A call has gone out for a rethink on how Essex County Council invests its money.

Yesterday Labour members of the council said they wanted the authority to take a more ethical approach to investments after it was revealed that £5million of its £3.6billion pension fund is invested in the shares of major tobacco companies such as Philip Morris, British American Tobacco and Japan Tobacco.

They say they want to explore alternatives to the current investment strategy which, they say, should be about using funds for the “public good”. But chairman of the Essex Pension Fund Board, councillor Rodney Bass, says investment decisions should be about maximising returns and should not be made on “moral grounds”.

Essex County Council Labour leader Julie Young has requested that the issue be discussed by a scrutiny committee at the council.

She said: “It’s hypocrisy that the council is investing £5m to support companies that are promoting smoking when it is also spending half that amount this year trying to encourage people to give up - it’s bizarre in the extreme.

“Councillors need to be more aware of where the council’s money is being placed because as a public body we have to show leadership. We can’t just invest where the most money will accrue - there has to be an ethical dimension. If not, where does it all end? Do we invest in arms companies?”

Mrs Young said the council should use its financial clout to invest in businesses that are helping people in Essex, such as local employers and banks that have ethical lending policies.

“In this way you get a multiplier effect where companies are benefiting the public good, as well as growing the pension fund,” she added.

But Mr Bass said there were no plans to alter the fund’s stance.

He said: “We employ professional people to chose the individual investments on our behalf. There is no conflict with our investment in tobacco companies, which today no longer deal exclusively in tobacco and are diverse international companies.

“We don’t invest on moral grounds or where do you stop? Every company has something about it that people aren’t happy with. Do we stop investing in BP because it has oil fields in Nigeria?

He added: “Tobacco companies are legal, they pay taxes to the government and comply with governance laws.

“Labour was in government for 13 years and during that time I didn’t see their Chancellor of the Exchequers turn down the taxes that came from the sale of cigarettes.”