The Bombay High Court is currently hearing a public interest litigation (PIL) that seeks directions to Indian public sector insurance companies to divest their holdings in tobacco companies.
The PIL was filed in April this year by Ms Sumitra Pednekar, widow of a former minister of Maharashtra who died of oral cancer in 2011, and six more eminent citizens, including Tata Trusts’ Managing Trustee R Venkataramanan and Mumbai’s Tata Memorial Hospital’s surgeon Dr Pankaj Chaturvedi, in their individual capacities.
The PIL states that: “While on one hand, the government is committed towards tackling the problem of tobacco and the ill effects caused by it, the insurance companies, in complete disregard of the government’s policy, continue to invest in ITC."
ITC is a conglomerate which is also the market leader in cigarettes in India.
According to the latest data available in the public domain, Specified Undertaking of the Unit Trust of India (SUUTI) (with a stake of 11.1% in ITC), along with public sector insurance companies Life Insurance Corporation (14.3%), General Insurance Corporation of India (1.8%), New India Assurance (1.8%), Oriental Insurance (1.5%), and National Insurance Company (1.2%), hold a combined stake in ITC of around 32% which is estimated to be worth INR1.07 lakh crore (US$1.66 billion).
New India Assurance also has a 1.7% stake in another cigarette manufacturer VST Industries, that is valued at INR81 crore. Thus, at stake are investments worth INR1.1 lakh crore.
The five public sector insurance companies, IRDAI and the Indian federal government have been made respondents in the PIL. The Bombay High Court last Thursday impleaded cigarette major ITC, market regulator Securities and Exchange Board of India (SEBI) also in the PIL.
The PIL states that despite the government’s continued commitment to reduce tobacco consumption and undertake initiatives to curb its harmful effects, the acts of the five public sector insurers, by continuing their huge investments in tobacco companies, are against the spirit and intent of the WHO Framework Convention on Tobacco Control, 2003 (FCTC) to which India is a signatory.
India signed the WHO FCTC in 2005 and since then has implemented a series of measures leading to the current status of increased social awareness about the hazards of use of tobacco in any form, including smoking.
India is home to 12% of the world’s smoking population. Tobacco accounts for nearly a million deaths every year in the country. Around 10% of these smoking related deaths in India are caused by passive smoking. 35% of Indian adults use tobacco in one form or other. Tobacco use is also a major risk factor for many chronic diseases including cancer, lung diseases, cardiovascular diseases and stroke.
India loses INR1.04 lakh crore a year because of tobacco consumption, suggested the “Economic Burden of Tobacco Related Diseases in India” report released by the Health Ministry in May 2016.
Top executives of several Indian mutual funds and private sector insurance companies have over the years either exited their investments or at least pared their investments from sectors like tobacco and liquor as part of a 'responsible investment strategy' as investors value such measures these days.
Globally too, there have been concerted moves to divest and exit from tobacco and cigarette manufacturing companies. The global insurer AXA, which had around $2 billion tied up in the tobacco industry, in 2016 exited and stopped investing in the sector. The Australian health insurer Medibank also exited investments in tobacco and related industries from its investment portfolio of $2.4 billion beginning 2016.
There is however, a view that if Indian government allows tobacco companies to continue with their business in the country, there should be nothing wrong in its insurance companies investing in the tobacco companies. Indian stock markets are, however, not new to ethical investing. Jain and Muslim communities avoid investments in such ventures whose business goes against their religious beliefs.