Despite the toxic politics, CalPERS’ leaders on Monday stuck with a plan that could lead the fund to jump back into tobacco investments.
And they sped up the timeline for considering whether to put pension money into the industry again.
A proposal by Treasurer John Chiang that would have ended discussion about resuming such holdings died on a 6-6 vote by the fund’s investment committee.
Meanwhile, retirees, public health advocates and environmental group representatives said the California Public Employees’ Retirement System should continue to shun tobacco or risk damaging its image and the public’s health in exchange for profit.
“If the only thing that matters is the money, then CalPERS should not only reinvest in tobacco but also encourage its beneficiaries to smoke,” said Sandy Emerson, who made her remarks to the committee as a representative of Fossil Free California.
An added plus for CalPERS, she sarcastically noted: “This would have the additional effect of reducing the number of beneficiaries.”
No one on the board or in the audience spoke in support of resuming tobacco investments.
Fifteen years ago, CalPERS sold nearly all its holdings in the industry, anticipating that a decline in tobacco use and court battles at the time would hamper investment returns. Meanwhile, the sell-off aligned with CalPERS’ goals for socially responsible investing and squared with its aim to promote healthier lifestyles among government workers and retirees in the system.
Since then, however, the industry has remained profitable. Tobacco divestment has cost CalPERS a little more than $3 billion in lost profits, according to a recent report by an outside consultant. And while the $292 billion fund has shed holdings in other sectors – such as firearms, for example – combined losses from dumping non-tobacco stocks is less than tobacco-divestment losses alone, according to CalPERS.
The board in April commissioned a staff report within 12 to 24 months on CalPERS’ divestment policies across the board, including tobacco. But after that meeting, Chiang asked his fellow board members to reconsider the order and to keep tobacco on the fund’s forbidden investments list.
On Monday, Chiang’s representative on the board, Grant Boyken, made a motion to rescind the April staff report vote. The motion failed with J.J. Jelincic, Priya Mathur, Theresa Taylor, Betty Yee, Rob Feckner and Bill Slaton voting against. Boyken, Dana Hollinger, Ron Lind, Michael Bilbrey, Richard Costigan and Katie Hagen (representing CalHR Director Richard Gillihan) supported rescinding the study and leaving the fund’s divestment policy as is.
Investment Committee Chairman Henry Jones ordered that the report’s deadline be advanced to no more than nine months and expanded its parameters to include tobacco holdings in portfolios managed by outside investment firms. Those stocks totaled about $75 million in fiscal 2014-15, according to CalPERS’ last annual financial statement, including roughly $58 million in British American Tobacco.
After Monday’s committee hearing, Jim Knox of the American Cancer Society in Sacramento said, “Obviously, we’re disappointed.”
However, the board’s decision to study divestment will lead to another debate, Knox said, when the study is completed and the board must decide whether to stay out of tobacco. CalPERS has said it will invite all interests to weigh in.
“It’ll be interesting to see what that means,” Knox said.
CalPERS’ decision to revisit its tobacco divestment policy comes at a politically awkward moment.
Earlier this month, Gov. Jerry Brown signed legislation that raised California’s smoking age to 21 and put new state restrictions on the burgeoning electronic cigarette industry.
And the same day that CalPERS’ investment committee talked turkey about tobacco, a ballot proposal to add a $2 tax on a pack of cigarettes reached the signature threshold to go before voters in November. The new revenue would fund Medi-Cal, the state’s federally subsidized medical program for low-income Californians. Billionaire Tom Steyer is backing the measure, which will undoubtedly draw heavy fire from the tobacco industry.
CalPERS’ decision to review the issue, fund spokesman Joe DeAnda said, “should not be seen as an indication of a desire to reinvest in tobacco.”