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Negative screening, have exclusions moved with the times?

Are the traditional areas of avoidance still fit for purpose? If responsible, principled driven investors still want to ‘do no harm’ do we need to adapt our ethical exclusions to include the more modern, harmful threats, to have more vigilance for the wolves in ESG labelled clothing?

As a parent in current times, protecting our children involves far more than advising them not to talk to strangers and not to smoke.  We are competing with ever burgeoning opposing influences, those of social media, trends and the ‘influencers’.

One of the most well-known and longstanding areas of exclusions is Tobacco; the original example of a ‘sin stock’.  We all know why tobacco is excluded, the harm it causes when it comes to health and well-being, not to mention the impact on the NHS, and the cost to a society that is already struggling with the cost of living.  But big tobacco has attempted to adapt to its negative press, bringing forth the e-cigarette, and the vaping phenomenon.


It has been advocated that vapes are a good thing for society, helping people to finally come off cigarettes, a ‘healthier’ alternative.  It’s even been proposed that vaping belongs in a responsible portfolio.  In May 2023, the Financial Times reported that Jacek Olczak, Chief Executive of Phillip Morris says it’s on path to becoming an ESG stock, arguing that its move away from cigarettes should ‘prompt a rethink’. I’m not sure what this is more illustrative of, the massive issue of ESG and its culpability in green washing, or the ethics of large companies, who know that they can manipulate the lack of agreed standards, quality and purpose of a ESG ratings. 

Phillip Morris’s peer, Altria owns vape maker Juul Labs, which has recently had to settle action in multiple US states over its aggressive marketing of vape products to children.  The company accepted a €420 million fine (Irish Times). According to the UK government, as they are cheap and easy to use, disposable vapes are the vape of choice for children, with 69% of current vapers aged 11 to 17 in Great Britain using disposable vapes (this is up from 7.7% in 2021). 


In response, the UK Government, the Scottish Government and the Welsh Government intend to introduce legislation to implement a ban on the sale and supply of disposable vapes. The UK Government will also collaborate with the devolved administrations to work on an import ban. The number of children using vapes has tripled in the last three years, and the majority of that increase has been driven by disposables. The evidence is clear that vapes should not be used by, or targeted at children, owing to the risk and unknown harms and the Royal College of Paediatrics and Child Health have therefore stated that disposable vapes should be banned.

The active ingredient in most vapes is nicotine, which is a highly addictive drug. Being addictive, a user can become dependent on vapes.  There is a duty to protect children from these harms, which is why the UK government will be banning disposable vapes, and bringing forward measures to restrict vape flavours, displays and packaging.

‘Forty children were hospitalised for vaping last year, prompting NHS bosses to warn we risk “sleep-walking into a crisis” (Independent).


In 2022, Shanti Das and Jon Ungoed-Thomas reported in the Guardian that; ‘a leading e-cigarette brand is flouting rules to promote its products to young people in Britain, an Observer investigation has found, as experts warn that brightly coloured, sweet-flavoured vapes are being used by children as young as seven’.

This article was about Elf Bar, a Chinese-owned vaping company, that had seen use of its products by those under 18 rise in the previous year.  The product was being endorsed by social influencers, some of which claimed to have been paid for the promotions and also had benefited from free products.  The videos were not consistently clearly marked as advertisements, had no age restrictions, and contained influencers vaping on camera. 


This clearly demonstrates the connections between social media, influence, young people and ever escalating harm.  Enter Mr Zuckerberg…

Mr Zuckerberg, who runs Instagram and Facebook has recently been in the news after he, and the bosses of TikTok, Snap, X and Discord, were questioned for almost four hours by senators.

Lawmakers wanted to know what they are doing to protect children online, and legislation is currently going through Congress which aims to hold social media companies to account for material posted on their platforms.

This hearing on Jan 31st, was an unusual opportunity for the US senators to question tech bosses. Behind the five tech bosses sat families who have reported that their children had either self-harmed, or killed themselves, as a consequence of social media content.  The families expressed their feelings throughout the proceedings, and hissed when the CEOs entered, and applauded when lawmakers asked the hard-hitting questions.

While the hearing mostly concentrated on the protection of children from online sexual exploitation, various questions also arose as senators made the most of the opportunity of having five powerful executives present, under oath.  It was Mr Zuckerberg, chief executive of Meta, who was scrutinised the most, as this was his eighth time testifying before Congress.

Republican Senator Ted Cruz asked him, "Mr Zuckerberg, what the hell were you thinking?" whilst showing him an Instagram prompt that warns users they may be about to see child sexual abuse material, but asks if they would like to see them anyway. (BBC news). They cause harm both socially and environmentally, and are in opposition to a transition to a green and sustainable world.

What is also clear is that as well as vaping causing significant harm to our young people, we have unprecedented levels of mental health issues affecting our children, far more than our health and social services have the resources to deal with. A large driver behind this mental harm is social media, where children are manipulated, and often lead to harm, by big companies who take no responsibility for having a greater influence than parents and guardians, and are thus eroding their ability to protect and nurture their children. 

If you look at this from a financial returns perspective, having a responsible portfolio without these problematic exposures protects you from the risks relating to liability action and costs, as well as any changes in law and regulation that will impact negatively on profits long-term.

A responsible and sustainable investor cares about where their money is invested. While certain magnificent seven stocks may be currently contributing to short term portfolio performance, at what cost?  While over the medium to long term, sustainable investors invested in responsibly managed portfolios that are researched with due diligence and social and environmental care and understanding, can get performance, whilst being aligned to a green and sustainable world for all.  We aspire to avoid social and environmental harm, and in particular, harm to the members of society that are most in need of our care and protection.

Written by the Alpha Beta Partners Investment Team.


All sources Bloomberg unless otherwise stated. IMPORTANT NOTICE  This is a marketing communication from Alpha Beta Partners a trading name of AB Investment Solutions Limited. Registered in England at Northgate House, Upper Borough Walls, Bath BA1 1RG. AB Investment Solutions Limited is authorised and regulated by the Financial Conduct Authority. Reference No. 705062.

This material is directed only to Financial Advisers in the UK and is not an offer or invitation to buy or sell securities. Opinions expressed, whether in general or both on the performance of individual securities and in a wider context, represent the views of Alpha Beta Partners at the time of preparation. They are subject to change and should not be interpreted as investment advice.

You should remember that the value of investments and the income derived there from may fall as well as rise and your clients may not get back the amount that they have invested. Past performance is not a guide to future returns.




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Important Information
 

This material is directed only at persons in the UK and is not an offer or invitation to buy or sell securities.

Opinions expressed, whether in general, on the performance of individual securities or in a wider context, represent the views of Alpha Beta Partners at the time of preparation. They are subject to change and should not be interpreted as investment advice.

You should remember that the value of investments and the income derived therefrom may fall as well as rise and you may not get back your original investment. Past performance is not a guide to future returns.

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