Sin stocks such as tobacco are increasingly posing potential regulatory risks to pension scheme portfolios, it has been noted.
Speaking at the Pensions and Lifetime Savings Association's Investment Conference, Nest CIO Mark Fawcett highlighted that the scheme is dedicated to thinking about the long-term impact and investment risk for its members.
Focusing on tobacco as a key sin stock in the market, Nest has begun to consider tobacco stocks as it is "concerned about regulatory risk and the impact that could have on our portfolios," Fawcett said.
"Despite perceptions, in recent years, divesting from tobacco wouldn't have had a negative impact on returns in recent years." The direction against the tobacco industry will impact its future revenues, he added.
In addition to its assessment of tobacco stocks, last year Nest launched a "climate aware fund" that looks to "overweight" renewables and sustainables and "underweight" damaging stocks, specifically carbon, Fawcett explained.
As a result, investment managers are required to manage members' long-tem risks by considering and divesting from stocks that may not be sustainable, it was suggested.
"We need to work out if this investment [sin stocks and tobacco] is appropriate for future generations," Tobacco Free Portolios director UK and Europe Rachel Melson said.
"The debate [surrounding sin stocks] has moved tremendously... our actual duty is to look after the long-term interests of the beneficiaries," of these investments - scheme members, agreed BNP Paribas Asset Management head of sustainability Helena Vines.
Subscribe to our newsletter to receive breaking news by email.