The council running Hertfordshire’s stop smoking services has made more than £20 million from tobacco investments over the last decade.

The Hertfordshire Pension Fund, administered by Hertfordshire County Council, has enjoyed large returns on its investments in companies such as British American Tobacco, a report has revealed.

The figure emerged as politicians are looking at ending the authority’s investments in tobacco in light of its new role as a public health organisation.

However a report by a financial consultancy, Mercer, highlighted concerns from the investment managers that pulling money out of tobacco could damage returns on the £380 million pension fund.

The report, which will go to the council’s pensions committee next week, was commissioned as councillors "seek to align (the council’s) portfolio of investments with the principles and intentions" of being a public health authority.

In April the council took over the county’s public health function from the now defunct NHS Hertfordshire primary care trust. Among the new roles the council is tasked with are reducing harm to residents’ health from smoking, drugs and alcohol.

In the report, Nick Sykes, European Director of Consulting for Mercer, said the council should only stop investing in tobacco if councillors were convinced a new more ethical strategy would be as successful as the current one.

He said: "The committee would, we believe, need to be confident that the returns and risks of such an investment approach would not be inferior to the current approach."

The report said that tobacco shares had been some of the best performing and stable investments for the pension fund.

Mr Sykes added: "Tobacco companies have performed well over the long periods of time, up to end 2013, partly because they have been relatively stable and very cash generative businesses able to withstand recessionary downturns much better than most."

The report also carried representations from one of the fund’s investment managers, Baillie Gifford, which produced figures showing that without tobacco shares the fund would be worth around £23,000,000 less.

Baillie Gifford said: "Whilst this illustration is necessarily theoretical it does at least help quantify the significance (around £20 million) of value added to the fund by tobacco investments."

"We believe that if investment in tobacco companies was precluded then this could significantly constrain our ability to add value".

Yet other fund managers, such as Jupiter, Allianz and JP Morgan, said excluding tobacco would not significantly constrain their ability to get a good return on investments.

Although Baillie Gifford was the only fund manager to raise concerns about pulling money out of tobacco companies, Mr Sykes highlighted it was the pension fund’s best performing.

The report also looked at the possibility of the fund running its investments along "ethical" lines.

However Mr Sykes said: "Ideally, there would be robust supporting evidence to demonstrate that ethically-based investment funds perform at least as well as funds with no such biases. Unfortunately, we do not believe that such evidence exists."