The University Record, October 15, 1997
CREF (College Retirement Equities Fund) owns almost $2 billion of tobacco stock, most of it in Philip Morris, a director of which sits on the CREF Board.
If you're a CREF participant, you have good reason to be uncomfortable with these investments, on both ethical and financial grounds. And you'll have the chance to do something about it this month when you receive your annual proxy mailing from TIAA-C REF.
On that proxy ballot is a proposal, sponsored by Dr. C. Everett Koop, former surgeon general of the United States, and myself, which asks that CREF divest itself, in an orderly fashion, of its tobacco-related investments. I urge you to vote for the di vestiture resolution. This position has been endorsed by former Harvard University president Derek Bok, the American Medical Association, the American Public Health Association and the Michigan Conference of the AAUP, among others.
Congress is being pressured to ratify a settlement of lawsuits against the tobacco industry--a settlement that many have criticized as too weak. TIAA advertisements refer to its participants as "over one million of the best minds in America." It's pa rticularly important for these "best minds"--for the intellectual leadership of our country--to show disapproval of the tobacco industry so as to strengthen the Congressional backbone and get a meaningful settlement.
Tobacco is a risky investment. TIAA-CREF management says that current prices of tobacco stocks already reflect these risks. But not all financial analysts agree. Moreover, it is not necessary to invest in tobacco to gain adequate returns.
The Pioneer Fund, which has been tobacco-free for 68 years, has had an average annual return over that period that exceeds the Standard and Poor 500 index by almost 3 percent a year. Harvard University earned a return of 33.9 percent on its U.S. stock portfolio for the 12 months ending June 30, 1996, wholly free of tobacco's ethical and financial hazards.
TIAA-CREF management has also argued that those who don't wish to invest in tobacco can choose its Social Choice Account. But this account does not serve investors who want only a stock fund, and those who want a fund that excludes only tobacco invest ments. The Social Choice Account invests in both stocks and bonds, and excludes many other kinds of stocks in addition to tobacco. (Parenthetically, the stock portion of the Social Choice Account has out-performed the CREF Stock Account over the last fi ve years, giving the lie to management's suggestion that a total restriction on tobacco investments would necessarily result in weakened performance.)
And the Social Choice option does not respond to the health and moral arguments against CREF'S investment in tobacco.
A recent World Health Organization-sponsored study reported that smoking caused 3 million deaths worldwide in 1990. In the United States, nearly 450,000 die every year from tobacco-related illnesses. If tobacco companies are to maintain their profits , they must replace the smokers who die--and they do this by targeting their advertising in this country to young people, ethnic minorities and women. Studies have shown that the industry's aggressive marketing has a major impact on children.
A vote for the Koop-Feingold proposal, asking CREF to divest itself of its tobacco investments in an orderly fashion, is a financially prudent and ethical choice.
professor emeritus of public health