CalSTRS Ponders Return to Tobacco Firm Holdings

A Sacramento Bee news report said the $172-billion pension system got rid of its tobacco stocks in 2000 for fear lawsuits, bankruptcies, and government regulations would torpedo the industry’s stock prices, but now believes it could have earned up to $1 billion if it hadn’t sold off the tobacco holdings. The California Public Employees’ Retirement System (CalPERS) likewise got rid of its tobacco stocks in 2000.

“In 2000 the marketplace was in such turmoil that the prudent action was to cut the potential risk,” said CalSTRS spokeswoman Sherry Reeser. “Now we’re in a completely different marketplace.”

If the CalSTRS board approves the move, it will cost about $4.5 million to move money from other investments, CalSTRS estimated. Fluctuations in tobacco stocks could add up to $5.7 million more as the market anticipates CalSTRS’ purchases.

Still, anti-smoking advocates are pushing for CalSTRS not to change course.    According to Paul Knepprath, vice president of government relations for the American Lung Association, “reversing CalSTRS’ policy would be making money off the investments in a product that kills more Californians than any other product – including teachers.”

For their part, CalSTRS officials say the fund has a responsibility to act in the best financial interests of its 812,000 members and their families. “The trustees are legally obligated to make decisions to the exclusive benefit of the members,” said Reeser. “It’s their sole responsibility to act in the best interests of California’s teachers and their families.”

However, state Treasurer Bill Lockyer issued a statement Wednesday blasting the proposal for CalSTRS to jump back into tobacco stocks.

“Now is not the time for STRS to invest in U.S. Big Tobacco.  In fact, now is the time for STRS to examine whether to divest its holding in international companies and completely withdraw from the tobacco business,” Lockyer claimed in his statement. “STRS adopted the current policy following thorough analysis and scrutiny.  As fiduciaries, we need to conduct that same level of due diligence before considering whether to abandon that policy.  We should conduct a thorough study of tobacco’s long-term profitability, and determine whether similar results could be attained in alternative investments.  In other words, can we fulfill our legal duty to teachers without investing in products that kill?”