Nest has said it will completely divest from the tobacco industry having concluded that it is a poor investment for is eight million members.

The UK’s largest pension master trust, which currently has around £40m in exposure to tobacco firms, said that stricter global regulation, aggressive government legal action against the industry and falling global smoking rates have all contributed to the decision.

Nest said it would likely have £120m invested in tobacco by 2022, based on having £20bn assets under management, if it did not make the change now.

“We don’t see any future benefits for our members investing in the tobacco industry,” Nest chief investment officer, Mark Fawcett, said.

“This announcement won’t come as a surprise to some. We’ve been highlighting our specific concerns around tobacco investments and its performance for a couple of years now.

“Tobacco companies are facing legal challenges across the world from governments taking action against an industry causing serious harm to their citizens. In our opinion, tobacco is a struggling industry which is being regulated out of existence.

“We have not taken this decision lightly, but we don’t think it makes sense to continue investing in an industry whose business model looks increasingly unsustainable.”

The master trust estimates that it will take up to two years for the scheme to fully divest. The scheme already applies a tobacco-free policy to its ESG emerging market fund and commodities fund.

Commenting on the announcement, Amundi co-head of emerging market fixed income, Sergei Strigo, said: “We do not see attractive risk reward of the tobacco sector in the emerging market bond universe and the market share is fairly modest in the emerging market debt space.

“Nest’s decision to go tobacco-free is consistent with Amundi’s ESG view to cap tobacco companies in our lowest two ratings before exclusion.”

Share Story: