The divestment trend hit tobacco this week as insurance behemoth Axa pledged to rid itself of all its holdings in the sector.
The French group said it would sell its €200m-worth of equity holdings in tobacco businesses immediately, and halt new investment into debt issued by the sector while letting its €1.6bn-worth of tobacco bonds reach maturity.
The move came just days after the industry's High Court appeal to prevent the implementation of plain packaging failed, throwing up an issue investors will have to factor in to the long-term prospects of the sector.
Peter Michaelis, head of investment at Alliance Trust Investments, said the decision by Axa was a "bold, positive move from the world's largest insurer and sets a strong example for other institutional investors".
He said tobacco killed roughly 6m people each year, meaning governments were introducing "more and more legislation aimed at curbing tobacco use globally".
He said his Sustainable Future funds had never invested in tobacco, given businesses in the industry didn't fit his criteria of being positively affected by structural change or making efficient use of scarce resources.
Adam Laird, passive investment manager at Hargreaves Lansdown, said there were always good and bad investments and "socially responsible investing is no different".
"Investors shouldn't put the ethical cart in front of the investment horse," he added.
The extent to how much this will change private investor exposure is questionable given the FTSE All-Share Tobacco index has risen nearly 350 per cent in the past 10 years, compared with the broader index's gain of 67 per cent.
Not only that, but this stance won't apply across the board at Axa Investment Managers. The fund manager does exclude tobacco in institutional mandates where this has been demanded by the client and its responsible investment funds also screen it out, but a spokesperson said it would not apply at a company level.
And renowned tobacco investor Neil Woodford's firm said it continued to see the industry as a "reliable and high-quality area". Fund manager Stephen Lamacraft said: "In a world of ultra-low interest rates, its dependable dividends are increasingly highly prized and still represent attractive yields."
That doesn't suggest the fund management industry will be getting out en masse any time soon.
