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The Teachers' Retirement Board finds that:
It is the fiduciary responsibility of the Board of the
State Teachers' Retirement System to discharge its responsibility
in the interest of the participants and beneficiaries and
for the primary purpose of providing benefits to participants
and their beneficiaries and defraying reasonable expenses
of administrating the System; the investment policy of the
System should reflect and reinforce this purpose.
Public retirement systems operate in a unique and complex
social-economic milieu, providing for substantial disclosure
of their operations and investment activity and placing
them in a position where they should be above that of the
private sector in social responsibility activities.
The System's responsibility extends to its participants
and beneficiaries and to the general public. In addition
to its fiduciary responsibilities to its members, the Board
has the social and ethical obligation to require that corporations
in which securities are held meet a high standard of conduct
in their operations.
The act of investment in the securities of a corporation
predominantly reflects a judgment that the ownership will
produce a rate of return which will make it an attractive
investment. While not outwardly signifying approval of all
of a company's policies and products, it is possible however
that such investment may be interpreted as an indication
of the shareholders approval or support of all of a company's
policies and products.
The System is a large investor and as such, is in a position
to exert influence on the corporations in which it has invested.
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Consistent with these findings, the System establishes
the following principles to govern the development of a
responsible investment policy:
A. Preservation of Principal and Maximization of Income
The preservation of principal and maximization of income
will clearly be the primary and underlying criteria for
the selection and retention of securities.
B. Non-Economic Factors
Non-economic factors will supplement profit factors in making
investment decisions. Non-economic factors are defined as
those considerations not directly related to the maximization
of income and the preservation of principal. The consideration
of non-economic factors is for the purpose of ensuring that
the Retirement System, either through its action or inaction,
does not promote, condone or facilitate social injury.
C. Social Injuries Defined
Social injury will be said to exist when the activities
of a corporation serve to undermine basic human rights or
dignities. Basic human rights and dignities include, but
are not limited to:
- Equal Employment
Equal employment opportunity, including: fair and equitable
recruitment and hiring, equal wages and benefits for equal
and comparable worth, fair and equitable promotional and
training opportunities, and the right to organize and
join representative trade unions and associations if a
majority of the employees so elect.
- Housing
Equal access to safe and decent housing.
- Basic Services
Equal access to basic services including medical care,
transportation, recreation and education.
D. Corporate Practices
Social injury may also be said to exist when the Board,
having followed the procedure set forth in Section IV.C.2,
perceives that it is the prevailing belief of the members
of the Retirement System that the practices of a corporation
result in undesirable side effects for others, and that
the side effects are grave in nature. Side effects which
may be deemed grave in nature shall include, but not be
limited to:
- Environmental
Practices which are known to endanger the environment,
subject to current federal, state and local law, including:
- Unsafe nuclear waste disposal;
- Ineffective or inadequate pollution control; or
- Improper use of chemicals and contaminants; or
- Any practice which directly or indirectly endangers
human health or the environment.
- Suppression of Human Rights
Practices which result in the suppression of human rights
including:
- The sale of weapons and technology to governments
known to engage in the systematic suppression of human
rights; and
- The sale or purchase of goods from countries known
to employ forced labor.
- The sale or purchase of goods, or the rendering of
services that the corporation knows or can reasonably
foresee will be used in a manner that denies or suppresses
human rights in violation of international law or the
Geneva Conventions where the company has taken reasonable
steps to ensure that the services would not be used
in that manner.
- Human Health
Practices which endanger human health including:
- Sale and distribution of known contaminated products;
- Sale and distribution of therapeutically ineffective
or dangerous drugs; and
- Purchasing goods from or selling goods to companies
known to disregard worker safety.
- A company should not be held responsible for the infliction
of social injury merely by virtue of its agreements
or relationships with other (independent) entities engaged
in socially injurious activities.
E. CalSTRS Involvement
The extent of the responsibility of the System to engage
in activity for the prevention, reduction, and elimination
of social injury should be determined by:
- The number of shares held in the corporation;
- The gravity of the social injury.
In support of the aforementioned principles, the System
sets forth the following guidelines for social responsibility
in investments.
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In selecting new investments for the System, the Board
adopts the following guidelines for both domestic and international
investments.
A. Investments shall not be selected or
rejected based solely on social responsibilities.
B. Social factors shall be taken into
consideration to the extent that such factors bear on the
financial advisability of the investment; e.g., not investing
in a corporation whose conduct has had a demonstrated negative
effect on the corporation’s financial viability.
C. Generally, social criteria, to the
extent available, should be considered after all financial
criteria have been satisfied.
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A. Proxy Voting
- The System has a duty to cast its votes on all proxy
issues related to companies in which it holds securities
or to abstain with written notification to the company
involved on any proxies it returns. In cases of abstention,
where an important social responsibility issue is raised,
the System should provide an explanation of its action.
- The System should vote its shares in favor of resolutions
which, if implemented, would prevent, reduce, or eliminate
social injury as defined above. The System should oppose
resolutions which cause or facilitate social injury.
- If a resolution places a company at a substantial disadvantage
with respect to its direct competitors who are equally
guilty of inflicting social injury, the System should
ascertain whether the company in question has made reasonable
effort to induce voluntary industry-wide compliance. If
it is determined that this course of action has been pursued,
the System should abstain. In the event that a corporation
has not initiated such activity, the explanation accompanying
abstention should include an exhortation for compliance.
- The State Teachers' Retirement System, as a major corporate
shareholder, will actively vote its proxies to elect corporate
board members who share the interests and philosophy of
the System.
- The System should routinely monitor corporate practices
for compliance with the Board's criteria, i.e., monitor
corporate compliance with the Sullivan principles.
B. Other Shareholder Rights
- For the purpose of insuring that a company may be made
aware of any policies, procedures, or products of which
the Board does not approve, and for the purpose of prevention,
reduction or elimination of social injury, the Board may
initiate action to supplement the responsible voting of
proxies including but not limited to: (a) correspondence
with the company, (b) meet and confer sessions with management
or other stockholders, (c) entering into agreements with
management or other stockholders, such as making provisions
for reporting and other monitoring activities, and (d)
the initiation, when determined necessary, of shareholder
proposals.
C. Procedure
- Responsibility for the implementation of social responsibility
guidelines is delegated to the Board's Investment Committee.
Ultimate authority and responsibility rests with the Board.
- To assist the Board in determining whether social injury
exists, the Board should:
- Upon request, permit the presentation of relevant
testimony by members of the System and members of the
general public during Board meetings;
- Establish contact with appropriate regulatory agencies,
such as Equal Employment Opportunity Commission, Environmental
Protection Agency, Occupational Safety and Health Agency,
Nuclear Regulatory Commission, Securities Exchange Commission,
and others which are covered by laws of the United States
Government or the State of California;
- Contact qualified persons representing parties affected
by the corporate practice in question.
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A. When the remedies provided in B (above)
indicate that there is little or no possibility of obtaining
from a company a commitment to pursue activities designed
to correct practices or policies involving grave social
injury, the Board should consider either making no new investments
or divestment if consistent with sound investment practice.
Factors contributing to such a determination include, but
are not limited to:
- Repeated refusal by management and a majority of stockholders
to support shareholder proposals which the Board feels
are necessary to insure socially responsible behavior;
- Failure of management to comply with Board requests
for the disclosure of economic or non-economic information
important to making investment decisions, in particular,
information pertaining to company practices and policies
which might result in social injury.
B. A company committing social injury
should not be subject to consideration for divestment if
it is determined that the company is engaged in socially
beneficial activity, where the resulting benefits are held
to be greater than the injury. However, it is not the intention
of this paragraph to imply a condonation of the social injury,
nor does it preclude the exercise of shareholder rights
in an effort to reduce such injury.
Adopted by the Teachers' Retirement Board June 16, 1978
Revised by the Teachers' Retirement Board September 24,
1982
Revised by the Teachers' Retirement Board April 27, 1984
Revised by the Teachers' Retirement Board April 21, 1989
Revised by the Teachers' Retirement Board January 9, 1990
Revised by the Investment Committee November 5, 1997
Adopted by the Teacher's Retirement Board November 6, 1997
Revised by the Subcommittee on Corporate Governance November
3, 2004
Adopted by the Investment Committee November 3, 2004
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