butts, including nicotine, arsenic, and known human carcinogens, enter into our shared waterways, affecting aquatic life and indirectly affecting tobacco users and non-users alike .