On April 18, the Investment Committee of the California Public Employees Retirement System met to discuss a proposal to reverse the pension system’s 15-year-old ban on tobacco investments. Each member of the CalPERS board of administration sits on the Investment Committee, and the divide on the board was stark. At one point, a motion to end the whole discussion on investing in tobacco failed by a single vote. The majority on the committee ultimately elected to defer the decision to reinvest in tobacco for 18 to 24 months. In the meantime, CalPERS will engage in a lengthy effort to reach out to stakeholders while also developing and analyzing potential investment strategies for tobacco.
CalPERS is making a colossal mistake. Banning investments in tobacco was the right call 15 years ago, and even taking a single step toward overturning that ban is the wrong call today. In 2000 and 2001, CalPERS decided to drop its tobacco holdings because it anticipated those stocks were going to decline sharply in value. CalPERS analysts looked at the shrinking number of new smokers, the increasing number of former smokers, and a prevailing anti-smoking attitude throughout California that formed the basis for constant legislative and legal challenges to the tobacco companies — and CalPERS concluded that Big Tobacco has big problems down the road.
That analysis is as true today as it was 15 years ago. Now, unfortunately, it’s also true that foreign markets are still a major source of revenue for Big Tobacco. Some parts of the world just haven’t caught up to California’s anti-smoking attitudes, and tobacco companies continue to profit hand over fist from those markets.
I understand that CalPERS is in a tough spot. The remaining liabilities in the pension fund need to be filled, and one round of rate hikes already provoked a strong reaction from local governments and state budget writers. From that vantage point, it’s easy to see why they are considering an “all options on the table” approach to tobacco stocks. But some options shouldn’t be taken, and Big Tobacco is right at the top of that list. CalPERS isn’t a typical investment fund. It’s also one of the largest health-care providers in the entire country. When it comes to tobacco investments, those dual roles are irreconcilable. This isn’t a simple case of robbing Peter to pay Paul. It’s selling Peter out for profit and then having to pay his medical bills when he gets sick as a result of it.
CalPERS quit tobacco once, and for very good reasons. Those reasons are just as valid today as they were 15 years ago, and there is no good reason to reverse the ban. The Investment Committee missed a powerful opportunity to send a signal that the greed and recklessness of tobacco companies won’t be rewarded. It’s up to all of us who are working hard for a smoke-free California to make sure that the next time this comes up for a vote, CalPERS gets it right.
Fiona Ma is chairwoman of the state Board of Equalization, which is responsible for collecting tobacco taxes. She previously served in the state Assembly.