CalSTRS to Reconsider Prohibition of Tobacco Holdings

September 6, 2007 ( - An increasingly lucrative tobacco market could tempt the California State Teachers' Retirement System (CalSTRS) to lift its ban on international tobacco stocks, the Sacramento Bee reported.

The pension fund decided to dump their tobacco holdings in 2000 because they feared the industry would be tangled in costly lawsuits and undergo bankruptcies. The trustees of the fund then agreed to a seven-year ban on such holdings, which some estimate has cost retirees as much as $1 billion, according to the news report.

Officials told trustees of the pension fund on Wednesday that a fresh analysis of the legal and financial risks facing the tobacco industry could show a favorable investment atmosphere for international tobacco companies, but indicate a risky environment for their U.S. counterparts, according the Bee. That review is slated to take place as early as November.

Part of the reason CalSTRS may decide to change its policy about investing in the tobacco industry is because the high demand for such products in emerging markets such as China and India, CalSTRS consultant Allan Emkin told the newspaper. He also said that smoking was more socially acceptable in these countries.  

If the $169-billion fund does decide to renege on its ban on tobacco stock, it could prompt other pension funds to follow suit, potentially even reversing a social investing trend that has been in place for years, according to the Bee.