The UKs National Employment Saving Trust (Nest) pension scheme has pledged to end all its investments in the tobacco industry within two years.
Stricter regulation for tobacco products, increasingly aggressive government action against the industry, and falling smoking rates globally are all behind the decision.
Nest said that tobacco is now a poor investment for its more than eight million members, with the scheme's exposure to the industry currently valued at around £40m.
"In our opinion, tobacco is a struggling industry which is being regulated out of existence," said Nest CIO, Mark Fawcett. "The tobacco investments we have will be gone within two years.
"We have not taken this decision lightly, but we don't think it makes sense to continue investing in an industry whose business model looks increasingly unsustainable."
Nest is a trust-based defined contribution workplace pension scheme that was set up by the government in 2008 to help facilitate the introduction of automatic enrolment.
The scheme already has a tobacco-free policy applied to its environmental, social and governance (ESG) Emerging Markets fund and Commodities fund.
However, tobacco will soon be screened out across Nest's entire portfolio, with the decision garnering support from its fund manager Amundi.
"Nest's decision to go tobacco-free is consistent with Amundi's ESG view to cap tobacco companies in our lowest two ratings before exclusion," co-head of EM fixed income, Sergei Strigo, said.
"We do not see attractive risk reward of the tobacco sector in the emerging market bond universe and the market share is fairly modest in the emerging market debt space.
"We have seen a significant interest in investments with an ESG anchor and Nest's announcement shows the organisation's determination to take the lead and set an example in this area."