• April 18, 2024

Taking Stock

 Taking Stock
Image: blacksalmon

Where are we with ESG?

By Cheryl K. Olson

It was once novel, even radical, to talk about making good environmental, social and governance (ESG) practices central to business and investment decisions. Today, ESG is literally front and center on the websites of major tobacco companies.

Under the heading “Winning with ESG,” Turning Point Brands states, “We recognize that incorporating ESG into our business strategy will support our operating principles of winning with accountability, integrity and responsibility.” Altria has set up a Responsibility Progress Dashboard to track and manage ESG issues.

Sustainability is now the trending term. Witness Philip Morris International’s Sustainability page, which begins, “For PMI, sustainability is more than just a means to minimize negative externalities and mitigate risks while maximizing operational efficiency and resource optimization.” At Universal Leaf, the first-listed “core belief” is “We believe in our responsibility to make a sustainable impact on our planet.”

Whether ESG or sustainability, is something meaningful going on here for the nicotine product industry? What are the biggest concerns on the “E” side of things? Below are several perspectives.

Investor Viewpoints

Pieter Vorster, managing director at Idwala Research, focuses on tobacco harm reduction and industry transformation. When it comes to tobacco companies, says Vorster, investors may look at ESG from several angles. One is the Tobacco-Free Portfolios perspective, which assumes that there are no good tobacco companies, and all should be excluded from portfolios. Another approach, he says, is “to encourage companies to change, as with the oil industry, and invest in the least bad ones.”

A third viewpoint looks more at process than product. Tobacco companies can end up in ESG portfolios via “good credentials on other measures like carbon footprint and water,” says Vorster. “BAT, for example, has been in the Dow Jones Sustainability Index for over 20 years.”

Why the shift from ESG to sustainability? “From an investor perspective, the whole ESG movement is probably slowing,” Vorster says, because it’s no longer a differentiating factor. Rather, environmental and social consciousness is something that’s assumed by both investors and consumers.

This is why he feels that measures of movement toward reduced-risk nicotine products, such as the Tobacco Transformation Index, can benefit industry. They can help companies stand out on another dimension of ESG. (More on this later.)

“I think the sustainability label is a bit broader than ESG,” says Vorster. “For me, from an investor perspective, sustainable would be, how long can this business exist? How long can it grow?”

“Ultimately, most investors care about performance,” Vorster says. “If a company’s environmental credentials are going to impede their share price performance, then they will care.”

He adds, “That’s also why they care about tobacco companies transforming, because they want a more sustainable business long term. You know, it’s not good business if your products kill half your customers.”

Investors care about tobacco companies transforming because they want a more sustainable business long term. You know, it’s not good business if your products kill half your customers.

Pieter Vorster, managing director Idwala Research

The Litter Issue

When I was a child, environmental awareness meant “Keep America Beautiful” (KAB) campaigns, telling us “every litter bit hurts.” This included cigarette ends tossed from car windows. To my surprise, KAB is still going. Its website says that “cigarette butts account for 88 percent of litter four inches or smaller.”

Concerns about cigarette litter have shifted from aesthetics to preventing chemical and plastic pollution. Cigarette filter waste was on the agenda this year at the 10th session of the Conference of the Parties (COP10) to the World Health Organization Framework Convention on Tobacco Control (FCTC). Citing a 2010 study, a COP10 news release says, “An estimated 4.5 trillion cigarette butts are thrown away annually worldwide, representing 1.69 billion pounds of toxic trash containing plastics.”

Cigarette filters are also the focus of most research literature on tobacco and sustainability. A 2022 editorial in the journal Addiction on the environmental impact of tobacco products advocates banning the sale of filtered cigarettes, or having industry pay for cleanup. As an example of the latter, the writers point to a San Francisco “cigarette litter abatement fee,” which is currently $1.50 per pack, paid quarterly by local cigarette retailers.

The European Union’s Single Use Plastics Directive has helped spur efforts to develop biodegradable filters. Experiments in recycling are underway, such as a project in Slovakia that plans to mix recycled cigarette filters into asphalt for surfacing roads.

Sidelining of cigarettes by noncombustible alternatives should gradually reduce filter waste. What about litter issues with newer nicotine alternatives?

“Next-generation, or reduced-risk, products were generally not a major source of concern on the environmental side until the rise in popularity of disposable vapes,” says Vorster. Waste from disposables is particularly difficult to address because so many are sold illicitly.

The website of the U.K. Vaping Industry Association (UKVIA) criticizes the lack of interest in and resources for vape recycling from local councils. The UKVIA will host a webinar on April 15 to address the future of vape waste management.

Concerns about e-cigarette waste have yet to catch fire (pardon the pun) in America. Sustainability is not listed among the “top issues” on the website of the Truth Initiative. Their brief 2023 report on “tobacco and the environment” mentions disposable e-cigarette waste and battery risks but zooms in on pollution and litter from cigarettes.

David Sweanor, who chairs the advisory board of the Centre for Health Law, Policy and Ethics at the University of Ottawa, views this issue skeptically. “People look for something new to beat up nicotine companies on,” he says. “But your real concern isn’t about disposable e-cigarettes; it’s about batteries. Something less than 5 percent of household batteries sold in the U.S. are properly disposed of. So don’t throw it at the nicotine business or consumers.”

During a visit to Finland, Sweanor happened upon a creative art installation that turned out to be a battery recycling station. “Because batteries are all different colors, as the container filled up, it’s a beautiful sculpture,” he recalls. “Whoever puts these in hockey arenas and shopping malls—why aren’t we doing things like that?”

Waste from disposables is difficult to address because so many are sold illicitly. (Photo: Bennphoto)

Concern About Carbon/Water Footprint

Nowadays, we care less about “litterbugs” and more about carbon footprints. In her 2024 closing address to COP10, Adriana Blanco Marquizo, head of the FCTC Secretariat, emphasized environmental protection. She cited the “historic decision” to “take account of the environmental impacts arising from the cultivation, manufacture [and] consumption of tobacco products as well as the waste they create.”

Six years ago, a groundbreaking report from Imperial College London turned attention from smoking’s health harms to the environmental harms from producing 6 trillion cigarettes per year. Researcher Maria Zafeiridou and colleagues looked at “resource needs, waste and emissions of the full cradle-to-grave life cycle of cigarettes” across the globe. As Imperial College’s news release noted, those 6 trillion cigarettes required 22,200 megatons of water, 5.3 million hectares of land, 62.2 petajoules of energy and 27.2 megatons of material resources.

Synthetic nicotine maker Zanoprima Life Sciences recently released a report comparing the environmental impact (from the raw materials to the factory gate) of their laboratory-made nicotine and nicotine from plants. The report’s author, Eric Johnson of Atlantic Consulting of Zurich, routinely does life cycle assessments of products and services.

“In some of the work I do, I know what the answer will be before I start,” says Johnson. “But I hadn’t looked at this issue closely.”

Drawing on data used in the Imperial College study, Johnson found that tobacco-based nicotine (especially when fuel cured) had a substantially larger carbon footprint. Also, synthetic nicotine production doesn’t use up water.

Johnson was struck by the size of the difference. “When it’s ‘this product has a 15 percent lower footprint than the other guy’s product,’ it’s hard to know,” he says. “But tobacco nicotine’s footprint is multiple times larger. Even with normal error and uncertainty, the result is solid.”

Clearly, from an ESG standpoint, the big issue has to be that cigarettes are killing 8 million people a year. Not the carbon costs.

David Sweanor, chair, advisory board of the Centre for Health Law, Policy and Ethics at the University of Ottawa

What We Can’t Say

As someone who makes his living as an investor, Sweanor views all of the above as relative trivialities. “Clearly, from an ESG standpoint, the big issue has to be that cigarettes are killing 8 million people a year,” he says. “Not the carbon costs.”

A “good ESG” cigarette company would move aggressively into reduced-risk nicotine products. But that’s just the first step, says Sweanor. Such companies also have an ethical and legal responsibility to warn their customers.

“If you’re selling products that are two or three orders of magnitude more hazardous than viable alternatives, you need to tell them. That’s basic ESG standards,” he says. “However, the laws in many countries, including the U.S. and Canada, make it illegal to do that.”

Educating about and promoting reduced-risk products could create shareholder value and make it easier to hire good employees. “You’d also want to differentially price and have other incentives to nudge consumers toward the less hazardous nicotine products,” he adds. “But companies are precluded from doing all that.” Sweanor calls this “insane.”

Recent surveys show that ever-fewer people, including those who smoke, think that noncombustible nicotine products are less hazardous than cigarettes. Sweanor imagined what health authorities would do if similar proportions of adults disbelieved that driving drunk increased car crashes. “They’d be totally freaking out and running a major campaign,” he says. “And probably force any companies involved to be part of that effort.”

He stresses that this is out of industry’s hands. “The responsibility I would lay on the companies,” he concludes, “is that they are not making a big deal out of this.”

ESG From the Inside

I asked an industry insider, who’s had senior roles at several major companies, for their unvarnished anonymous view. “There is a lot of snark around the value of things like ESG,” they admitted. “I’ve heard it called ‘window dressing.’”

They personally disagree with that view, noting that “unsexy” things like constant efforts to reduce manufacturing waste and water use get little publicity.

“I’ve even heard THR (tobacco harm reduction) called window dressing. But I don’t think that’s true where I work,” they said. “We’d like to stay around for a long time, and we’ve got to do something very different to make that happen. And there is a real sense of pride about this transformation.”

Citations

Zafeiridou M et al. (2018). Cigarette smoking: An assessment of tobacco’s global environmental footprint across its entire supply chain. Environmental Science & Technology. https://pubs.acs.org/doi/10.1021/acs.est.8b01533

Zanoprima Lifesciences Ltd. (2024). Carbon and water footprints of tobacco-based vs. synthetic nicotine. https://www.zanoprima.com/updates

Truth Initiative (2024). Tobacco and the environment. https://truthinitiative.org/research-resources/harmful-effects-tobacco/tobacco-and-environment

Morphett K et al. (2022). The environmental impact of tobacco products: Time to increase awareness and action. Addiction. https://onlinelibrary.wiley.com/doi/10.1111/add.16046