The California Public Employees’ Retirement System is considering a staff proposal this month that could lead to reinvestment in tobacco companies. It would also effectively foreclose divestment from companies that produce fossil fuels and other deadly products. If enacted, the proposal would “forbid CalPERS, in the management of its portfolios, from sacrificing potential investment performance or diversification for the purpose of achieving ancillary goals unrelated to the risk-return profile of the portfolio.” It envisions a continuation of the long-ineffective policies of “constructive engagement” with companies that harm public health and the environment.
In fact, this proposal runs directly counter to the Environmental, Social, and Governance (ESG) principles CalPERS has adopted, and for which it has recently been praised by the sustainability coalition CERES. It is a major step backward. For a fund that proudly touts its ESG principles—a fund that includes the word Public in its name—it is difficult to imagine a policy change more harmful to the public.
CalPERS claims that it has lost as much as $3 billion in potential investment gains since divesting from tobacco stocks in 2001. The claim is based on a report by CalPERS consultant Wilshire Associates that does not factor in the effects of widespread tobacco use on public health. It does not even consider the ruinous financial effects on CalPERS’ own healthcare benefit program. As California State Controller Betty Yee said, “It’s incongruent to put our money back into tobacco. It runs counter to the health and welfare of CalPERS members.”
Real fiduciary responsibility
And fossil fuels are more dangerous to public health than tobacco, in fact more inimical to human survival. This proposed policy change ignores that perspective, viewing fiduciary responsibility through the narrow lens of short-term financial gain and loss. But CalPERS must take public welfare into account when making investment decisions, as its ESG policies dictate. Social responsibility is an integral aspect of fiduciary responsibility.
Even in a narrow financial sense, however, CalPERS has made the wrong decision by refusing to divest from fossil fuels. Over the last fiscal year, the fund lost $3 billion by holding on to its fossil fuel stocks, an amount equal in a single year to the claimed tobacco divestment losses over 15 years.
What you can do
The CalPERS Investment Committee is meeting on April 18. We urge readers to write to CalPERS before that time and object to this retrograde proposal. If you’re a CalPERS member, be sure to mention that fact, stressing that you do not want your pension money to be associated with tobacco companies or fossil fuel companies. If you’re not a member, let them know, as a concerned citizen, that you do not want California public funds to be used in such an anti-social way.
Also come join us at the meeting in Sacramento, if you can. It’s important to remind CalPERS that divestment is a powerful tool to wield for the public good.