Politicians in charge of the council with responsibility for stop smoking services in Hertfordshire have decided to continue investing in tobacco.

Hertfordshire County Council’s pension committee has agreed to allow its pension fund managers discretion to continue ploughing funds into cigarette giants.

The council, which administers the Hertfordshire Pension Fund, has around £20million in British American Tobacco.

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The investments are longstanding, but last April it became the county’s public health authority with responsibility for encouraging residents to lead healthier livestyles.

Following the decision, Derrick Ashley, a Conservative cabinet member for the council and chairman of the pension committee, said: "We did not make the decision lightly and are sympathetic to the arguments for not investing in tobacco.

"However, the expert financial advice we have followed made it clear that if we placed restrictions on our investment managers it would risk the pension fund’s returns being adversely affected. This is not a risk that the committee is at liberty to take, regardless of its members’ views on tobacco.

"The committee’s responsibility is to secure the best long-term returns for the pension fund. If we fail in this duty, it would fall on the public purse to pick up the bill. We made our decision not only in the financial interests of pensioners, but to protect future council taxpayers.

"This is not a decision taken in our roles as elected members of Hertfordshire County Council, which embraces its public health role and continues to work towards helping people to stop smoking.

"The decision was taken as members of a committee with a legal duty and fiduciary responsibility to get the best return from investments for the pension fund, which must allow its managers to have discretion to invest in assets that will deliver those long term returns."

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The committee's decision came after it commissioned a report into plans "to align (the council’s) portfolio of investments with the principles and intentions" of being a public health authority.

But a report by a financial consultancy, Mercer, highlighted concerns from the investment managers that pulling money out of tobacco could damage returns on the £380 million pension fund.

In the report, Nick Sykes, European director of consulting for Mercer, said the council should only stop investing in tobacco if the committee was sure a new more ethical strategy would be as successful as the current one.

He said: "The committee would, we believe, need to be confident that the returns and risks of such an investment approach would not be inferior to the current approach."

The report also carried representations from one of the fund’s investment managers, Baillie Gifford, which produced figures showing that without tobacco shares the fund would be worth around £23,000,000 less.

Baillie Gifford said: "Whilst this illustration is necessarily theoretical it does at least help quantify the significance (around £20 million) of value added to the fund by tobacco investments.

"We believe that if investment in tobacco companies was precluded then this could significantly constrain our ability to add value".