Business & Real Estate
By Dale Kasler
April 4, 2016 – 9:08 AM

  • Decision to sell stocks in 2001 has cost $3 billion, consultant says
  • Pension fund undertakes broader look at divestment policies
  • Anti-smoking group criticizes potential move

It’s been a hallmark of CalPERS policy for 15 years: no tobacco stocks.

Now the California Public Employees’ Retirement System is considering ending its 15-year-old ban on tobacco company investments after a consultant said the ban has cost the pension fund roughly $3 billion in lost profits.

CalPERS’ deliberation raises questions about public pension funds’ adherence to principles of socially responsible investing. Besides holding considerable investments in health care stocks, CalPERS also is a major provider of health insurance to its 1.6 million members. It has been a strong proponent of reducing smoking.

At the same time, CalPERS is significantly underfunded, has been imposing rate hikes on state and local governments in recent years and is looking at ways of improving its investment performance.

“That is a rock and a hard place,” said James Hawley, a St. Mary’s College professor who studies institutional investors’ fiduciary duties. He said other institutional investors are constantly trying to reconcile fiduciary duties with their desire to be socially responsible.

“This is hardly a unique CalPERS problem,” he said.

News that CalPERS is rethinking the tobacco ban stirred immediate controversy among anti-smoking groups Monday.

“We applaud CalPERS’ previous decision to divest from tobacco companies and are disappointed with any discussions to reverse this policy,” the American Lung Association in California said in a prepared statement.

The reconsideration of CalPERS’ tobacco prohibition comes as part of a broader re-examination at the big pension fund’s divestment policy. CalPERS spokesman Joe DeAnda said Monday that the fund hasn’t specifically focused on any one investment category, but the tobacco ban looms as potentially the largest issue.

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