Investing in Tobacco Companies is Harmful to Health, State�s Bottom Line
The nation�s biggest public pension fund, once again, is embroiled in controversy over whether or not to invest in companies that manufacture and market legal but often deadly cigarettes, cigars and other tobacco products.
The dust-up comes 16 years after the board of the approximately $300 billion California Public Employees� Retirement System (CalPERS) voted to sell most of its investments in tobacco companies.
Concerned that it could be delinquent in meeting its legal responsibility to get the best possible return on investments, the CalPERS board last month voted to study the costs and benefits of buying and holding stock in about 20 tobacco-related corporations. The study is expected to take six to nine months.
State Treasurer John Chiang adamantly opposes the idea. The Treasurer, a CalPERS board member, stresses that there is no sound financial or moral reason for reversing the divestment decision that went into effect in 2001.
�Investing in tobacco companies is harmful to public health and to our fiscal bottom line,� Chiang said. �Smoking causes addiction, disease and death. No public pension fund should associate itself with an industry that is a magnet for costly litigation, reputational disdain and government regulators around the globe.�
The specter of potentially lengthy and expensive lawsuits -- many by state governments -- motivated the CalPERS board to order the sale of the fund�s tobacco stocks, valued at an estimated $525 million, in October 2000.
Crist�s dire forecast was not realized. A fall 2015 report by a CalPERS consultant concluded that the 2001 tobacco divestment decision actually had a negative impact on the pension fund�s return on investments.
�The impact of the Tobacco Exclusion over the 14 years it has been in place is between $2.08 billion and $3.04 billion by the end of 2014, depending on the methodology used,� the consultant, Wilshire, told board members.
"Any decision to invest or not invest in tobacco companies should consider far more than maximizing earnings for CalPERS� 1.8 million active members, retirees and their families," Chiang said.
The board needs to think about the effects of smoking on their members� health, the Treasurer added.
�Investing in tobacco companies sends a message that California supports an industry that richly profits by selling a product that often results in disease and death when used as directed, Chiang said. �Smoking is the single leading cause of preventable death in this nation and this state, robbing 40,000 Californians of their lives annually.�