The many reasons why CalPERS shouldn’t reinvest in tobacco

The California Public Employees’ Retirement System is considering reinvesting in tobacco companies. Former State Treasurer Phil Angelides says that would be a huge mistake.
The California Public Employees’ Retirement System is considering reinvesting in tobacco companies. Former State Treasurer Phil Angelides says that would be a huge mistake. Sacramento Bee file

In 2000, CalSTRS and CalPERS struck a blow for responsible investment by voting to dump their $800 million investment in tobacco companies. As state treasurer and a member of the pension funds’ boards, I led the effort to sell holdings in these companies, whose products and deceptive practices have addicted, poisoned and killed millions of people.

The decision to divest from tobacco was not only right from an investment and ethical perspective, but also a key element in California’s successful multi-front attack on tobacco that has reduced health costs by $7 billion a year, saved 1 million lives and resulted in the nation’s second lowest per person rate of smoking.

On Monday, the CalPERS Investment Committee will vote on the recommendation by staff to once again embrace investment in tobacco. CalPERS should resoundingly reject this move and close a loophole that stunningly has allowed CalPERS investment managers to buy $547 million in tobacco securities, contrary to the intent of the divestment decision.

A decision by CalPERS to increase its stake in tobacco companies would make a mockery of all that we tell our children about the dangers of tobacco products – in effect saying the state wants them to smoke to boost CalPERS investment returns.

As importantly, it would be a poor investment decision on a number of fronts.

First, because CalPERS invests around the globe and across all industries, its long-term financial stability depends most on a healthy economy, not one undermined by predatory corporate practices that hurt our people, degrade our environment or produce long-term economic damage. Tobacco costs Californians more than $27 billion annually in health costs and lost productivity. In a world of infinite investment choices, there are more than ample opportunities for CalPERS to make investments that provide positive returns without creating such significant collateral damage.

Second, the analysis by CalPERS consultants that tobacco divestment has cost as much as $3.7 billion in earnings is fundamentally flawed because it failed to examine whether and how CalPERS could have made investments with an acceptable risk return profile to replace tobacco, which represented only about 0.3 percent of its portfolio at the time of divestment. There is no question that suitable investments to replace the returns generated by tobacco were and are available.

Third, it makes no sense for CalPERS to invest in an industry that imposes enormous costs on our state’s taxpayers, upon whom it depends for its financial stability. This year, taxpayers will contribute $4.8 billion to help CalPERS meet its financial obligations at the same time that Medi-Cal will spend an estimated $3.5 billion for health costs related to tobacco. How can CalPERS justify socking it to the taxpayers who support it?

The same arguments advanced against divesting from tobacco were raised against divestment from companies doing business in South Africa during the brutal apartheid regime. Big business and big finance have consistently fought divestment efforts that strike at ill-gotten big profits and big bonuses.

California saw through those arguments in the 1980s, and our state and the world were better for it. As the nation’s largest public pension fund, CalPERS has a special responsibility to strive to invest in ways that meet its fiduciary obligations, but also strengthen our economy and society. If CalPERS reverses course now, it will irreparably damage its credibility as a responsible investor and at enormous cost to California.

Phil Angelides, California state treasurer from 1999 to 2007, served on the board of the California Public Employees’ Retirement System. He can be contacted at