In recent years, one form of investing has become increasingly popular, especially with Europeans. Environmental, social and governance (ESG) investing argues for a holistic approach to wealth creation. Instead of focusing just on financial gain, ESG investors worry about the impact their actions have on nature and society. Thus, many FTSE 100 shares are out of bounds for ESG investors.
ESG and DEI
I understand why some people don’t want their personal investments to do harm. After all, there is currently no Planet B for humans and other species. However, since Donald Trump was elected in November, there has been a US backlash against ESG. Furthermore, President Trump has asked oil & gas explorers to “drill, baby, drill” — regardless of future environmental consequences.
ESG in the FTSE 100
Within my family portfolio, I see a few non-ESG FTSE 100 firms. These include three mining companies and a leading UK oil & gas producer. When my wife and I bought these stocks, ESG was not at the forefront of our minds. Rather, we bought these four stocks for their market-beating dividend yields. As it happens, all four shares have since fallen in value, but that’s another story.
However, there is one sector whose stocks we have never owned. That business is tobacco, whose products harm and kill many smokers over time. My wife won’t allow tobacco shares into our portfolio, because I am a long-term smoker and she actively detests this awful addiction.
Tobacco or not tobacco?
Then again, two FTSE 100 tobacco stocks have been a great investment for those not averse to owning them. These shares are British American Tobacco (LSE: BATS) and Imperial Brands (LSE: IMB), which date back to 1902 and 1901, respectively.
Here’s how these two non-ESG shares have risen in value:
| Company | BAT | Imperial Brands |
| Share price | 3,199p | 2,959p |
| Market value | £70.4bn | £24.4bn |
| YTD 2024 | +11.0% | +15.9% |
| Six months | +18.3% | +30.2% |
| One year | +39.9% | +71.0% |
| Five years | +8.7% | +89.1% |
Both companies have delivered gains for shareholders over all four periods, but Imperial Brands emerges as the winner. Its shares have soared 71% in 12 months, versus the FTSE 100’s 3.6% gain. Over five years, Imperial shares have more than doubled the Footsie’s gain of 42.6%.
What’s more, these capital gains exclude cash dividends, which are extremely generous from both businesses. Right now, British American shares offer a bumper cash yield of 7.4% a year, while Imperial’s yearly dividend yield comes in at 5.8%. Adding these cash flows to the above price rises hugely boosts the total returns to FTSE 100 tobacco shareholders in recent years.
As I said, I cannot buy these stocks and keep my better half happy from a moral standpoint, even though I like their cash yields. However, investors without ESG concerns might consider whether these high-yielding shares could deliver valuable income and diversification to their personal portfolios. Over decades, these two shares have been big winners for their owners.
That said, while smoking rates remain high in developing countries, they’re falling steeply elsewhere. Eventually, this trend will improve public health, but will most likely hurt tobacco shareholders!
