Christopher Palmeri wrongly blames “socially responsible investing” for CalPERS and CalSTRS avoiding companies selling tobacco and those doing business in repressive regimes (Business Week, August 11, 2008, p. 54). Claiming that CalPERS “left $400 million on the table” by screening out investment in China, Colombia and other countries, and that CalSTRS forfeited $1 billion by avoiding tobacco stocks, Palmeri nevertheless admits both pension funds still strongly outperformed the S & P!
True, CalPERS’ “double-bottom line” initiative, launched in 2000 by then-State Treasurer Phil Angelides to invest more in California’s real estate, has been hurt by the sub-prime mortgage meltdown. Angelides responded that during his tenure both funds posted record results and boosted assets.
The bottom line is political, with both funds targets of conservative attacks from many who are ideologically opposed to the idea of “socially responsible investing.” Pressure on CalSTRS to allow investments in tobacco companies may force their board to allow such death-dealing and sickness-promoting “investments.”
However, socially responsible investing has now become mainstream, as study after study by Innovest Strategic Value Advisors and other research firms show that this type of longer-time-horizon investing equates with better management and consistently higher returns.
Pension funds in particular, with their long time horizons to provide for their beneficiaries’ retirement, should not, in any case, be judged by the short-term results beloved of Wall Street and day traders.
Wall Street has become adept at shifting risk, whether in structured investment vehicles (SIVs), CDOs or CDSs (Credit Default Swaps) now up to $62 trillion outstanding. Shifting risks and costs of death and disease due to tobacco-use to the taxpayer is far too short-sighted for pension fund managers. CalSTRS should resist pressure to invest in tobacco companies. Socially responsible investing and the drive for more ethical markets is reforming 21st century capitalism worldwide.