Can a cigarette manufacturer be socially responsible? Critics say British American Tobacco is the ultimate sin stock, yet the company believes a CSR programme can benefit both itself and society

The tobacco industry has for years faced a barrage of criticism and as the world’s second largest tobacco company, British American Tobacco has been directly in the line of fire. The health impact of its core product – cigarettes – is central to the charges levelled against the company.

British American Tobacco’s first social report, published this summer, quotes estimates made by Professor Sir Richard Peto, a world-renowned researcher in epidemiology, that ‘of those who start smoking regularly in their teenage years and keep on smoking steadily, half will die from a disease as a result of smoking’, although the company claims there are problems with such estimates, including the lack of a ‘fundamental scientific measure’.

Clive Bates, director of leading anti-smoking pressure group Action on Smoking and Health (Ash), says criticism focuses not just on the nature of the product, but also on ‘the conduct of the company’. Ash accuses it, among other things, of involvement in smuggling, unethical marketing practices and document shredding.

Given that British American Tobacco admits that cigarettes pose a real health risk but will not stop making them, the question of whether it can behave in a socially responsible manner might seem redundant.

Yet the issue is not as straightforward as it appears at first sight. Critics may condemn smoking, but tobacco is a legal product and millions of people choose to smoke, despite knowing the health risks. Even in the United States, where among some sections of society smoking is seen as something like a social crime, millions of people smoke and would probably do so even if their government banned tobacco. And no country plans to go that far. So tobacco is here to stay for the forseeable future. If British American Tobacco did not manufacture cigarettes, someone else would.

This makes it particularly important that a tobacco company should manufacture, distribute and promote its products in a way that takes account of the impact on society. As Martin Broughton, the group’s chairman, puts it: ‘The nature of our products reinforces the need for a responsible approach to managing them’.

It is in this context that British American Tobacco has developed a wide-ranging CSR programme, the first tobacco company to do so. The programme sets out how the company intends to demonstrate social responsibility and outlines the systems it is putting in place to achieve this end. Critics such as Bates argue that this is a public relations exercise. The company says the programme is a genuine attempt to demonstrate that it is capable of responsible stewardship of a risky product.

One cannot yet be certain who is right. British American Tobacco has made a long-term commitment to report on its social impacts and to adhere to corporate social responsibility principles. The extent of its commitment will only become clear over time.

With the debate so polarized, it is worth asking what the company stands to gain. Like many public companies, its shares are to a large extent in the hands of pension funds, insurance companies and other institutions. Increasingly, investors are taking account of non-financial risks faced by companies. If British American Tobacco can demonstrate that it has sound policies against smuggling and marketing to the under age, for example, its stock value may be re-rated and it will be able to attract capital that might otherwise go elsewhere.

Such policies will not appease hardline socially responsible investors, but they control only a small percentage of the market. However, at least one dollar in ten under professional management in the US was held in a ‘socially screened’ portfolio, according to a US Social Investment Forum study published in November 2001, and ‘tobacco is the most widely used screen’.

Looked at from a risk management perspective, British American Tobacco’s declared commitment to social responsibility could attract investors who at present boycott the company, and make it a more attractive candidate than other firms in the sector. There are signs that this is already happening. In September, the group was included in the Dow Jones Sustainability World Index – the only tobacco company to be selected.

A lower risk rating among investors might also make it easier for the company to grow by acquisition. At present, if British American Tobacco bought a business outside the sector, it might diminish shareholder value because of the less favourable risk rating the industry attracts, as happened when Philip Morris acquired the food company Kraft.

Demonstrating responsible product stewardship could help to improve the company’s relationship with governments, for instance by distancing it from smuggling. The UK Department of Trade and Industry is currently investigating allegations of the group’s involvement in cigarette smuggling.

Finally, a tobacco company with a record of social responsibility in various areas would be better placed to engage in the wider debate about the potential consequences of using its products. The World Health Organization played only a minor role in British American Tobacco’s dialogue with stakeholders leading up to publication of its first social report, and only four of the 24 medical organizations invited took part. Showing a genuine commitment to CSR is likely to make many stakeholders less reticent about being seen talking to the group.

It is therefore in the interests both of the company and of society to ensure best practice in all aspects of its business conduct and, in particular, that it works to reduce the health impact of tobacco products.

Ethics and responsibility have a direct bearing on the company’s commercial success. As a commercial organization, British American Tobacco needs to make a profit, but it is the way that profit is made which is under fire. The challenge the company faces is to continue making money while aligning its values more closely with those of the societies where it operates.

Not everyone agrees with this analysis. Bates is one of them. ‘There aren’t many things you could identify [at British American Tobacco] that would be a benefit to shareholder value and be a benefit to society. What is good for society is bad for them. Possibly reduced risk products and possibly smuggling, but it is not in any tobacco company’s interests to close smuggling down – their competitors would just step in.’

British American Tobacco is the latest in a growing line of companies to begin taking more account of its impact on society. BAE Systems, Cadbury Schweppes, Camelot, Orange and Vodafone all produced social reports around the same time. But British American Tobacco occupies a unique position within corporate social responsibility. Other companies sell products that can kill people, and are accused of smuggling or dubious marketing practices, yet tobacco is the ultimate ‘sin stock’. That is partly British American Tobacco’s own fault: like the rest of the tobacco industry, the company has been slow to acknowledge bluntly the health risks of its product and to take account of the changed expectations of society.

The company has now put down a marker and hopes to end its social exclusion. Will it be able to balance the interests of its owners and its critics in a way that satisfies both? Ultimately that is for people to decide.