The British Heart Foundation, which researches links between smoking and heart attacks, has invested its employees' pension contributions in a fund that makes money from tobacco stocks.
An investigation by The Independent on Sunday has found that the foundation has placed more than pounds 6m of its pension assets in a fund that buys and sells shares in companies such as British American Tobacco, Gallaher and Imperial Tobacco.
BAT, one of the world's leading tobacco firms, makes Lucky Strike, while Gallaher produces Silk Cut and Benson & Hedges. A typical warning message printed on any cigarette packet reads: "Smoking causes heart disease".
When the chairman of the council of the BHF was told that his charity's pension fund traded in tobacco shares he was shocked and pledged to launch an immediate inquiry.
"I assumed that we steered clear of any direct investment in tobacco shares," said Professor Sir Keith Peters, a Cambridge academic. "As a rule the medical charities have tried to avoid any investment in the tobacco industry. This is something that I will take up with the council on Monday morning."
The news comes as the Government prepares this week to publish its long- awaited White Paper on tobacco which will lead to new controls on smoking.
The BHF has run education campaigns about the dangers of tobacco for years. Until recently it funded awards for good anti-smoking practice in the workplace, and it funds a quit smoking line, which has received more than 12,000 calls.
The charity invests its pounds 6,223,768 savings in a high-yielding pension fund managed by Scottish Widows. Unlike ethical pension funds, which screen out shares linked to cigarette production, the Scottish Widows Managed Fund invests in tobacco firms quoted on the London Stock Exchange. A spokesman for Scottish Widows said the fund used by the BHF "does have tobacco stocks" and had "no ethical criteria".
The company refused to disclose the value of tobacco holdings but said they fluctuated. "There are tobacco stocks in this fund. They will be featured in this portfolio. They are quite highly traded stocks," said a spokesman. "They [the pension fund managers] buy and trade them as they see fit. It is an actively managed fund. The percentages vary from week to week."
The BHF does not invest its ordinary donation income, spent on campaigning and research, in tobacco stocks. But it claimed it "was very difficult" for a small pension fund to avoid tobacco.
"The pension fund is in the power of the trustees investing through the Scottish Widows fund," said Michael Livingstone, finance director of the BHF. "I would have thought it was very difficult for a trust to manage its own investment policy and dictate where it invests."
But several other charities, including the Cancer Research Campaign, have specifically asked their pension fund managers not to invest in tobacco. And financial advisers say that, with the upsurge in ethical pension funds, it is easy to avoid buying shares in tobacco or arms.
"Tobacco stocks are commonly used by pension funds, they historically make profits. But they are possible to avoid if you want to," said Richard Hunter of Holden Meehan. "There are lots of ethical funds that screen them out."
Last year the BHF published a survey showing that few young people realise that smoking can lead to heart attacks. Smokers under 50 face 10 times the risk of non-smokers.
The British Medical Association said health charities should avoid tobacco investments on principle. "Charities campaigning against tobacco should certainly not invest in tobacco stocks," said a spokesman.
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