Canada Pension Plan Investments has sold all of its shares in tobacco giant Altria Group, according to U.S. securities filings. 

The divestment follows longstanding pressure on investors to offload tobacco holdings, and concerns over Altria’s stake in controversial e-cigarette firm Juul.

The investment arm of Canada’s largest pension fund was most heavily invested in Altria in 2017, with 4.8 million shares worth about US$343 million, records from the U.S. Securities and Exchange Commission (SEC) show. Its recent divestment saw the fund shed around 3.2 million shares worth US$159.5 million. 

Altria has had a tumultuous few years. In December 2018, the Richmond, Va.-based firm bought a 35 per cent stake in e-cigarette startup Juul for US$12.8 billion, the largest-ever investment in a U.S. venture-backed company. Howard Willard, Altria’s CEO at the time, touted the investment as central to the firm’s harm-reduction strategy: “We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes,” he said. (Willard stepped down as CEO after less than two years in the role.) Shortly thereafter, Juul found itself at the centre of a health crisis in which e-cigarette users were developing an acute lung disease, of which at least 68 people have died in the U.S., linked to vaping products sold on the black market. Less than a year after investing in Juul, Altria wrote down its stake by US$4.5 billion; the investment is now worth less than a third of its original value. 

Long before Juul, CPP Investments had faced pressure from health professionals to dump its tobacco shares. In 2004, physicians asked the federal minister of health at the time to intervene in its Altria and other tobacco holdings, after the fund voted against shareholder proposals that would have required Altria to place health warnings on its cigarette packages globally. The Canadian Medical Association also urged the fund to divest the following year. 

In its 2019 sustainable-investing report, the fund said that since 2004, it has voted for “more than 50 shareholder proposals at tobacco companies requesting improved disclosure and standards on a range of ESG factors, including health impacts and human rights-related matters.” 

CPP Investments declined to respond to The Logic’s questions about the sale of its Altria shares. 

Moody’s Investors Services rates the tobacco industry as having high social credit risk. “We have identified customer relations, responsible production and demographic and societal trends as the most significant categories of social risk for tobacco companies,” analysts Roberto Pozzi and Richard Etheridge wrote in a June 2020 note for investors. Sustainalytics, a firm that evaluates companies as investments based on environmental, social and corporate governance (ESG) factors, deems Altria a “medium” overall investment risk with “severe” risk related to the environmental and social impact of its products and services. “Altria’s tobacco and other ‘sin’ products drive its risk exposure…. What is more, next-generation, non-smoking tobacco products are heavily scrutinized over health-and (improper) marketing issues. The company’s investment in Juul exacerbates this exposure,” reads a note from the firm. “Like its tobacco peers, the supply chain is also a notable area of ESG risk. Investigations by NGOs have identified multiple markets where child labour is systemic in tobacco cultivation, including in the US where Altria sources the majority of its tobacco.”

The company has seen its share price decline steadily over the past four years, falling from a five-year high of US$75.44 on May 1, 2017 to US$41.09 per share on January 13. CPP Investments did not say whether its divestment was motivated by the drop in share price, or ESG or reputational risk factors. 

The pension fund has cited its ESG mandate as part of its fiduciary duty to maximize returns for the 20 million-plus Canadians invested in its portfolio. “We believe companies that effectively manage [ESG] factors are more likely to create financial value over the long term, improving investment performance by the fund,” reads its 2020 sustainable-investing report.

CPP Investments still holds shares in Philip Morris International, a former Altria subsidiary. Altira considered repurchasing PMI in 2019, but merger talks ended after pushback from investors. Many of Canada’s institutional investors still hold Altria and other tobacco company shares, including some investors who wrote an open letter last fall urging companies for more ESG disclosure. The Caisse de dépôt et placement du Québec, British Columbia Investment Management Corporation and PSP Investments hold Altria stock. The Healthcare of Ontario Pension Plan invested in Altria in 2019, but has since sold its shares, SEC filings show, and the Ontario Teachers’ Pension Plan sold its US$61.4 million worth of shares in 2018.