Reivention is harder than it seems

After decades of being in the reputational wilderness, tobacco companies are now repositioning themselves by shifting their models to encompass e-cigarettes, hoping to change their reputation and protect their revenue streams.

Not surprisingly tobacco is an easy target for ethical investors: any business that first addicts then kills its customers can have no place in any ethical portfolio.

A  great example of an organisation using the media as part of its strategy to shift investor opinion, company valuation and market perception is Philip Morris International (PMI), the world’s largest tobacco company by market capitalisation.

For some years, PMI has been attempting to pivot its investor story away from its traditional business model and making and selling cigarettes towards what it describes as a “a smoke-free future”. And the company has been making sizeable bets on this future: in 2021 it acquired Swedish Match, a maker of “snus” nicotine products for $15.6 billion.

Now Jacek Olczak, Chief Executive Officer of PMI, has embarked on a campaign to position the company as an ESG investment.

At first sight, this looks insane – and indeed the market has responded with scepticism. Cigarettes still account for 64% of PMI’s revenues and 79% of profits, and its earlier attempt to move into healthcare through the GBP1.1 billion takeover of UK asthma inhaler maker Vectura appears to have foundered as clients have walked away because of its new owner.

Then last month PMI moved onto the offensive, with a series of communications designed to continue the momentum. Olczak delivered a speech in London with the central thesis that “cigarettes belong in a museum”, and gave an interview to the Financial Times in which he speculated that PMI could become an ESG stock in the future.

These are bold moves, but PMI may have missed the boat. While the company has been talking to media and investors trying to reposition itself, it joins many polluting or socially questionable organisations doing the same. Despite Olczak’s claim to the FT that “sometimes the change comes from within the industry . . . Will you not use renewable energy because it’s coming from BP?” the reality is that PMI is a cigarette company.

For all its investment in ESG disclosures and its attempts to diversify revenues away from cigarettes, the company remains excluded by many pools of capital.

A slick media and investor relations operation will only get you so far.