City comment: ESG goes up in smoke at L&G in handling of Philip Morris’s Vectura bid
Look up ESG — the buzzword du jour for ethical investing — on Legal & General Investment Management’s (LGIM) website and you’ll find this bold statement: “Our very purpose at LGIM is to create a better future through responsible investing.”
You wouldn’t know it from how it has handled the Vectura takeover deal. LGIM bowed out with a whimper last night, announcing in a mealy-mouthed statement that it was agreeing to sell its 3.7% stake in the inhaler maker to Philip Morris International (PMI), the manufacturer of Marlboro cigarettes.
It’s a deal that lets PMI profit twice from smoking, as campaign group STOP (Stopping Tobacco Organizations and Products) points out: once from the sale of cigarettes and then again from the treatment of problems caused by smoking. Scientists working on health products now find themselves awkward bedfellows with executives whose main business is cancer sticks.
LGIM spent “considerable time reviewing the competing ESG factors and financials” of the “highly sensitive bid,” it says. But ultimately it concluded that accepting the offer was “the optimal result for our clients, investors and the futures of both companies”. So much for a better future.
Contrast LGIM’s response with Axa’s. The French business also owns Vectura stock and is selling out, but doesn’t mince its words. Axa “did not support” the takeover and is “uncomfortable with the ethics behind a tobacco group’s purchase of an inhaler manufacturer,” it says. The company backed a rival bid from private equity firm Carlyle, which ultimately went nowhere. It’s only selling now because it is forced to by PMI’s controlling position.
LGIM should take note. If it wants to be taken seriously as an ethical investor, it shouldn’t pull its punches in crunch moments.
More broadly, the asset management industry needs to figure out how they square the circle of ethical investing and fiduciary duty. It’s all very well to put pictures of turtles on your website and praise the ocean but when push comes to shove, a challenging - but financially attractive - bid like PMI’s can be difficult to turn down. If financial returns trump ethics, then at least be clear about it from the start.
