December 19, 2016

Stanton A. Glantz, PhD

CalPERS, against staff advice, votes to completely divest tobacco stocks; sees industry in decline

In 2000, motivated in part by the sea of litigation facing the tobacco industry, the huge California Public Employees Retirement System (CalPERS) voted to divest the tobacco stocks that it held directly.  Perhaps because they were so small, it did not instruct its outside investment advisors to divest their tobacco holdings.
Since then, the tobacco companies have soldiered on despite paying out hundreds of billions of dollars in settlements and continue to sued, most notably in Quebec, Canada and Florida.  Because nicotine is an addictive drug they have been able to raise prices faster than consumption has dropped and so continued to remain profitable.  Indeed, tobacco stocks are at an all-time high.
 At the same time, CalPERS’ tobacco holdings (through the outside investors) have grown to several hundred million dollars.
As a result, last summer the CalPERS Investment Committee (which consists of the whole Board of Directors) narrowly voted to reassess its 2000 decision to divest.  (The letter I wrote them last May urging them to leave the policy as it was is here; at the time I was not aware of the fact that CalPERS held tobacco stocks through their outside investment managers.)
In response, the CalPERS staff assembled a detailed analysis of the tobacco divestment issue, including obtaining additional analyses from their primary investment advisors, Wilshire Associates.  In order to ensure that the Investment Committee had the full range of options, they invited me to make a formal presentation to the Committee and worked with me to prepare the materials in a way that would most effectively address the Committee’s likely questions.  (My submission is here.)
At the end of this process, the staff recommended that CalPERS repeat the divestment policy.  (Their report and all the supporting documents, including the Wilshire reports and other submissions, is available as Item 5b here.)  
They also offered two other options, keep the current policy, and move to full divestment with or without including the broad market index funds that might include tobacco stocks.
In the end, they voted (on December 19, 2016) to divest all tobacco stocks, including the tobacco holdings in the index funds.  (The inclusion of index funds is a particularly big deal.)
The argument, made in my presentation, that carried the day is that, thanks to all the hard work of tobacco control advocates both in California, the US, and globally – particularly ongoing efforts to implement the FCTC and the positive effects that the FCTC has been having in stimulating tobacco control policies that are, in turn, cutting cigarette consumption – carried the day.
While we have done a lot of the work documenting these effects, the fact is that this was my first foray into the divestment world, that has different standards and guidelines than public health.  I particularly appreciated the help from Matt Myers at Tobacco Free Kids and Bronwyn King at Tobacco Free Portfolios in putting my presentation together, Yvette Van Der Eijk at UCSF, and the CalPERS staff for helping me understand what kind of information the Committee would find relevant.
The California public health community also made a strong showing in formal submissions and public comments at the hearing, mostly stressing the fact that the industry was in decline.  The Service Employees International Union and California Faculty Association, both of which represent CalPERS members, made it clear that they did not want CalPERS back in tobacco.  During the public comment period, Terry Brennand of Service Employees International Union, told the Committee, “I don’t want to go back to my retirees and tell them their retirement depends on companies that invest in disease and death.”
The Sacramento Bee story on the decision is here.

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