Alcohol, Tobacco and Gambling

Issue Brief: Alcohol, Tobacco and Gambling

In the early 20th century, sustainable and responsible investing in the United States meant avoiding the “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. Alcohol, for example, is directly linked to over 60 types of diseases or injuries and is cited as a factor in half of all crimes committed in the United States.1

While avoiding investment in pure-play tobacco, alcohol, and gambling stocks is fairly straightforward, discounting these industries altogether becomes much more complicated when they represent only a fraction of a parent company’s revenues—especially common in today’s multinational conglomerates. Overseas companies are another challenge since their financial and corporate disclosure requirements vary widely from country to country.

Accordingly, while Calvert generally 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.

Locking In on Product Safety

Calvert evaluates each company’s ESG policies and overall sustainability “footprint” before investing. One of the key areas we evaluate is product safety and impact, where we assess whether the services and goods a company produces enhance the health or quality of life for consumers. We also weigh the effects of a company’s products on public welfare and safety, including any significant, long-term health, safety, or financial repercussions. For the alcohol, tobacco, and gambling industries, the preponderance of data speaks for itself. Each year:

  • One in five U.S. deaths occurs due to tobacco use2
  • Americans lose 2.3 million years of potential life due to excessive alcohol use3
  • Six to eight million Americans suffer financial and other problems that stem from gambling4

Other product safety considerations are whether companies respond promptly to correct any safety issues and demonstrate integrity in their advertising and labeling. We also look at how well a company complies with federal regulations and if it has a history of any lawsuits, product recalls, and accidents. The issues alcohol, tobacco, and gambling companies have had in these areas are well-documented. For example, papers released after the 1998 Tobacco Master Settlement Agreement revealed the tobacco industry knew far more about the dangerous effects of smoking than they publicly acknowledged. Also, a growing mountain of research shows that tobacco companies continue to use advertising and other tactics to lure more teenagers into smoking.5

Having learned from the tobacco industry’s experience, alcohol companies now attempt to self-regulate by employing strict internal guidelines for marketing to children. These guidelines are often overseen and enforced at the highest levels of corporate management, including the board. Yet, underage drinking and binge-drinking by youth remain widespread problems, with serious educational, health, and social repercussions for young adults and society.

In addition, alcohol, tobacco, and gambling companies face a never-ending parade of lawsuits, regulatory burdens, penalties, and negative publicity as evidence of the toll they exact upon society grows. Tobacco companies face especially high hurdles in this respect. In 2011 alone, tobacco firms paid an estimated $7.4 billion to state governments as part of the 1998 state tobacco settlement, which the companies must make payments on in perpetuity.6

As analysts have remarked, these problems could plague shareholder value in the future, and certainly affect the firms’ reputations. But problems caused by alcohol, tobacco, and gambling can impact the profitability of other companies as well. Most important, the full cost to society of these harmful products is difficult to calculate.

Impacts on All Employers, All Industries

Calvert is concerned about the potential negative impact of alcohol, tobacco, and gambling on society overall, as well as on workplace productivity and companies’ bottom lines. For example, research shows that employees with alcohol problems have double the health care costs of employees without alcohol problems, as well as higher rates of absenteeism, disability, and job turnover.7

Alcohol. The U.S. Centers for Disease Control (CDC) estimates excessive alcohol consumption costs $161 billion in lost productivity and $25 billion in higher health care expenses for drinking-related problems each year.8

Tobacco. Smoking costs the United States more than $193 billion a year in medical spending and productivity losses.9 Consulting firm Aon Hewitt says a smoker is 18% more expensive to employers than a nonsmoker.10

Gambling. While there’s much less research on the effects of employees with gambling problems in the workplace, clearly it affects productivity and absenteeism. Crime is another issue—in 2011, gambling accounted for 22% of prominent embezzlement cases with losses of more than $100,000. Most of these occurred in states with casinos and/or Indian gaming facilities.11

The bottom line is all of these extra costs add up to a less profitable company for shareholders.

Key Alcohol, Tobacco, and Gambling Challenges

Calvert generally avoids investing in companies in the alcohol, tobacco, and gambling industries due to their inherently harmful effects. Many of our portfolios entirely exclude companies that manufacture cigarettes, cigars, loose tobacco, and chewing tobacco, although we recognize the cultural and religious importance of tobacco to many Indigenous Peoples.

We also generally avoid investing in companies with direct involvement in the gambling industry, such as casinos, equipment providers, and gaming establishments, including cruise ships. However, Calvert also recognizes that many Native American groups rely on gambling as a source of tribal income, and that this revenue may be used to finance schools, roads, or other community projects. Accordingly, at times we may invest in debt projects offered by tribal gambling businesses that appear socially beneficial. In the area of alcohol, we may also consider for investment companies, including restaurants and retailers, that derive only a small portion of their revenues from alcohol sales, as long as the company is otherwise attractive from both a financial and sustainability perspective.

Overseas companies are another challenge, regardless of the issue being evaluated, because the details disclosed in publicly available corporate documents vary from country to country. Therefore, instead of total exclusion, we allow more latitude in our international portfolios when evaluating foreign companies for investment.

The Final Analysis

Although many stocks in the alcohol, tobacco, and gambling industries have historically delivered competitive long-term performance, in Calvert’s analysis, they are plagued with problems—and hamper profitability in other industries as well. As a result, we believe that minimizing investment in the alcohol, tobacco, and gambling industries is essential to the well-being of society—and a smart baseline goal for sustainable investors.

1 Global Alcohol Policy Alliance

2 Centers for Disease Control, Smoking & Tobacco Use Fast Facts

3 Centers for Disease Control, Alcohol and Public Health: Alcohol-Related Disease Impact (ARDI),

4 National Problem Gambling Awareness Week,

5 Campaign for Tobacco-Free Kids, Tobacco Company Marketing to Kids,

6 Substance Abuse and Mental Health Services Administration, Employee Alcohol Problems Issue Brief #5, 2008

7 Centers for Disease Control and Prevention, Excessive Drinking Costs U.S. $223.5 Billion, October 17, 2011,

8 Centers for Disease Control, Smoking & Tobacco Use Fast Facts

9 Pat Wechsler, Bloomberg Business Week, Companies Get Tougher with Employees Who Smoke, June 30, 2011

10 Marquet International, The 2011 Marquet Report On Embezzlement, January 17, 2012,

See an overview of how Calvert’s sustainable and responsible investment (SRI) criteria are applied to Calvert’s mutual fund offerings »

SRI criteria will vary from fund to fund. Please see a fund's prospectus for details.

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Calvert Investment Management, Inc. serves as the investment advisor and provides sustainability research for the Calvert mutual funds and institutional investment strategies.

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