BYD Confirmed to Exit E-Cigarette Business Amid ESG Concerns

Key points:

1. The Asian Corporate Governance Association (ACGA) confirmed that BYD will exit the e-cigarette business.

2. Investors were concerned that the e-cigarette business could affect BYD's ESG attractiveness. The European Securities and Markets Authority (ESMA) introduced new regulations prohibiting Environmental, Social, and Governance (ESG) funds from investing in the tobacco industry, which could potentially exclude BYD.

3. BYD's withdrawal from the e-cigarette business is attributed to European Union regulations.

An initiative involving investors has confirmed that Chinese electric vehicle manufacturer BYD has exited the e-cigarette manufacturing business, Responsible Investor reported.

This initiative began in 2023, when BYD contacted 20 institutional investors from the ACGA. The group is led by Nana Li, head of Sustainable Development and Governance at Impax Asia Pacific, and Karine Hirn, Chief Sustainable Development Officer at East Capital.

Responsible Investor points out that BYD's involvement in the e-cigarette business has been a key topic of discussion. 

Investors are concerned that this business may lower BYD's attractiveness among ESG investors. This issue has become particularly important after the ESMA introduced new regulations. 

Under these regulations, funds with names that include ESG or other sustainability-related terms are prohibited from investing in companies in the tobacco or weapons industries.

A report by the Morningstar, American investment research firm, in June 2024 revealed that BYD is one of the top ten stocks with the highest financial risk exposure in ESG funds, and these stocks must be divested in order to comply with ESMA regulations. 

Data also showed that 94 ESG funds hold shares of BYD, with a total financial risk exposure of $835 million. Morningstar believes that BYD's tobacco business is one of the reasons that could lead to exclusion from admission criteria.

In July, ACGA sent a letter to BYD explaining how the ESMA rules would impact the ability of European ESG funds to invest in the company.

This week, Nana Li announced that ACGA received confirmation of BYD's withdrawal from the e-cigarette business. BYD did not respond to requests for comment.

Li believed that the rules of the European Union had an impact on this outcome.