CalPERS once kicked the tobacco habit. Now it’s reconsidering
Sacramento, Calif. - The ongoing battle between CalPERS investing in the Tobacco industry has come to fruition this week as CalPERS is reopening a decade-long discussion about reinvesting in Tobacco after a 16-year ban.
CalPERS understands that tobacco, over the past 15 years, has been the 2nd highest performing industry with 900% in cumulative returns. However, we also know there are material, social and human costs associated with smoking behavior, and over 40,000 adults die each year in California from smoking.
Positives with investing in tobacco are a consistent cash flow and durability in down markets. Negatives include falling sales, ongoing litigation, increased taxation and additive bans.
CalPERS needs the money, but as a health insurer for more than 1.4 million public employees, retirees and their families, many are protesting this new consideration including many state officials. Wilshire Associates, one of CalPERS’ leading investment consultants, said in a report last spring the decision cost the pension fund about $3 billion. Under-funded and struggling with declining investment profits, CalPERS has to jump back into tobacco, the staff said.
In a letter sent by Treasurer John Chiang, he stated, “CalPERS should not put money into an industry that is so harmful to people’s health and so costly to the state when rising health care costs are factored into the balance sheet.”
CalPERS is currently engaging with subject matter experts in asset management as well as public health communities.
At the CalPERS Stakeholders meeting on December 15 2016, CalPERS presented three options.
1. Remove all of the tobacco investment restrictions.
2. Broaden restrictions & expand to third-party managers
3. Affirm; as is/keep status quo. Staff will recommend option
CSR is closely watching this issue and will report any updates.
CalPERS tobacco webinar via Youtube
Treasurer John Chiang's letter to California Public Employees’ Retirement System (CalPERS)