Calvert  News & Commentary

Taking the Right Step: CVS Caremark to Stop All Tobacco Sales

Calvert Applauds CVS Caremark for Its Commitment to Cease Tobacco Sales

2/5/2014

Calvert applauds CVS Caremark, the nation’s second largest drugstore chain, for its leadership and announcement today to stop selling cigarettes and other tobacco products. 

The company announced this morning that these sales are inconsistent with its purpose – helping people on their path to better health – and as a result, will remove all tobacco products from retail shelves nationwide at its more than 7,600 stores by October 1.  With CVS’ increasing emphasis on healthcare, it believes it can now better serve its patients, clients and health care providers while positioning itself for future growth as a health care company.  "Ending the sale of cigarettes and tobacco products at CVS/pharmacy is the right thing for us to do for our customers and our company to help people on their path to better health," said Larry J. Merlo, President and CEO, CVS Caremark. "Put simply, the sale of tobacco products is inconsistent with our purpose."

Calvert finds the company’s rationale on health attractive, with CVS Caremark also pledging to help millions of Americans quit smoking through a national smoking cessation program this spring at its pharmacies and MinuteClinic locations. It will offer other comprehensive programs to aid its pharmacy benefit management plan members to quit smoking. With approximately seven in ten smokers saying they want to quit, and half attempting to quit each year, there is vast room for improvement. Smoking is the leading cause of premature disease and death in the United States with more than 480,000 deaths annually.  Although cigarette smoking has markedly decreased from 42% in 1965 down to 18% today, smoking cessation rates have levelled off in the past decade.  Thus, CVS believes more interventions are necessary such as reducing the availability of cigarettes. As pharmacies have continued to expand their health and wellness outreach, their missions have become increasing inconsistent with selling tobacco products.  Major health groups such as the American Lung Association, American Medical Association and the American Heart Association have opposed the sale of tobacco products in retail pharmacies.1

Sustainable and responsible investing in the United States began back in the early 20th century with the avoidance of “sin stocks” of alcohol, tobacco and gambling. While some investors still reject these stocks on moral grounds, the devastating impact of these products on society, individuals, and businesses provides compelling practical reasons to avoid investing in these companies. While Calvert avoids investing in alcohol, tobacco, and gambling companies, at times we may invest in those companies that derive only a small portion of their revenues from these industries, as long as the company overall is otherwise attractive from a financial and environmental, social, and governance (ESG) perspective. However, given the announcement by CVS Caremark, Calvert calls upon other pharmacy chains and retailers to take similar steps.

The company estimates that it will lose approximately two billion in revenues on an annual basis from the tobacco shopper. Calvert believes CVS’ forward-looking decision generates shareholder value well beyond this metric. For example, CVS relies on strengthening relationships with existing healthcare providers and establishing new relationships for a significant amount of its future earnings expansion potential. Clearing tobacco off its shelves gives CVS a competitive advantage in those existing and potential relationships. Since in-store environments can have a large impact on strategic sales trends – omitting tobacco products from CVS’ in-store environment is likely to have a tangible impact as management shapes the company’s sales profile to pursue higher-value opportunities. As tobacco products have a long-established declining sales trends, we believe management will replace tobacco’s valuable shelf space, which many customers face during the checkout process, with product categories that have at least as attractive growth profiles. Ultimately, the company’s decision will now better align it with patients, clients and healthcare providers to improve health outcomes, while supporting continued growth. 

Calvert has been involved in tobacco-free investments since 1982 when it launched its first sustainable and responsible mutual fund.  Since then, its equity funds have avoided investment in tobacco companies and in 2013, its fixed income funds formalized a policy to avoid investment in tobacco companies as identified by various Barclay indices.

1. The Guardian, CVS to stop selling cigarettes and other tobacco products, October 5, 2014



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