Which banks and lenders are ‘tobacco free’?

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on March 10, 2021
Which banks and lenders are ‘tobacco free’?

Ethical lending and investing is all the rage today, with a few banks refusing to lend to carbon-polluting companies, but which lenders are ‘tobacco free’?

‘Tobacco free’ finance isn’t refusing to give home loans to smokers, nor is it having an entire workforce being free of the black tar. Rather, it means that banks and other financial institutions won’t lend to or invest money in big tobacco companies. It’s a growing sub-sector of the market, so if you’re staunchly opposed to the tobacco industry, you might like to know where your money goes.

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers (these loans may not be tobacco free).

Lender

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
UNLIMITED REDRAWSSPECIAL OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
AN EASY DIGITAL APPLICATION

Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
More details
NSW/VIC/SA METRO & INNER REGIONAL AREAS$5000 CASHBACK. T&Cs APPLY.
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
NSW/VIC/SA METRO & INNER REGIONAL AREAS$5000 CASHBACK. T&Cs APPLY.

Variable Home Loan (Principal and Interest)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of May 18, 2022. View disclaimer.

Which financial companies are tobacco-free?

The world-leading organisation for tobacco free finance, ‘Tobacco Free Portfolios’, lists signatories that have taken the pledge to be tobacco-free. The organisation lays claim to in excess of US $11 trillion in assets under management. Overall there are 162 tobacco-free banks, lenders, super funds and insurers spread across 21 headquartered countries at the time of writing.

See also: Concerned about climate change? Consider switching your super

Australian (and Australia-present) finance and superannuation companies to have taken the pledge are:

Sector

Tobacco-free companies

Banking, Insurance & General Finance

  • AMP Capital

  • BT

  • ING

  • MLC Life Insurance

  • NAB

  • Rabobank

  • Teachers Mutual Bank

  • Westpac

Superannuation

  • Australian Catholic Super

  • Australian Ethical Super

  • Australian Super

  • Care Super

  • CBUS

  • Christian Super

  • Colonial First State

  • Future Super

  • HESTA

  • LUCRF Super

  • Maritime Super

  • MTAA Super

  • NGS Super

  • Sunsuper

  • Tasplan Super

  • TelstraSuper

  • Verve Super

  • Vic Super

  • Vision Super


Source:
Tobaccofreeportfolios.org

Some banks and lenders may still currently invest in and lend to tobacco, but have set deadlines to end this practice. Take ING, for example:

ingtobacco

Source: ING

Does a tobacco-free investment portfolio hurt performance?

It’s a pretty common trope that a Birkenstock-wearing, granola-munching hippie might not be the best at investments. But a paper by Russell Investments indicates that tobacco-free investing and lending does not necessarily affect performance, is more widespread than you’d think, and is not necessarily done for ethical reasons.

The paper examined the role of tobacco in indices and active portfolios from 2003 through 2018, and found that active fund managers who sought to outperform the market chose not to include tobacco in their portfolios.

“This leads us to conclude that most managers don’t expect tobacco to outperform the broad market index,” the paper’s author said.

It also found United States-based large cap investors ‘underweight’ tobacco, meaning they invest in tobacco less than market availability.

“Roughly 50-70% of the [investing] universe avoids tobacco completely. While the existence of some tobacco-free portfolios is to be expected, the fact that 50% or greater exclude it directly strikes us as surprising,” the paper said.

“We believe this is unlikely related to client requests … It’s also worth pointing out that tobacco exposure has declined over the 2003-2018 period as well. This observation is less surprising, given the growing interest in excluding tobacco from portfolios in Europe and Australia.”

So, if active fund managers are avoiding tobacco industries not because of ethics but for performance reasons, what are the options for the everyday punter?

How to be an ethical investor

Well aside from quitting the darts yourself, there are presently a few investment options you could use to make sure your investment money isn’t going to the tobacco industry.

Apart from the companies listed earlier, there are a few ways to make tobacco-free investments, as well as ‘ethical’ investments such as climate-friendly portfolios, not investing in weapons companies and so on. One common way is through investing in exchange traded funds (ETFs), which are generally lower-cost than actively-managed funds.

Some ‘ethical’ ETFs available in Australia include:

  • ETHI: Betashares Global Sustainability Leaders ETF

  • VESG: Vanguard Ethically Conscious International Shares Index ETF

  • RARI: Russell Australian Responsible Investment ETF

  • Raiz: ‘Emerald’ Portfolio

This is not an exhaustive list, however all screen for companies that invest ethically, and aim to stamp out tobacco. Be aware that like the label ‘may contain traces of nuts’ in your food, the screening process might not capture all tobacco-free investments 100% of the time.

According to Raiz, responsible investments in Australia amounted to $866 billion in assets under management in 2018, making Australian investors one of the world leaders in the space.

“An analysis from MSCI [Morningstar] found that the performance of two portfolios screened to overweight stocks with higher ratings in environmental, social and governance (ESG) characteristics outperformed the global benchmark over the last eight years,” a Raiz paper said.

A large part of this is because many ESG stocks are technology companies such as Amazon, Google, and Apple, which have performed strongly over the last decade.

Always check the fees associated with ethical investment ETFs, as you should with any investment, and note that past performance is not an indicator of future performance. The floor is yours.

Savings.com.au's two cents

We’re not suggesting you have to invest in tobacco-free companies. You might have other priorities, and frankly, go for your life. Tobacco is, at the end of the day, a ‘free choice’ product. However, it is interesting to note there is some evidence to suggest fund managers are avoiding tobacco simply for performance reasons, and not for ethical purposes.

While ethical investments' performance can be attributed to being tech stock-heavy, it does seem like tobacco companies are being left in the dust, regardless of ethics. Nevertheless, before you jump into any investment or financial product, do your due diligence, not just on the ethics, but on the fundamentals, such as fees and costs.


Photo by Lex Guerra on Unsplash

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison strives to deliver and edit news and guides that are engaging, thought-provoking, and simple to read.

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